Shake Shack, Inc.

Greetings. Welcome to Shake Shack's fourth 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, please press store zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Michael Orellolo, Vice President of P&A and Invest 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. Reconciliation 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 10K, filed on February 29th, 2024, and the company's other filings as filed with the SEC. 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 2024 shareholder letter, which can be found at .shakeshack.com. In the quarter results section, we're adding 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 want to congratulate our teams on an exceptional 2024. We finished the year strong with fourth quarter revenue of 14.8%, driven by .3% same-shack sales. Restaurant-level margins expanded nearly 300 basis points to 22.7%, and adjusted EBITDA grew almost 50%. As we enter 2025, we have reached numerous milestones and achievements worth celebrating. 2024 marked the 20th anniversary since Danny and Randy opened the first Shake Shack, originating from a hot dog cart in New York's Madison Square Park. In January, we celebrated the 10th anniversary of our IPO. At the time of our opening, we had a total of 4,000 shares. We're now finding one day that it's 450 shacks. With 329 company-operated shacks today, we're now setting our sights much higher, targeting at least 1,500 company-operated shacks across the U.S., more than four times our current size. Shake Shack is doubling down on our mission to deliver the best fine casual experience to our guests, team members, and communities, fostering pride within our company, and generating strong financial returns for our employees and shareholders. To that end, we have established three-year financial targets, low-teens total revenue growth, low-teens unit growth, at least approximately 22% restaurant-level margins, and EBITDA growth in the low to mid-teens, outpacing top-line growth. These targets reflect our strong financial performance to date and our confidence in our strategy, which we believe could lead to results exceeding these projections. We've talked a lot about the designation of fine casual in the past. Today, I want to reinforce the importance of and clearly define what fine casual means, because it is who we are and why Shake Shack is different. Most of you know our brand was founded by an acclaimed fine dining company, Union Square Hospitality Group, and we aspire every day to deliver the same quality of ingredients and hospitality that you would expect from the best fine dining restaurants. As you also know, Shake Shack was born in a public park, which meant that we brought this elevated food to all, making our food and hospitality accessible to everyone in the Madison Square Park and New York City community. That's really what Shake Shack is all about, delivering the highest quality food and hospitality to communities around the world, and in doing so, improving the world in which we live, work, and play. We've made significant strides towards this mission in my first eight months, but the real potential lies ahead as we execute our 2025 strategic priorities. I'll now outline these six priorities, highlighting both our accomplishments to date and our plans for the future. Our first strategic priority is to build culture of leaders. Everything we do starts with our people. They are the driving force behind our enlightened hospitality model and, commensurately, our results. We need to ensure that we have hundreds of leaders and waiting to support our growth. As a largely company-operated system, we determine the success of our new Shacks by our readiness to open and operate them at scale. We are building a training and development program that will identify, prepare, and place our best candidates into leadership positions throughout our company. A company that is growing as fast as we aspire to grow is an amazing place for future leaders to build their careers and achieve their full potential. We are building an infrastructure that will support that moving forward versus having to hire externally. We aspire to increase the number of internal promotions by 10% in 2025 and will continue to increase internal promotions sequentially moving forward. Two programs that we have implemented to help us accomplish this goal are Shift Up and Lead to Succeed. Shift Up nominates high-performing hourly team members for an 18-week intensive development program designed to provide the tools and business acumen needed to run a 4 million AUV Shack. In 2024, we retained 100% of the graduates from the program, with nearly one-third of which will be launched in the fall of 2020. The need to promote from within is vital to our growth due to our unique group model rooted in fine dining where everything is created fresh to order. As a result, this requires a different type of manager versus traditional QSR and promoting from within helps ensure that we are opening our new restaurants with excellence. Our Lead to Succeed program teaches our newly promoted managers in our support centers the crucial skills needed to transition from an individual contributor to leading others. This investment in our teams has been integral in achieving our best retention levels on record in 2024. Our second strategic priority is to optimize restaurant operations. In 2024, we began testing a standard scorecard as a way to measure performance across all of Shacks. This management tool focuses on improving across our KPIs of people, which includes metrics such as staffing and retention, performance, which includes metrics such as speed of service, and profit. We officially rolled out the scorecard in January and are excited to see improvements across these three focus areas. We delivered an exceptional year across our operational and guest metrics while expanding restaurant level margins by 150 base points to 21.4%. We introduced speed of service as a key KPI for our operators in 2024 and saw immediate improvement. Average wait times dropped by approximately one minute year over year. Order accuracy also reached the best levels on record in 2024. On labor, we drove productivity through improved hourly and manager scheduling with enhanced reporting that leverages real-time data and analytics. At the same time, we pilot a new activity versus sales-based labor model that uses time motion studies to optimize staffing and deployment schedules across various formats, menu mixes, sales channels, and other key variables. The model was fully rolled out during 4Q 2024 and drove approximately 80 basis points of leverage in the fourth quarter. Of course, key metric for labor is talent and our sourcing, training, and retention continue to improve. All of these work streams will have both short and long-term positive impacts on the operations of our shacks. So what is next? This fiscal year, we will be standing up a kitchen innovation lab in close proximity to our brand new Atlanta Support Center, which will provide a launchpad for innovation largely focused on delivering improved service times and convenience for our customers. This, too, will provide both short-term and long-term benefits. In the short term, it will allow our teams to test process optimizations, including new equipment, and allow us to learn, refine, and test again, dramatically accelerating a process that historically took a lot longer. This approach will provide insights in 2025 that we can implement into 2026 and beyond with improved speed ultimately leading to higher frequency. We also see longer-term benefits through new kitchen design tests, which allow faster rollout of new formats and ensure strong -on-cash returns. Lastly, on drive-through, we continue to develop and test the new menu strategy with the objective of decreasing order time and increasing accuracy. We are committed to launching our new drive-through optimizations this year. Optimizing our operations also applies to our supply chain. We leveraged our scale across the supply chain, onboarding new suppliers and implementing other strategic initiatives. For instance, introducing competitive suppliers drove savings in paper and packaging in 2024. Across our supply chain strategies, we offset nearly 30 basis points of inflationary pressures. We anticipate even greater savings in 2025 and beyond. Our third strategic priority is driving comp sales by increasing guest frequency. In 2024, we drove strong same-shack sales of .6% and nearly flat traffic despite significant macro industry headwinds. We accomplished this through our sales driving initiatives and invested more in marketing and advertising to drive awareness. Through campaigns like our Chicken Sundays, which we ran in April and again in the fourth quarter, we drove strong incremental checks and saw chicken awareness improve 5% -over-year in the fourth quarter. Second, we launched our Worth It Brand campaigns in New York and Miami, highlighting our very own shack burger and chicken shack products and ingredients in our creative. The campaign effectively improved awareness and brand familiarity. Third, we drove sales through culinary innovation with LTOs such as summer barbecue and Korean barbecue along with the return of our revamped black truffle menu. The 2024 edition of black truffle is outperforming our truffle menus from both 2021 and 2023. Shake Shack's DNA is built on culinary innovation and what a traditional QSR cannot and will not do. Looking ahead, we are excited to drive guest frequency and overall check through menu innovation. In 2025, you will see us increase product tests to drive incremental visits and mix as well as invest in guest recognition, which will allow us to extend even more hospitality by connecting our app and web known guests with the in-shack experience with the kiosk. We expect this to be a huge unlock for Shake and allows us to connect the dots to provide targeted offers to our guests and give that really important incremental driver for frequency over time. Into 2026, we expect to continue to refine and test our new creative against our new media mix model. This will help us make more strategic decisions on what channels we disproportionately invest in going forward, which we expect to positively impact 2026 and beyond. Our fourth strategic priority is to build and operate our Shacks with best in class returns. As I mentioned earlier, our mission is to bring the world's best fine casual experience to as many guests, team members and communities as possible. In 2024, we opened 43 company operated Shacks, the highest number that we've ever opened in a single year. We reduced net build costs in 2024 to 2.4 million and in 2025, have committed to further improving net build costs to approximately 2.2 million. Last year, we began leveraging our scale to achieve greater purchasing efficiencies and we brought our design teams in-house. This year, we plan to condense build timelines by nearly two months with increased consistency and lower cost. We also plan to build our new prototype drive-throughs, which are designed to improve speed, accuracy and reduce costs to maintain. I remain highly confident in driving strong cash on cash returns as we increase restaurant level margins and bring down build costs. Recent classes are tracking well compared to our long term targets of at least 30 to 33%. Our fifth strategic priority is to accelerate our license business. In 2024, we expanded into three new markets, Canada, Israel and Malaysia and grew our new license Shacks in 2024 and expect to accelerate the number of openings in 2025 to 35 to 40. In the fourth quarter, we also launched our partnership with Delta and began serving Shake Shack 35,000 feet in the air. Today, we offer meals through pre-selection via Delta's first class menu on all qualifying domestic flights originating from Boston Logan Airport, with plans to expand our reach to additional airports in the near future. This is a great example of the power of Shake Shack brand, which we increasingly look to leverage in the future. We will also be building the foundation for accelerated growth going forward by focusing on targeted culinary innovation in diversifying formats in our licensed markets around the world. For example, to address local tastes and a gap in our menu, we recently launched the first ever fish sandwich LTO in Hong Kong, which has been well received with a lot of excitement from our guests. Lastly, our sixth strategic priority is to invest in long-term strategic capabilities. This year, we're investing across the business to ensure we have the right people and capabilities to achieve continued profitable growth and accelerate our business as we work towards our bright long-term potential of at least 1,500 companies operated Shacks. In January, we stood up a new transformation office to drive cross-functional collaboration and execution on the projects that are most critical to the company. We're also making investments in our tech platform to build out guest recognition and investing on a new kitchen innovation lab. We're making these investments while still committing to growing adjusted EBITDA at a faster rate than total revenue and see potential upside based on execution of these strategic priorities. As you can see, there's a lot going on at Shake Shack. We're very focused on becoming more productive so that as we increase our investments to drive same-Shack sales and sales from new-Shack openings, we become even more profitable, which then allows us to continue to invest in our growth moving forward. With that, I'll turn the call over to Katie to recap more on 2024 and provide more detail on our outlook for first quarter and fiscal year 2025.

Thanks, Rob, and good morning, everyone. We ended the year on a high and are on a solid path for 2025 with continued success from our marketing and operational strategies, including faster speed of service and enhanced labor management, driving strong, solid sales and record flow through. Over the past 14 quarters, we have consistently proven our ability to grow our sales and adjusted EBITDA while also making investments in our business to build a strong foundation for the future. This quarter also marks our 10th consecutive quarter we've expanded our restaurant-level profit margins year over year and our 16th consecutive quarter that we've generated positive same-Shack sales. Our guidance for this year and the next three years underscores our confidence in maintaining this trajectory of success. In 2024, we expanded our restaurant-level profit margins by 150 basis points to 21.4%. We grew restaurant-level profit by 24% year over year to set a new record of 257.9 million, and we drove 33% -over-year growth and adjusted EBITDA, reaching a record 175.6 million. We opened 43 company-operated Shacks in the year, marking our largest class on record, and we expect to open even more Shacks in 2025. We are really proud of the results from our fourth quarter that highlight the broad-based strength in our business. Fourth quarter total revenue was 328.7 million, up 15% year over year, supported by the opening of 19 new company-operated Shacks and nine new licensed Shacks, leading to a 13% -over-year growth and system-wide sales. Our licensing revenue reached 12.1 million in the fourth quarter, with licensing sales at 184.1 million, up 11% year over year. Shack sales in the fourth quarter were 316.6 million, growing approximately 15% year over year, supported by a strong new Shack opening and .3% -over-year growth in same-Shack sales, with traffic down slightly impacted by infill and weather and price mix of 4.8%. Our in-Shack pricing was up approximately 4.5%, and our total price inclusive of additional price to address delivery cost was up approximately 6%. We generated 79,000 in average weekly sales, up 4% from 76,000 in the third quarter, and also up 4% from 76,000 in the fourth quarter of 2023. Our trends first quarter to date have been choppy, and this is largely due to the headwinds from the significant weather pressures and the impacts from the tragic Los Angeles wildfires. In January, we faced approximately 150 to 200 basis points of same-Shack sales pressures from the weather and the fires. Yet, we still grew same-Shack sales by .7% in the month, showing the strength in our underlying business. Los Angeles is a very important market for Shake Shack. In fact, we opened our first Shack in California in 2016 in West Hollywood, and we've been serving the Los Angeles community ever since. We are immensely proud of our amazing leaders and teams there, as we have now grown to 27 Shacks in the area. Our motto at Shake Shack is to stand for something good, and that doesn't just apply to our commitment to using the best ingredients in our food. It's also about how we show it for our teens and our communities. We're really grateful that all of our Los Angeles area leaders and team members were safe and accounted for during the fires. They were so quick to stand up to support our community and our first responders. Across the country, our team members and support through meaningful donations and company matches to our special employee fund. We expect a degree of residual impact from the fires to persist for a while, and the weather has been highly uncertain quarter to date. However, we believe our broad-based operations, marketing, and culinary strategic focus will continue to drive improved guest experience and sales, and this will help us navigate these temporary impacts. Fourth quarter restaurant-level profit was 71.9 million, or .7% Shack sales, 290 basis points higher than last year, as we showed strong execution across our operational improvement strategies, including labor management and optimizing our supply chain. In the fourth quarter, food and paper costs were 88.6 million, or 28% of Shack sales, down 20 basis points quarter over quarter, and down 110 basis points year over year. Blended food and paper inflation was nearly flat after taking into account the low single-digit benefit from identified deficiencies in our supply chain. Our beef costs rose by low single digits somewhat less than our expectations, and our paper and packaging costs decreased by mid single digits year over year. Labor and related expenses were 85.1 million, or .9% of Shack sales, down 160 basis points year over year, and down 110 basis points quarter over quarter, primarily led by the positive benefit from the first full quarter of our new labor scheduling system that drove 80 basis points of benefit. Other operating expenses were 47 million, or .8% of Shack sales, down 10 basis points from the fourth quarter of 2023, and also down 10 basis points versus last quarter. Our improvement year year over year was a function of identified deficiencies in R&M and professional services, as well as more favorable utility spend. This is partially offset by planned increases in advertising expense. Occupancy and related expenses were 24 million, or .6% of Shack sales, also down 10 basis points from the fourth quarter of 2023, and versus last quarter, driven by the growth in Shack sales. G&A was 41.1 million, or .5% of total revenue. Excluding 800,000 in one-time adjustments, G&A was 40.3 million, or .3% of total revenue. For the full year, G&A was 149 million, or 142.3 million, excluding one-time adjustments, approximately .4% of total revenue. This was down 10 basis points from 2023 levels, despite nearly doubling our advertising year over year, as we showed significant improvements in how we've managed our underlying spending across other areas in G&A. As a reminder, a portion of our advertising spend is in other operating expense. However, the majority of the spend is in G&A. Pre-opening costs were 5.1 million in the quarter, as we opened 19 new company-operated Shacks. We made significant progress on reducing our cash and non-cash pre-opening expense in the year, bringing it down by nearly 23% per Shack year over year. Depreciation was 25.8 million. On a gap basis in the quarter, we reported a pre-tax income of 12.9 million and a tax expense of 3.6 million. On an adjusted pro-forma basis, we reported a pre-tax income of 15 million and a tax expense of 3.3 million. Excluding the tax impact of equity-based compensation, our adjusted pro-forma tax rate in the quarter was 29.8%. We reported fourth quarter adjusted EBITDA of 46.7 million, up approximately 49% year over year, or .2% of total revenue, improving 320 basis points from 11% of total revenue in the fourth quarter of 2023. For the full year, we grew adjusted EBITDA by 33% to 175.6 million, or 14% of total revenue, 190 basis points higher than the prior year. We realized a net income attributable to Shake Shack Inc. of 8.7 million, or 21 cents per diluted share. On an adjusted pro-forma basis, we reported a net income attributable to Shake Shack Inc. of 11.6 million, or 26 cents per fully-exchanged and diluted share. Our balance sheet is strong. We ended the year with 320.7 million in cash and 36 million in free cash flow, the first time that we have generated positive free cash flow on the year since 2017. Now onto our guidance for the first quarter and full year 2025. Our guidance assumes no material changes in the macroeconomic or geopolitical landscape and the potential impact of system-wide bills or costs, including any outside impacts from potential tariffs. For the quarter, we grew adjusted EBITDA by 33.9 million, with 10.5 to 10.9 million of licensing revenue, three to four company-operated shack openings, five to six licensed shack openings, and for same shack sales to be up 2.5 to .5% year over year. We are seeing weather and the lingering impacts from the LA wildfires continue into February, and we expect some of our Los Angeles shacks to take a while to fully recover. We are also lapping over the strong launch of our Korean BBQ LTO from last year. These factors and the Easter shift together is an approximate low single digit impact to our same shack sales guidance in the first quarter. In March, we will be rolling off the approximate .5% price that we took on menu last year. We plan to exit the quarter with approximately 2% in-shack pricing and a blended 3% overall price. We guide restaurant-level profit by 20% to 20.5%, representing 50 to 100 basis points of improvement year over year, despite the weather, wildfire, and inflationary headwinds that we are facing. We are planning for low single-digit -over-year inflation in food and paper costs after baking in the positive benefits from our supply chain strategies, with pressures led by uncertainty in our beef pricing that represents 25 to 30% of our blended food and paper basket. Additionally, our marketing plan for this year is evenly split over the quarters versus last year that was back-end weighted. This cadence will result in a higher step-up -over-year in both other operating expense and G&A in the first half of the year, tapering off in the back half. On to our full year 2025 outlook. We are largely reiterating the guidance that we provided at ICR conference in early January, while we are also raising our outlook for adjusted EBITDA based on increased confidence in our outlook for restaurant level profit margins to reach approximately 22% this year. Our pricing plans for this year remain modest, as our in-check price will be up about 2% -over-year, and our overall price across all channels will be up approximately 3%. Our commodity outlook reflects our expectations for low single-digit inflation, led by beef up mid to high single digits, and does not contemplate any potential outside impacts related to tariffs. We are planning for labor inflation to be in the low single-digit range. We are now guiding for adjusted EBITDA of -$215 million, representing -22% growth -over-year, as operationally we are tracking strong against our three-year target of low to mid-teens growth. To close, I want to extend my heartfelt gratitude to our more than 12,000 team members and our 329 company-operated shacks, and our employees and our support centers for their outstanding work in 2024. Your dedication to our guests, to supporting one another, and to executing our strategic priorities has been truly remarkable. Thank you to your efforts. We exceeded nearly all of our goals and targets, and we're really excited about the opportunities that lie ahead. We believe that we have the right plan in place to help us unlock our growth potential. We have confidence as we look forward to our target to grow to at least 1,500 company-operated shacks over time, and we are very much looking forward to updating you on our progress against our 2025 strategic priorities throughout the year. And thank you for your time. With that, I'll turn it back to Rob.

Thank you, Katie. Building off of a strong 2024, we are excited about the opportunities ahead and look forward to making progress against our new set of strategic priorities in 2025. Above all, I'm so grateful to our dedicated teams, bringing their hearts, minds, and focus to their endeavors every single day. Thank you all for your time today. And with that, Operator, please open the call for questions.

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask you to limit to one question. One moment while we poll for questions. Our first question is from Michael Thomas with Oppenheimer and Company. Please proceed.

Hi, thanks. Good morning. You guys just talked about increased confidence in getting to that 22% restaurant margin this year, and that's just about 60 basis points of expansion versus 24. This is despite, I think, a more copy top line environment since ICR. Can you unpack for us what's driving that increased confidence and talk about some of those incremental initiatives throughout 2025 that give you the confidence in this target? Thank you.

Great. Yes, thanks for the question. We raised our full year 2025 adjusted EBITDA to 205 to 215. That's really a function of our increased confidence to achieve this approximately 22% restaurant profit margin we expect to get this year. The functions, the reasons why we're going to be expanding margins this year by about that 60 basis points is pretty evenly split through just better labor management. The implementation of our new labor model that we put in place in fourth quarter has gone exceptionally well. We're continuing to see really strong performance from that scheduling system in the first quarter this year, and it's helping us to offset some of the sales pressures that we're seeing from the weather and the wildfires. We have good confidence that that will continue throughout the rest of the year. Then on other initiatives that we're working on, I would say part of it is the margin expansion that we delivered in the fourth quarter was really evenly split between labor management and then also on our supply chain. We are continuing to do great work there, uncovering opportunities to get more efficient, bring on more suppliers, and optimize our freight while also from an operational standpoint improve the way that we are running our ships in our shacks to help minimize waste. Those are the big buckets that will help carry us through this

year and give us increased confidence.

Our

next question is from Christine Cho with Goldman Sachs. Please proceed.

Hi, thank you. It was really encouraging to see the .7% sales growth in January despite the weather headwinds and the impact of the LA wildfire. Can you help us unpack that growth a little bit for us? Thank you so much.

We've

had really strong January despite these pressures. We talked about 150 to 200 basis points of traffic pressure from the fires and from weather. As far as the components of the comp, we were running about a 6% price heading into the year. That's kind of leveled off to about 5% for the rest of the quarter. When you take those together, we just think that it signifies very strong performance in our underlying business. The fact that our marketing and operational strategies are helping us to deliver strong performance against and helping us to offset some of these weather and

wildfire pressures.

Our next question is from Brian Vaccaro with Raymond James. Please proceed.

Hi, thanks and good morning. I had a question on the store margins and on labor specifically. You spoke to the phase two labor model efficiency. I also wanted to ask about the improvement that you're seeing just from running tighter operations and more of your lower performing stores starting to achieve more of your new KPI targets. I guess on that topic of attainment, is there a way to frame the improvement you're seeing on bringing up the lower performing stores and what the opportunity might be there if more of those stores start hitting more of your targeted KPIs?

The improvements that we're seeing from the labor model, I actually think that that is very coupled with the operational improvements that we're seeing. By implementing this new labor scheduling system, we do believe that we're providing a better guest experience and we're enhancing our performance. However, it really is only able to be executed by the strength of our operations. I think both of those run hand in hand. We wouldn't be able to have the new scheduling system go into place so successfully if not for the work of all of our operators and their improvements on that side. I'll let Rob talk to the scorecard and what we're seeing there.

Hi, Brian. I would say that it's pretty consistent with what we've been saying for the last six months. The new labor model is great. I wish we had some kind of proprietary AI software that's driving a lot of these results. It's literally great discipline operating restaurants. Our new leadership has permeated her philosophies down through the organization. Part of it is the amount of hours that are being allocated because of the activity-based labor model versus the sales base. A big part of it is just adherence to what's being allocated. It's the discipline to hit the numbers that are in the schedule. That wasn't necessarily something that was really focused on in the past and it's incredibly focused on now. To your question around the lowest performing shacks, even those shacks now have much better adherence to their labor scheduling than they had in the past, which is definitely driving increased profitability and hence our confidence and our ability to add 60 plus basis points of restaurant-level margin this year.

Our next question is from Jeffrey Bernstein with Barclays. Please proceed.

Great. Thank you very much. I just wanted to follow up on the restaurant margin topic. Looking beyond this year, you guys gave a three-year guidance at ICR last month and reiterated this morning for restaurant margin of at least 22%. That is similar to the 22% you're projecting for this year. I think there were some investors that were hoping for maybe a little more context behind the at least 22% just because it seems like it's open-ended, but at 22% it wouldn't demonstrate any improvement from here. Yet we know you have a variety of initiatives and it seems like you're increasingly confident in those. I'm just wondering if you can give any kind of color, whether it's a range or an annual goal or potential magnitude of upside. Rob, I think you mentioned there was potential upside to those targets. Just trying to get some frame of reference for when you say at least 22% kind of a little more context behind what that could be. Thank you.

Yeah, it's a great question. Our aspiration is to continue to get more efficient and more productive. Everything we talked about this morning and everything we talk about in our calls with all of the investment community really talks about all of the initiatives that we're putting in that transforming our operations, improving our guest satisfaction, improving our team member experience, improving our retention, and eventually that flows down to margin. We will keep the investment community very close to that as we continue to see progress and as we continue to advance the initiatives that we have in place today towards driving more productivity. Our guide is a baseline. It's representative of what is in the model today and what we believe we can execute today. That doesn't mean we don't have five, six, seven other big initiatives in place with the intention of continuous improvement. That being said, we also see headwinds on the horizon. We also see a volatile commodity situation both on ingredients as well as equipment and other costs to our business given the uncertainty of the current environment. We're trying to be thoughtful and planful and take both the upside into account but also some of the risks that are facing kind of the industry as a whole right now.

I'll just add on that with Rob just discussed. We are planning and our plans for this year reflect us returning to a more normalized price environment of that kind of 2% for InShack, 3% overall. Our outlook for the next three years doesn't really contemplate any big step ups in pricing. What we are doing here is really relying on operational efficiencies and other strategic initiatives to continue to expand our margins while still trying to navigate the pressures that Rob outlined.

Yeah, I mean product innovation and productivity are better than pricing. So we're focused on developing a culinary innovation pipeline, a menu strategy where we have items that complement each other to drive both comp sales as well as margin enhancements. Obviously, all the operating productivity that we've already talked about, I mean you couple our goal would be to minimize the amount of pricing that we have to take which is then going to continue to improve our value perception relative to the industry. We already know that we have the best food, the best ingredients and if we can become more productive and more inventive around our innovation and achieve our financial targets without having to take as much pricing, that's going to become a virtuous cycle that's just going to drive transaction gross for a long time. So that's really what we're focused on doing.

Our next question is from Sharon with William Blair. Please proceed.

Hi, good morning and thanks for taking the question. You guys just mentioned a lot of uncertainties with the commodity environment and Katie I know you said you don't have any kind of can produce or imports in your business or would you just expect there to be potentially broader inflation of tariffs were impacted?

Yeah, I think we source domestically for our company operations. We source the vast majority of our ingredients domestically. So we do not have a huge amount of exposure. That being said, all of these things live together. We don't have a breakfast business, a big breakfast business, so we don't have the exposure to eggs but other restaurant companies that have exposure to eggs may be moving away from eggs in the time being which means they're going to offer more beef products or chicken products to complement or to substitute for that high cost item. And when that consumption demand changes, it has the potential to change even some domestic pricing. So we're just trying to be thoughtful and planful and making it, as Katie highlighted, a lot of the work we've done in our supply chain has been around creating multiple sources of supply, new vendors, new partners. That has been a big focus for us both from a business continuity standpoint but also from a sourcing and price standpoint. So as we look at the environment, we're being very thoughtful about how we balance our sources of supply with pricing and make sure we have access to the best suppliers at the best prices. But that's more context than maybe you asked for. I would tell you that the vast majority of our ingredients are sourced domestically.

Our next question is from Brian Mullen with Piper Sandler. Please proceed.

Thank you. Just a question on loyalty. Can you talk about the roadmap for an eventual launch? And related to that, I know I think with Shake Shack the goal is to make sure there's enlightened hospitality expressed digitally. My question is just how do you strike the right balance between basic blocking and tackling and maybe replicating what have made other programs successful versus also trying to make it very unique for Shake Shack? Any thoughts on all that?

Yeah, I think we have gotten very successful this year at delivering kind of surgical incentives to drive incremental purchases. I mean, the marketing investments that Katie talks about, a lot of those are kind of performance marketing as opposed to big national advertising campaigns. So we're always going to have a component of our business that is focused on delivering incentives. So loyalty and understanding our customers will give us even greater insights to be able to be even better at delivering those targeted incentives. But that's not where it stops. It's also about making sure that we understand our guests and their historical purchase behavior and their needs so that we can deliver information and insights as well. So if you are somebody who traditionally has bought a premium burger or LTO burger like a truffle burger or what have you, you come in to our kiosk and you order a Shack burger, we're going to be able to interrupt that process not in a huge disruptive way that slows things down but in a way that might add value to this customer by saying, well, did you know that we currently have this great new LTO burger that is here for a limited time? And in doing so, we're going to improve, potentially improve the experience that that guest has on that occasion, but we're also going to drive self-selection trade-up, which is going to improve our comp and is going to improve our margins. So it really is a virtuous cycle. We're right now trying to stay away from a pure points discounting loyalty program. We don't feel like that is necessary for us. We feel like we can do it in an enlightened hospitality way, which is about understanding our guests and being able to deliver on their unmet needs. So that's, those are two examples of how we're going to leverage the loyalty platform.

Our next question is from Andrew Charles with TD Cowan. Please proceed.

Thanks. You mentioned advertising doubled year over year, which implies about an increase of about a point as a percent of sales to help drive the sales momentum in 4Q. What's embedded in guidance for advertising spend in 2025?

Hi, Andrew. Yes. So we had a really successful year of ramping advertising last year. We learned a lot. We are excited for, to kind of keep that level of investment up there. We're growing it less significantly. Certainly our plans are less significant in 2025 and they were more significant in 2024. But we feel like we have really good plan in place and learnings that we've achieved from what we did last year. Just for everybody's knowledge, a portion of that will hit other operating expense in our restaurant expense line. Most of that is going to be in GNA. And for modeling purposes, just a reminder that last year we did see more of a ramp up in our advertising spend towards the end of the year. This year we're planning it for it to be more evenly paced both across other operating expense and also on GNA.

So just to build on that, Katie, we are going to increase advertising, not at the same rate as Katie talked about, but that's because we're increasing our investment in GNA and operations and development and tech. So, you know, we could go out and double our advertising this year and get the same rate of return on that advertising as we've gotten in the past. Or we can go out and make GNA investments and running better operations, increasing throughput, increasing guest satisfaction. So the marketing investment that goes into driving that occasion has a higher lifetime value for us because there's going to be a higher probability of repeat purchase because of a better guest experience. Same with development. You know, we are one of our, you know, obviously thing, we're not as developed as a lot of our competitors, 329 company operated shacks across the U.S. The more shacks we build, the more access we create for people, the more convenient access we create for people, the better returns we're going to get on our marketing investment, right? Because proximity or lack thereof is a barrier potentially to frequency. So the more shacks we can build and more neighborhoods, the better convenience, the more convenience we're going to offer, the better return we're going to get on our marketing investment. So as I've talked about for the last few months, like 2025, we've got great, you know, we put a guide out there. We've got great ambitions to have a great year, but it's also a year of investment. It's a year of building the infrastructure and operations, development, and tech that is then going to give us even greater returns when we increase our marketing investments moving forward in 26 and beyond. So just want to make sure it's not about us kind of taking our foot off the gas on the marketing model. It's about us believing we have culinary operations, development, and tech opportunities to build that will give us even greater returns from those investments moving forward.

Our next question is from Peter with BTIG. Please proceed.

Great. Thanks. I did want to follow up on that question on the advertising. You know, Rob, can you just talk a little bit about how the strategy may be a little bit different in 25 versus 24? I know you guys said that, you know, be more evenly spaced, but I think last we spoke, you said, you know, you haven't really leaned on a call to action or any price point advertising. Is that something that could be in the cards for 2025, just a little bit more call to action on the advertising strategy?

Yeah, Pete. I mean, it could be. We're current, you know, I just hired a new chief communications officer and Luke Durwin, and he and I'm taking, you know, a very active role in the brand positioning and marketing work that we are doing, the foundational work that is so important to really making the media dollars deliver great returns, right? You know, bad strategy, great media, bad output. So I'm not saying we have a bad strategy, but we definitely have work to do on how we bring the Shake Shack brand to life. There are so many great things for us to talk about. We need to distill that and we need to communicate that in a compelling and concise way. And we haven't yet got that all the way to bright. So we are still developing that strategic brief, like, what is our, you know, single point of communication moving forward? Once we have that, there will be opportunities to deliver that from a pure branding standpoint, but there will also be opportunities for us to leverage that those insights to drive, you know, closer in purchase occasions through price pointed promotions or price pointed LTO promotions or those types of We've done targeted surgical incentives through our digital channels. We haven't done a lot of price pointed advertise promos. I think that's definitely something that we're looking at and we can leverage probably more in the back half this year or even in the front half of 2026.

Our next question is from Brian Harbor with Morgan Stanley. Please proceed.

Yeah, thanks. Good morning, guys. Just on the same Shack sales side, I guess, you know, you provide kind of that regional color in your letter. It seems like a couple regions got better, a couple, you know, faded a little bit. Can you just comment on what drove some of that? And then into this year, you know, as you think about kind of, you know, at least 3% seems for sales, I think, was what you spoke about. That's obviously, you know, mostly pricing. I would sort of infer that you might be looking for a bit of traffic growth and maybe some offset from mix. Obviously, you did kind of see that in 24 as well. Is that kind of accurate or do you see any sort of changes in those pieces based on the strategies you're deploying this year?

Yeah, so to start with the first part of your question on four Q same Shack sales and kind of heading into January and how those trends looked. Overall, when you adjust for weather and, you know, the fires, our trends are actually quite consistent. And, you know, the regions where we're seeing strength are just areas where, you know, we're still building brand awareness. I'll, you know, talk about Florida has been a particularly strong market for us. And operations are incredibly strong in that market as well. What we are seeing, though, and I think this will is helpful color for the rest of the year, and kind of lines up to the strategies that Robin has talked about is, you know, in January, towards the end of January, we are laughing, we were laughing the launch of our Korean barbecue LTO last year, and we did not have a new product to go against that. And so, you know, we're seeing that plus, you know, the continued impacts of weather and some calendar shifts be about a low single digit pressure to our traffic overall for the first quarter. And, you know, when we talk about the investments that we're making and the our focus on culinary and a culinary calendar, you know, that is very important will help us get ahead of issues like this going forward. Rob, do you want to add more on that? I

would just say, you know, you nailed it. Like, the whole point I've made for the last six months about us not having like a strategic culinary calendar is the representation, the representation of that is what Katie's talking about. You know, we had a great Korean barbecue launch last February, and we didn't really have something planned to comp over that this February. And that's, you know, that hasn't been the way this railroad has been run. It's been, to their credit, an amazing culinary machine. But that culinary has really been more about the focus just on bringing great food to life. Like, we need to do that. We need to do it in a strategic way that makes sure we don't have 100 150 basis point gaps in our comp model, because we don't have a great, you know, annual annual year over year innovation plan behind it. So, you know, those are the things that we are remediating. Those are the things that we are fixing. I keep talking about like, we're gonna have a great 2025. But like, we're building all of that 2025. So, if I'm sitting here in 2026, telling you that we didn't have a great innovation calendar to lap, you know, what we did in 2025, then shame on me, because that is the work that we're doing today to make sure that that type of scenario never plays out again.

Our next question is from Jake Bartlett with Truist Securities. Please proceed.

Great. Thanks for taking the question. Rob, I just wanted to build on actually that last comment. And that's the cadence of LTOs. And so, you know, definitely note that January or February, there's been an LTO in years past, and there's not this year. So, I guess the question is, does something come, you know, going forward, you know, soon or any anything that is different about the cadence of LTOs in 2025? And maybe, you know, what your vision is going forward. It seems like there's about, you know, three LTOs a year historically. Is that what you think should be the case, you know, going forward? How should we expect 25 to be different? But also, what does the future look like in your view?

Yeah, I think every brand is different. Every brand is different based on their purchase cycles and how they engage and interact with their guest base, right? I think the right cadence for this brand is similar to what you just articulated, three to four big LTO windows a year. We made the strategic decision this year to stick with Truffle. Like, technically, right now, we do have an LTO. It's Truffle. But it's been in market for over four months now. And I think we're seeing that that's probably a little bit too long to continue to stimulate demand. We're a bit enamored with Truffle. We're the only ones who can do it. It's literally a $25 burger that we sell for $11. So we love it. Our guests love it. It has been incredibly successful. But the duration of it, I think we're still seeing strong repeat, but we're getting as much trial after four and a half months. So as we look to the future, our goal will be to strike the right balance between giving people a window to be able to kind of drive repeat frequency around an LTO that they really love, but also making sure we have refreshed our LTOs enough, quickly enough, to continue to stimulate new trial and new demand of new items. So I hope that is kind of the information you're looking for.

Our next question is from Lauren Silverman with Credit Suisse. Please proceed.

Thank you. So industry comps challenging Exit 24, 25 early on obviously have the noises of weather and holiday shifts. Some of your peers have also had mixed commentary around the consumer. Can you just talk about what you're seeing with the underlying consumer? Any discernible changes in behaviors or thoughts on the relative resiliency at Shake Shack? Thank you.

Sure. Sure. Hi, Lauren. So, you know, when I got here in May, you know, right out of the gate, it was, Rob, are you concerned about the push to value? Are you concerned that your premium positioning in the marketplace is going to be a risk? And when I, you know, just got here, I might have had a little bit of that trepidation because, yeah, your, you know, your premium price, everyone's racing to value, does that create a risk? And what we learned last year is it's just the opposite. We, to a certain extent, because of our footprint, are a bit insulated from the hyper value conscious guest. We are, our Shacks are typically in the markets they're in at the corner of Maine and Maine, great real estate, great assets, and historically, you know, our premium positioning has attracted a higher income guest and has, you know, people that are a little bit less price sensitive. So as we aspire to get the 1500 Shacks, that dynamic will obviously evolve as we penetrate more markets and go into, you know, more mixed demographic areas. But right now, we're seeing a lot of strength with our guests and, you know, the Truffle Burger is our highest priced LTO in history and has performed better than almost any LTO in history. So those data points imply that there's still a lot of demand for high quality food that people still determine as a great value, right? I mean, we may be, I've talked also about our price points relative to, you know, mainstream 2SR competition. The gap has actually narrowed a bit on our core offerings, particularly our Shack Burger and our Double Shack Burger. So we feel really good about our value equation and our guests have shown up and shown us that we can continue to win with this premium strategy.

Our next question is from David Tarantino with Baird. Please proceed.

Hi, good morning. Rob, my question is about speed of service. You mentioned many times about that being a priority. You also indicated that wait times improved by more than a minute year over year. So I was hoping you could perhaps put the opportunity for speed of service into context. So for example, kind of where are you today on wait times? Where do you want to be? And just to kind of frame up kind of how much progress has been made already and how much more might be to come. Thanks.

Yeah, that was a great question. I'll just give you a little walk through history very quickly. When I was at Taco Bell, we used to talk about every second off of the drive through delivery time was worth a million dollars in sales to the system. Because when you're at max capacity during your peak hours, when you drive throughput, you're driving incremental sales. And they had measured how many people drove off the lot or how when the line got to a certain point, the queue stopped growing. So they've done all that diligence. We have yet to do all that diligence at Shake Shack and our drive throughs make up less than 10% of our footprint. So there's absolutely a benefit in throughput at our peak hours at our best Shacks. If you walk around New York City at lunchtime, you're going to see the line tend deep at almost every Shake Shack. So there's a throughput benefit. But there's also a lifetime value benefit from improved speed of service, right? Like people don't come to us sometimes because they know that they're going to have to wait. And they're okay with it taking a little bit longer to make the food, but we have longer lines than most people. At 4 million AUV, we're doing a lot of business. We have a lot of traffic and lines. So speed is a big focus area for us. And to take a minute off of speed of service in one year, that's just not even something that is possible at the QSRs of the world. Taco Bell, RVs, places I have experience with, we were trying to take a second off. We were trying to take two seconds off. We took a minute off. Now, to put that into context, we're still not even close to the industry standard total time to delivery. So we have a lot of work to do. We're not disclosing exactly what those times are. But I can tell you that we still have another minute to go before we even get into the ballpark of where I want to be. And all of our initiatives, both in the short term, around our process, our equipment, how we prep, cook, and hold our food, are all geared towards improving our speed without degrading our quality. So that's going to have short-term benefit in 2025. But long-term, as we build more drive-throughs, those benefits are going to be even more greatly exacerbated.

Our next question is from Andy Barish with Jefferies. Please proceed.

Yeah. Hey, guys. Just trying to level set on the new labor scheduling. I mean, it seems like with low single-digit wage inflation and the pricing you still have for 25, those kind of offset. So are we expecting that 80 biffs to kind of continue before you lap it in the fourth quarter on the labor line? I know you've got obviously less pricing, but just trying to get the puts and takes there.

Yeah. We're planning for about the same level of benefit throughout the year until we start to lap it closer to the fourth quarter. The other put and take here, though, is just consider you know, we have been seeing sales pressure in the first quarter due to weather and the fires and, you know, lapping the LTO from last year. So, you know, that is a little bit of a pressure. We are, you know, leaning on operational strategies to help still deliver, you know, quite strong margin improvement year

over

year, which is something

for your model.

Our next question is from Jeff Farmer with Gordon High School. Please proceed.

Great. Thank you. Just wanted to take another crack at the three-year guidance question. Obviously, as you guys well know, that low to mid-teens EVDOT growth guide sits just above that low-teens revenue growth guide. So, you know, clearly implies a smaller level of margin expansion as you move forward. Here's the question, and you guys did hit on this, but I'm just looking for greater clarity on if this is sort of conservatism on your part or an expectation for some incremental costs or maybe a combination of both.

Yeah, I mean, we are definitely in investment mode. We see huge opportunities. We cannot get a better return than investing our capital into our assets. Like, new shack openings is the number one value unlock for this company, and, you know, that requires increased G&A investment as well. That requires us to, you know, continue to build teams. It requires us to go and build the development capability. We have to get deal makers, real estate people. Like, a lot of that stuff in the QSR industry sits on the franchisee's plate. Here, construction management, real estate, all those things, that's all us. So, we are making those investments in 2025 and into 2026 to continue to drive incremental growth. Like, we are going to build more restaurants, more shacks this year than we built last year, and we are going to build more than that in 2026 and beyond. So, like, we are making investments. So, as you think about, you know, the margin opportunities, we can absolutely grow our margins faster than what we have guided to, but that would come potentially at the expense of the investments necessary to deliver the full realized long-term potential of our company. So, I don't know, Katie, if you want to add anything.

Yeah, I mean, I think it's important to put that into perspective here. So, just looking at 2024, we started the year with about 200 shacks in our comp base, and we grew our comps by about .6% year over year. So, it's about $30 million. You kind of have system-wide AUVs. It's about $30 million of revenue that came from just our comp base. However, we did increase our sales by $160 million year over year. So, really, four-fifths of our revenue growth is coming from our incremental revenue is coming from us opening up more and more shacks. And to Rob's point, you know, for us to achieve our total long-term potential of at least 1,500 shacks and what that can mean from how big adjusted EBITDA could be on that side, it does require a level of investment, but we believe we have a great plan in place in order to do that, and we believe we're maximizing the returns from this business.

Our next question is from Jim Sanderson with North Coast Research. Please proceed.

Hey, thanks for the question. I just want to go back to the drive-through optimization process. Could you speak a little bit more about what that entails and if menu bundling is going to be part of that solution, or more broadly, how you expect the changes to improve performance?

Yeah, Jim, menu bundling will absolutely be part of that solution, and we will be launching that soon. So, I've been talking about it for a long time. We have been building it. We've been optimizing it, and I am committing that it is coming. That's just one part of it, though, but it's a big part of it because the biggest gap versus -in-class drive-through is in the order zone for us. So, ideally, the configurations, the changes we're making to the menu and the drive-through will have a very positive impact on the order times, but we're making other improvements as well. We're streamlining. I mean, I talked about it, and I mentioned it earlier. You know, we are streamlining the drive-through restaurants. We are improving. In our kitchen innovation lab, I mean, this is something I want everyone to take away. For us to do kitchen innovation in the past, we have built shacks with new models to test them. Like, think about that. We didn't have a lab. For us to, like, learn, it required us to build more shacks and do things differently. So, while you're trying to open up a new restaurant in an optimized way and drive performance, you're also testing ideas and thinking about, well, maybe this could work, maybe that could work. The whole idea behind this kitchen innovation lab that we're opening in Atlanta is we are building a modular lab that's going to allow us to test and optimize all of our buildouts and flows and processes. So, that is going to accelerate, like, 100 times acceleration of innovation on our model. So, that's going to have a big impact. And then the last thing I'll say is, you know, our, I know we talked about the flows, but even just the equipment, I mean, we talked about hot holding, we talked about fries, we talked about shake machines, like, all those things are on the table that haven't really been on the table in the past. So, we're looking at all of that to decrease the times in the drive-through. And we just built our first single-lane drive-through that opened in December in Wesley Chapel in Tampa. And I gotta tell you, it has the best times in our system and drive-through, and it's single-lane, and it doesn't even have all of these improved modifications. So, lots of upside there.

Our next question is from Raul Crowe with JPMorgan. Please proceed.

Hey, guys. Hey, Rob. Can you talk more about this Atlanta support center? I know you mentioned a little bit about the kitchen innovation lab, but over time, like, how big and what kind of capabilities will this center have? And it does sound like some sort of secondary HQ. And then I also wanted to follow up on how you plan to attract the right tech talent out there, given how expensive it's been, and then as you continue to build out your data and tech capabilities.

Yeah, I mean, it's a great question. We, in the last quarter, we have moved away from this idea of a headquarters. We have communicated, in my year beginning letter, I sent a note out to all of our employees, and I just let them know, you know, everybody in our company is dedicated to one thing, making our shacks successful. Every employee, whether you're in finance, you know, you're in tech, you're in marketing, whatever, all we, we're all here to support our operations. And so we have moved from a headquarters vernacular to support shack support centers. And we have three of them. We have New York, we have Hong Kong for international business, and we are building in Atlanta. And Atlanta is going, you know, is going to give us a very convenient location to operate a restaurant company out of. We are going to be able to recruit different talent from across the country to be able to come to Atlanta, and we're going to be able to do it more efficiently. So we are super proud of our roots in New York City. We have a great team here in New York City doing amazing work and driving all these great results. That's not moving people from New York to Atlanta. We're essentially, we're just opening up the opportunities, both from a recruiting and you talk about tech talent. This new office gives us access to a whole new population of tech talent. And we've just hired a new chief information and technology officer and Justin Menon, who is best in class, is building a best in class organization. He's going to be based out of Atlanta. Atlanta has over 60 universities within a two hour drive from it. It's a hotbed of restaurant operations talent. It's also a hotbed of tech talent. So we feel great about opening this office, giving us a lot more access to recruiting and also giving us a space to be able to do a lot of this innovation work.

We have reached the end of our question and answer session. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.