Investors in Shake Shack have expressed frustration over the company’s underperformance in a key growth metric. Even one of the stock’s most bullish analysts expects this trend to continue throughout the year.
Though the burger chain continues to open new locations each quarter, a significant portion of these stores are in close proximity to existing ones, particularly in urban areas. As a result, sales at older nearby locations are being impacted, leading to a decline in the company’s “same-shack sales” – sales at restaurants open for more than two years.
According to SunTrust Robinson Humphrey analyst Jake Bartlett, this decline in “same-shack sales” is anticipated to persist for the entire calendar year. Bartlett estimates that Shake Shack will open 10 new stores within a 15-mile radius of existing ones this year. This marks an increase from nine stores opened last year and just two stores opened the year before.
However, Bartlett advises investors to look beyond the sales figures at Shake Shack’s established locations. He finds potential in the company’s plan for higher “unit growth,” which means the opening of more new stores than initially communicated to investors. Although management has projected the unveiling of 23 or 24 new stores in 2017, Bartlett believes Shake Shack has a history of surpassing such targets as the year progresses. He predicts that the company will introduce 25 new locations this year, ultimately boosting overall revenue.
Furthermore, Bartlett has an optimistic outlook on the newly announced deal that enables Shake Shack to expand into China. Over the next decade, starting from 2019, 25 new locations will be established in China.
Bartlett rates Shake Shack shares as a Buy with a $48 price target, implying a 55% increase from current levels. On Monday, Shake Shack’s stock experienced a 1.2% decline.
Big Picture:
An analyst acknowledges the downward pressure on one of Shake Shack’s key growth metrics. However, he expresses optimism for the company’s prospects in other areas.
