13. Shake Shack Inc. (NYSE:SHAK)
Shake Shack Inc. (NYSE:SHAK) was among Jim Cramer’s stock calls, as he discussed the rising market speculation. Cramer was bullish on the company, mentioning that he is a “satisfied customer,” and said:
There’s a real chance that Shake Shack reports again in early May. Same store sales will come in at the high end of expectations helped by value offers, we love those, menu innovation, and improving trends over the course of the quarter. But even if the quarter’s strong, management may not rush to raise their full-year forecast because beef prices are rising and their international licensing business has meaningful exposure to the Middle East. That could potentially give you a buying opportunity. But I have to tell you, it’s going to hurt the numbers. Long-term, though, I think Shake Shack’s biggest advantage is the fact that they haven’t alienated their customer base…
Now, historically, Shake Shack is underinvested in marketing. Now that they’re firmly profitable again, there’s a real push to spend more on ads. I think that’s a smart move… Of course, that does not mean the risk is gone. The biggest swing factor for Shake Shack is still beef… Even if Lynch is doing a good job, even if traffic’s holding up, even if the long-term unit growth story is improving, this thing can still get clipped if input costs move against them. That’s just the reality of the business… If the company can keep getting better unit economics, then this stops being viewed as a recovery story and starts becoming the great growth story that it used to be.
Of course, the stock’s been a disappointment for six years now, but that’s exactly why I think it’s really interesting. The expectations got reset, the story got less romantic, the market got tougher, and in the middle of all that, the business actually seems to have improved dramatically. That’s why I think Shake Shack should not be held down forever by its reputation. If CEO Rob Lynch keeps doing what he started doing, tightening operations, lowering build costs, protecting the customer relationship, spending more intelligently behind the brand and scaling without messing up what made Shake Shack special, then this can absolutely become one of those stories where the company quietly fixes itself up before the stock really caught on.
Doesn’t mean Shake Shack will go straight up. I told you, I can’t emphasize enough how tough beef is, okay? The high price-to-earnings multiple here also can still hurt them. One bad quarter can still knock the stock around. But the bottom line: When you zoom out, the picture looks pretty clear. Shake Shack was doing well, got floored by COVID, then sales came back first, with profits lagging. Now, it finally looks like the turnaround may be real. I know I’m a believer, and more importantly, I am a satisfied customer.
Shake Shack Inc. (NYSE:SHAK) operates and licenses a chain of restaurants that serve burgers, chicken, hot dogs, fries, shakes, frozen custard, and beverages.
