Shake Shack Inc. — FY2021 Form 10-K
Business context and reporting period. Shake Shack operates and licenses premium fast-casual restaurants. This annual report covers the 52-week fiscal year ended December 29, 2021; the prior fiscal year ended December 30, 2020 and included 53 weeks. The filing also reports fourth-quarter trends. At year-end, the system had 369 Shacks: 218 domestic company-operated and 151 licensed locations.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $739.9 million | $522.9 million |
| Shack sales | $715.0 million | $506.3 million |
| Licensing revenue | $24.9 million | $16.5 million |
| Operating loss | $15.9 million | $43.9 million |
| Net loss | $10.1 million | $45.5 million |
| Net loss attributable to Shake Shack Inc. | $8.7 million | $42.2 million |
| GAAP diluted loss per Class A share | $0.22 | $1.14 |
| Operating cash flow | $58.4 million | $37.4 million |
| Capital expenditures | $101.5 million | $69.0 million |
| Cash and cash equivalents at year-end | $302.4 million | $146.9 million |
| Marketable securities at year-end | $80.0 million | $36.9 million |
Revenue grew 41.5%; excluding the extra week in FY2020, management reported growth of 44.5%. Shack-level operating profit, a non-GAAP measure, was $119.2 million, with a 16.7% margin versus $71.4 million and 14.1% in FY2020. Adjusted EBITDA was $56.0 million (7.6% margin), compared with $22.7 million (4.3%). These non-GAAP measures exclude costs and should be considered alongside GAAP results.
Costs as a percentage of Shack sales included food and paper at 30.5% (up from 30.3%), labor at 30.1% (down from 31.0%), other operating expenses at 14.4% (down from 14.5%), and occupancy at 8.3% (down from 10.2%). Management attributed food-cost pressure mainly to higher beef and chicken prices; improved labor and occupancy ratios reflected sales recovery and leverage. The filing does not provide a standalone fourth-quarter net income figure in the supplied text.
Material changes and operating trends
- FY2021 same-Shack sales increased 24.2% from FY2020, but were 7.8% below FY2019. The FY2021 increase reflected 19.2% higher traffic and 5.0% price/mix.
- In Q4, same-Shack sales rose 20.8% year over year and were 2.2% above Q4 2019; traffic increased 18.1% and price/mix 2.7%. Q4 urban same-Shack sales were 4% below 2019.
- Digital sales were 41.6% of Shack sales in Q4 and 46% of sales for FY2021, according to the business discussion. Q4 digital sales fell 8.7% year over year, while full-year digital sales rose 29.7%.
- The Company opened 35 net new domestic company-operated Shacks and added 23 net international licensed Shacks during FY2021; 58 net new locations system-wide were reported. Two initial drive-thru locations opened in December.
- Operating cash flow increased, while investing outflows rose with higher capital expenditure and purchases of marketable securities. Cash increased substantially, supported in part by the convertible-note proceeds.
Debt, liquidity, and obligations
In March 2021, the Company issued $250 million of 0% Convertible Senior Notes due March 2028, receiving $243.8 million net of discount. The year-end carrying amount was $243.5 million; the initial conversion price was approximately $170.42 per share. The notes may be settled in cash, shares, or a combination, at the Company’s election. No amount was drawn on the $50 million revolving credit facility at year-end; it matures in March 2026, and the Company reported compliance with its covenants.
Cash and marketable securities totaled $382.4 million at year-end. Management stated these balances should be sufficient for operating and finance lease obligations, capital expenditures, Tax Receivable Agreement payments, and working-capital needs for at least the next 12 months and the foreseeable future. The balance sheet also included $435.6 million of total lease liabilities and $234.0 million of Tax Receivable Agreement liabilities. The latter represents an estimated obligation to pass 85% of specified realized or deemed tax benefits to certain holders; payments depend on future tax benefits and taxable income.
Outlook, commentary, and risks
- For 2022, management targeted 45–50 new domestic company-operated Shacks and aimed for 10 drive-thru locations by year-end. It said new Shack construction costs were expected to average 10%–15% higher, citing drive-thru formats, supply-chain constraints, and labor challenges; opening schedules could also be delayed.
- Management anticipated continued inflation and sales deleverage to pressure Shack margins, and expected additional 2022 menu-price increases beyond the normal pattern. In October 2021, the Company raised menu prices 3.0%–3.5%, including a 10% premium on third-party delivery platforms.
- Fiscal January 2022 sales were affected by closures and reduced hours; same-Shack sales were up slightly at 2%, and management described the result as evidence that pandemic-related challenges remained.
- Key risks include COVID-19 and changing restrictions, labor availability and wage inflation, food and construction cost inflation, supply concentration and distribution disruption, new-Shack execution and returns, competition, and digital-platform, delivery, and cybersecurity risks. A single supplier provided about 41% of ground beef patties; the Company also relied on one broadline distributor for most U.S. food distribution.
- The Company reported a three-year cumulative loss position but recorded $298.7 million in net deferred tax assets, based on its assessment of future realization. Auditors identified deferred-tax-asset valuation and Tax Receivable Agreement liability measurement as critical audit matters involving forecast assumptions. The financial statements and internal controls received unqualified audit opinions.
- Ordinary-course legal matters were not expected to be material. A $560,000 wage-and-hour settlement was paid during FY2021; claims concerning New York City predictive-scheduling laws remained unresolved, with outcome and potential liability not reasonably estimable. No amount was accrued for those matters.
Most important facts for investors to verify
- Whether same-Shack sales and urban-market performance sustain recovery, especially against 2019 comparables.
- Whether menu pricing offsets food, labor, construction, and delivery costs without materially weakening traffic or check size.
- Whether the 2022 opening targets are achieved on schedule and within budgets amid labor and supply constraints.
- How the $250 million convertible notes, potential conversion dilution, lease commitments, and $234.0 million TRA liability affect future cash needs.
- Whether the deferred tax assets and related TRA estimates remain supportable as actual taxable income compares with management forecasts.
- Whether supplier concentration, distributor dependence, pandemic disruptions, and unresolved scheduling-law matters create operational or financial impacts beyond those currently disclosed.