Shake Shack, Inc.

Good morning. Welcome to Shake Shack's second quarter 2026 earnings call. At this time, all participants have been placed in the listen-only mode. The floor will be open to questions following management's prepared remarks. It is now my pleasure to turn the floor over to Alison. You may begin.

Thank you, Operator, and good morning, everyone. Joining me for Shake Shack's conference call is our CEO, Rob Lynch, and our CFO, Michelle Hook. 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 26, 2026 or other quarterly reports on Form 10-Q and our other SEC filings. 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 2026 shareholder letter and our Q2 quarterly report on Form 10Q, which can be found at investor.shakeshack.com in the quarterly results section and as an exhibit to our 8K for the quarter. I will now turn the call over to Rob.

Good morning, everyone, and thank you for joining us. Our second quarter results reflect a business that continues to execute across sales, development and profitability, despite operating in one of the most challenging cost environments we have faced in many years. While we still have a lot of work to do, I'm encouraged by our performance in the quarter and the resilience of the Shake Shack model. We remain laser focused on executing our strategic priorities throughout the remainder of the year. The quarter unfolded largely as we anticipated following the business update we provided in early June. At that time, we revised our second quarter and full year outlook to reflect several developments that emerged during the quarter, including record high beef prices, higher fuel and distribution costs, and uncertainty surrounding the potential impact from the World Cup. Today's results are consistent with that updated outlook and, importantly, reflect our deliberate focus on guest value, traffic generation, and long-term brand health. Turning to sales performance, we continue to see encouraging momentum across the business. Our teams delivered another quarter of positive traffic growth. Marking four consecutive quarters of positive traffic and extending our streak of positive comparable sales growth to 22 consecutive quarters. For the second quarter, same shack sales grew 3.5%, including positive traffic of 2.0%. Top sales, excluding any World Cup impact, landed within the range contemplated in our June update. These results reflect our ongoing investments across culinary innovation, targeted marketing, and digital engagement, designed to drive guest acquisition and frequency. We continue to refine our paid media strategy to broaden awareness of the brand while also maintaining disciplined returns on our marketing spend. We will continue to make these investments to drive traffic growth in a challenging consumer sentiment environment. Our marketing strategy remains disciplined, Not reliant on broad-based discounting. Promotional investments are targeted by channel, whether through our app or digital ecosystem, with the goal of driving incremental demand and long-term guest value. Our digital ecosystem continues to deliver traffic growth. Comparable app channel sales grew nearly 30% year-over-year, and these guests are visiting more often and spending more annually. Delivery partnerships are also expanding our reach in markets where we have room to build awareness and trial. And over the summer, we were able to strategically leverage these partnerships and their World Cup initiatives to drive traffic for our brand. Importantly, these channels are not just driving individual transactions. They are introducing new guests to the brand, creating lifetime value. We are building the data and capabilities to better understand guest behavior and personalize engagement opportunities at scale, which is foundational to our upcoming loyalty platform launch. In the second half of the year, we are expanding our lifecycle marketing through the delivery of behavior-based communications, targeted offers, and automated guest journeys designed to increase frequency, accelerate second visits, and strengthen retention, all while maintaining our promotional disciplines. Our 246 digital offers continue to drive app engagement and support frequency among existing guests. As I mentioned earlier, comparable app sales are up nearly 30%. Separately, our delivery channel performance improved as we continue to strategically partner with third-party providers, resulting in strong traffic gains. These channel-specific investments are designed to create value without compromising the integrity of our core menu or our premium positioning. Our strategy balances culinary innovation with digital value, widening our reach without compromising our premium positioning. Our barbecue platform, illustrated by Baby Back Rib Sandwich, met our expectations and resonated strongly with guests. This product line reinforced our belief that Shake Shack will continue to lead with differentiated culinary innovation that drives excitement, traffic, and check growth. Looking at the second half, we're making the Big Shack a core menu item, given its strong guest response. And in July, we launched a new West Coast-inspired menu platform. We also brought back the Dubai Chocolate Pistachio Shake, which continues to resonate and gives us a differentiated platform for future premium shake LTOs. We are also testing new chicken offerings, building on the Korean Chicken Sandwich's performance and a smoked brisket platform. as we continue balancing proven favorites with disciplined innovation testing. Turning to margins, this quarter's results reflect the underlying strength of our model. As we discussed in June, beef inflation accelerated throughout the quarter and peaked in June, exceeding our original expectations and driving the majority of restaurant-level margin pressure that we saw. Rather than fully offsetting those costs through pricing, we chose to preserve our value positioning and Guest Proposition. At the same time, our teams made real progress operationally, continuing to optimize our labor model, maximizing labor attainment, and using our technology to run efficient restaurants while enhancing the guest and team member experience. Running better operations to improve the experience in our restaurants will always be job number one. We are also continuing to pursue supply chain opportunities that maintain or improve product quality, capture more competitive pricing, drive efficiencies across our business, and mitigate commodity and distribution pressures over time. Together, these efforts allowed us to deliver healthy restaurant-level margins despite a backdrop of significantly elevated beef costs. On the development side, we continue to grow our footprint. During the quarter, we opened 16 new company-operated shacks, bringing us to 33 openings year-to-date as of the end of the quarter, and we remain on track to open 60 to 65 company-operated shacks this year, sustaining our strong development momentum. This quarter's openings were all in existing markets, reflecting the meaningful white space we continue to see across our current footprint. Our build costs remain consistent with the levels expected. Our confidence in the long-term opportunity to expand our footprint remains unchanged, and we are encouraged by the productivity of our newer shacks as they track towards our expected cash-on-cash return targets. Our licensed business also continued to perform well despite a challenged global environment. We opened eight net new licensed shacks in the quarter, led by strength in USA airports and Canada. Total licensing sales grew 7.6% year-over-year to $222.4 million, and licensing revenue grew 7.1% to $14.2 million. The ongoing conflict in the Middle East continued to weigh most heavily on the UAE, historically our highest volume market in the region and one that has been especially dependent on tourism, partially offset by strong performance in markets such as Canada, the United Kingdom, and parts of China. Our license pipeline remains on track to deliver 40 to 45 new Shacks this year. Before I conclude, I would like to briefly touch on technology and our long-term strategic capabilities. Project Catalyst remains our foundation for scaling efficiently while improving the guest and team member experience, spanning our POS rollout, loyalty platform development, and the integration of AI-enabled capabilities across the business. We are also evolving our unified data and analytics platform, bringing together operational performance and guest behavior, supporting faster, more accurate service, more personalized guest experiences, and continued expansion of our AI capabilities at scale. These investments are not just technology projects. They are foundational to our growth strategy, decision-making, and guest connection, which we anticipate will support our path to G&A leverage moving forward. Before turning the call over to Michelle, I want to reinforce how we are thinking about the balance of the year. We know the back half carries real headwinds, tougher comparisons, beef inflation that we expect to remain elevated, continued competitive intensity, and uncertain macro environments. We remain a premium brand with a proven unit economic model, positive traffic momentum, Disciplined Operators, and Structural Margin Resilience that has held up through one of the toughest input cost environments that we have seen. We are focused on our ability to deliver sustainable long-term growth. We will continue to execute against our strategic priorities throughout the remainder of the year. Finally, I would like to take a moment to welcome Michelle to our first earnings call as Chief Financial Officer. Since joining the company, Michelle has quickly established credibility across the organization. She has immersed herself in every aspect of the business, built strong relationships throughout the leadership team and finance organization, and has already become a valuable contributor to our strategic and operational decision making. We are thrilled to have Michelle on the team and excited about the leadership and perspective she brings to Shake Shack. With that, I'll turn the call over to Michelle.

Thank you, Rob, and good morning, everyone. Before I get into the quarter, I want to say how thrilled I am to be here for my first earnings call at Shake Shack. Since joining, I've spent my time immersing myself in every part of this business, and my enthusiasm for the opportunity ahead has only grown. What drew me to Shake Shack is clear, an iconic premium brand with a tremendous runway for growth, a proven unit economic model, and a culture rooted in the enlightened hospitality that the company was built upon. Having spent the majority of my career in the restaurant industry, I have a deep appreciation for how rare this combination is, and it gives me great confidence in the future of this brand. I want to thank Rob and the entire team for the warm welcome, and I look forward to speaking with many of you in the quarters ahead. Now turning to our results. Our second quarter results reflect the underlying strength of our business despite ongoing macro and cost pressures. We are encouraged by the top line momentum we have seen with four consecutive quarters of positive traffic and our 22nd consecutive quarter of positive same shack sales growth while executing on our growth plan. On June 2nd, we provided a business update revising our second quarter and full year guidance to reflect incremental information at that point in the quarter. As Rob noted, this included escalating beef prices, higher fuel and distribution costs, and uncertainty surrounding the potential impact from the World Cup. Our second quarter results delivered within the revised ranges we provided. Second quarter total revenue was $417.6 million, up 17.2% year over year, driven primarily by the opening of new company-operated shacks and new licensed shacks, and 3.5% same-shack sales growth. Licensing revenue was $14.2 million in the quarter, with licensing sales of $222.4 million, up 7.6% year-over-year. Despite continued conflict in the Middle East, we saw strong sales in US airports, Canada, the United Kingdom, and parts of China. In our company-operated business, we grew Shack sales 17.5% year-over-year to $403.4 million. We generated roughly 78,000 in average weekly sales We delivered 3.5% same-shack sales growth, comprised of 2% positive traffic and 1.5% price mix. Growth was driven by strength in our app and delivery channels, as Rob discussed, plus a June boost from the World Cup. Our estimated World Cup impact is approximately 90 basis points. In-shack menu prices for the second quarter came in at 3.7%, while blended pricing across all channels increased 4.4%. This includes approximately 1% price taken in June, continuing our track record of driving positive same shack sales with less reliance on price than in prior years. Our promotional offers weighed on pricing, but were a deliberate driver for traffic gains we saw, particularly in our highest lifetime value channels. For pricing in the back half of the year, we have approximately 2% of pricing that rolls off in August and an additional 1.4% that rolls off in December. We will continue to evaluate the need for additional pricing this year as our cost structure continues to evolve. We delivered our strongest second quarter of unit growth on record with 16 new company operated shacks versus 13 in Q2 of last year. We are on pace towards 60 to 65 new company operated shacks planned for 2026. We will continue to invest in accelerating development. Our strong cash on cash returns are driven by low cost builds, strong margins, and our high AUVs. Second quarter restaurant level profit was 92.7 million or 23% of shack sales. Our margins declined 90 basis points versus the prior year quarter driven by higher food and paper costs and increased operating expenses partially offset by the benefits from our continued labor management strategies. The higher food and paper costs in Q2 reflect the record high beef costs we discussed in our June business update. We remain disciplined in our pricing approach to offset some of our cost pressures and are focused on driving continued traffic into our shacks. In the second quarter, food and paper costs were $116.3 million or 28.8% of shack sales. 60 basis points higher than last year. The increase year over year was mainly driven by higher commodity costs, primarily beef, promotional activity during the quarter, and a shift in menu mix to higher cost items. Blended food and paper inflation was up low single digits in the second quarter with beef costs up mid-teens. Through proactive procurement and cost mitigation initiatives, our teams meaningfully offset continued beef inflation. In the second half of the year, we expect continued inflation from beef to pressure a restaurant-level profit. Labor and related expenses were $101.2 million, representing 25.1% of shack sales and improving 60 basis points compared to last year, while continuing to uphold guest satisfaction metrics. By this time last year, we had fully rolled out our labor model, supported by our performance scorecard, which provides shack level visibility into labor performance. Since then, we have continued to refine our labor management approach, helping drive the efficiencies we achieved this quarter. Other operating expenses were 63.1 million or 15.6% of shack sales, 80 basis points higher versus last year, primarily driven by increased delivery commissions as we continue to leverage that channel to expand our reach Build Awareness, and Grow Engagement. Our digital sales mix increased to nearly 41% in the second quarter. The year-over-year increase also reflects higher professional service fees as well as travel and training costs associated with our elevated pace of new shack openings. Occupancy and related expenses were $30.2 million or 7.5% of shack sales flat year-over-year. Second quarter G&A totaled $48.3 million, or 11.6% of total revenue. While our marketing plan for 2026 is more evenly distributed across the year, in Q2, we realized favorability versus Q1, primarily from lower equity-based compensation related to performance-based awards and forfeitures, as well as lower short-term incentives. We continue to expect total G&A to fall within our guidance of 12% to 13% for the year. Our marketing spend in 2026 across G&A and restaurant-level profit is expected to remain in the 2% to 3% range of total revenue. Equity-based compensation was $3.9 million, 24.7% lower year over year, with $3.2 million hitting G&A. Reopening costs were $6.6 million, which was $1.7 million or 34% higher than the prior year driven by the increased number of new shacks open during the quarter and our growing pipeline to support future growth. Adjusted EBITDA of $61.2 million or 14.7% of revenue increased 3.9% year-over-year resulting primarily from higher restaurant-level profit partially offset by higher G&A and pre-opening expenses. Depreciation was $30.7 million. The increase in depreciation year-over-year is a result of more new company-operated openings coupled with new technology investments. Net income attributable to Shake Shack, Inc. was $15.7 million, a decrease of $1.5 million or 8.6% versus prior year quarter. Our GAAP tax rate was 25.9% and our adjusted pro forma tax rate excluding the tax impact of equity-based compensation was 25%. We ended the quarter with $308 million in cash and cash equivalents on the balance sheet, including $250 million in convertible notes outstanding and have full availability under a revolving credit facility, leaving us well capitalized to fund our growth. Before we discuss our outlook, I want to share a change to our guidance practice going forward. After reviewing our approach relative to the broader restaurant industry, we have made the decision to move away from providing quarterly guidance while continuing to provide annual guidance. We believe an annual outlook better reflects how we manage the business for the long term, aligns us with best-in-class practices across our industry, and keeps the focus on the multi-year value we are building rather than in quarter-to-quarter volatility. We remain committed to transparency. and we'll continue to provide meaningful color on the trends we are seeing as we move throughout the year. For the full year 2026, our current outlook assumes no adjustments for a previously disclosed full year guidance. However, we do expect the back half of the year to look different from the first half with tougher comparisons and beef inflation that we expect to remain elevated above prior year levels. Given the continued headwinds in our cost structure, we do expect our adjusted EBITDA and net income to be at the low end of our ranges. We remain encouraged by the momentum in the business, a strong pipeline that's delivering returns, a robust innovation calendar, maturing marketing efficiency, and our loyalty platform and project catalysts both progressing on schedule. And we remain focused on the long-term value that we are building. Thank you for your time, and with that, I'll turn it back to Rob.

Thank you, Michelle. I want to thank our teams again for their hard work and passion for Shake Shack, which is the engine behind our ability to achieve our long-term goals. Thank you to everyone on the call today and for your interest in our company. And with that, operator, please open up the call for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 that participants please limit to one question and one follow-up question. Our first question is from Sharon Zachia with William Blair. Please proceed.

Hi. Thanks for taking the question. Rob, I think a lot of investors are wondering about the strategy as we enter the second half of the year. Clearly, some of the work you've done on menu innovation and marketing really has resonated over the past year. We're starting to laugh that now you alluded to some of this in your prepared comments. How do we think about your strategy evolving as we move forward, particularly in marketing? and how do you frame kind of your ability to sustain positive traffic over the longer term?

Thanks for the question, Sharon. You know, we continue to believe that delivering delicious premium quality burgers, fries and shakes with unwavering hospitality is the way that we will continue to thrive. I mean, this is four straight quarters since we started investing marketing at scale where we've delivered positive traffic growth in a tough traffic environment in the industry. Our strategy really isn't going to change. The best hospitality, the best hospitable experience in the industry. So that's all going to stay in place. And we're balancing that with, you know, the right strategy, specific strategies and value orientation in each of the channels in which we compete. So we have a lot of continued momentum in our app, despite going from 135 to 246. We continue to grow our digital components of our business. and we're going to continue opening great new shacks that bring in a lot of new customers. And 17% revenue growth, the vast majority of that is new shack growth. And every time we open up a new shack and we're able to maintain our high AUV, that means that we are growing guests into the Shake Shack brand. So we feel great about the momentum on the business despite some of these challenges that we have continued to persevere through in 2026. So back half is going to be a lot more of the same, but we're going to continue to get better at execution and continue to improve the returns on every investment we make, whether it's technology or marketing.

And do you have any update on the timing of loyalty?

We're still committed to the launch of loyalty in 2026, but as I've stated in the past, the expectation should not be that that's going to be a big contributor to revenue in 2026. There's going to be, obviously, a period where we're going to test and learn, and we're going to continue to optimize so that we can make sure that Our loyalty platform is not just a points-based discounting program. It is really a representation of our commitment to enlighten hospitality across our digital platforms.

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

Hi, thanks. Good morning. Rob, I've got kind of a similar follow-up as Sharon there to start, but you know you obviously continue to see strong growth in digital and you noted some successful promotions in the period can you provide a little more color on where you're seeing the most traction on some of those promotions whether it be in shack or in delivery channels and maybe touch on how the 246 is performing after raising the price there yeah I mean we we're continuing to strike the right balance between you know traffic growth and margin maintenance as we continue to

move through these headwinds that we're facing on the cost side. So the ability to deliver 23% restaurant margins while continuing to invest in incentives that drive new guests and increase our frequency is really working for us. And we're going to continue to do that. And the majority of our incentives are deployed across our digital footprint, both in the delivery channel as well as in our app. less so in our kiosks in Shack. So that's really worked for us. It provides us with traffic growth with minimized cannibalization. So that's going to continue to be our strategy. In regards to the LTOs and the culinary promotions, we're seeing demand across every channel. It's obviously something that We want to make sure it shows up with the hospitality in Shack, but we also are seeing a high rate of guest satisfaction when we're delivering both our LTOs and our core menu through our digital platforms.

All right, that's helpful. And then a quick follow-up, Michelle, just a question on the store margins. Can you provide more color on some of the moving pieces within your second half outlook? maybe just what are you expecting in terms of commodity inflation, sources of leverage, maybe labor, there might be some leverage, but offsets maybe in the other OpEx line. Can you just kind of walk us through that second half after obviously the second half margins were down, followed by up margins in Q1. Just curious if you could provide more color there. Thanks very much.

Yeah, no problem, Brian. So we definitely saw the pronounced beef inflation in the first half. We're still gonna see inflation, and the back half in beef year over year, but it will be a little bit less pronounced, but we do expect that to continue to pressure the P&L when you look at year over year. I think from a labor standpoint, I think we've talked about the efficiencies that we've drove over the last 18 plus months, and so we continue to get as efficient as we can, but I don't look at labor as a significant margin benefiter as we move forward, but again, we're always looking for opportunities to continue to refine our labor strategies. But I think we will continue to see a little bit of pressure on the commodity side, labor up a little bit when you look at the low single-digit labor inflation that we saw in the first half of the year. I expect that that's going to continue at the same clip in the back half of the year. But yeah, we still expect to have pressures in both the food area as well as I mentioned operating expenses, Brian. on the broader call, we expect that to still be a little bit of pressure as well.

Our next question is from Michael Tammis with Oppenheimer and Company. Please proceed.

Hi, good morning. Thank you. You know, your second quarter same-store sales were pretty solid, you know, considering everything that went down during the quarter. I mean, mid-2% comp when you take out the World Cup benefit. You talked about solid momentum in the business. You know, as you mentioned, as we can all see, your comparisons do toughen the back half of the year. So can you maybe help us understand how you're thinking about the shape of the rest of the year? Maybe touch on the confidence you have in those strategies as it seems like some of your burger peers may be getting more aggressive on the value side. Thank you.

Yeah, I mean, I think our burger peers have been aggressive for the last 18 months. You know, we've battled up against some really deep discounting, $5 meal deals and what have you. So We feel like our business model has been able to be resilient in the face of some of that competitive activity. As I've mentioned in the past, our footprint insulates us a little bit from the segments of the marketplace that have decreased their spending the most. We're a premium position brand, and so we have been able to deliver the right types of incentives and promotions to our target guests. and Michelle Greig. In Q3, we're already lapping the onset of our dollar drink promotion last year in our app, which was our first big scaled price-pointed promotion, and we're encouraged by what we're seeing there to date. We feel confident that we're going to be able to continue to focus on driving traffic with the right promotions and the right incentives while maintaining restaurant margins despite some of the cost headwinds.

Thanks. My follow-up's on the three-year targets through 2027 that were not on this quarter's press release. You hinted that those were under review before, so can you just help us understand maybe how you were thinking about that outlook, particularly like the prior goals for at least 50 basis points of restaurant margin expansion and that low teens unit growth? Thanks.

Yeah, absolutely, Michael. And so we're continuing to review those long-term targets. As you know, that guidance has been out there for the time period of 2025 to 2027. So as we go into our planning process for 2027, we're going to look at those targets and any updates that we have, we'll provide those to you. But for now, there's no updates to that as we sit here today. But again, as we said before, we're going to continue to assess those and review those as part of the process moving into next year.

Thank you.

No problem. Our next question is from Margaret Mae Binshock with Wolf Research. Please proceed.

Good morning, guys. Thanks for taking my question. I just wanted to ask, I know you guys mentioned just being a little bit more insulated from the broader QSR environment, but are you seeing anything to call out in terms of either frequency or check management between the different income cohorts? And then I just wanted to follow up as well on the GoodFit menu. Are you guys seeing any, you know, it's been out for a while now, like strong uptick, and are you seeing that kind of helping you navigate the uptick in GLP-1s that we're seeing out there. Thank you.

Yeah, I would tell you that the growth of our digital channels, particularly our app, has definitely improved our frequency. Our team has done a really good job of delivering targeted incentives that bring our guests back more often and making sure that we're delivering a great value equation on our premium premium items. So our frequency has been really healthy, has been a contributor to our traffic growth, and we expect that to continue, and we expect that to get even better as we optimize our loyalty platform heading into 2027. In terms of the GoodFit menu, we've been able to sustain that business. We haven't made a huge marketing push on the GoodFit menu. We've been focused on and barbecue and Korean so far this year. But, you know, that's definitely a great option for us to make sure that we can deliver, you know, low lower calorie options with, you know, a lot of high quality protein, which is what a lot of those the guests who look for those options. We feel like we can deliver them, you know, as well as anybody.

Thank you. Our next question is from Steve McManus with BNP Paribas. Please proceed.

Hey, thanks for taking the question.

So on the innovation calendar, looks like big checks coming back. Can you just walk us through the rationale? How do we think about like the potential cannibalization and how will that be priced just given the check drag when it was previously at $9.99? Thanks.

Yeah, so Big Shack is already back. It's on the menu. And we did decide to price it more consistent with our doubles. If you recall back in Q4 of last year, we were excited about launching a great value at a $10 Big Shack burger with eight ounces of high quality beef. We did see some cannibalization of our doubles business, which was a bit revenue and Margin Dilutive. So we have priced it more consistently with our doubles platform. We still anticipate, you know, getting some trade up from singles. But now when people trade over from doubles or other premium burgers, we won't see as much, you know, revenue or margin dilution. And the reason why we brought it back is because because guests were it was in high demand. Guests were asking for it. We were you know, we're very attentive to listening to guest requests and guest feedback on our social and guest response channels. And that was one of the items that folks were really excited about us bringing back. So we decided to do that.

Got it. Thanks. And I had to follow up. Looking at the regional comps, the New York market was flat kind of in line with last quarter. I would have expected some uplift from the World Cup Should we interpret that as underlying trends in the market are deteriorating or as compared as anything on that front would be helpful? Thanks.

Yeah, I wouldn't say they're deteriorating. I mean, even when you take out the World Cup benefit, kind of the run rate has improved year over year in New York City. It's still not a significant driver of the growth on the business. As you would expect, it's a more mature market. and with a lot of competitors coming into Metro New York area. But, you know, we're excited about the restaurants there. As I said in the past, they're not huge comp growth restaurants, but they are huge restaurants. I mean, a large number of our highest AUV, highest sales restaurants are located in this market and they deliver both high revenue and high margin. So they're great restaurants. We'll continue to support We'll even continue to develop here when we find great real estate that we think makes sense and minimizes cannibalization. But the comp growth is coming from other markets where we have not been there quite as long. And we have lower AUVs in every other market. And so there's just more upside potential on a comp basis. and in places like Florida and Texas and the Southeast and even in California where we've seen a lot of strong growth over the last six months. So New York will always be super important to us and deliver a lot of strategic value, even if it's not growing at the comp rate that the balance of our newer markets are growing at.

Our next question is from Gregory Frankfurt with Guggenheim Securities. Please proceed.

Hey, thanks for the question. I just maybe want to touch on unit growth. I know you guys are going through the long-term planning process, and I don't know if the question is for Rob or Michelle, but just as you kind of take a look at new store productivity this year and just returns, I think you spoke pretty confidently in the prepared remarks, but do you think unit growth needs to come down at all as you look in the process?

I don't think it needs to come down. In fact, we have every intention of maintaining the rate of growth, which will imply even a higher number of units on an ever-growing base. We've been really happy with our development. If you're a long-term investor and you're underwriting this business, that's the biggest You know, value creation opportunity. Obviously, comps are really important and we're really proud of our comps, but we are getting a great return on our invested capital from our new units. And, you know, we delivered 16 this quarter. It's the highest Q2 number. Last quarter was 17, which was by far the highest Q1 number. So we are really committed to delivering the 60 to 65 this year and anticipate that number continuing to grow in 2027.

Yeah, and Greg, I'll just add on. We're happy with the returns that we're generating with our recent new classes of Shacks, over 30% cash on cash returns. And when we talk about assessing the long-term guidance, just to be clear, getting back to the point we made earlier, it's not as much the unit growth so right now we're saying you know in the long-term guidance unit growth is going to be in the low teens with low teens revenue growth so that's not the issue with the long-term guidance it's more the assessment of the restaurant level margins and growing that by 50 basis points a year so to Rob's point to be clear we're happy with the returns that we're generating on the new units and there's no anticipation that as part of that long-term algorithm that that's going to change The growth that we've talked about historically or the growth that we plan to do moving forward.

Yeah, and I would also say something we don't talk about very often that I'm excited about is the performance of our licensed business and the units that aren't company-owned. Obviously, this is a challenging year with some of the dynamics in the global environment, and we anticipated having a bit more of a holistic challenging year on our licensed business, but we've seen so much success in some of these markets. I would call out Canada. The performance of our partners there has just been amazing as they open up great shacks with great operations. So I definitely see the licensed business also becoming an EBITDA, not as much a revenue growth, obviously, as our core business, but definitely becoming kind of an EBITDA growth Accelerator as we continue to increase the number of license units in markets that we open up globally.

Really helpful. Thank you.

Our next question is from Lauren Silberman with Deutsche Bank. Please proceed.

Thank you very much. I guess this is on the comp side. Can you talk about the cadence of comps as you move through the quarter? And I know you guys want to move away from quarter-day commentary, and I understand, but there's concern amongst the investment community that the business materially slowed exiting the quarter into July. So can you just help level set qualitatively even whether you see changes in consumer behavior or momentum?

Yeah, so I mean, I can speak directly to Q2. I mean, I think everyone's aware that April was a minus 0.6 on comps. So we delivered three and a half. So that whatever that assessment is of a decelerating comp is actually completely inaccurate. I don't know where that data is coming from. We saw June is our best period in the quarter. So we had just the opposite, accelerating comps. And now As we disclosed in our comments in the script, we had definitely had some tailwind from the World Cup, which we called out as something that was an opportunity for us early on in the quarter. In fact, when we delivered the May earnings, May 7th earnings, we called that out. And so we had really strong acceleration throughout the quarter. And we're not obviously giving in-quarter updates at this point. I can tell you that in Q3, we're also continuing to work on all the things that drove the strong Q2 results that we delivered.

And Lauren, the only thing I'd add is even when you take out the World Cup benefit in June, to Rob's point, June would have been the highest comp period within Q2, even when you pull out World Cup. So the The idea that we decelerated exiting the quarter to wraps point is not correct.

Great. I appreciate that color. And then if I could just touch on the menu innovation. And can you talk about the performance of the new menu innovation items relative to expectations, whether it's bringing in new guests, driving incremental transactions with existing guests? And do you see similar performance across markets?

Yeah, I wouldn't say that we have a huge disparity. across markets on the mix that LTOs and innovation represents. It's relatively consistent. Obviously, you have some markets that perform a little bit better and some maybe a little bit worse. But on the whole, we don't really talk about a big disparity in the pickup on the innovation. And I can tell you that the innovation that we had last quarter around the barbecue menu, I mean, we started off extremely strong. on the baby back rib sandwich. And, you know, we had some concerns around our ability to even supply baby back rib throughout the planned period. And we were able to meet those demands and meet our expectations on the performance of that LTO. And, you know, our LTOs, it depends on what the strategic intention is behind the LTO, right? We have LTOs that we launch Mac and Cheese is one where it's not going to be a traffic driver. It may be a frequency driver long term as we have a lot of guests who love it, but it really is a check builder. And when we launch $13.99 barbecue baby back rib sandwich, that's going to drive some initial traffic and trial, but it's also a check builder. Those super premium LTOs, there's intentionality around trading guests up from either single or double cheeseburgers into those LTOs. Every innovation that we have, the true goal is just to deliver guest satisfaction. The financial goals, whether it be traffic or check, will be driven by the strategic intention of that specific LTO.

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

Hey, thanks for the question. I wanted to go back to your comment about lifecycle marketing. If you could provide a little bit more color on how that's going to be used, if that includes pricing and discounts and how that's going to roll out in the second half. And then I have a quick follow-up on adjusted EBITDA forecasting.

Yeah, the lifecycle marketing is really around kind of just how we're managing our relationships with our guests, right? We have had a lot of new guest acquisition. We've also had a pretty significant increase in frequency. And so as we grow our digital channels disproportionately and as we build the data analytics capabilities that are going to support our loyalty platform, we're going to be able to leverage that. Those capabilities in an even bigger way to make sure that we are driving frequency. We're grounded in enlightened hospitality. We believe that when folks come to our shacks, they're going to get a fast casual experience that they really can't get anywhere else. We aspire to deliver that in our digital channels as well and know our guests better than anybody else. and be able to deliver the right incentives at the right times to trigger the highest level response, which will bring our guests back more and drive frequency ongoing.

All right. Thank you for that. And I just had a quick follow up on your IBIDA guidance. I think you went to the lower range of the 225 to 235. That was back in June. So what's changed to get you more comfortable with the lower range of the 225 to 235 since June?

I think that stayed consistent. It's still the low range of 225 to 235. Once again, we're opening up the number of restaurants that we want to open up. We're seeing the results that we want with those restaurants. When you look at the first half of the year, the first six months, about a 4% calm. That's actually better than we thought we were going to do in the first half of the year. So the revenue generation on this business is as good or better than we had anticipated. The challenge, obviously, is the cost structure that we didn't anticipate. We had seen some relief in beef at this point in the year, which we had forecasted relief in beef at this point in the year, which we have not realized. We also have seen higher Utility and distribution costs as a function of the cost of energy. So some of those cost inputs have driven some of the EBITDA and margin discussions that we've had. So very confident, very excited about our revenues, just trying to be very transparent and transparent on the cost side of the business.

Our next question is from Sarah Senator with Bank of America. Please proceed.

Thank you. I wanted to ask about the digital sales mix. You mentioned, I think, 41%. I'm not sure if you have or if you could share kind of app-based sales, but maybe directionally what share of the total they account for. And I guess I ask because you said comparable app sales were up 30%. So I'm just trying to understand, you know, kind of what they might have contributed in particular, their incrementality. I understand that those are high lifetime value channels and you get higher frequency there. But, you know, as I think about kind of the app-based sales and maybe having a little bit more of those attractive price points associated with them, thinking about, again, the sort of incrementality from a sales and margin perspective. And then I do have a quick follow-up, please.

Yeah, when you think about our channel mix, Sarah, so the digital channels include delivery, app, and web. And so app is just over our total channel mix. It's going to be just over 10% of our total channel mix. So that should give you a sense of how that mix is then. But just to, again, our digital channels are going to be delivery, app, and web. But app is just over 10% of our channel mix.

Yeah, and I can tell you, from an incrementality standpoint, That is the largest driver of frequency and new guest acquisition. So that's where we are seeing a lot of the growth and the traffic is coming from the app channel. So that is highly incremental to our core business and our run rate of our base business.

And it's also our fastest growing channel presently. To Rob's point, the frequency there is higher than any other channel.

Okay, got it. And thank you. And then the follow up is just, you know, you think about the margin pressure, obviously, you know, beef with some of it, but you've done, I think, a good job of offsetting that with supply chain. I think the bigger piece maybe is some of these sharp price points. I mean, mix was pretty negative, I think, in the quarter. Do you envision kind of lapping that as you maybe, you know, as you anniversary some of the, you know, the app-based value menu? I guess, is there a scenario where, you know, a quarter or two from now some of that pressure moderates on the mix and the COGS perspective?

Yeah, I mean, we're already lapping some of those initiatives from last year. So when you look at the things that we're lapping and the question marks around the ability to comp to comp and lap these things, I mean, we're lapping the labor model change that we made in 2025. And so we continue to be able to drive more productivity with better execution. The model isn't changing. We're just getting better at executing it. I would say that that is the same model that we aspire to on the revenue side. You know, we are We learn every day how to get better at delivering incentives that deliver traffic growth with less margin dilution or cannibalization of other sales items. So we look at the back half of this year as an opportunity to continue to leverage app, even though we're lapping it. And then obviously, as we look to 2027, the loyalty platform should give us a whole nother an entirely additional tool for us to get even better at delivering targeted incentives that allow us to drive the rate of traffic growth that we aspire to with less mixed degradation.

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

Great, thank you. You know, Michelle, you left the door open to future price increases in 2026. And I'm curious what you're monitoring for around potential contemplation of future pricing. You know, if I heard you right, you believe that beef prices have peaked but remain high. Your labor inflation is expected to remain consistent in the back half. But any other key items that you're monitoring for on the price?

Yeah, definitely, Andrew. Beef, as we head into July, continues to be elevated. in the month of July. So we're continuing to monitor that. Obviously, as we've talked at length about traffic and us continuing to focus on traffic driving initiatives within our business, we're monitoring that as well. And as we think about future price increases, definitely taking a surgical approach to what the competition is doing, how that looks like within each of our markets and pricing tiers. So We're going to be mindful of all that, but looking at primarily the cost structure, what that's going to do, and then traffic as well and what we're seeing in our different channels. So those are the two primary things we'll be monitoring.

Okay. And then, Rob, you talked about digital sales up 30%. You talked about the in-app promotions, but you also mentioned there was some strategic partnership with third-party providers that led to some traffic gains in the quarter. Can you talk more about that?

We had great strategic alignment with our delivery partners. Obviously, they have access to a huge audience and they leverage their platforms to drive a lot of excitement around delivery and the World Cup. When we talked about the World Cup earlier in the year, we talked about our markets and the markets that were hosting the World Cup games and the infusion of and many more. and in the July with the World Cup, we partnered with those delivery partners to drive strong traffic growth. Thank you.

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

Hey, thanks. Back to development, just wanted to get your current assessment of the go-forward drive-through opportunity. Do you feel like that you have that format fully figure it out in terms of the right layout and the right operating model? Or maybe are there still a few things the team's trying to sort out with the existing assets before you really want to ramp up the drive-through component of your development moving forward? Just would love to get your current assessment.

Yeah, I mean, I think drive-through presents an opportunity for us when we have great real estate that supports a great drive-through restaurant. I will tell you strategically, We have done a lot to optimize the drive-thrus. We have significantly improved the flow in our restaurants. We've improved the ordering process. We've improved a lot at the drive-thru. The fact that we make all of our food fresh to order, it creates a cap on how fast we can get. At Shake Shack, we're about delivering premium quality food with great hospitality and so you know I don't know that drive-through is going to ever be the primary format for Shake Shack I think there are opportunities for us to there's there's a huge amount of real estate for us to go out and build great restaurants that allow us to deliver a great digital experience and an even better in-shack experience and so you know I I just want to make sure that we don't aspire to be fast food. We don't aspire to be QSR. So we will have drive-thrus or pickup windows, but that is not kind of the big strategic push for us over the next three to five years. Obviously, we can execute it, and when we find great real estate, we can do it, but we want to make sure that Our enlightened hospitality comes through in the most compelling and differentiating way possible. Thank you. Thank you.

Our next question is from Ralu Krasapalli with JP Morgan. Please proceed.

Good morning, guys. Rob, I want to ask about how you're thinking about the square footage growth relative to the overall development or unit growth. I'm trying to reconcile the comments you talked about the digital sales, which I understand includes kiosks, but even excluding that, the app and third party channels seem to be growing a lot faster. Is there an opportunity to reduce the new build square footage and with perhaps less in-store seating and more pickup and delivery areas as we go forward?

I do think that that's an opportunity. I think as we come next year and we work to deliver our long-term strategic plan, I do think there's an opportunity for us to talk about how we can continue to grow by leveraging different formats. We just answered a question on drive-through. I do think that there's an opportunity for us to explore some smaller formats with less seating, less build costs, potentially a different labor model, even more of a streamlined menu so that we can maintain margins even if those formats have lower rate of sale. The different formats provide us access to different real estate. When we talk about our TAM, a 1,500 company restaurant, that can be 1,500 core units, that can be and many more. And I think the more we prove out the different formats, the more TAM opportunity we have. So I do believe there's an opportunity for us to explore markets that might not support some of our big footprint, big shacks that we could go into and put a smaller shack with different operating model that can still deliver great returns with lower cost structure and great margins.

Thank you. That's helpful. The follow-up is on the traffic and mix. As I look into from 1Q to 2Q and into back half, we see a dip in traffic and mix combined. How should we think about the dynamic in second half versus first half Thank you.

Yeah, I mean, you know, the back half of last year was the first couple quarters where we were investing to drive traffic with marketing. And so we employed a lot of different levers and we were really successful. in both quarters and leveraging different models. In Q3, we had dollar beverages only in the app. In Q4, we had 135. We also did different marketing investments in media across different channels and different markets. So there's a lot of things that happened in the back half of last year, but I believe that we are much more and much better at understanding how our activities impact our business than we were a year ago. Obviously, our objective is to continue to drive traffic while maintaining strong margins. Even though we're lapping some higher comp quarters in the back half, We believe that we have the appropriate amount of investment. We have the right product innovation to work to deliver strong comp growth. Now, I will point to the fact that we have reiterated our low single digits for the year. So we're not taking that guide up. We obviously recognize that we have tougher comparables in the back half, but our aspiration is to continue to drive positive traffic.

Thank you. 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.