Shares of Shake Shack (SHAK 35.02, -1.12) are trading 3.0% lower following the specialty restaurant operator's fourth quarter results. Those results weren't bad by any means. They simply weren't as robust as many of the company's growth-oriented investors have grown accustomed to seeing.
Total revenue increased 43.5% to $73.3 million, with Shack sales up 43.8% to $70.9 million, and adjusted earnings per diluted share were up a modest 12.5% from the year-ago period to $0.09 as higher labor expenses led to a 280 basis points drop in the non-GAAP Shack-level operating margin rate of 25.4%.
The revenue was ahead of analysts' average expectation while adjusted EPS was in-line.
The fourth quarter produced a 1.6% increase in Same-Shack sales. That was the slowest rate of growth over Shake Shack's two-year history as a publicly-traded company and it marked the fifth straight quarter of a deceleration in Same-Shack sales growth. In the fourth quarter a year ago, Same-Shack sales were up 11.0%.
The company discussed the sales difficulties it faced with the bad weather in the Northeast, the fact that both Christmas Day and New Year's Day fell on a weekend, and the challenging industry backdrop in general.
Those issues notwithstanding, the company believes 2017 is "...shaping up to be an exciting year of growth."
Investors look a bit reticent for the time being to buy into that expectation. That's partly because of the Same-Shack sales trends they have been witnessing and partly because the Same-Shack sales growth forecast for 2017 is predicated mostly on price increases as opposed to increased traffic.
Shake Shack is forecasting Same-Shack sales growth between 2% and 3% for 2017, which it said includes approximately 1.5% to 2.0% of menu price increases taken in early January and nominal traffic and mix increases. Separately, it expects Shack-level operating profit margin to be between 26.5% and 27.5% versus 28.3% in 2016.
Total revenues are expected to be between $349 million and $353 million, which is slightly higher than its prior guidance range of $348 million to $352 million.
The midpoint of the new revenue guidance range represents year-over-year growth of approximately 31%. For fiscal 2016, Shake Shack reported 41% year-over-year growth in total revenues to $268.5 million and adjusted earnings per diluted share of $0.46 versus $0.32 for fiscal 2015.