Shake Shack, Inc.

Greetings. Welcome to Shake Shack Third 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. As a reminder, this conference is being recorded. I would now like to hand the conference over to Michael Oriolo, 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, Rob Lynch, and CFO, Katie Fogerty. 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 gap 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 third 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. It's been a great third quarter. We delivered our 15th consecutive positive quarter of same-shack sales growth, our ninth straight quarter of restaurant-level margin expansion, and we grew adjusted EBITDA 28% to $45.8 billion. We grew our footprint around the world to over 550 SHACs, opening a total of 17 new SHACs during the quarter, comprised of eight domestic company-operated openings, including three new drive-throughs and nine new licensed SHACs. We are on a path to open approximately 75 SHACs system-wide this year, representing mid-teens unit growth. Our new company units are tracking the strong cash on cash returns as we continue to bring down build costs and pre-opening costs per shack. The team continues to find ways to deliver efficiencies, and we are on target for an approximate 10% cost reduction in 2024 build costs. Our new shacks are also outperforming initial sales expectations, and company restaurant level profit margins continue to expand. We expect to deliver further improvements across these metrics in 2025, And as a result, we'll accelerate our new unit openings to approximately 80 to 85 next year, including 45 company-operated shacks and 35 to 40 licensed shacks. Sales at our existing shacks were also strong in the third quarter, as we delivered 4.4% same-shack sales growth with positive traffic, a direct result of our sales-driving strategies and our consistent, differentiated premium positioning which has allowed us to continue to outperform, even in an uncertain macro environment. A big part of our success in the third quarter, and an even bigger part of our future, is Shake Shack's continuous culinary innovation. Memorial Day weekend, we launched our summer barbecue menu, which featured two burger options, each with either a smoky or tangy sauce, along with barbecue spiced fries. Then in mid-September, we brought back our guest favorite, the Black Truffle Burger, including shroom and shack stack options, as well as the Parmesan garlic fries with black truffle sauce. The Black Truffle LTO is a perfect example of Shake Shack's elevated culinary program and our ability to offer differentiated culinary experiences at great value, which particularly stand out in today's value wars environment. In addition to culinary innovation, we continue to strike the right balance with strategic promotions and marketing campaigns to raise awareness and drive conversion. In September, by popular demand, we brought back Chicken Sundays, which we originally ran for four weeks in the second quarter. Chicken Sundays have been a solid sales contributor in the short term, but even more importantly, we have seen promising results in our overall chicken awareness, which we expect to drive chicken sales at Shake Shack long after the promotion ends. We also ran other value-added campaigns for spotlight menu highlights, such as Free Shake Fridays and our Dog Days of Summer. Our marketing continues to attract new and repeat guests, and we will continue to make these strategic investments moving forward. And as I look ahead, I am encouraged by the fact that we still have multiple sales driving platforms and initiatives to build on and implement. Among the significant number of sales driving initiatives in our pipeline, three stand out. The first is the development of a strategic product innovation calendar. The second is the development and launch of a Shake Shack loyalty platform. And last but certainly not least is the additional operational enhancements that will increase guest satisfaction, decrease service times, and improve throughput. I'll touch here briefly on each. As we work to build and highlight the upside potential of a strategic product innovation calendar, it's not lost on me that culinary innovation is already a part of Shake Shack's DNA. However, we have an opportunity to become more strategic and ensure that new innovation works in a complementary way with our core menu to drive outpaced comp growth. We are actively working to build this capability in the first half of 2025 and to leverage the benefits moving forward. As you know, beyond the hospitality and guest recognition our team members exude each day, Shake Shack does not currently have a systematized loyalty program. I can't help but find that a bit ironic, given that Shake Shack was built on the principles and culture of enlightened hospitality, where understanding the wants and needs of our guests is paramount. I truly believe that given this heritage, we have an outsized opportunity to deliver enlightened hospitality in a world that increasingly craves it. but across a digital footprint. We will be making investments in 2025 to develop the right platform to realize this potential over the long term. Lastly, on operational optimization that drives sales, in the third quarter, we further decreased wait times and improved guest satisfaction metrics, and as a result, drove higher sales and margins. However, we still have a lot of opportunity for improvement, both short and long term. In the short term, we're working on the blocking and tackling of operational excellence, including speed of service initiatives, process improvements, and world-class training of our people. Over the longer term, we're working to optimize our kitchen flows, equipment packages, and guest service models. All of these initiatives are expected to be long-term builders of repeat visits, which will increase frequency and overall sales. Speaking of great operations, We're driving a significant margin improvement even as we make additional investments in marketing and promotions to grow top line sales. Third quarter restaurant level margins expanded 60 basis points and adjusted EBITDA margins grew 140 basis points. And we expect fourth quarter to end on a high note as well with fourth quarter restaurant level margins expanding 220 basis points and exceeding 2019 levels for the first time. The team is doing a great job at utilizing our increasing scale to find supply chain efficiencies, improving labor utilization across both staffing and scheduling, and being more disciplined among other costs. All in, the third quarter was another successful quarter of sales, restaurant-level margin, and adjusted EBITDA growth, which we expect to continue into the fourth quarter. Looking ahead, we expect this momentum to extend into 2025 as we accelerate unit growth. With that, I'll turn the call over to Katie for a more detailed discussion on third quarter financial results and our outlook for the rest of the year.