Why Shake Shack Stock Soared in February

Shares of Shake Shack (SHAK 3.45%) were surging last month as the fast-casual burger flipper delivered a strong earnings report and impressed Wall Street with its guidance, which called for improving margins in 2024.

The company is also accelerating its restaurant growth, tapping into demand for a brand that has always been one of the highest-trafficked fast food chains.

According to data from S&P Global Market Intelligence, Shake Shack gained 40.7% last month. As you can see from the chart below, the earnings report in the middle of the month was a big reason why.

^SPX data by YCharts.

Shake Shack sizzles

On the surface, Shake Shack’s earnings results weren’t stunning, but combined with the company’s guidance, they show the high-end, fast-casual chain recovering from a slowdown during the pandemic and from the work-from-home transition as traffic at its urban locations is rebounding.

In the fourth quarter, Shake Shack reported a modest 2.8% increase in same-store sales, but revenue was up 20% to $286.2 million, ahead of estimates at $280.3 million, thanks to a robust expansion of its restaurant footprint, which included 15 new company-operated restaurants and nine licensed locations, including in Mexico and Thailand.

Restaurant-level operating profit, a key metric that shows how profitable the core business is, rose 25% to $54.6 million, and restaurant-level operating margin rose from 19% to 19.8%, continuing a trend from earlier in the year. On the bottom line, it reported adjusted earnings per share of $0.02, improving from a loss of $0.06 in the quarter a year ago and beating estimates by a penny.

CEO Randy Garutti said, “We ended the year on a high note, with positive traffic in the fourth quarter through the success of our sales-driving strategies and continued margin expansion.”

Analysts generally cheered the report, noting both improving sales and margins, and results that were ahead of estimates.

A Shake Shack sign on a restaurant door

Image source: Shake Shack.

Can Shake Shack keep climbing?

Shake Shack’s momentum continued through the second half of the month as investors returned to the growth story.

For 2024, the company expects to open 80 new restaurants, half company-owned and half licensed, which will increase its footprint by approximately 16%.

It also forecast a low-single-digit increase in comparable sales and revenue of $1.21 billion to $1.25 billion. The company didn’t give earnings guidance, but investors seemed pleased with its forecast of a 20% to 21% restaurant-level operating margin, up from 19.9% in 2023.

Shake Shack stock is still expensive, but the company finally seems to be capitalizing on its growth potential. If margins keep improving, the stock should move higher.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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