Shake Shack, Inc.

Greetings, and welcome to the Shake Shack first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anna Lee Luggett, Director of Investor Relations and FP&A. Thank you. You may begin.

Thank you, and good morning, everyone. Joining me for Shake Shack's conference call is our CEO, Randy Garuti, and CFO, Katie Fogarty. During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliation to comparable GAAP measures are available in our earnings release, in the financial details section of our shareholder letter. Some of today's statements may be forward-looking, and actual results may differ materially due to a number of risks and uncertainties, including those discussed in our annual report on Form 10-K called on February 23, 2023. Any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change. By now, you should have access to our first quarter 2023 shareholder letter, which can be found at investor.shakeshack.com in the quarterly results section or as an exhibit to our 8K for the quarter. I will now turn the call over to Randy.

Thanks, Annalie, and good morning, everyone. 2023 is off to a strong start with first quarter results ahead of our expectations as we grew sales, expanded margins, and remained disciplined on expenses across the company. including G&A and CapEx investments, as we execute against our strategic priorities. We generated total revenue of $253 million, up 25%. Average weekly sales of $73,000, up by more than 7% year over year. System-wide sales grew 28% year over year, to nearly $395 million, as our licensed business globally posted our strongest quarter ever. Same-shack sales were up 10.3%, with positive traffic of 4.8%. And as we've shared, the team has maintained an intense focus on growing profitability, and we executed on that goal to bring restaurant margins up to 18.3%, a 310 basis point improvement over last year. We opened six company-operated and seven licensed shacks in the quarter. We have 25 shacks currently under construction, on our way to opening about 40 new company-operated shacks this year. Based on our increased pipeline and strong execution in our domestic and international license business already this year, We're raising guidance today to 30 to 35 shacks expected to open throughout 2023. According to date, solid momentum has continued, with AWS in fiscal April rising to 77,000, same-shack sales about 4%, and tracking well towards increasing our shack-level margins back above 20%, which Katie will talk more about in a bit. Now I want to provide an update on how we're executing our strategic plan. We're really proud of the team's progress in each of our priority areas. First, we're focused on recruiting, rewarding, and retaining a winning team. It's been a challenging few years for staffing in our industry, and this quarter, our team showed solid progress. We believe the macro hiring environment, while still demanding, has begun to improve. And with that backdrop and the new tactics of our people team, we've improved application flow, turnover, and retention since last year. Our increased pay, benefits, and opportunities for leadership development at all levels are resonating with our teams. There's no question this will translate to better performance overall. Each of these metrics contributes to better throughput, optimizing sales, and increasing our operating profit, while building a bench of talented leaders to achieve our growth goals and provide real advancement for the lives of our team members. Our work here is never done, and we plan to double down on these efforts to expand on this improvement. Our second priority is our relentless focus on the guest experience. With the people improvements I just mentioned as a strong foundation, we can better execute our core operations focus, menu strategy, and digital tools. This quarter, we captured strong performance and guest satisfaction with our premium white truffle menu. At our Innovation Kitchen and throughout our supply chain, we are constantly testing new and exciting menu items for our guests that highlight our commitment to premium ingredients and the kind of menu items that only happen at Shake Shack's. We have a strong lineup through the remainder of the year. We're continuing on a path of leading with innovative culinary offerings that use premium ingredients to drive frequency and new guests. This week, we launched our new Veggie Shack nationwide. It's a delicious, only at Shake Shack, burger patty packed with real food, full of mushrooms, sweet potatoes, carrots, farro, quinoa, topped with American cheese, crispy onions, pickles, and shack sauce. We also launched our non-dairy frozen custard shake nationally. In addition to our longtime guest favorite, Shroom Burger, we believe these options can target current guest frequency and capture new guests over the long term. This summer, on top of the success of our premium lemonade category, we'll be launching caffeinated shack lemonades for those guests looking for our classic lemonades with an extra zip. Stay tuned for more to come this year. And just one more fun brand note. Our team continues to execute dynamic chef collaborations, regional marketing programs in our local communities, and attract valuable national media attention. Last month, we teamed up with Universal Studios as they took over our Brooklyn shack for the launch of the Super Mario Brothers movie premiere. The event was emceed by Chance the Rapper and helped kick off the extraordinary success of the movie. The team continues to target national media partnerships as we look to grow our brand and footprint. Third, we're executing on a targeted development strategy for growth. As we've discussed and you're seeing around the industry, Persistent inflation in construction costs, permit delays, and equipment availability continue to impact our openings and our near-term returns. But the team is making significant progress on accelerating pipeline, prototype design, and new shack openings. Year-to-date, we've opened nine shacks with strong sites in Walnut Creek, Portland, Oregon, Jersey City, and more. I want to take some time today to share some of the work the team is doing to improve our returns on shack builds over the long term. This year we expect to open up 15 drive-thrus. And now with this higher mix of drive-thrus and ongoing inflation pressures, we do expect our build costs for the class of 23 to be somewhat above last year's average. While our core shacks are impacted by inflation, most of that system average cost increase is due to our commitment to drive-thrus that cost more to build than our traditional core shacks. So what are we doing about it? Well, since the drive-thru project has begun, We've learned a lot, and we are honing in on cost reduction elements of the design. We're refining templates for efficient and more standardized operations. This year, we expect to reduce drive-through costs by about 10% versus 2022. And in future years, we'll be rolling out new and tighter prototypes for drive-through and core shacks, focused on combining the great shack experience we're known for at a reduced cost and ability to scale. Long-term costs will vary depending on sites and geographies that we target. As an example, next year we may spend more on certain drive-throughs in the New York Metro and California markets, but we correspondingly expect a strong return on higher sales there as well. We're working on our next generation of designs with an aim to execute on additional cost-saving measures. We're going to optimize the size of the shack box, how many seats we need, standardized kitchen designs, and building materials that can reduce total costs of future shack classes. But this work takes time to roll through the system. And while you won't see an immediate impact this year, this intense focus, balanced portfolio of shack types, and new next generation prototypical designs will add up to more savings over time on our cost to build and overall returns. We're committed to further improve this part of our economic model, and we're really excited about what's ahead. But regarding the license business, We saw extraordinary growth and execution in the first quarter, and we expect that trend to continue. Our team has performed exceptionally well in China and our domestic business continues to grow. We continue to expand our global footprint as only the Shack brand can do. We're unlocking new regions and formats with the introduction of development agreements in Israel and Canada, as well as new Shacks opening in roadside travel plazas throughout the US. I was fortunate to join our teams on a multi-country Asia trip this spring. I had the privilege of welcoming our first shack in Bangkok to an incredible crowd with strong sales since opening. I had the chance to connect with our teams in mature markets such as Singapore and Japan, where our growth continues, and to plan ahead for our upcoming opening in Malaysia and potential other markets in Southeast Asia. There's a lot that's probably underappreciated and undervalued about this part of the shack story and our strategy. My hope is that our shareholders take the opportunity to visit some of our international sites. We take great pride in the amazing brand we share globally, and I'm really thankful for our team members around the world continuing to execute and standing for something good wherever SHAC burgers are found. Our fourth priority is being even more profitable in our SHACs. Ahead of our own expectations, we delivered 18.3% SHAC-level off-profit this quarter. We showed strong progress on our key initiatives, including driving sales, especially in our own channels. labor efficiencies, off-premise profitability, and managing controllable supply chain and other operating expenses. There's still much work to do, and there is risk around the macro environment and continued cost inflation this year. But with the plan the team has put in place, we're guiding SHAC-level op profit of 19% to 20% for the full year, and we see the opportunity to return over 20%. Katie will share more details on the work here in a bit. Finally, the fifth pillar of our plan is we build an enduring business. We are committed to investing with discipline. We're deploying capital towards strong returns in four main areas. We're going to build shacks, update our current shacks, invest in our digital infrastructure, and structure our home office capabilities to further support our restaurants. We remain confident that we can meet or exceed our long-term unit cash-on-cash return targets over time. by growing sales and profitability and lowering development costs, all of which we emphasize in our strategic plan. We've got the right plan in place. We're pleased to see progress taking root. I'll now hand it off to Katie to share more about the details of the quarter and expectations for the rest of the year.