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Shake Shack (SHAK) is cooking today after the better burger restaurant chain reported Q4 results that were in-line with its guidance from January 13 and issued guidance for 1Q25 and FY25. As telegraphed last month, it was a solid quarter for SHAK, highlighted by healthy Same-Shack sales growth of +4.3% and further margin improvements with restaurant-level profit margin expanding by 290 bps yr/yr to 22.7%. However, since the Q4 results were already a known commodity, its SHAK's outlook -- particularly revolving around restaurant development and margins -- that's the real catalyst for the stock.

• The company's Q1 guidance looks rather underwhelming as both its revenue and Same-Shack growth forecasts of $326.5 mln and +2.5% to +3.5%, respectively, fell short of expectations. However, it appears that the company is taking a conservative approach here given that Same-Shack sales for January were +3.7%, despite facing a headwind of about 200 bps from weather and the Los Angeles wildfires. Price increases and strong demand for its limited-time Black Truffle Menu are driving sales higher.
• We believe that SHAK's ambitious restaurant development plans are taking center stage, reigniting excitement about its growth potential. When the company went public back in 2015, it operated 31 company-owned restaurants and targeted 450 company-owned stores over time. Today, SHAK has approximately 330 company-owned restaurants in the U.S. and in the Q4 Shareholder Letter it stated that it's now targeting its company-owned footprint to be at least 1,500 stores.
• Not only is SHAK ramping up its development plans, but it also believes that it can continue to drive build costs lower as it uses new store prototypes that allow for quicker openings at lower costs. In FY25, the company expects to open 80-85 new restaurants -- including company-owned and licensed -- at an average net build cost of approximately $2.2 mln per unit. For context, net build costs in 2023 and 2024 were about $2.6 mln and $2.4 mln, respectively.
• Another key component of SHAK's strategy is to improve profitability through stronger restaurant-level profit margins. The company is achieving this through operational improvements in labor, throughput gains, and the rollout of kiosks. For the first time since the pandemic, SHAK surpassed its comparable quarter 2019 restaurant-level profit margins, which came in at 22.7% for Q4. For FY25, SHAK reaffirmed its restaurant-level profit margin of approximately 22.0%, as well as its forecast for revenue of $1.45-$1.48 bln and Same-Shack sales of approximately +3.0%.

Overall, the Q4 headlines don't look overly impressive given that analysts' estimates already reflected SHAK's updated guidance from last month. Furthermore, the Q1 guidance came up short of expectations, making the stock's charge higher seem surprising. However, SHAK's ambitious restaurant development plans are transforming it into a compelling growth story and putting the name back on growth investors' radars.