Shake Shack, Inc.

Greetings. Welcome to Shake Shack's first quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A 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. Please note this conference is being recorded. I will now turn the conference over to Michael Auriello, Vice President of FP&A and Investor Relations. 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. 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 29, 2024. 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 2024 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, Mike, and good morning, everyone. As I wind down my time as CEO of Shake Shack, I want to begin by thanking our team for another solid quarter, sustained execution of our strategic plan, and for building the strong foundation of momentum for what's ahead. This was the 13th consecutive quarter of positive Same Shack sales, the seventh straight quarter of year-over-year restaurant-level margin expansion, and our highest first quarter restaurant margin since 2019. We achieved a record level of Q1 adjusted EBITDA overall at $35.9 million, grew total revenue by 14.7% to $290.5 million, with 1.6% growth in same-shack sales and average weekly sales of 73,000. The trailing 12-month AUV across our shacks at $3.9 million. We grew system-wide sales by 12.3%, year-over-year to $443 million as we built SHACs across new and existing markets. And while we faced weather headwinds in January and throughout the quarter, our trends steadily improved with each month and into the second quarter, ending fiscal April at 4.9% same-SHAC sales with approximately flat traffic and further showing strong ongoing momentum into fiscal May to date as our sales and profitability initiatives take hold. In the quarter, we continue to improve profitability, increasing restaurant level profit margins to 19.5% with expansion of 120 basis points year over year. We grew first quarter adjusted EBITDA by more than 30% year over year and improved our adjusted EBITDA margin by 150 basis points, growing from 10.9 last year to now 12.4%. We also continue to grow our footprint around the globe, opening eight new shacks in the first quarter, four company-operated, four licensed, and we continue to expect approximately 80 shack openings this year system-wide, roughly 15% unit growth, and we are building a robust pipeline of growth for the coming years. Our licensed business grew sales by 8.1% year-over-year, despite ongoing challenges in the Middle East and some of the macro pressures in China. It's an area of our business that is asset-light and highly accretive to our bottom line, and one where we're confident in the long-term opportunity to go deeper in existing markets as well as open new markets. With our licensed partners, we opened four new shacks so far in the second quarter and eight year to date. In our company-operated business, we opened four new shacks in the quarter, including two new drive-thrus, adding our first in the greater Chicago area and our first in Metro New York area in North Brunswick, New Jersey. These two sites represent the continued goal of unlocking our TAM as we utilize our multi-format strategy with drive-thru. Today, we have the majority of the class open or under construction as we look to open roughly 40 shacks this year at an average build cost that's approximately 10% lower than last year's level. That said, it's important to remind you that this class of 24 will be heavily back-weighted with Q3 and Q4 openings. For next year, we're setting ourselves up well with a solid pipeline into 2025 to grow openings and further lower build costs versus 2024. I'd like to give an update now on how we're tracking on our 2024 strategic priorities. Our first priority this year, delivering a consistently great guest experience with improved speed of service and standardization across all of our channels being paramount to hospitality this year. We're making solid progress on our goal to reduce wait times in our shacks with more than half of our restaurants improving their ticket times by at least 15 seconds in the first quarter as compared to last year. We're showing progress across all formats, including drive-through with strong operational focus, shack visits and assessments, and enhanced training. In the coming months, We're rolling out new key tools to help us improve more on not just wait times, but also the total guest experience, including how we take orders and flow food through our kitchen. We've also shown some early improvements on our guest satisfaction scores, both in SHAC and in our digital channels. And we know that there's still ample opportunity to advance all these metrics, including order accuracy, which we believe will layer up to an even better guest perception and long-term frequency opportunity. Our second priority. growing sales, and strengthening our brand awareness. We're living in a competitive and often discount-based restaurant environment right now. We're also growing in new markets where we have lesser brand awareness upon entering than we do in our core markets. We are materially stepping up our investments in marketing this year, in our shacks and in G&A, to help drive brand awareness and frequency, and it's working. We have opportunities to continue to share our brand story, to amplify the quality of our ingredients, and communicate what makes Shake Shack so special to so many audiences. We'll continue to do this actively in a thoughtful way that focuses on strong returns. You'll see this play out in all of our channels, including in upcoming packaging evolution, in Shack designs, and throughout our brand marketing. Steady increase in aided brand awareness in the quarter and saw continued strong returns on our advertising spend in performance marketing. These marketing initiatives have shown success in driving both new and existing guests to our omnichannel ecosystem through creative brand campaigns, timely offers, promotions, and focus on our best-in-class core menu, as well as LTO launches. The team is employing a lot of new tactics to maximize impressions, trial, and frequency across initiatives, all with an eye towards profitable sales growth. And we're also investing this year in building on the data and guest recognition capabilities to allow for more personalized marketing opportunities in the coming years. and to drive more conversion and consideration. We know we're just getting started on these increased marketing initiatives, and we're excited to ramp spend here looking ahead. We continue to drive excitement around our menu offerings with our limited time only menu featuring the Korean barbecue burger, Korean chicken sandwich, and our Korean fries. The Korean chicken sandwich was brought back after being a fan favorite in early 21, and we're excited to expand the menu to our burger offering this year, which has had a strong performance in guest reception. We're looking forward now to our next round of summer LTOs as well. Our third priority, continuing to build on our wins from the last two years and make our restaurants even more profitable. With a goal now to get between 20.2 and 21% restaurant margins for this year. And Katie will walk through more of this. We're showing clear continued progress and improving the operations of our restaurant. And our flow through today is among the highest levels we've delivered since 2019, despite high inflationary pressures. Additionally, our teams are working on additional operational, supply chain, and cost-to-build opportunities to both build and protect our profitability while focusing on improving the guest experience. Our fourth priority this year, making improvements on how we build and open our shacks. We're pleased with the sales levels in our recent openings and believe last year's class was a high watermark in terms of cost-to-build as we make progress against our goal to bring down the build costs for the Class of 2024 by approximately 20%. Excuse me, 10%. We've opened eight shacks year-to-date and have 19 currently under construction as we go to approximately 40 new company-operated shack openings this year. We've generated solid wins here on lowering our build costs with structural redesigns, including steel-to-wood construction, improving the cost profile on exterior finishes and exhaust systems, as well as making meaningful improvements to interior furniture, kitchen equipment optimization, as well as signage and other opportunities. In total, we continue to improve the look and feel of our shacks, being more efficient with our level of investment and we're building a strong pipeline for 2025 to grow unit openings at an even lower build cost than we expect to achieve in 24. and we're also showing strong progress on lowering our pre-opening costs by at least 10 percent this year opening restaurants in a more reliable manner as we have seen fewer impacts from unanticipated delays and have stronger coordination across the company and finally As you know, Shake Shack is a people-first business, and our people must always be our focus. We've made great strides to improve our turnover and increase retention, and this year we're building on that strong foundation with strategies to support our great teams. Our team members are at the core of how we execute our 24 strategic priorities, and we'll continue to benefit as team members stay with Shake Shack for longer. We're one of the fastest-growing publicly traded restaurant companies, We offer our team members meaningful opportunities for career growth, including providing equity to our general managers and above. We're constantly working on strategies to elevate our people with greater training, development, communication, and collaboration. I'm really excited to see our strategic plan continue to drive the evolution of Shake Shack. With a string of continued improvements shining a light on our long-term opportunity for our team members and our stakeholders, I'm pleased to transition to my advisor role and hand the baton to our new CEO, Rob Lynch. I'll now hand it off to Katie to share more about the details of the quarter and expectations for the second quarter.