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August 4, 2017

COMPANY UPDATE

Shake Shack Inc. (SHAK)
Sell

Equity Research

2Q17 earnings review: Uncertainties in longer-term model
What's changed

Investment Profile

Growing risks of cannibalization was a clear theme in the quarter, and a
lack of quantification of any impact makes it difficult to parse weakening
traffic into that or other factors. That, combined with currently
decelerating trends, guidance that embeds a similar comp against softer
compares, and additional risk of cannibalization from 2 new NY units
opening in 2H makes it difficult to have confidence in both S/T risks and
the right longer-term comp trajectory. We adjust our EPS estimates to
$0.49/$0.54/$0.63 from $0.47/$0.56/$0.73.

Low

High

Growth

Growth

Returns *

Returns *

Implications
(1) QTD commentary suggests softer underlying trends: SHAK
noted that May and June comps inflected negatively (due to weather) and
trends were similar into July. Against a better weather backdrop, this
would actually suggest a deterioration in the underlying trend. (2)
Cannibalization a growing risk: Early signs of cannibalization in key
markets (e.g NY, PA) suggest a factor not initially built into the long-term
plan (e.g. persistently negative traffic), and a lack of visibility into drivers of
negative traffic create longer-term uncertainty. (3) Several factors to
consider in return targets: We give SHAK credit for building units
ahead of target AUVs this year; however, believe base longer-term return
targets should increasingly be in question given significant labor pressures
in the model and no cannibalization factor built into the targets.

Valuation
Our 12m PT of $29 is based on a 50-50 blend of DCF (8% disc rate, 3% L/T
FCF; $30) and 18x our NTM, 12m from now, EBITDA ($28).

Key risks
(+) Better-than-expected comps, long-term comp drivers being unlocked.

Multiple

Multiple

Volatility

Volatility
20th

Percentile

40th

60th

80th

Americas Restaurants Peer Group Average
* Returns = Return on Capital

For a complete description of the investment
profile measures please refer to the
disclosure section of this document.

Key data

Current

Price ($)
12 month price target ($)
Market cap ($ mn)

33.16
29.00
1,177.2

Revenue ($ mn) New
Revenue ($ mn) Old
EPS ($) New
EPS ($) Old
P/E (X)
EV/EBITDA (X)
ROE (%)

EPS ($)

12/16
268.5
268.5
0.45
0.45
79.4
30.7
9.4

12/17E
350.6
350.7
0.49
0.47
68.1
23.2
8.5

12/18E
432.2
421.8
0.54
0.56
61.1
19.9
8.5

12/19E
528.7
498.3
0.63
0.73
52.4
16.9
9.1

6/17
0.20

9/17E
0.13

12/17E
0.06

3/18E
0.11

Price performance chart
42

2,650

40

2,550

38

2,450

36

2,350

34

2,250

32

2,150

30
Aug-16

2,050
Nov-16

Feb-17

May-17

Shake Shack Inc. (L)

INVESTMENT LIST MEMBERSHIP
Americas Sell List

100th

Shake Shack Inc. (SHAK)

Share price performance (%)
Absolute
Rel. to S&P 500

S&P 500 (R)

3 month
(2.6)
(5.9)

6 month 12 month
(6.3)
(16.5)
(12.9)
(26.9)

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 8/03/2017 close.

Coverage View: Neutral
Karen Holthouse
(212) 934-4252 karen.holthouse@gs.com Goldman Sachs & Co. LLC
Gregory Lum
(212) 902-7576 gregory.lum@gs.com Goldman Sachs & Co. LLC
Jared Garber
(212) 902-3708 jared.garber@gs.com Goldman Sachs & Co. LLC

Goldman Sachs does and seeks to do business with companies
covered in its research reports. As a result, investors should be
aware that the firm may have a conflict of interest that could
affect the objectivity of this report. Investors should consider
this report as only a single factor in making their investment
decision. For Reg AC certification and other important
disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by nonUS affiliates are not registered/qualified as research analysts
with FINRA in the U.S.

The Goldman Sachs Group, Inc.

cww@cannellcap.com Chris Wood 09/12/17 10:28:28 PM Cannell Capital

Global Investment Research

August 4, 2017

Shake Shack Inc. (SHAK)

Shake Shack Inc.: Summary Financials
Profit model ($ mn)

12/16

12/17E

12/18E

12/19E

Balance sheet ($ mn)

12/16

12/17E

12/18E

12/19E

268.5
(186.1)
(30.6)
0.0
(9.6)
-42.3
(14.5)
27.8
(0.3)
0.0
0.0
27.8
(11.0)
0.0
16.8
0.0
16.8
9.0
25.7

350.6
(249.5)
(38.6)
0.0
(9.9)
-52.6
(21.9)
30.7
(1.6)
0.0
0.8
29.9
(11.8)
0.0
18.1
0.0
18.1
0.2
18.3

432.2
(313.5)
(46.4)
0.0
(10.5)
-61.8
(26.7)
35.1
(1.8)
0.0
0.7
34.0
(13.8)
0.0
20.3
0.0
20.3
1.1
21.3

528.7
(389.3)
(55.7)
0.0
(10.5)
-73.2
(32.3)
40.9
(1.8)
0.0
0.7
39.8
(16.1)
0.0
23.7
0.0
23.7
1.5
25.2

Cash & equivalents
Accounts receivable
Inventory
Other current assets
Total current assets
Net PP&E
Net intangibles
Total investments
Other long-term assets
Total assets

11.6
6.0
0.8
65.5
83.9
136.3
0.0
0.0
318.0
538.2

7.3
7.2
1.0
48.8
64.3
170.5
0.0
1.3
324.1
560.2

1.7
9.0
1.2
49.0
61.0
203.1
0.0
1.4
324.1
589.6

2.4
10.9
1.5
49.2
64.1
233.4
0.0
1.5
324.1
623.1

Accounts payable
Short-term debt
Other current liabilities
Total current liabilities
Long-term debt
Other long-term liabilities
Total long-term liabilities
Total liabilities

6.9
0.0
24.8
31.7
0.0
305.1
305.1
336.8

9.0
0.0
30.4
39.4
0.0
294.5
294.5
333.9

11.1
0.0
34.6
45.6
0.0
296.2
296.2
341.9

13.4
0.0
38.9
52.3
0.0
297.9
297.9
350.2

0.46
0.45
0.71
0.70
0.0
0.00
0.0

0.49
0.49
0.49
0.49
0.0
0.00
0.0

0.54
0.54
0.57
0.57
0.0
0.00
0.0

0.63
0.63
0.68
0.67
0.0
0.00
0.0

Preferred shares
Total common equity
Minority interest

0.0
201.4
0.0

0.0
226.4
0.0

0.0
247.7
0.0

0.0
272.9
0.0

Total liabilities & equity

538.2

560.2

589.6

623.1

Growth & margins (%)
Sales growth
EBITDA growth
EBIT growth
Net income (pre-except) growth
EPS growth
Gross margin
EBITDA margin
EBIT margin

12/16
40.9
35.6
32.6
39.2
38.9
30.7
15.8
10.4

12/17E
30.6
24.3
10.3
7.9
5.7
28.8
15.0
8.8

12/18E
23.3
17.5
14.5
12.0
11.6
27.5
14.3
8.1

12/19E
22.3
18.5
16.4
17.0
16.6
26.4
13.8
7.7

Additional financials
Net debt/equity (%)
Interest cover (X)
Inventory days
Receivable days
BVPS ($)

12/16
(5.8)
84.8
1.3
6.9
5.46

12/17E
(3.2)
19.6
1.3
6.9
6.09

12/18E
(0.7)
19.5
1.3
6.9
6.64

12/19E
(0.9)
22.7
1.3
6.9
7.29

3.7
18.5

3.3
10.1

3.5
12.3

3.9
11.8

Cash flow statement ($ mn)
Net income
D&A add-back (incl. ESO)
Minority interest add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations

12/16
22.1
14.5
0.0
9.1
8.6
54.3

12/17E
18.8
21.9
0.0
3.6
(12.6)
31.6

12/18E
21.3
26.7
0.0
3.7
2.1
53.8

12/19E
25.2
32.3
0.0
4.0
2.0
63.5

8.3
6.2
0.5
2.7

8.0
5.2
0.6
2.5

8.2
4.7
0.7
2.4

8.7
4.5
0.8
2.3

0.00
0.0

(0.59)
(1.8)

(0.15)
(0.5)

0.02
0.1

(54.4)
0.0
0.0
(60.3)
(114.8)

(53.4)
0.0
0.0
14.8
(38.6)

(59.4)
0.0
0.0
0.0
(59.4)

(62.8)
0.0
0.0
0.0
(62.8)

0.0
(0.3)
1.5
1.2
(59.2)

0.0
0.0
2.7
2.7
(4.3)

0.0
0.0
0.0
0.0
(5.6)

0.0
0.0
0.0
0.0
0.7

Total revenue
Cost of goods sold
SG&A
R&D
Other operating profit/(expense)
ESO expense
EBITDA
Depreciation & amortization
EBIT
Net interest income/(expense)
Income/(loss) from associates
Others
Pretax profits
Provision for taxes
Minority interest
Net income pre-preferred dividends
Preferred dividends
Net income (pre-exceptionals)
Post tax exceptionals
Net income (post-exceptionals)
EPS (basic, pre-except) ($)
EPS (diluted, pre-except) ($)
EPS (basic, post-except) ($)
EPS (diluted, post-except) ($)
Common dividends paid
DPS ($)
Dividend payout ratio (%)

Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investing
Dividends paid (common & pref)
Inc/(dec) in debt
Other financing cash flows
Cash flow from financing
Total cash flow

ROA (%)
CROCI (%)
Dupont ROE (%)
Margin (%)
Turnover (X)
Leverage (X)
Free cash flow per share ($)
Free cash flow yield (%)

Note: Last actual year may include reported and estimated data.
Source: Company data, Goldman Sachs Research estimates.

Analyst Contributors
Karen Holthouse
karen.holthouse@gs.com
Gregory Lum
gregory.lum@gs.com
Jared Garber
jared.garber@gs.com

Goldman Sachs Global Investment Research

cww@cannellcap.com Chris Wood 09/12/17 10:28:28 PM Cannell Capital

2

August 4, 2017

Shake Shack Inc. (SHAK)

Disclosure Appendix
Reg AC
We, Karen Holthouse, Gregory Lum and Jared Garber, hereby certify that all of the views expressed in this report accurately reflect our personal
views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly
or indirectly, related to the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.

GS Factor Profile
The Goldman Sachs Factor Profile provides investment context for a stock by comparing key attributes to the market (i.e. our coverage universe) and
its sector peers. The four key attributes depicted are: Growth, Financial Returns, Multiple (e.g. valuation) and Integrated (a composite of Growth,
Financial Returns and Multiple). Growth, Financial Returns and Multiple are calculated by using normalized ranks for specific metrics for each stock.
The normalized ranks for the metrics are then averaged and converted into percentiles for the relevant attribute. The precise calculation of each
metric may vary depending on the fiscal year, industry and region, but the standard approach is as follows:
Growth is based on a stock's forward-looking sales growth, EBITDA growth and EPS growth (for financial stocks, only EPS and sales growth), with a
higher percentile indicating a higher growth company. Financial Returns is based on a stock's forward-looking ROE, ROCE and CROCI (for financial
stocks, only ROE), with a higher percentile indicating a company with higher financial returns. Multiple is based on a stock's forward-looking P/E, P/B,

price/dividend (P/D), EV/EBITDA, EV/FCF and EV/Debt Adjusted Cash Flow (DACF) (for financial stocks, only P/E, P/B and P/D), with a higher percentile
indicating a stock trading at a higher multiple. The Integrated percentile is calculated as the average of the Growth percentile, Financial Returns
percentile and (100% - Multiple percentile).
Financial Returns and Multiple use the Goldman Sachs analyst forecasts at the fiscal year-end at least three quarters in the future. Growth uses inputs
for the fiscal year at least seven quarters in the future compared with the year at least three quarters in the future (on a per-share basis for all metrics).
For a more detailed description of how we calculate the GS Factor Profile, please contact your GS representative.

Quantum
Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for
in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.

GS SUSTAIN
GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list
includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and
superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate
performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the
environmental, social and governance issues facing their industry).

Disclosures
Coverage group(s) of stocks by primary analyst(s)
Karen Holthouse: America-Food Service: Distribution, America-Restaurants.
America-Food Service: Distribution: Performance Food Group, Sysco Corp., US Foods Holding.
America-Restaurants: Bloomin' Brands Inc., Bojangles Inc., Brinker International, Buffalo Wild Wings Inc., Cheesecake Factory Inc., Chipotle Mexican
Grill Inc., Darden Restaurants Inc., Domino's Pizza Inc., Dunkin' Brands Group, Jack in the Box Inc., McDonald's Corp., Potbelly Corp., Restaurant
Brands Intl Inc., Restaurant Brands Intl Inc., Shake Shack Inc., Starbucks Corp., Texas Roadhouse Inc., The Wendy's Co., Wingstop Inc., Yum! Brands
Inc..

Company-specific regulatory disclosures
The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies
covered by the Global Investment Research Division of Goldman Sachs and referred to in this research.
Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to be
aggregated under US securities law) as of the second most recent month end: Shake Shack Inc. ($33.16)
Goldman Sachs has received compensation for investment banking services in the past 12 months: Shake Shack Inc. ($33.16)
Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Shake Shack Inc. ($33.16)
Goldman Sachs had an investment banking services client relationship during the past 12 months with: Shake Shack Inc. ($33.16)
Goldman Sachs had a non-securities services client relationship during the past 12 months with: Shake Shack Inc. ($33.16)
Goldman Sachs makes a market in the securities or derivatives thereof: Shake Shack Inc. ($33.16)

Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global Equity coverage universe
Rating Distribution

Buy

Hold

Investment Banking Relationships

Sell

Buy

Hold

Sell

Global
32%
54%
14%
65%
56%
49%
As of July 1, 2017, Goldman Sachs Global Investment Research had investment ratings on 2,753 equity securities. Goldman Sachs assigns stocks as
Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for
the purposes of the above disclosure required by the FINRA Rules. See 'Ratings, Coverage groups and views and related definitions' below. The

Goldman Sachs Global Investment Research

cww@cannellcap.com Chris Wood 09/12/17 10:28:28 PM Cannell Capital

3

August 4, 2017

Shake Shack Inc. (SHAK)

Investment Banking Relationships chart reflects the percentage of subject companies within each rating category for whom Goldman Sachs has
provided investment banking services within the previous twelve months.

Price target and rating history chart(s)
Shake Shack Inc. (SHAK)

Stock Price Currency : U.S. Dollar
Goldman Sachs rating and stock price target history

100

2,600

30

90

2,500

34

80

39

70

37

60

36

2,400

38
44

42

50

39

38

29

2,200
2,100

40

2,000
1,900

37

20

Feb 24

1,800

Jul 9

N

S

A S O N D J F MA M J J A S O N D J F M A M J J A S O N D J F M A M J

2014

2015

2016

2017

Index Price

30

Stock Price

2,300

Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 6/30/2017.
Rating
Covered by Karen Holthouse,
Price target
Price target at removal

as of Feb 24, 2015
Not covered by current analyst

S&P 500

The price targets show n should be considered in the context of all prior published Goldman Sachs research, which may or
may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.

Regulatory disclosures
Disclosures required by United States laws and regulations
See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager
or co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/comanaged public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. Goldman Sachs trades or may
trade as a principal in debt securities (or in related derivatives) of issuers discussed in this report.
The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts,
professionals reporting to analysts and members of their households from owning securities of any company in the analyst's area of
coverage. Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes investment banking
revenues. Analyst as officer or director: Goldman Sachs policy generally prohibits its analysts, persons reporting to analysts or members of their
households from serving as an officer, director or advisor of any company in the analyst's area of coverage. Non-U.S. Analysts: Non-U.S. analysts
may not be associated persons of Goldman, Sachs & Co. and therefore may not be subject to FINRA Rule 2241 or FINRA Rule 2242 restrictions on
communications with subject company, public appearances and trading securities held by the analysts.
Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changes of ratings and price targets in
prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the Goldman Sachs
website at http://www.gs.com/research/hedge.html.

Additional disclosures required under the laws and regulations of jurisdictions other than the United States
The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws
and regulations. Australia: Goldman Sachs Australia Pty Ltd and its affiliates are not authorised deposit-taking institutions (as that term is defined in
the Banking Act 1959 (Cth)) in Australia and do not provide banking services, nor carry on a banking business, in Australia. This research, and any
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the site visit or meeting. Brazil: Disclosure information in relation to CVM Instruction 483 is available at
http://www.gs.com/worldwide/brazil/area/gir/index.html. Where applicable, the Brazil-registered analyst primarily responsible for the content of this
research report, as defined in Article 16 of CVM Instruction 483, is the first author named at the beginning of this report, unless indicated otherwise at
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from Goldman Sachs (Singapore) Pte. (Company Number: 198602165W). Taiwan: This material is for reference only and must not be reprinted
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glossary of certain financial terms used in this report, are available from Goldman Sachs International on request.

Goldman Sachs Global Investment Research

cww@cannellcap.com Chris Wood 09/12/17 10:28:28 PM Cannell Capital

4

August 4, 2017

Shake Shack Inc. (SHAK)

European Union: Disclosure information in relation to Article 4 (1) (d) and Article 6 (2) of the European Commission Directive 2003/125/EC is available
at http://www.gs.com/disclosures/europeanpolicy.html which states the European Policy for Managing Conflicts of Interest in Connection with
Investment Research.
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69, and a member of Japan Securities Dealers Association, Financial Futures Association of Japan and Type II Financial Instruments Firms
Association. Sales and purchase of equities are subject to commission pre-determined with clients plus consumption tax. See company-specific
disclosures as to any applicable disclosures required by Japanese stock exchanges, the Japanese Securities Dealers Association or the Japanese
Securities Finance Company.

Ratings, coverage groups and views and related definitions
Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy

or Sell on an Investment List is determined by a stock's total return potential relative to its coverage. Any stock not assigned as a Buy or a Sell on an
Investment List with an active rating (i.e., a stock that is not Rating Suspended, Not Rated, Coverage Suspended or Not Covered), is deemed Neutral.
Each regional Investment Review Committee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%15% of stocks as Sell; however, the distribution of Buys and Sells in any particular analyst’s coverage group may vary as determined by the regional
Investment Review Committee. Additionally, each Investment Review Committee manages Regional Conviction lists, which represent investment
recommendations focused on the size of the total return potential and/or the likelihood of the realization of the return across their respective areas of
coverage. The addition or removal of stocks from such Conviction lists do not represent a change in the analysts’ investment rating for such stocks.
Total return potential represents the upside or downside differential between the current share price and the price target, including all paid or

anticipated dividends, expected during the time horizon associated with the price target. Price targets are required for all covered stocks. The total
return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership.
Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at
http://www.gs.com/research/hedge.html. The analyst assigns one of the following coverage views which represents the analyst's investment outlook
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cww@cannellcap.com Chris Wood 09/12/17 10:28:28 PM Cannell Capital

5

August 4, 2017

Shake Shack Inc. (SHAK)

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cww@cannellcap.com Chris Wood 09/12/17 10:28:28 PM Cannell Capital

6

Completed
04 Aug 2017
07:20 AM EDT
This document is being provided for the exclusive use of CANNELL CAP at CANNELL
CAPITAL
LLC

Disseminated 04 Aug 2017 07:34 AM EDT

North America Equity Research
04 August 2017

Neutral

Shake Shack

SHAK, SHAK US
Price: $33.16

2Q, 3Q Comps Disappoint, but Revenue Guidance
Holds. F20 Based Valuation Keeps us a Neutral.

Price Target: $35.00

Headline 2Q17 comps were -1.8% vs our 0.0% and 4.5% last year. This is vs the
disappointing -2.5% posted in 1Q17 which was vs a 9.9% in 1Q16. Perhaps more
disappointingly, 3Q17 comps and the 4Q17 guide sound similarly negative, vs a
2.9% in 3Q16 and our prior 1.8% in 2H17. The company rightly points out that
the comp base is 37 out of a 2Q17 end 75 U.S. company units, with a significant
majority of the comp units in the Northeast. Regional vagaries/small sample size
will affect comps but still the trend is down. Total AWS were $93k vs $102k last
year but vs our $92k expectation. This is a "hard to model" piece as it includes not
only new units open less than 12 months but also units open 12-24 months as
SHAK does not start its SSS calculation until month 25. Better AUVs for stores
less than 24 months old allow total revenue to be close and the F17 guide to be
maintained. Store margins were 28.8% vs our 29.4%, and G&A came in roughly
in line at $9.7m. Total adj. EPS was $0.20 vs our $0.18 but was aided about a
penny each from revenue from the cook/brand book as well as slightly lower tax
and interest expense. Please see Table 1 for results vs expectations and Table 2 for
changes to our previous estimates and guide.

Restaurants
John Ivankoe

(1-212) 622-6487
john.ivankoe@jpmorgan.com
Bloomberg JPMA IVANKOE <GO>

Alex Mergard, CFA
(1-212) 622-1050
alexander.mergard@jpmorgan.com
J.P. Morgan Securities LLC
Price Performance
50
45
$ 40
35
30
Aug-16

Shake Shack Inc. (SHAK;SHAK US)
FYE Dec
2016A 2017E 2017E 2018E 2018E 2019E 2019E 2020E 2020E
(Prev)

EPS Reported ($)
Q1 (Mar)
Q2 (Jun)
Q3 (Sep)
Q4 (Dec)
FY

(Curr)

(Prev)

(Curr)

(Prev)

(Curr)

(Prev)

(Curr)

0.08 0.10A 0.10A
0.14 0.18A 0.20A
0.15 0.15 0.15
0.09 0.07 0.05
0.46 0.51 0.50

0.08
0.19
0.20
0.13
0.60

0.08
0.21
0.20
0.09
0.57

0.12
0.24
0.20
0.14
0.70

0.13
0.28
0.22
0.11
0.74

0.15
0.30
0.29
0.21
0.95

0.15
0.34
0.29
0.16
0.95

Source: Company data, Bloomberg, J.P. Morgan estimates. EPS prior to 4Q14 is not reported.

Nov-16

Feb-17

May-17

Aug-17

SHAK share price ($)
RTY (rebased)

 SHAK taking many matters into their own hands, both for the existing as
well as new store base. For existing units, the app is now on both iOS and
Android and allows a pre-order function to allow customers to eliminate linelength uncertainty. New products including spicy chicken make an already
incredible product even better and personalized marketing will speak to
customers to engage them on both a digital and in-store basis. Delivery sounds
to be considered through many options, an exclusive third party, various third
parties, or where it makes sense, in-house. New delivery oriented packaging is
being developed to maintain product standards. We are intrigued to see the
design of the upcoming Astor Place NYC unit which will have a redesigned
kitchen to improve peak hour throughout. Application to existing units will be a
logical question and will probably be done on a site by site basis. We have
admiration for this company's respect of its own brand and the adherence to their
customers, employees, and supply chain that has brought it to this place. Shake
Shack is one of a few concepts we cover where creeping mediocrity will likely
never be a threat to its enduring appeal.

AC

Abs
Rel

YTD
-8.2%
-11.1%

1m
-5.4%
-3.9%

Company Data
Price ($)
Date Of Price
52-week Range ($)
Market Cap ($ mn)
Fiscal Year End
Shares O/S (mn)
Price Target ($)
Price Target End Date

3m
-2.6%
-3.6%

12m
-16.5%
-32.4%

33.16
03 Aug 17
42.94-30.36
1,232.92
Dec
37
35.00
31-Dec-18

See page 15 for analyst certification and important disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
www.jpmorganmarkets.com

This document is being provided for the exclusive use of CANNELL CAP at CANNELL CAPITAL LLC
John Ivankoe
(1-212) 622-6487
john.ivankoe@jpmorgan.com

North America Equity Research
04 August 2017

 Our F20 model already shows substantive transformation from results we
expect for F17. The full detailed model is in Table 2 the note, but highlights
include company units growing from 64 at beginning of F17 to 200 at the end of
F20, store revenue from $354m in F17 to $735m in F20, store margins migrating
down from 26.5% to 24.5% as total AUVs mature from $4.5m in F17 to $4.0m in
F20. Licensed revenue grows from $12m in F17 to $22m in F20 as that store
component grows from 50 at the beginning of F17 to 122 at end of F20. We agree
that G&A is an opportunity for the company, and we show dollar growth from
$39m in F17 to $59m in F20 but a strong decline as % of revenue from 11.0% in
F17 to 8.1% in F20. We estimate adjusted EBITDA of $61m in F17 growing to
$132m in F20, resulting in $0.95 in F20 EPS.
 From an ending F19 EV (assuming current share price, ending F19 diluted
shares of ~38m and net cash of ~42m) to F20 EBITDA is a starting-to-beappealing F19 end EV/ F20 EBITDA of 10.2x or 9.2x using adj. EBITDA.
Restaurant stocks – especially operating companies – seem to be trying to find their
new valuation levels as supply is currently outgrowing demand and labor costs are
outpacing pricing power. We are hesitant to push F20 based PE or EBITDA much
higher than current valuation levels given risks/challenges facing operating
companies today. We value SHAK by applying a ~40x multiple on F20 EPS of
$0.95 and discount back one year at a 10% annual cost of equity for our unchanged
December 2018 price target of $35.

2

This document is being provided for the exclusive use of CANNELL CAP at CANNELL CAPITAL LLC

John Ivankoe
(1-212) 622-6487
john.ivankoe@jpmorgan.com

North America Equity Research
04 August 2017

Table 1: EPS Upside / Downside
2Q17A

2Q17E

2Q16A

Delta

EPS Upside / Downside

# Domestic Company-Operated Units
# Domestic Licensed Units
# International Licensed Units
Total Units

75
9
50
134

75
7
51
133

51
6
38
95

0
2
(1)
1

Same Store Sales
Traffic
Check
# of Shacks in the comparable base

(1.8%)
(4.3%)
2.5%
37

0.0%
(1.5%)
1.5%
35

4.5%
23

(1.8%)
2

Shack Sales (Company)
Total Revenues from Licensing
Total Revenues

88,003
3,313
91,316

87,570
2,635
90,205

64,406
2,066
66,472

433
678
1,111

Operating Weeks
y/y change

949
50.3%

949
50.3%

631
-

0
0.0%

Existing Domestic AWS
y/y change
New Domestic AWS
y/y change
Total Domestic AWS
y/y change

106
(5.3%)
81
(14.1%)
93
(9.1%)

108
(3.6%)
79
(16.1%)
92
(9.5%)

112
94
102
-

(2)
(1.7%)
2
2.0%
0
0.4%

Food and paper costs
Labor and related expenses
Labor $ per op week
y/y change
Other Operating Expenses
Occupancy and related expenses
Restaurant (Shack) Level Op Inc.
Restaurant (Shack) Level Operating Profit

28.1%
25.5%
24
(2.2%)
9.6%
8.0%
25,336
28.8%

27.4%
25.9%
24
(1.0%)
9.3%
8.0%
25,728
29.4%

28.1%
23.7%
24
(2.7%)
9.3%
8.1%
19,852
30.8%

(0.7%)
0.4%
0
1.2%
(0.4%)
(0.0%)
(392)
(0.6%)

($0.01)
$0.01

Food and paper costs
Labor and related expenses
Other Operating Expenses
General & Administrative
G&A / total units
Occupancy and related expenses
Depreciation Expense
Pre-Opening Costs
Loss on disposal of property and equipment

24,712
22,426
8,486
9,678
289
7,043
5,258
1,876
100

24,009
22,708
8,129
9,745
293
6,995
5,238
1,908
0

18,104
15,262
5,979
7,496
316
5,209
3,404
2,085
0

(703)
282
(357)
67
4
(48)
(20)
32
(100)

($0.01)
$0.00
($0.01)
$0.00

Operating Income
Other Income, Net

11,737
179

11,474
0

8,933
0

263
179

$0.00
$0.00

Unadjusted EBITDA
Adjusted EBITDA

17,174
19,378

16,712
18,711

12,337
14,204

462
667

Interest Expense (Income), net
Pretax Income
Tax Rate
Income Tax Expense (Benefit)
Net Income

347
12,086
39.9%
4,817
7,269

450
11,024
40.5%
4,465
6,559

68
8,865
40.9%
3,626
5,239

103
1,062
0.6%
(352)
710

$0.00
$0.02
$0.00
($0.01)

Shares Outstanding - Fully Diluted
Earnings Per Share - Fully Diluted

37,181
$0.20

36,941
$0.18

36,798
$0.14

(240)

($0.00)
$0.02

($0.01)
($0.00)
($0.01)
($0.01)

($0.00)
($0.00)
$0.00
($0.00)

Source: Company reports and J.P. Morgan estimates.

3


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