Shake Shack (NYSE: SHAK) reported Q1 EPS of $0.08, $0.03 better than the analyst estimate of $0.05. Revenue for the quarter came in at $54.2 million versus the consensus estimate of $52.06 million.

The burger restaurant is expected to post earnings of 13 cents a share on $63 million in revenue, according to a consensus estimate from Thomson Reuters.

Shake Shack’s Fat Valuation Isn’t Healthy

May 3, 2017

Shake Shack Inc. just can’t whet investors’ appetites.

Its shares are down 5% so far this year and have fallen 26% since the closing price on the day it began trading in January 2015—among the worst performers of so-called fast-casual dining chains. The initial pop following the IPO has long faded.

The reasons for the stock’s struggles are well-documented: Slowing growth and a rich valuation haven’t been a good recipe. Couple that with rising labor costs and weak traffic trends hindering the restaurant industry overall and Shake Shack’s prospects still aren’t great heading into its first-quarter earnings on Thursday.

Analysts polled by FactSet estimate Shake Shack earned 8 cents a share, matching the year-earlier figure. Revenue is expected to have risen 38% to $74.7 million. While impressive for a restaurant chain, it would be the sixth deceleration in the past seven quarters.



Same-store sales, which the company dubs “same-Shack sales” and measures growth at locations open longer than 24 months, are expected to increase just 0.5% from a year earlier. That is in part due to a tough comparison—a year ago, the company’s newly launched chicken sandwiches were in high demand and prompted a flurry of activity.

But the problems probably run deeper than quarterly fluctuations. That is because Shake Shack, which at one point was the hottest burger in New York City, has struggled to sustain that level of excitement as it expands. The company had 64 domestic company-operated locations as of the end of the year and has plans to open at least 22 more (not including licensed locations) this year. This is all part of longer-term ambitions to open as many as 450 locations in the U.S. and continue its international expansion.

But research published last month by Goldman Sachs suggests the excitement for these new locations isn’t what it used to be. Analyst Karen Holthouse examined the opening of a new location in Washington, D.C. in March as a case study for other openings. She found that reviews on Yelp Inc., mentions on Twitter Inc. and search results all fell short compared to prior openings in the region. The declining novelty is “a risk to new-store productivity,” she said.

It is little wonder that Shack Shack remains a favorite among short sellers. And the stock’s rich valuation offers little room for error. Shares trade at north of 60 times projected earnings over the next 12 months, still far more expensive than most rivals.