Shake Shack stock plunges as weather and beef costs pressure earnings

Shake Shack’s same-store sales rose last quarter and store-level profit margins grew along with it, but that was not nearly enough to satisfy investors concerned about the company’s earnings, or lack thereof.

Shares in the fast-casual burger chain plunged 29% on Thursday, after the company missed Wall Street expectations for revenues and earnings.

Same-store sales rose 4.6% in the first quarter, the company said. That included 1.4% traffic growth. But poor weather during the period hurt those same-store sales, lowering them by 240 basis points.

That also affected the company’s adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, which was down 9.3% to $37 million. The company reported a net loss of 1 cent per share. That was below the 11 cent-per-share profit analysts had been expecting, according to the website Earnings Whispers.

Revenues increased 14.3% to $367 million. Wall Street expected $371 million.

“Most of the weather impact we saw was in January and March,” CEO Rob Lynch told analysts on Thursday, according to a transcript on the financial services site AlphaSense. “We had anticipated even higher sales heading into Q1.”

Beef costs have been pressuring numerous burger chains and Shake Shack was no exception, with those costs rising in the “high teens” last quarter. Yet restaurant-level profit margin at the fast-casual chain increased 50 basis points to 21.2% of revenues.

“This margin expansion came without taking price,” Lynch said in a message to shareholders. He cited labor management, supply chain productivity and operations optimization.

Digital sales at the company grew 35% as customers download the Shake Shack mobile app and the company has run offers. Customers using the app can get a combo meal for $12, Lynch said.

“That makes us really competitive,” he told analysts. “That puts us in the universe of other brands that can persevere through these value-challenged and value-oriented times.”

Shake Shack hopes this value will ultimately fuel more demand that enables the company to expand at rates greater than it previously did. The company opened 17 new locations in the first quarter, when expansion is typically slower. It ultimately plans 1,500 company stores, or four times the number it currently operates.

The chain is also pushing more innovation, such as the Korean-inspired menu platform it kicked off in January and then the Clubhouse Pimento Cheeseburger and Chicken Sandwich in March. The company brought back its Smoky BBQ menu platform in April, including a BBQ Boneless Baby Back Rib Sandwich and Mac and Cheese.

The rib sandwich cost $12.99 but, Lynch said, “we’re seeing huge demand for that innovation at that price point.”