Can Shake Shack Hit Its Revenue Growth Target in 1Q16?

Can Shake Shack’s 1Q16 Results Set the Road for Recovery?

(Continued from Prior Part)

Revenue sources

Shake Shack (SHAK) earns its revenue from two sources: company-owned restaurant sales and licensing fees collected from franchisees. Company-owned restaurant sales account for more than 95% of Shake Shack’s revenue.

1Q16 estimates

Analysts are expecting Shake Shack (SHAK) to post revenue of $52.2 million, which represents a growth of 38% from $37.8 million in 1Q15. This is already a deceleration from its 47% growth last quarter.

In 1Q15, Shake Shack, which forms 0.02% of the holdings of the iShares Russell 2000 Growth ETF (IWO), had posted a revenue growth of 56.3%. The revenue growth is expected to be driven primarily by unit growth and to a lesser extent, by same-store sales growth.

By the end of 4Q15, the company was operating ten more company-owned restaurants compared to 1Q15. These added units, along with restaurants opened in 1Q16, could boost Shake Shack’s revenues. The increase in franchised units increased the franchisee fees and royalties collected from them, thus increasing the revenue from the segment. Also, analysts are expecting to see positive same-store sales growth, which could also contribute to revenue growth.

Peers comparison

In 1Q16, Panera Bread (PNRA) posted a revenue growth of 5.7%, while Chipotle Mexican Grill (CMG) registered a decline of 23.4%. During the same period, analysts are expecting Jack in the Box (JACK) to post a revenue growth of 1.3%.

2016 outlook

With 20 more units expected to be added by the end of 2016, and expectation of same-store sales growth to be 2%–3%, Shake Shack’s management has set revenue guidance for 2016 to be in the range of $237 million–$242 million. This represents a growth in the range of 25%–27%. Analysts are expecting the company’s revenue to be $242.4 million, a growth of 27.2% from $190.6 million in 2015.

Revenues of restaurant companies are generally driven by same-store sales growth and unit growth, which we’ll examine in the next few articles.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Can 1Q16 Results Stem the Decline of Shake Shack’s Share Price?

• Part 3 - Shake Shack: Analysts Expect Positive Same-Store Sales Growth in 1Q16

• Part 4 - Unit Growth Looks Like Shake Shack’s Real Growth Driver in 2016