Shake Shack to accelerate restaurant openings
Shake Shack is putting restaurant openings into overdrive, with 80-90 units slated to open this year, executives reported Thursday in their earnings call for the second quarter, ended June 24.
The New York City-based fast-casual chain started the year with 574 units globally, meaning that if it achieves its goal, it will expand its footprint by between 14% and 15.7%.
With more than half of those new restaurants, 45-50, being company-owned, that would be 'our largest class on record,' chief financial officer Katie Fogertey told investors. 'And we are already deep in the work to open even more shacks next year.'
At the beginning of the year, chief executive officer Rob Lynch had set a goal of reaching a total of 1,500 domestic, company-owned restaurants, and he has been working to create operational efficiencies to make that happen.
As a result, for the quarter, the restaurant-level profit margin improved by 190 basis points to 23.9% and same-store sales were up by 1.8%, the 18th consecutive quarter of comparable sales growth. The chain opened 13 company-owned restaurants, including two drive-thrus, bringing the total to 46. Nine licensed restaurants opened during the quarter.
Lynch stressed that the same-store sales growth for this quarter was much less dependent on price increases than last year, when comps for the year were 3.6% but pricing was up by 7%.
For this quarter, the nearly 2% increase was achieved on around a 3% price increase.
'We are building a different, more sustainable, value-enhancing model that still delivers the premium experience that sets us apart,' Lynch said.
'We're doing … the heavy lifting to be able to compete in good times and bad,' he added, sustaining growth even when customer sensitivity to raising prices makes that an impractical lever to pull.
'We're building a model that can sustain itself and drive consistent traffic growth moving forward,' he added. 'And that's all around the culinary innovation and the marketing that we're putting behind it.'
He also said that improved operations were improving guest satisfaction scores, which would improve traffic.
Indeed, though traffic was down by 70 basis points for the quarter, it improved sequentially each month and turned positive toward the end of the quarter and into July, 'driven by successful marketing activations, operational improvements, compelling menu innovation, and further improving the guest experience,' Fogertey told investors.
That menu innovation includes the launch in late April of a barbecue menu, available through summer, of burgers and fried chicken sandwiches with a choice of two sauces — a traditional smoky-tangy variety and a South Carolina-style mustard-based sauce — as well as the permanent addition of fried pickles.
And for July, that innovation included the June 24 launch of the Dubai Chocolate Pistachio Shake, which is being sold for around $9.99. That's about $3 more than regular shakes, reflecting premium ingredients such as pistachio paste and toasted kataifi, and operational complexity, such as hand-painting dark chocolate shells on the inside of cups and freezing them, Fogertey told NRN.
She added that they're selling well.
'We surprise [our customers] with so much care and so much thought that goes into these products,' she said, adding that same-store sales for fiscal July, ending on the 23rd of the month, were up 3.2%.
'Some of that was helped by the Dubai Shake,' she said. 'However, we also had broad strength across our portfolio,' including the barbecue menu.
'We also had a nice benefit from operational improvements and merchandising improvements on how we're showing up at the (ordering) kiosks,' she added.
Lynch said that, as the chain grows, it will use its added financial muscle to advertise more.
'With our increased scale, we are in the initial stages of testing a paid media component of our business model,' he said. We expect to realize the full potential of this brand by clearly defining how Shake Shack is different than fast food and bringing that to life in every market we compete in.
'As a company, we've historically underinvested in advertising versus many of our larger peers,' he added, 'and while Shake Shack sales growth has been positive for many quarters now, this (lack of advertising) has been a limiting factor to achieving our true potential.
'Moving forward, we will support our amazing culinary offerings with traffic-driving media. This has never been the case for Shake Shack. We have historically relied on our word-of-mouth promotions and other bottom-of-the-funnel marketing initiatives to drive traffic.'
Those initiatives started last week with paid media promoting the Dubai shake and an ongoing promotion of $1 soda, of any size, when ordered via the app.
Fogertey told NRN that the marketing has included out-of-home advertising, paid social media, and TV spots intended to reach new guests as well as remind existing guests of what's on offer.
She said the $1 soda promotion has been particularly successful, resulting not only in an increase in app downloads, but also in steady sales despite the discounted drink.
'The average spend with these dollar soda tickets is actually on par, sometimes even slightly better, than our overall average ticket,' she said.
And once they're using the app, the chain can engage with customers more personally.
'Those app users are at the highest lifetime value,' she said. 'We are able to provide our digital version of 'Enlightened Hospitality' through that channel,' she said, referring to the service approach of Shake Shack founder Danny Meyer.
Industry-wide, digital orders also tend to be higher than other orders.
Another innovation is underway at Shake Shack's 46 drive-thru locations, which now all have combo meals, something the chain started testing last year and rolled out during the first quarter of 2025.
Lynch said the combo meals weren't an attempt to discount, although he said they did improve value perception. Rather, they allow for faster delivery and improved order accuracy.
'We see potential for combos to drive throughput and frequency,' Lynch said.
Although the current focus on menu innovation is on the barbecue line and the Dubai shakes, Lynch said the chain has an 18-month culinary innovation calendar that's 'locked and loaded.'
Without going into specifics, Fogertey told NRN there was a lot to look forward to in menu innovation.
'Once Dubai Shake is over, we are going to come with brand new innovation on our sandwiches, we have new innovation coming on sides. We've got some very exciting new products never before seen at Shake Shack,' she said.
As for financial guidance for the rest of the year, Fogertey said same-store sales were expected to be in the low single digits. For the third quarter, she anticipates opening 20-25 restaurants — 13-16 company-owned and 7-9 licensed. Revenue is expected to rise between 13% and 15% to $358 million to $364 million, with a profit margin up 100-150 basis points to 22%-22.5%.
For the year, margins are expected to be up by around 110 basis points to 22.5% on total revenue of $1.4 billion to $1.5 billion.
Contact Bret Thorn at bret.thorn@informa.com
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