BTIG walked away from a meeting with Shake Shack (NYSE:SHAK) management last week confident that the restaurant chain has multiple levers to pull to continue driving Shack- level margins higher. Analyst Peter Saleh said Shake Shack (SHAK) is leaning on further use of kiosks to reduce labor hours, and still has upside with menu pricing. Kiosks were noted to be the company’s highest-margin channel, due to the higher average check and labor efficiencies that they help generate.
“We estimate that total digital sales are currently around 80% including kiosks, web, app, and delivery. Management noted that over 50% of in-shack sales are coming from kiosks, a figure we estimate is up from 30%-35% a few quarters ago, as kiosks are fully deployed and adoption rises.
So far this year, SHAK’s restaurant margin and profitability advances have been very constructive, though partially offset by mediocre comparable sales trends. Looking ahead, the combination of long-term unit and sales potential, a category-leading brand and restaurant margin opportunity over the next several years keeps BTIG bullish on the restaurant stock with a Buy rating and price target of $85 in place.
Shares of Shake Shack (SHAK) fell 3.80% in Monday afternoon trading to cut into the post-earnings rally. SHAK’s year-to-date return of 37.6% ranks as the 6th highest in the restaurant sector out of 52 publicly-traded stocks.