Restaurants

Shake Shack tumbles on cautious sales outlook, but Wall Street isn't worried

Key Points
  • Shake Shack expects same-store sales to be flat in 2018 after a 1.5 percent to 2 percent menu price hike in December.
  • Some analysts are forecasting same-store sales to be up slightly in 2018, citing a boost from expanded menu options, digital investments and delivery service.
  • Shake Shack plans to have at least 200 locations in the U.S. and 120 globally licensed locations by 2020.
Analyst: Why we cut our Shake Shack price target
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Analyst: Why we cut our Shake Shack price target

Shares of Shake Shack tumbled more than 6 percent on Friday, the day after the company provided investors with cautious sales guidance for 2018.

The company said that it expects same-store sales to be flat in 2018 after a 1.5 percent to 2 percent menu price hike in December. But the burger chain also plans to open 32 to 35 new restaurants in the U.S. in 2018, the largest number of openings in one year in the company's history.

"We're remaining cautious," CEO Randy Garutti said during an earnings call Thursday. "It's been a volatile time for us. We've got our largest class of restaurants coming yet. And, you know, as the industry continues to evolve, we're going to remain cautious in our outlook."

By the end of 2020, Garutti said, Shake Shack plans to have more than doubled its locations to 200 in the U.S. and 120 licensed globally and increase its revenue to over $700 million.

Shake Shack said that, on average, its company-operated stores earned $85,000 a week during the fourth quarter, down 5.6 percent from the $90,000 a week it earned in the same period a year ago.

Wall Street, however, has a less cautious outlook. Some analysts are forecasting same-store sales to be up slightly in 2018, citing growth generated by expanded menu options, digital investments and delivery service.

"Initial 2018 guidance of 'flat' does not appear to reflect current (quarter to date) trends and is conservative, in our view," Jake Bartlett, an analyst at SunTrust wrote in a research note Friday.

Bartlett said that Shake Shack's traffic could also get a boost if it announced a third-party delivery partnership. The company has done delivery tests in about 50 percent of its stores.

On Thursday Bartlett said he expects same-store sales for the full-year to rise 1.5 percent, this is down slightly from the 1.9 percent he had previously forecast. He also slashed his price target on Shake Shack shares to $54, down from $60, but maintained his buy rating. The shares are trading around $38.62 on Friday.

Bartlett isn't the only one on Wall Street who foresees higher same-store sales than the company projected.

Andrew Charles, an analyst at Cowen, wrote in a note Friday that he expects same-store sales for the year to be up 1 percent. "We view flat same store sales guidance for 2018 conservatively following better-than-expected 4Q results and a greater push behind menu innovation, digital and delivery," he wrote.

New menu items have helped boost sales. The burger chain recently concluded its limited-time offer of Texas-style chili, which resonated well with customers. The chain expects to continue rolling out limited-time menu items in the future, according to Garutti.

"We walked away from the call encouraged by the company's ongoing efforts around menu innovation and digital investments as we believe these can support increased consumer traffic and spend over time," Nicole Miller Regan, a Piper Jaffray analyst, wrote in a research note Friday.

Regan is forecasting flat same-store sales, in line with Shake Shack's outlook. She reiterated her $44 price target for the company's stock.

"Shake Shack has quickly grown into a major player in the chain restaurant market, growing rapidly in 2017 and poised to crack into the elite top 100 restaurant chain group," David Henkes, principal at Technomic, told CNBC via email. "It's the fastest growing of the 'better burger' fast casual players."