Shake Shack, Inc.

Greetings. Welcome to Shake Shack's second 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, 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, Rob Lynch, 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 second 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 Rob.

Thank you, Mike, and good morning, everyone. I'm very excited to be here today speaking to you as the new CEO of Shake Shack. Thanks to all of you for joining us on the call today. First, I want to take a moment to recognize Randy Garuti for leading Shake Shack since its inception and for his many accomplishments in building this great brand. I also want to thank him for how he thoughtfully transitioned the CEO role to me. His wise counsel and generous commitment to my success has absolutely helped me get off to a fast start. Speaking of fast starts, I'm happy to share with you that Shed Shack had a strong second quarter, growing St. Shack sales by 4%, expanding restaurant-level profit margin by 100 basis points to 22%, the strongest quarterly result since 3Q 2019, and growing adjusted EBITDA by 27%. There's great momentum in the business, and that momentum has continued into July, where we finished the month up 4.1% on same-shack sales. In my first 90 days, I spent a lot of time in the field learning how to make the best burgers in the business, hand-bread our 100% all-natural and antibiotic-free chicken, hand-spin our premium frozen custard shakes, and perfectly fry our beloved crinkle-cut fries. all while learning to embody the enlightened hospitality that is this company's special sauce. I would like to give a shout out to the great people in the Shacks in Houston and San Diego for being patient with me while training. It truly is our people that make Shake Shack so amazing. My first official day on the job was a dream come true as I opened Shake Shack's first restaurant in my hometown of Pittsburgh, PA. I couldn't have written the script any better. I'm happy to report that it is doing fantastic, and I can't wait to open many more successful shacks there. We are opening a lot of great shacks right now, including the 12 new company-operated shacks in Q2, exceeding our expectations and continuing the development momentum critical to our future growth. There are so many things to be excited about right now at Shake Shack. The same shack sales growth, our improvements in restaurant-level profit margins, and the unit growth across the globe, to name a few. But what initially attracted me to this opportunity was the simple fact that Shake Shack has my favorite burger on the planet. As I dug further into the brand's DNA, I was drawn even more to the founding principles around enlightened hospitality, particularly the uncompromising commitment to our team members, guests, communities, suppliers, and investors. I love that we use premium ingredients. They focus on ensuring the best customer experience and facilitate strong team member engagement. Shake Shack truly is the standard for how our industry should and can operate. My excitement and conviction has only increased in my first couple months as CEO. The strong foundation that Danny and Randy built has positioned Shake Shack to perform incredibly well and is one of the few restaurant companies growing revenue, units, and adjusted EBITDA, all at double digits, and I see even greater potential for this unrivaled brand. As I've dug into the business fundamentals, I've spent lots of time with our executive team learning both the what and why across all aspects of the business. While still in the early stages of forming our long-range growth strategy, I do want to share some of my early learnings and provide the three key areas where I'm focused, which are driving healthy same-shack sales and building brand awareness and affinity, opening more shacks globally with great returns for us and our licensed partners, and improving profitability through improved productivity at our restaurants and corporate operations. I would like to talk a little bit about each of these important areas of focus. First, driving healthy Shake Shack sales and building the Shake Shack brand. The team has done a great job driving Shake Shack sales, especially in the current challenging macroeconomic environment, and we are proud to report this past quarter was the 14th straight quarter of positive Shake Shack sales. Our ability to maintain our premium products and premium positioning while continuing to meet the ever-changing needs of our guests is paramount to the long-term success of our company. There has been much discussion about customers moving to a more value-oriented mindset and that the industry has started to wage value wars and a fight for transactions. In this environment, many believe that Shake Shack's premium positioning is a liability. But to the contrary, I believe that it is truly one of our strengths. Our team has been nimble and begun to employ strategic promotions to earn more than our fair share of transactions. And it is remarkable that we've been able to do this while also growing our restaurant-level profit margins. Our teams have truly struck the right balance between product innovation, pricing to mitigate inflation, technology implementations, and strategic promotions. This is the model that we will leverage moving forward, regardless of the macroeconomic environment. And given results so far, I have a lot of confidence in this team's ability to keep the momentum going. Shake Shack celebrated its 20th anniversary in the second quarter, and the company is still in early innings with an amazing amount of growth on the horizon. As you know, Shake Shack has built a strong brand and has an unbelievable story, beginning as a single hot dog cart serving fine dining quality food in Madison Square Park and flourishing to more than 550 shacks worldwide today. That said, it has been very eye-opening to see how many people across this country don't yet know what Shake Shack is. We believe there's still a great deal of untapped potential for this brand in domestic and global markets, which makes me incredibly optimistic for the future. As I work with the team to understand this opportunity, I'd like to share my framework for building a successful marketing strategy. It is based on answering three questions. Who is our target audience? What is going to either increase or change their behavior? and how do we efficiently and effectively reach them? Our marketing team has done a very good job in answering many of these questions already, as evidenced by their ability to deliver strong same-shack sales in a tough environment. As we continue to operate in this ever-changing consumer landscape, it will be critical for us to challenge ourselves to further optimize our approach as we continue to increase our investments in marketing. These investments in marketing and media will drive greater awareness and trial as the company scales. However, I want to be clear. It is not simply about spending more advertising dollars at the expense of profitability. We will ensure that our marketing investments continue to generate the same significant returns that they do today. Our profit objectives will not come at the expense of marketing spending for the sake of marketing. Our second area of focus is opening restaurants with best-in-class cash-on-cash returns. As you know, the team has been very focused on taking costs out of our new builds and have committed to approximately a 10% reduction in build costs in 2024 and building a 2025 pipeline with further improved build costs. This productivity will afford us the opportunity to explore new real estate options while aiming to maintain the same levels of return and profitability. I'm also working closely with our development, marketing, and operations teams to optimize our drive-through format, which will be an unlock for us to enter into markets where our traditional foot traffic will be replaced with car traffic. The third area of focus I will speak to is our focus on driving profitability. The team has done an incredible job expanding restaurant margins over the last few years. From 2020 to 2023, shack restaurant level profit margins expanded 560 basis points. And we expect to generate another 70 to 110 basis points of margin expansion in 2024. Adjusted EBITDA margins expanded nearly 800 basis points from 2020 to 2023. Despite this great progress, I see even further opportunity to become more efficient across regions and formats. Shag Shack is a brand that has been built primarily on foot traffic in areas like New York City, San Francisco, and Chicago, where we have larger units built to capture existing traffic just from people walking by. As we continue to build out and diversify formats, including drive-thrus and leverage third-party delivery as a component of our revenue model, there's an opportunity to get more efficient in how we operate and deliver across channels with the utmost productivity. As part of this effort, I'm excited to have hired Stephanie Centel as our Chief Operations Officer, who has been in her seat for just a few weeks now. Having worked with Stephanie in the past, I can vouch for her proven track record of driving profitability, leading high-performance teams, and spearheading operational innovations. But the momentum at Shake Shack is evident. and I see significant opportunity to further enhance the already great work being done. Our three focus areas are directly related to driving strong unit-level economics and increasing ROI, which will ultimately lead to long-term shareholder value creation. I'll be working further with the executive team on shaping our long-range strategic plan with a focus on continuing our strong momentum into 2025. I'm extremely optimistic about the future of Shake Shack and look forward to sharing more in the coming months. With that, I'll turn the call over to Katie for a more detailed discussion on second quarter financial results. Katie?