Shake Shack Inc (SHAK) 2020 Q1 法說會逐字稿

Greetings and welcome to the Shake Shack First Quarter 2020 Earnings Call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Rik Powell, SVP of Finance.

Please go ahead.

Thank you, Hector, and good evening, everybody.

Joining me for Shake Shack's 2020 First Quarter Conference Call is our CEO, Randy Garutti; and President and CFO, Tara Comonte.

During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance.

The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Reconciliations to comparable GAAP measures are available in our earnings release and the appendix to our supplemental materials.

Some of today's statements may be forward-looking, and actual results may differ materially due to a number of risks and uncertainties, including those discussed in our annual report on Form 10-K filed on February 24, 2020, and 2 current reports on Form 8-K filed on March 17 and April 17, 2020, respectively.

Any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statement if our views change.

By now, you should have had access to our first quarter 2020 earnings release, which can be found at investor.shakeshack.com in the News section.

And additionally, we have posted our first quarter 2020 supplemental earnings materials, which can be found in the Events & Presentations section on our site or as an exhibit to our 8-K for the quarter.

In light of the ongoing environment, our supplemental materials also include certain financial information related to the current quarter.

I'll now turn the call over to Randy.

Thanks, Rik, and good evening, everyone.

We hope you, your families and our entire Shake Shack community are all staying safe and healthy during this crisis.

I've had the privilege of leading this company through many challenging and many incredible moments.

And I think we'd all agree this has been an unprecedented test for our world and for our teams.

Our message across the company has been consistent: to lead with hope while acting on reality and to make the necessary choices today to ensure our strength and growth continue for years to come.

We're confident we've increasingly taken those steps since this crisis began, and we're pivoting the business now to be sure Shake Shack captures the opportunity to evolve into an even stronger company as we come out the other side.

Today, we'll briefly talk about Q1 which, prior to the impact of the COVID-19 outbreak, was in line with our expectations and previous guidance.

But we'll focus more on Shake Shack today, specifically our teams and the important positive momentum of our operating models and digital initiatives.

I want to begin by talking about where the company is right now, nearly halfway through our second quarter.

Sales have been steadily increasing every week from their challenging lowest point at the end of March.

In last week of our third period, the week before -- the week ending March 25, we experienced numerous Shack closures, greatly reduced operating hours and sales in the comp base averaging down 73% across the portfolio compared to the same period last year.

However, since that point, and as we've shared in the supplemental deck provided, each week we've seen encouraging and steady increases in both same-Shack sales and total sales nationwide driven by growth in our own digital channels, the expansion of integrated delivery partnerships and our shifting operating model.

In our most recent fiscal week, the week ended April 29, same-Shack sales were down 45% compared to the same period last year as sales continue to improve to varying degrees.

From a regional perspective, despite all regions being significantly impacted, there are some notable differences in performance as well as the speed with which some markets are demonstrating improvements, with New York City, not surprisingly, still acutely impacted.

Some Shacks in the comp base have, however, resumed year-over-year growth.

Some are down mid-teens, while others are still down as much as 70% to 80%.

And while these sales, in aggregate, are still a material reduction from pre-COVID-19 levels, we're encouraged by the consistency of week-to-week improvements and the clear signs of a path to recovery.

So how does the Shack operate today?

Well, up until this point, every open Shack is operating without a dining room.

Our team's entrepreneurial spirit and innovation around alternative operating models has been extraordinary, creating an entire guest experience around curbside pickup, digital preordering and building makeshift drive-throughs that never previously existed, creating distinct and separate areas for delivery courier pickups, all to ensure safety for our team and our guests.

Throughout this time, we've had a massive focus on how to continue to leverage our digital tools.

In fact, the investments we've made over this last few years has been a part of our digital innovation strategy, have been the key to our ability to operate in an environment like this.

And as a result, in quarter 2 to date through the week ending April 29, digital channels represent approximately 80% of our total Shack sales with our Shack app and web channels showing the most significant growth, nearly 3x higher than last year.

As part of this, we're also seeing strong growth in a number of guests purchasing for the first time on our own digital channels, which has more than doubled over the last 8 weeks.

Now our own channels remain our primary focus in our longer-term digital strategy, and we believe they continue to represent our most significant opportunity to directly connect with and drive frequency and loyalty with our guests.

We've been very clear about the strategy over the last year and intend to use this moment to further those commitments and investments to ensure we capture this significant ongoing growth opportunity.

We've talked a lot about the importance of delivery over the last few years.

And we've taken this time to adapt our strategy to expand our integrated partnerships with more marketplaces, including Uber Eats, DoorDash, Postmates and Caviar, in addition to our previously exclusive relationship with Grubhub.

Our intent by doing so is to provide maximum access to Shake Shack during and beyond this crisis and to drive both near- and long-term sales.

All the strategic imperatives for delivery we've discussed over the last year remain important, leading with a commitment to improving the guest experience, building a long-term and engaging direct relationship with those guests.

Moving forward, we expect to continue to partner with all major delivery service providers to ensure our guests have the maximum amount of choice, wherever and whenever they want their Shack.

In addition to these digital strategies, we've been coming up with other new and creative ways to engage with our guests to give them access to their Shack.

One of these was the launch of a cook-at-home ShackBurger meal kit, in collaboration with Goldbelly, curated online marketplace for regional and artisanal foods.

Ready-to-cook boxes are shipped with all the staples needed to recreate a classic ShackBurger at home.

And it's proved to be a winner, with over 12,000 kits sold so far, and has created significant amount of positive market exposure in the process.

In terms of menu innovation, our focus has been one of simplification and streamlining as we manage through this challenging operational period.

As a result, we've temporarily removed a couple of noncore items from our menu, paused previously planned LTOs, and we'll continue to evaluate the best timing for launch of additional menu items, such as Hot Chick'n and more.

We continue to test and create in the background and more to come here as we move through this period of recovery.

Throughout all of this, our #1 priority has remained: safeguarding the health of our team, guests and communities, while we work to keep our Shacks open to the best of our ability.

Our team has been heroic during this time.

As of April 29, all but 17 of our domestic company-operated Shacks remain open, only due to the entrepreneurial spirit and dedication of our Shack leadership, our team members and our committed home office support.

I'd also like to thank our supply chain team and all of our suppliers around the country who have gone above and beyond to ensure our Shacks are stocked with the necessary supplies and equipment they need to protect our employees and our guests.

We've taken significant actions to ensure maximum safety for our team members and guests in these times, such as increased cleaning, sanitizing, handwashing protocols, safety distancing, gloves and masks at all times.

During this time, we also needed to make some tough decisions for the long-term health of our business, which included the need to furlough over 1,000 team members across the Shacks and our home office.

We drastically reduced discretionary expenditure, and our home office and executive teams have taken pay reductions.

I'm proud to say that we committed to paying 100% of our furloughed team members' medical insurance through July 1 and have guaranteed full pay for our Shack general managers even if their Shacks are closed.

But the best news is that as sales have continued to steadily increase over recent weeks, we've gradually begun to bring back a number of our furloughed team members, and our recruiting function is hard at work as we restart hiring in Shacks for a continued gradual recovery and a return to the growth we expect ahead.

To say thank you to those in our Shacks every day in these difficult times across all company-operated Shacks nationwide, we've increased hourly wages by 10% through June 3 and guaranteed bonuses for the second quarter for all active Shack managers.

Throughout our licensed Shack business, it is a country-by-country and day-to-day story.

We're working closely with our domestic and international license partners as their businesses remain deeply impacted.

As to be expected, each region is a tapestry of different challenges, formats and reopening approaches based on local government requirements.

Domestically, all 8 of our stadium businesses are closed for the foreseeable future.

8 of our 13 domestic airport locations are closed, and with those remaining open doing a fraction of normal sales with travel overall deeply restricted.

Across the world, the vast majority of Shacks are operating with reduced hours and alternative models similar to the U.S. After a blanket closure, we've just reopened 2 of our 12 Shacks in the U.K. In our largest region, the Middle East and Turkey, many Shacks remain closed, and those open are seeing dramatically reduced sales.

In Mexico, we have just 2 of 3 Shacks open for takeout and delivery only.

Across Asia, all 13 Shacks in Japan remain closed.

Singapore and the Philippines are open in modified formats, but all are facing significant sales reductions.

There is, however, some directionally positive news on the horizon.

Our Shacks in Korea, China and Hong Kong have reopened dining rooms in a limited capacity and see mostly increasing sales, albeit slowly.

Needless to say, we do expect our licensed operations to remain impacted for an uncertain period of time, and the significant development plans we had for this part of the business in 2020 are temporarily paused.

But it is important to remember that our global license business has secured real estate in some of the world's best locations.

We believe great locations stand the test of time.

And it's just a matter of when, not if, they get back to growth again.

We're working closely with our dedicated and world-class partners as we move to recovery and then back to growth, sharing best practices and rebuilding together.

Looking ahead, what does Shake Shack look like through these next few months and into the future?

And how do we capitalize on this moment to strengthen our company?

We're starting to plan for dining rooms, albeit in a restricted and modified capacity, to slowly reopen regionally.

We'll be working closely with local authorities, CDC guidelines and our landlords in this process, and we'll be clearly following all social distancing and other safety restrictions and recommendations.

We expect that the majority of our increased cleaning and sanitation procedures are here to stay.

And we plan to move thoughtfully through this next phase of operations in order to keep our teams and guests safe at all times.

We expect dining rooms where we choose to reopen to be operating with significantly limited seating capacity.

Social distancing requirements will result in cashiers and kiosks also operating at reduced capacity while we shift guests to mobile and contactless preordering.

We'll be clearly identifying separate areas and spacing for both ordering, pickup and delivery couriers.

We're fortunate that many of our Shacks have outside seating, which will be opening to some level, and each Shack will likely have some degree of specific adjustment to operations in order to comply with all guidance and regulations and ensure safety remains the utmost priority.

And we're thrilled to announce today the beginning of a plan to add what we're internally referring to as the Shack Track.

This is a prime example of how we intend to use the learnings from our recent business pivots and turn them into long-term improvement for the Shack experience.

Shack Track will result in interior and exterior pickup windows or new pickup areas to improve flow and encourage digital preordering.

We've been studying current Shack layouts and future Shack designs in order to identify where this model can be quickly added.

It may take time and many forms, but all towards the goal of continuing to build the community gathering places the world needs, while adding a level of convenience, safety, distance and frictionless pickup to meet the needs of our guests.

In the supplemental deck, you'll see a rendering example of what this could look like in both a walk-up and a drive-up scenario.

When we recently renovated our Upper West Side and Grand Central locations, we started to implement this thinking, but the current moment has reinforced how necessary and beneficial this strategy will be for Shake Shack.

Across urban, suburban, shopping center and pad site locations, we expect these new pickup points with both interior and/or exterior access will support our goals of convenience while allowing Shacks to be what they've always been for our fans.

These plans will take time, but we're bullish on the opportunity we believe they represent.

In the meantime, we're going to continue to invest in and improve the end-to-end digital experience, including order-ahead functionality through our app and web channels as well as the delivery experience, which we still plan to ultimately integrate within our own channels over time.

Earlier this year, we shared our plans to develop a new and improved mobile-first digital experience, starting with the rebuild of our web platform and then extending to our app.

The intent is to create an experience that will be even more personalized, more engaging, easy to use, and that will allow us to have an increased control over direct messaging marketing and to create an even stronger relationship with our digital guests.

There's no doubt that this period of time has only reinforced that these channels will be key avenues in which we can capture future growth.

And we fully intend to do just that.

On the subject of new Shack development.

During this COVID-19 crisis, we have paused all design and construction of new Shacks.

We are committed to getting back on track with those development plans and the execution of our broader growth strategy as quickly as possible, and our teams are poised to do so when the time is right.

In the first quarter this year, we opened 4 domestic company-operated Shacks, and we have an additional 8 Shacks where construction was either complete or near complete when COVID-19 had hit the U.S. We plan to fully complete and open those Shacks as soon as it makes sense to do so, albeit today, we do not have firm timing at the moment.

Additionally, we have another 9 Shacks in a partial state of construction, but that are also currently paused.

We have a strong pipeline of future Shack with signed leases, some already in design.

We've also identified a number of potential future sites.

At this point, it's too early to give any specific guidance around the timing or number of Shacks for either 2020 or beyond, and we will update you as our planning here evolves.

And we believe with the strongest balance sheet we've ever had, particularly following our recent equity raise, that the Shake Shack brand is in an incredibly strong position as additional real estate and development opportunities become available.

We'll be ready to capture the white space ahead in what could be a forever-changed retail and restaurant environment.

We're also taking this time to look at the opportunity to improve terms with our current portfolio, [to stay] within certain leases in process and to capture some great real estate in what we expect to be an attractive market for us.

We fully intend to keep building those necessary community gathering places the world will need, while evolving our model to be more convenient, more rewarding and more accessible than ever.

Now I'll turn it over to Tara to give some more color on our first quarter result and current trends.

Thanks, and good afternoon, everyone.

Firstly, I'd like to reiterate how proud we all are of our teams in the Shacks and our home office teams supporting our Shack as we continue to work through these very challenging and uncertain times.

It's been incredible to watch the speed and energy with which everyone in the company has come together to navigate through this crisis and to ensure we come out the other side even stronger than when we went in.

In light of the circumstances, I won't go through the details of the first quarter but will focus more on how we were performing before the severe impact of COVID-19 hit fully during March and then give some additional color on current quarter-to-date progress and trends.

Our priorities throughout COVID-19 have been to keep our teams and guests safe, first and foremost, while keeping our Shacks open wherever we can do so.

From a financial perspective, we've seen a material impact to sales performance and a number of new costs enter the business.

And I'll talk more about some of those in a moment.

We remain focused on preserving cash, yet strategically continuing to invest in key areas of the business that will solidify our position of strength and ensure we're well positioned to move quickly back to our long-term growth agenda as market conditions continue to improve.

Prior to experiencing the full impact of the COVID-19 outbreak, our performance in the first 2 periods of the year was in line with our expectations, with same-Shack sales down approximately 2%.

As sales started to steeply decline following the COVID-19 outbreak, March same-Shack sales were down approximately 29%, resulting in total comp for the first quarter being down 12.8% and total revenue for the first quarter increasing 8% to $143.1 million.

As at the end of the first quarter, our trailing 12-month average unit volume was $3.9 million with average weekly sales of $65,000 during the quarter.

In March, across our company-operated Shacks, our weekly sales were impacted severely and quickly as the business reacted to dining room closures, city and state curfews, mall closures and ultimately stay-at-home orders.

For the Shacks in our comp base, in the last 3 weeks of our fiscal period ending the 25th of March, same-Shack sales decreased 10%, 46% and 73%, respectively, compared to the same fiscal weeks last year.

We're pleased to say that we've seen consistent improvement to these sales trends each successive week since that low at the end of March, much, as Randy mentioned, due to the success of our digital strategies and the flexibility of our Shack team.

Overall, most recent fiscal week ending last Wednesday, the 29th of April, same-Shack sales were down 45% compared to the same period last year, and total Shack sales were down 34%.

Average weekly sales for the week ending 29th of April more than doubled to $49,000 compared to the week ending 25th of March.

You can see the weekly cadence and this gradually improving performance on Page 6 of our supplemental materials.

From a regional perspective, despite all regions being significantly impacted, there are some notable differences in performance as well as the speed with which the markets are demonstrating improvements.

All regions have seen improving week-over-week sales over the last 4 weeks.

Although with our material exposure to acutely impacted markets like New York City and other urban and tourist-heavy locations, we expect recovery to be slower in certain regions than others.

And as you can see on Page 8 of our supplemental materials, New York City is still acutely impacted.

And with a significant proportion of our sales originating here, it represents a material drag on our overall results.

Many of our highest-volume Shacks are in New York, some in transit centers and many in high-tourist neighborhoods, and it's not surprising to us that we're experiencing a more significant decline here in this moment.

But we're encouraged to see Shacks across the rest of the country faring better and coming back gradually and have confidence in the strength of our New York business post COVID-19, albeit we expect a slower path to full recovery here.

As it relates to our profitability, Shack-level operating profit margin for the first quarter was 19.1%, highly impacted by the sales deterioration caused by the COVID-19 outbreak in March.

Shack-level operating profit margin during the first 2 periods of the quarter, excluding a onetime inventory adjustment benefit, was 20.1% compared to 19.3% for the same period last year.

This 80 basis point improvement was driven by labor cost control and favorable food costs.

Shack-level operating profit margin in fiscal March decreased to 15.9% driven primarily by the reduced sales caused by the outbreak.

The aforementioned inventory adjustment had a 40 basis point benefit on Shack-level operating profit margin for the full quarter.

I mentioned earlier that we're encountering a number of new and increased operating costs in the Shack specific to COVID-19.

These include supplies and equipments we deem necessary to keep our teams and guests safe, such as face coverings and gloves, additional and secure packaging for all orders, directional signage and cleaning supplies, among others, and we expect these to be ongoing for a period of time.

As sales continue to ramp up, we also fully expect to incur labor inefficiencies for a period of time compared to our previous staffing model as we work to establish new protocols and operating models in the Shack, with our goal to remain as efficient as possible while always offering safe and high-quality service to our communities.

In addition, whilst we've seen strong growth partly as a result of the expansion of our delivery partners, these sales do come at a higher cost due to the nonexclusive commission agreements with the various marketplaces.

We're also closely monitoring the ongoing volatility in the beef market as we're starting to see a material increase driven by industry constraints due to plant closures.

Over the last month, we've seen significant increases in beef with the largest increase being realized over the most recent week.

From a cost standpoint, we're in a slightly more predictable position with chicken and pork due to locked-in pricing agreements, albeit we'll continue to monitor the broader environment closely.

Moving on to cash.

We've been operating in a conservative cash preservation mode with strong cost management discipline since the initial impact from COVID-19, and we'll continue to do so until the operating environment fully stabilizes.

As a precautionary measure, on March 24, we drew down on our $50 million revolving credit facility and have subsequently finalized a number of enhanced modifications to our credit agreement to reflect the current and ongoing impact from COVID-19.

In addition, to further strengthen our balance sheet and secure our ability to revert to growth quickly, we raised gross proceeds of $150 million from an equity offering on Friday, April 17.

This represented twice our initial target amount of $75 million via an approximate $10 million at-the-market raise as well as $140 million block intraday trade, the latter becoming possible following significant reverse inquiries from both existing and new shareholders.

We were extremely pleased with the outcome here and, as of the 29th of April, had $247 million in cash and marketable securities, putting us in an extremely strong position to continue to weather this storm, and to exit ready to quickly resume execution of our long-term strategic growth plan.

For context, entering 2020, we had $74 million in cash and marketable securities against a previous high point of $92 million at the end of Q2 2018.

This further strengthening of our available liquidity allows us to continue to strategically invest during this time of depressed sales, solidifies our strength and ability to revert to growth and gives us the opportunity to plan even longer term to capture the many opportunities a post-COVID-19 world could provide.

At current sales levels, our weekly cash burn has reduced to approximately $800,000 per week.

This number assumes

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pay increase and guaranteed second quarter bonus for our Shack team that Randy mentioned earlier.

It also excludes new Shack capital expenditures, which for the most part have been placed on temporary hold.

Cash burn is a key performance indicator for us as we decide the timing and degree of deploying growth capital, although as I mentioned, we are restarting a number of key digital initiatives, as we believe these continue to be a critical differentiator for the business and opportunity for continued growth.

We significantly reduced discretionary spend in G&A in late March and are currently running at approximately 75% of our original G&A budget for the year.

As sales continue to recover, we'll gradually increase the spend, although the extent of this or timing thereof is not yet determined.

As I mentioned, we do, however, expect digital marketing and technology to be 2 areas where we will increase investment spending as the quarter progresses.

And finally, we're continuing to evaluate several of the tax regulatory changes that were enacted subsequent to the quarter.

We expect to significantly benefit from the retroactive change to the recovery period for qualified investment property, which will make the cost of our leasehold improvements eligible for 100% bonus depreciation as opposed to the 39-year period enacted with tax reform.

The full extent of this and other regulatory changes will be reflected in our Q2 financials.

But we expect this change to fully eliminate our TRA payment obligations for the rest of this year.

As usual, we have also included a reconciliation of our effective tax rate in our supplemental materials.

And finally, in terms of outlook, we withdrew our financial guidance for 2020 in mid-March given the level of ongoing uncertainty surrounding COVID-19, and we'll continue to update you as we have more information to share.

And with that, I'll pass you back to Randy for some closing comments.

Thanks, Tara.

I want to take this opportunity to just say thank you for all of you for joining us today.

In the midst of this crisis, our responsibility and commitment to our communities has never been more important.

And our teams just keep stepping up to that challenge.

Shacks around the country have been providing countless meals for hospital workers, first responders, firefighters, humane societies, food banks and more, as daily examples of our core values and enlightened hospitality.

While we work through this extremely challenging time, I could not be more thankful for our Shack and home office teams in their dedication to keeping our Shacks operated.

I couldn't be more grateful to our guests for their continued trust and support.

During this time, we are working hard to take the lessons we're learning now and bring them into our business plans moving forward, ensuring we can come out even stronger on the other side, more prepared for anything that can come our way.

Remember, Shake Shack was born as a community gathering place in Madison Square Park in New York City.

You can bet that when the day comes where friends, families, coworkers, travelers and everyone in our communities chooses to gather again, Shake Shack will remain a place they choose to do so.

And with that, operator, you can go ahead and open the line for questions.

(Operator Instructions) Your first question comes from the line of Sharon Zackfia with William Blair.

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percent of that roughly you're getting through the app and through the Shack website.

And what I'm really trying to get at is how much information are you getting on your customers at this point?

And how does that kind of flesh in with any ideas you might have about loyalty, either imminently or far into the future?

Sharon?

Yes?

Hey, Sharon, I'm sorry.

At the beginning of your question, you were muted.

Could you -- I'm sorry, we only caught about the last 10 seconds.

I'm sorry.

Would you mind repeating the question?

That's okay.

This is the joy of everyone working remotely.

Yes.

You are in the new world.

Yes.

So congratulations on the 80% digital.

I guess what I'm curious about is what percent of that are you getting information for, either -- on the customer, either via the app or your website?

And kind of along with that, how does that inform what you're learning about your customers?

And any potential thoughts on loyalty layering into that platform?

Absolutely.

So look, I think it's really exciting to see how quickly our tools that were built for a much lower percentage of sales have grown and they're very literally keeping us in business.

So we're excited about that.

We haven't -- people can check out as a guest, they can check out with full information.

When they check out with full information, obviously we get quite a bit of data that we only use to connect with them if they're willing and if they want to be a part of that.

So the data is rich.

The connection is rich.

And we're really excited about what this means.

Because as you know, from the industry, and we expect this ourselves, those guests tend to be sticky.

They tend to hang in there with you.

And I think especially during this time, guests that are experiencing Shake Shack, it's been like a coming home.

The amount of social media posting we've seen, when people get their Goldbelly pack at home, they cook their ShackBurger Kit, it's a strange time.

And when you can connect with those things that are comfortable, it really matters.

As we look at loyalty or other things down the road, we're going to continue to test various things.

We've seen some good success with various promos, through our delivery partnerships in this -- over this last month.

And we're going to begin to be able to do more and more of that as we continue to invest and build in our tools.

We've got a lot more building to do.

These digital tools have a lot of growth to be done.

But that's where the investment is, and we're really excited about what it's going to mean for us in the future.

Your next question comes from the line of Nicole Miller with Piper Sandler.

One question would be the Goldbelly partnership.

I mean that was just really fun.

We experienced it on our end.

Just wondering, it's clearly aligned with the DNA of supporting the community.

How much of it was novelty?

Could it be permanent?

And even if it's not, what did you learn?

It's a great question, Nicole.

Thank you for hanging in there with us.

And I think what we've learned is there's an incredible demand for Shake Shack all around the country.

One of the powerful things about a thing like Goldbelly is it starts to tell you where people order, right?

And it's a way for us over time to maybe even learn about real estate decisions, how to see the market, where there's different demand that we may or may not even know.

And we're going to be listening and learning through that.

Look, I don't think it's going to be a material part of our business anytime soon.

We certainly want to be back cooking ShackBurgers for you in our Shacks more than having you have it at home, although we love that for the moment.

But we'll be keeping eye on it.

I think it's going to give us an opportunity to think about other products down the road.

And who knows?

Who knows what this could mean?

I also just want to follow up on one thing from the previous question, too.

As we look at our digital channels, one of the cool ways where people are experiencing Shake Shack right now is when you do go to the Shack, we have a QR code outside the window where you can scan that, the menu pops up, you're immediately in our channel, and you can order.

So you don't even have to wait online.

You don't even have to -- you can have fully contactless ordering.

And it's just another great way we can connect with people.

So lots of fun things, both on new channels like Goldbelly and our own.

Your next question comes from the line of Katherine Fogertey with Goldman Sachs.

Great.

Actually, one point of clarification, Tara.

You kind of went out a little bit when you were talking about the weekly cash burn and the assumptions you're making there.

So if you could kind of go back into that point.

But really, the question that I wanted to ask is about the pipeline and site selection.

The Shack Track seems super interesting.

And wondering if that changes the way in the post-COVID world that you think about site selection and if you anticipate there being more sites or different sites opening up that maybe Shake Shack might look a little different post COVID than the more unique, larger scale units that we have seen so far.

Yes.

Katie, it's Tara.

So yes, I apologize.

I'm not sure what happened at that first part of the cash burn discussion.

But -- so what I said was at our current sales levels coming off the last week, our cash burn is now at about $800,000 a week.

So that's obviously an improvement from the business update we posted a couple of weeks ago, and that assumes full cash rent payments of $800,000 a week.

So we're pleased with that progress, and we expect that to continue to improve as sales gradually recover.

And Katie, on the Shack Track, I think it's going to be fun to learn.

Look, we've got to try this out.

We've got to do it in different places.

I think one of the things we've learned in this time is that -- and as we look ahead, hey, more than ever, we want to build community gathering places.

I truly believe the world will gather again.

We shouldn't do it in the same way right now.

But as time passes, I believe we will be thirsty to do that as a society, as human beings.

People want to gather with other human beings.

So we're going to keep building those.

We're going to keep building really special architecture and design as we have from the beginning.

That's the very thing that has always set Shake Shack apart.

And in this time, we're really looking forward to building more of those.

In addition to that, we want to make those Shacks and others even more accessible, even more convenient, no matter how you want to order.

And we can do that and have people continue to gather over the long term.

There are Shacks, like we have one that's nearly built in University Village in Seattle.

That's a great community gathering place.

It's a beautiful design.

And we're going to add one of those Shack Track windows to it, right?

And I think it will be an exciting way to do it.

We have a couple of other Shacks where they were never intended as a drive-through, but now we think we might be able to punch a hole in the side of the building, create a lane and allow you to have preordered on our channels and drive up and pick it up.

We may even be able to set that up for delivery couriers.

All of that, in the near term, is to separate people, to give people space and allow the crowd control.

Over the long term, it's really to give you however you want your Shack with convenience.

So I think to the direct part of your question, I think it will open up new opportunities for us in real estate.

I think, look, we have never had more cash on our balance sheet than we have right now today.

That's a tremendous position for a company to be in during this time.

And we intend to use that wisely when the time is right, and capitalize on what we expect will be a changed retail environment.

And I think there will be companies like ours that can expect to be even more coveted than we were before by developers and landlords, to capture the best pieces of real estate out there.

Your next question comes from the line of Lauren Silberman with Crédit Suisse.

Just a quick follow-up on the prior question.

To what extent do you think the existing Shacks will be able to be retrofitted for the new enhancements?

And how could the new design potentially impact investment costs?

And then just a question on the recent comp improvement.

What do you think are the primary drivers of the improvement in trends?

And anything you can share about what you're seeing on the consumer behavior side?

And then just to clarify, does the comp exclude closed stores?

Yes, the comp excludes closed stores.

And let's start with the comp then.

So yes, closed stores, of the 17 that has been -- those are out.

In the comp base, we've seen gradual improvement every week for the last 6 weeks, as we've shown, since the bottom occurred towards the end of March.

I think it's really been a few things.

It has been what I believe is -- has been tremendous efforts by our team to quickly and radically alter the way that we operate today for those drive-up, pickups, curbside and keeping everyone out of the dining room.

I think it's extraordinary what the team's done.

And I think people are getting used to that.

And I think diners and guests are looking around and saying, "I want to eat out, and when I do, I need to trust that brand.

I need it to be safe." And the way that we have done that, I believe, has gained us a lot of points in our communities.

Additionally, the digital initiatives, seeing the ability of our app and web channels to grow and be the leader of our sales right now as well as the integrated partnerships that we've continued to add with new delivery companies.

It's giving people the opportunity to experience Shake Shack during this time quite a bit.

When it comes to the Shacks and how many will be able to directly benefit from a Shack Track kind of setup, it's hard to say.

We're really reviewing those.

Now there will be some that will be really obvious.

And there will be some that will really look and feel like a normal Shack.

But what we'll be working towards is, as best as possible in a current design, to have separate areas, to have windows and shelves that can be accessed separately, just to keep people as much as possible separate.

This will be tough.

Shake Shacks are crowded places.

We're going to be working carefully to disperse those crowds while still trying to maintain the best we can.

I don't expect it is a material increase in a new Shack build.

We do expect there'll probably be some level of CapEx as we look to do this at current Shacks.

But we're going to do it quickly.

We're going to do it where we can, and there'll be lots of things we're going to learn.

By no means have we figured this out yet, but it is something we believe in and something we're excited to test in a few places and get it going.

Your next question comes from the line of Jake Bartlett with SunTrust.

Mine is around restaurant-level margins and maybe you can clarify.

I think, Tara, you said that restaurant margins were 15% in March despite same-store sales being down 29%.

Maybe just if you can supply us by that level.

Just if you could confirm that.

And just at the current levels of same-store sales, what is -- what do restaurant-level margins look like?

Or maybe said another way, what is the breakeven, given how the stores are being operated right now?

Yes.

I mean -- Jake, so I mean, the teams did a great job really across the company, but particularly in the Shacks, of responding as quickly as they possibly could as it related to costs within the Shacks and variable costs and food costs and labor costs, trying to react as quickly as possible to those week-on-week sales trends that I talked about.

So I think hats off to them for moving as quickly as they did.

We obviously still saw a meaningful impact to margins in the quarter with that kind of a sales drop-off.

But when it comes to looking forward and where we are now, I would say -- and you sort of made the pivot yourself from Shack-level operating margin to cash burn.

Really, we're very focused on that cash burn number, first and foremost.

And that's where we'll be looking to continue to improve as sales come back.

Ultimately, of course, with the intent of getting back to the high-margin business that we were before COVID-19 hit.

But that's not going to happen tomorrow, and then there's going to be a path to get there.

And different costs will start coming back into the business in a different -- coming back into the business at different times.

Obviously, as Randy mentioned, we're really pleased to be bringing back staff and team members back into those Shacks as sales recover.

But we've got a bunch of inefficiencies and just extra costs in the operating models right now, which are really, really hard for these teams.

And as we reopen dining rooms, that's not necessarily going to get any easier in the short term as we reopen dining rooms under such sort of restrictive -- in such a restrictive environment.

So I think cash burn is the key area of focus.

And right as of today, we're not giving any forward-looking statements as it relates to that or any breakeven points on the call today.

But pleased with the progression so far over the last few weeks.

And with sales continuing to increase, looking forward to that continuing to get better.

But we'll also start to spend a little bit more, too, as we alluded to.

We're really excited to get some of these digital investments and digital strategies back on track after a sort of moment of pause and start getting this business back on the front foot for coming out the other side.

Your next question comes from the line of John Glass with Morgan Stanley.

Thanks for all the detail around sales and cost.

When I look at your sales declines, even outside of New York City, sales are down 35% to 40%, which in a way surprises me, just given it's a limited service brand.

We've seen some others even without drive-throughs have less severe declines in sales.

Is there another way to cut that data to look at, like, the suburban stores?

Can you get away from like tourist areas, areas which would be more impacted by traffic?

Some other way to help understand if there's a differentiation, either way, people are just not using your brand differently, or is it just the geographies and locations you're in that causes more significant sales declines?

Well, John, I think there's so many variations within that, and it's the right question.

But the most heavily impacted are the deepest urban environments, right?

New York City and urban stores, Shacks at many other places around the country.

The hard part, when you really try to break it down is, look, there's some -- there's many malls where we're either closed because we're inside, but we're open, but the mall is closed, right?

So it's hard to say, well, a mall or a suburban Shack is doing okay.

I think Shake Shack's real estate has been its strength, right?

And there's no doubt that in times like this, we're not a brand with 2,000 units around the country that has a wildly dispersed portfolio.

We have just 167 company-operated Shacks.

They're all in really good locations, really good locations that are deeply impacted by this moment.

And I think it's just a little bit harder to say.

But generally, you're right to say that suburban kind of does a little bit better during this time because you can access it more easily.

But it's -- we've seen some fascinating trends.

And it really is a learning moment, and it's teaching us a lot, different kinds of real estate opportunities that we have today and will have in the future as things -- as these things return.

But look, I think Shake Shack being a little more impacted than your average fast-casual or certainly than the QSR, just because of the kind of real estate we have.

We have 0 drive-through, official drive-throughs, right?

So working on it, learning a lot.

And good news is each one of those regions has slowly picked up every single week.

Your next question comes from the line of John Ivankoe with JPMorgan.

Hope everyone is well.

The first is a clarification.

I think, Randy, you said that some stores are actually up year-over-year.

So I mean could you explain like what the characteristics of -- are of those stores?

And secondly, having $247 million of cash is a lot of money, given what your cash burn is and what your CapEx will be likely for the next several years.

Are you beginning to think about other strategic or non-Shake Shack opportunities now that you have a truly fortress balance sheet?

Yes.

We really do have -- I mean at that level, the most cash we've ever had in this company, ever in the history of this company, is over $90 million.

We now have nearly $250 million.

That is a truly fortress balance sheet to withstand anything.

No matter how long this takes, we believe we can withstand it.

And I do think it creates tremendous opportunity for us.

First and foremost, John, on our own channels to continue to build and we believe be truly opportunistic in our growth moving forward.

Now we've got to get past this thing.

We're not going to get over our skis.

We're going to make sure that we preserve the cash we have and so that we can do that.

We have no current plans for anything outside of building our own Shacks.

We've got a big country and a big world out there, and we want to do that.

But you never know.

And liquidity was the #1 goal over this last 2 months.

We've achieved that, and we're really happy about that.

In terms of the Shacks that are up, it's funny.

First of all, there's not that many, as you can see in the numbers.

So let's be real.

But of the ones that are, it's interesting.

They tend to be those Shacks that are -- where you can clearly see where stay-at-home would help.

Some of the ones that are easily accessible via car or via drive-up and via where people are being right now throughout their kind of work-at-home.

So let's just say that Midtown Manhattan is not one of them, if it gives you an example, right?

So we -- it's the opposite of that, that is seeing more of the strength right now.

But we think they'll all continue to -- we hope, continue to come back if the trends continue.

Your next question comes from the line of Jeffrey Bernstein with Barclays.

Just a question as we think about the reopening to come.

I mean obviously, you primarily do a lot of dine-in business.

So that's a big opportunity for you.

I'm just wondering if you've given any thought or can share anything in terms of what your thoughts on timing and maybe how the strategy changes in terms of social distancing.

Like you said, you're a gathering place but doesn't necessarily fit well with that type of environment.

So any thoughts around the profitability that will come out with these capacity constraints?

Or maybe you've already opened some of the dining rooms, in terms of any learnings you can share in terms of the improved comp or the risk of losing pickup at the expense of the dine-ins being reopened.

Anything would be great.

Thank you.

So the only place in the world where dining rooms have reopened has been in Mainland China and Shanghai, in Hong Kong and in Korea.

Those are severely limited dining rooms, and each country has their own methods.

We've learned a lot from our partners overseas, and I think we're taking a lot of that to our ops teams here.

So domestically, there are 0 Shacks that have a dining room open.

And we haven't announced yet when or how exactly we'll do that.

But we are watching, and we're watching closely, and we're making sure it can be done safely.

You've obviously seen regions like Texas, Georgia and some others begin to open, and restaurants being -- some being aggressive, some being more cautious.

We're going to take the more cautious route.

And when we do, you'll see a lot of blocked off or removed tables.

You'll see a lot of space between any guest.

You'll see the line very clearly delineated with space in between, and you'll see pickup areas as spread out as possible.

And by the way, you'll see our staff as spread out as possible for their own safety.

So it's going to take time.

We have to work with throttles right now.

There is no good reason to just start to try to do all of the sales that these Shacks once did.

That is not the safe thing, and it's what we need to be careful about.

That said, our teams are being incredibly entrepreneurial and as aggressive as they can to get back to sales that the opportunity is there.

So I think we're going to continue to encourage people.

My hope is that whether you stay or take it to-go in the new environment, you still preorder as often as possible.

I think the opportunity, which we had started with kiosks, with our app and web channels, our own channels are incredibly attractive to people, and they're more so every day.

So we're excited to see that continue to go, and we'll see.

And we'll go slowly, and we'll go deliberately and with discipline.

Your next question comes from the line of Andrew Charles with Cowen and Company.

Great.

And I hope you guys are all staying well.

Two separate questions for me.

Tara, in 1Q, can you quantify the revenue dollar impact for the temporary closed company stores, given this wasn't picked up in the same-store sales calculation?

And then Randy, my question for you is that, when we eventually get back to the new normal, what factors are you evaluating to determine if you want to return to an exclusive third-party delivery partner or continue what you're doing now with several partners?

Andrew, we actually haven't quantified that revenue number for Q1.

So I mean it was -- it -- obviously we were fortunate, it wasn't very many Shacks, and it was towards the end of the quarter.

But we actually haven't broken that out right now.

And just for context so everyone understands the kind of Shacks that are closed and why.

So certain Shacks that are interior of a mall that's closed, and we're not able to reopen.

There are certain Shacks, like Grand Central Station, that is just experiencing wildly lower numbers.

So we closed that Shack.

And some others where -- whether it's inside a hotel or in a truly destinational tourist area like International Drive in Orlando, those Shacks are closed.

In terms of delivery partnerships, Andrew, at the moment, we don't see a scenario where we would return to an exclusive arrangement.

We're really -- I think what's become clear to us through the first quarter and certainly now, is that we want to give opportunity for our guests to have it whatever region they're in and whichever platform they choose to use.

We want to make sure that we're there for them.

And we've really formed strong relationships with all of those partners.

We're excited about that and what it means for our future as things return to more normalcy over time, we hope.

And obviously, we're doing greatly elevated delivery.

Who knows where that will go?

Hopefully, people will start to come out more and do more in-person or preordering and continue to use our channels as the preferable channel.

But in the meantime and ongoing, we're going to work with all the major partners because we believe that's the best thing for the business long term.

Your next question comes from the line of Brett Levy with MKM Partners.

Great.

And I echo what everyone else has said, I hope you all are doing well.

Now you talked about a lot of things, and you've always been a management team that's been thoughtful and methodical in your approach to different -- to introducing initiatives.

But throughout this call, you obviously have a lot of operational protocols that you're putting in place, reopenings, now multiple delivery partners, these digital advancements, and you're still going to have other areas on the build-out and menu.

So it seems like you have quite a bit on your plate.

How are you thinking about prioritizing once you've gotten to the reopening?

And also, what do you need to see to get to a steady state where your -- the corporate infrastructure is rebuilt and you get to whatever you consider full corporate staff?

Brett, such an important and appreciated question.

Thank you.

I think, number one, you've got to see safety.

You've got to see environments where our team and our guests can remain safe.

Everything has to be driven from there.

Once we see that, we're going to make sure that the priorities are done to take care of our team and begin to grow sales again.

We're going to look at those initiatives within all that can do that.

So for instance, on the opposite side, we've culled down our menu a touch.

We've taken off some of the things that are harder to operate and are a smaller percentage of our sales.

So we have not introduced any LTOs for the moment.

So we've really got a nice core menu that we're doing there.

So that's a perfect example of the other side.

As we look at other priorities, it will be a lot of our digital initiatives.

The investments will begin in our tech and marketing, where they've been anyway.

But certainly, as we come back, we're going to want to make sure those tools are as robust and safe and capturing the opportunity to grow as possible.

That's really where it's going to be.

But I think we do -- we're being disciplined.

Look, there's really good signals if you look at the graphs and you see the recovery that we've begun to have, but we're still below our sales.

And we expect that will be the case for some time.

So we've got to make sure that we are disciplined.

We are not spending anything that is unnecessary.

We certainly don't expect a whole lot of travel or other things like that, that would normally be part of our ordinary course.

And as things start to come, we'll start to add that back appropriately.

We've got to understand what the new normal level of sales will be.

And then the last thing I would say is, it's going to be time soon to figure out how to support new openings, right?

We have not had an opening in a couple of months.

And openings will be different now.

They will be challenging.

We may be opening without a dining room in a new opening.

We'll have to see.

So we're going to make sure that we can prioritize our ability to do that, do that well and make sure, throughout the company, we are as staffed as possible at an appropriate level.

So we're continuing to be prudent with our cost structure, but not cutting the opportunity to gain sales where we can.

Your next question comes from the line of Jim Sanderson with Northcoast Research.

I just wanted to dig in a little bit more to beef cost.

We've heard a lot about the ground beef pricing increasing.

Wanted -- hoping you can provide some feedback on your own unique blend and how that's trending relative to ground beef costs.

And then remind us of what share of food costs are related directly to beef.

Yes.

Look, generally, in the first quarter, it was fine.

The beef basket has roughly been around 1/3 of our company for many years, so call it that roughly, approximately.

What has been something we're watching literally every hour now is the supply and cost of those.

As you've seen a lot of headlines lately, we are happy to say that, at the moment, we've had 0 supply challenges in getting our beef.

The plants that we use have not been impacted although many plants you've seen across the country are working at reduced schedules.

We do not, today, expect a supply issue.

However, costs have really jumped over this last few weeks and some expectation of moving forward.

I think you're starting to see some challenges in that market.

It's something we've got to watch very closely.

We're expecting much higher costs on the beef market at the moment.

And we don't expect that to be a long-term problem, but I think as is the moment right now, nobody knows exactly on all of these issues.

So watching it closely.

We believe our supply is intact, and we believe it's going to be more expensive.

On the rest of the baskets, we're kind of right where we were.

There are some wins.

There are some losses.

Chicken, bacon, those things, we've locked in supply and cost, so we feel good about that.

And generally, we don't see an issue in any major direction.

There'll be some fluctuations with the rest of the basket for the moment.

So beef is really a thing we're watching, and we'll keep you posted.

Ladies and gentlemen, we have reached the end of the question-and-answer session.

And I would like to turn the call back to Mr. Randy Garutti, CEO, for closing remarks.

Thank you so much for everyone for taking the time to be with us today.

We look forward to continuing to be in touch and trying to take care of our team as we slowly recover here.

And we hope that we can see you at a Shack sometime soon.

Thanks, everybody.

Take care.

This concludes today's conference.

You may disconnect your lines at this time.

Thank you for your participation.