Shake Shack, Inc.

Welcome to the Shake Shack's fourth quarter 2023 earnings 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, Michael Aurelio, Senior Financial Planning and Analysis and Investor Relations. Thank you, sir. 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. Reconciliations to comparable GAAP measures are available in our earnings release, and 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, filed on February 23, 2023, and our other filings with the SEC, including our Form 8-K filed this morning. 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 fourth 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. We filed an 8K this morning related to a correction the company identified and brought to its auditors, primarily regarding how the company has accounted for elements of tax depreciation. These errors led to overstatements of income tax expense and understatement of deferred tax assets during the impacted periods. The unaudited amount of the overstatement of prior year non-cash GAAP income tax expense for fiscal 2021 and 2022, as well as an opening adjustment to the retained earnings balance in fiscal 2021 that is related to prior periods to 2021, can be found in the 8K. We will provide additional details in our upcoming 10K filing, which we expect to be filed on time. I will now turn the call over to Randy.

Thanks, Mike, and good morning, everyone. I want to congratulate our teams on an exceptional 2023. This year marked transformative milestones and substantial profitable growth, building upon our already solid foundation for the long-term opportunity ahead. We grew system-wide sales by 24% year over year to a record $1.7 billion. We opened 85 total restaurants, the most ever in a single year, ending 2023 with 518 Shake Shacks across the world. We grew shack sales by 20% to over a billion dollars with 4.4% same shack sales growth and a strong class of 41 domestic company-operated restaurants. In just the past four years, we've nearly doubled our footprint, system-wide sales, and total revenue, and we have a robust pipeline of opportunities going forward. Importantly, we grew our shack-level operating profit even faster than our total revenue, expanding restaurant margin by 240 basis points year-over-year, to nearly 20%, growing SHAC-level operating profit by 37% year-over-year. With this and 110 basis points of leverage in our G&A, excluding one-time adjustments, we delivered over 80% improvement in our adjusted EBITDA to $131.8 million. We ended 2023 with strong momentum in the fourth quarter, with our marketing strategies delivering positive traffic and our operational focus achieving further margin expansion. We executed our five strategic priorities for 2023, and I want to wrap up how we performed for the year across each of these priorities. First, recruiting, rewarding, and retaining a winning team. At the beginning of 2023, staffing pressures were material. We're negatively impacting sales, profit, guest experience. But throughout the year, we improved staffing retention to the best levels we've seen in years, which had a direct tie to our stronger labor and restaurant-level margin performance. Second, we focused on the guest experience. We rolled out kiosks to nearly all our domestic company-operated shacks, a full quarter ahead of expectations. We're seeing a high single-digit checklist on kiosk channel versus the traditional cashier experience. We also made material improvements to how our guests can order through this channel. We advanced our commitment to culinary innovation, a competitive strength of Shake Shack, with improvements to our core menu, as well as exciting LTOs, including white truffle burgers, top-selling spicy fries, and a return of bourbon bacon jam. We also forwarded learnings towards future strategies as we are testing combo meals for the first time at drive-thrus and looking to increase dessert occasion through mini shake and Sunday tests. Number three, get a targeted development strategy this year. We opened 85 shacks across the globe in 2023, including 18 domestic drive-thrus and our first international licensed drive-thrus in Mexico and Dubai. We launched two new markets in the Bahamas and Bangkok. Bahamas also being a new format, our first ever hotel resort shack with a full bar. We built a solid foundation in development with prototype site design that will help us reduce our build costs in coming years. And we know we have a lot more work to do here, especially on build costs and pre-opening, where we believe 2023 was the high water mark. Last year, we demonstrated meaningful improvement in restaurant profit margins. We showed leverage across every shack and level operating expense line item, and drove 240 basis points of expansion for the year to nearly 20%. Importantly, we have line of sight to further margin expansion this year in 2024. And finally, number five, our commitment to investing with discipline. We leveraged G&A, excluding one-time adjustments, 110 basis points, and we grew adjusted EBITDA by over 80% to nearly $132 million. I'm pleased with our progress in 2023, and our teams are energized and building for what's ahead. Our leadership team has developed our 2024 strategic priorities to drive further profitable growth at Shake Shack with a clear line of sight to generating free cash flow, even while investing for a robust pipeline of growth. Our entire leadership team and the board are fully engaged, committed, and incentivized to continue execution in 2024. So today I want to go a bit deeper on our new strategic priorities for this year. First, we're committing to delivering a consistent guest experience. Shake Shack has always been differentiated from traditional fast food and fast casual in our food quality, in the look and feel of our shacks, and in the enlightened hospitality we provide our guests. In 2024, we're committed to delivering a great guest experience consistently across all channels. We have core KPIs for ops leadership. For the first time, we're targeting throughput improvement by reducing guest order times by roughly 30 seconds and even more in our drive-thru locations. We'll achieve this through new kitchen flows that'll roll out through the year, increased real-time reporting, new training, urgency, and goal focus, while continuing to cook to order at the highest level quality in the burger industry. We believe this can grow sales, energize our teams, and improve guest sentiment. Second, our plan this year is to grow sales and strengthen our brand awareness. Shake Shack continues to build upon our global brand appeal. We've nearly doubled our footprint since 19, We believe we're still early in our growth journey at just a small fraction of the scale that our competitors have. And yet we know that we still have a massive opportunity to increase our brand awareness. As we scale, we're leading into new and expanded marketing, brand partnerships, and additional spending opportunities that are demonstrating success. Our advertising spend at roughly 1% of sales is a fraction of many of our peers. We know we can and will invest with success here moving forward. As we've improved our overall profitability, increased our scale, we are able to unlock additional funds for advertising this year, and we'll do so with data-driven discipline. On development, plan to open approximately 40 company-operated shacks and approximately 40 licensed shacks this year in 24. Expanding our footprint is key to driving sales and strengthening our brand awareness. In 2024, the majority of our company-operated openings will be in existing markets across a variety of formats. We'll also be continuing our licensed shack development by going deeper in domestic airports, roadsides, and deepening international expansion in the new and existing markets. Third, we're going to make Shake Shack more profitable. In 2023, we improved restaurant-level margins by 240 basis points to approximately 20%. We plan to further margin expansion in 2024 with our next goal of reaching 20% to 21% shack-level operating profit margins. continuing our work to close the gap to our pre-COVID profitability levels. Katie will share more, but our main strategies on improving forward margins and lowering total cost to serve involve work on supply chain and operational efficiencies. Many of these initiatives are things that we identified in prior years, such as increasing the number of suppliers as we scale, optimizing our freight, and improvements in labor scheduling and deployment. We've also engaged an external consultant to help find additional opportunities. And we'll also look to leverage G&A while continuing to invest more in advertising and for the future growth of our business. Fourth, we're going to continue to improve how we build and open shacks. We believe 23 was a high watermark for our build and pre-opening costs as we dealt with inflation, supply challenges, and a higher mix of more capital-intensive drive-thrus. This year, we've prioritized our commitment to reducing average net build and pre-opening costs by about 10%. The team has begun to employ early prototype improvements to future shacks as a phase one approach, and we'll be doubling down further this year to capture additional savings over time. Some of this work necessarily caused us to slow down timing of the 2024 pipeline, and that will cause a back-weighted opening schedule this year. But as that work takes hold, we'll begin to see more impact in 2025 as we roll out improved prototypes and a strong pipeline of shacks in the years ahead. And lastly, We will continue to develop and reward our high-performing teams. Our people have always been and will always be the core focus. High-performing teams help fuel the success we drove this year, and we expect to drive in 2024. Looking ahead, we'll continue to invest in our teams through increased wages, training, opportunities, enhanced recruitment with AI-enabled recruiting tools, and retention practices to optimize their experience and ultimately drive the business. Now I'll turn the call over to Katie to recap more of 23 and provide our initial outlook for 2024.