SHAK 19-20% RLM IS NOT GOOD ENOUGH
Until the company adjusts its store openings strategy, profitability will be elusive.
SHAK reported preliminary 4Q22 revenue of $238.5M vs. $237.6M, Shack Sales of $229.9M, Licensing Revenue of $8.6M, System-wide sales of $364.1M, same-shack sales +5.1% (Urban +8.1% & Suburban +2.5%), and shack-level operating profit margin expected to be ~19%, bring 2022 RLM to 17.4%. The company Opened 36 new domestic Company-operated Shacks in FY22, 22 of which opened in 4Q22. Opened 33 new licensed Shacks in FY22, 13 of which opened in 4Q22.
The company misses 1Q23 with total revenue $234.5-243M below FS $248.2M, same-shack sales +MSD%-HSD% vs. FactSet +8.5%, shack-level operating margin 16-18% versus our estimate of 18% for FY23. Gross domestic company-operated openings of 6-8, and gross licensed openings of 5-8. Guides FY23 gross domestic company-operated openings of ~40, gross licensed openings of 25-30, G&A expenses of $125-130M, depreciation expense of $86-91M, and pre-opening costs of $18-20M. With SG&A running at 12-13% in FY23, we have a best-case scenario of an estimated 2023 EBIT of $2.7 million, and EBITDA is $88.3 million, up 44% in 2023. Consensus is looking for a 2023 estimated EBITDA of $95 million, but this does not consider a significant slowdown in 2023 sales.
The erosion in profitability as the company has grown from 44 stores in 2015 to 255 in 2022 has been spectacular. Restaurant-level margins are down from 28% to 17%, and there is no sign the company is headed back to 19-20%, where the company needs to be to justify its ROI. Structurally, given the inefficiencies of new units and the rapid growth in new units, it will be nearly impossible to reach an acceptable level, but who cares if the c-suite is compensated on revenue growth?
CMG
Right now, CMG is discounting food to its core uses; it will be interesting to see how far the company goes with its discounting in 2023!
On Monday, Chipotle announced the launch of "Freepotle," a new feature within its Rewards program that allows members to earn free food throughout this year. The company said there would be up to 10 "free food drops" in 2023, from January 9 through January 15, for existing members who are automatically enrolled in Freepotle. Non-members can be enrolled if they join the loyalty program by March 6 and earn a free side or guacamole topping within their account as an incentive. In a statement, CMO Chris Brandt said the promotion provides an alternative to subscription programs that several restaurant brands have introduced. Chipotle is promoting the new feature by offering the chance to win free food for a year. According to a press release, a total of 3,100 Rewards members will receive free food for a year in recognition of the chain's 3,100-plus locations. From Jan. 9-15, members who make a $5 minimum purchase in-store or online will be automatically entered to win. Chipotle is also hosting a "Freepotle" prize wheel on TikTok Live and Instagram Live at noon from Jan. 9-13. Winners of free Chipotle for a year will be chosen randomly by watching or commenting. Chipotle Rewards has more than 30 million members and is up there with SBUX as one of the most significant membership programs.
"In an environment full of pricey subscription programs, we're introducing a pass to our real food that is free to join and will provide more value to our community than ever before," he said. "'Freepotle' makes Chipotle Rewards a must-join program for all Chipotle fans in 2023."
Bowling Technology
A more challenging breed of bowling pin is popping up at alleys in the U.S. and abroad. Serious bowlers have cause to fear them. WSJ
New technology makes these bowling pins harder to knock down, according to the U.S. Bowling Congress, the sport's national governing body. They are a cost-saving measure by alley owners investing in an automated system that uses string pins. These are regular bowling pins with long cords attached to the top and tethered to string pinsetters. The string pinsetters hoist fallen pins like marionettes and lower them into place. String pinsetters need fewer repairs than old-school systems, marked by the big metal arm that sweeps pins into the pit to be sorted and reset by a hidden array of complicated machinery. Skeptical bowlers allege the cost savings comes at their expense: The cord influences pin movement enough to potentially worsen scores. The USBC, in research using a robotic bowling arm named Earl, found that string pins yield nearly 7% fewer strikes, more spares, and a preponderance of oddball splits compared with free-falling pins. Among die-hard bowlers who thrill at the mystifying physics of struck pins skittering into the pit or teetering a split-second between recovery and capitulation, the string pin setting system is as welcome as a gutter ball. League players competing Monday at Chicago's Waveland Bowl said they preferred alleys like Waveland, which use free-fall pins. String pins aren't as fun, said 28-year-old bowler Dylan Ciraldo. "They don't make the same sound." Even worse, he said, he doesn't play as well with the new pins. Another league bowler at Waveland, Ryan Shreve, said he didn't think string-pin technology was ready to roll out. "They're a little too buggy," he said. Tenpin bowlers have been accustomed to free-falling pins tended by machinery prone to breakdowns for more than a generation. Capable technicians are expensive and increasingly harder to find, according to alley owners.
