Shake Shack shares were down 10% after the chain reported sales and revenues both dropped nearly 40% during Q2. CEO Randy Garutti has a comeback plan with an emphasis on digital.
Although Shake Shack shares were down 10% Friday morning after the chain reported Thursday that sales and revenues both dropped nearly 40% during Q2, CEO Randy Garutti is rolling out a digital ordering experience called “Shack Track,” an enhanced digital order and pick-up solution. Shack Track allows customers to order and pay via app or web and pick up by way of drive-up window, curbside, walk-up window or in-Shack pick-up shelves, Meg Castranova, manager of brand communications, said in an email.
Drive-up windows allow guests to collect app and web preorders from a designated window without leaving their vehicles, while curbside pickup for app orders allows them to order on the app and park in a designated curbside spot at the Shack. Within the app, they’ll share their car color and type, and Shake Shack employees will deliver orders to the car windows for contactless pay.
Walk-up windows will also allow guests to pick up pre-orders without stepping inside the Shack.
At least eight shacks will have the Shack Track design by the end of the year, and the chain’s curbside pickup, which is being tested at 10 Shacks, will extend to 50 locations by the end of the third quarter, Castranova said.
“We have already seen strong adoption and success at pilot shacks for our digital curbside pickup,” she said. “Of orders with the curbside ability, we climbed from 22% of orders to 29% in just two weeks. While there’s a mix of usage, in some of our pilot Shacks we are seeing over 40% usage of the curbside feature.”
Shake Shack is also adding a drive-thru experience in 2021 and within the next six-to-12 months is rolling out app enhancements around delivery through the Shack App and additional payment functionality.
For the Shack, digital is where it’s at
Q2’s silver lining was the company’s strong digital channel performance, which made up 75% of total Shack sales and more than doubled compared to the first quarter of 2020, Garutti said in a company press release. Its native web and app channels more than tripled compared to the same period last year.
For fiscal July, for example, digital sales represented 62% of total Shack sales, retaining over 90% of the digital sales that were achieved during fiscal May, even as in-Shack sales have gradually returned. Also, the company reported more than 800,000 first-time purchasers via its own digital channels since early March — nearly four times higher than in the same period last year.
“Despite the challenging environment, total sales and average weekly sales have shown continued improvement throughout the second quarter and the third quarter through July 22,” Garutti said in a company press release. “We’ve got the strongest balance sheet we’ve ever had, and with gradual recovery underway across the country, we’re bullish on our long-term growth opportunity which remains as strong as ever.”
Garutti said Shake Shack has restarted new store development, already opening nine domestic company-operated Shacks this year with plans to end 2020 with 15 to 20.
“We have a strong identified pipeline of leases in negotiation and believe additional and improved development opportunities may be available over time due to the impact of COVID-19 on the overall retail and real estate environment,” he said.
Garutti told investors Thursday that his goal was to increase the brand’s market opportunity while driving strong AUVs and returns on capital.
“We’re still in the early days for Shack Track drive-thru and enhanced pickup models,” he said. “And we have a lot of learning in terms of sales and throughput we’re bullish about the potential white space opportunity these formats could create while meeting the evolving needs of our fans.”
Financial highlights for Q2 ending June 24 compared to Q2 2019 included:
- Total revenue decreased 39.9% to $91.8 million.
- Shack sales decreased 39.5% to $89.5 million.
- Same-Shack sales decreased 49.%.
- Licensed revenue decreased 53.1% to $2.3 million.
- Shack system-wide sales decreased 45.2% to $123.8 million.
- Operating loss of $24.1 million compared to operating income of $11.9 million in the prior-year second quarter.
COVID-19 affects sales
The company has experienced gradual improvement in the business during the second and third quarters, but location has been a determining factor. Shacks, for example, concentrated in urban areas, such as New York City, most impacted by the COVID-19 outbreak, represent nearly half the locations in the comparable base, yet accounted for approximately 60% of its same-store sales prior to the COVID-19 outbreak. During the second quarter of 2020, same-store sales in the urban Shacks were down 57% and suburban Shacks were down 38% compared to the same period last year.
Subsequent to the second quarter of 2020, in fiscal July 2020, same-store sales in the company’s urban Shacks were down 50% and suburban Shacks were down 24% compared to the same period last year. As of July 22, about 95% of domestic company-operated Shacks were open.
Shake Shack has more than 280 locations in 30 U.S. states and the District of Columbia, including more than 95 international locations including London, Hong Kong, Shanghai, Singapore, Philippines, Mexico City, Istanbul, Dubai, Tokyo and Seoul.
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