Shake Shack Inc (SHAK) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Shake Shack fourth quarter and FY14 earnings conference call. At this time all participants have been placed in a listen-only mode and you'll have an opportunity for question and answer following the presentation. Please note that this conference is being recorded today, March 11, 2015. On the call today we have Randy Garutti, Chief Executive Officer of Shake Shack, and Jeff Uttz, Chief Financial Officer. Now I'd like to turn the conference over to Jeff Uttz.

Thank you, operator, and good afternoon, everybody. By now everyone should have access to our fourth quarter 2014 earnings release. If not, it can be found at www.shakeshack.com in the Investor Relations section.

Before we begin our formal remarks I need to remind everyone that our discussions today will include forward-looking statements. These forward-looking statements are not guarantees of future performance and, therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our final prospectus, filed on January 30, 2015, for a more detailed discussion of the risks that could impact our future operating results and financial condition. Lastly, during today's call we will discuss non-GAAP 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.

With that, I would now like to turn the call over to Randy Garutti.

Thank you, Jeff. Good afternoon, everyone, and welcome to our inaugural quarterly earnings conference call. I'd like to welcome you and express my appreciation for your interest in learning more about Shake Shack. The format for today's call will be as follows. First, I'll begin with an overview of Shake Shack and our growth plans. Jeff will then review our financial results and also provide some guidance for 2015. And then I'll conclude with a few additional comments before turning the call over to Q&A.

For those of you who may be newer to our Company, Shake Shack is a modern day roadside burger stand serving a classic American menu of premium, all-natural, hormone and antibiotic-free burgers, hot dogs, crinkle cut fries, shakes, frozen custard, beer and wine. Founded by Danny Meyer's Union Square Hospitality Group, Shake Shack was created leveraging USHG's expertise in community building, hospitality, fine dining, restaurant operations and the sourcing of premium ingredients. The beauty of Shake Shack is that we never set out to be anything more than a community venture to support an art project.

Shake Shack originated from a hot dog cart that USHG established in 2001 to support the rejuvenation of New York City's Madison Square Park through its conservancies first art installation, I Heart Taxi. And the idea was simple -- New York Taxis on stilts in the park. And of course, to complement the experience, the artists wanted a hot dog cart. People began to line up day after day, beginning the tradition of people coming together in Madison Square Park to experience the Shack.

In 2004, Shake Shack officially opened and immediately became a community gathering place for New Yorkers and visitors from all over the world. Over the last decade, Shake Shack has become a beloved New York City institution that generates out-sized media attention, critical acclaim and a passionately devoted following. Danny Meyer's original vision of enlightened hospitality guided the creation of Shake Shack's unique culture and continues to differentiate us today.

Enlightened hospitality is the virtuous cycle that's created when we choose to put our team first, caring for each other, our guests, our communities, our suppliers and, ultimately, creating strong returns for our investors. We are leaders training future leaders, constantly focused on investing in our team through extensive leadership development programs while seeking to be the employer of choice, offering above industry-average compensation and comprehensive benefit incentive programs. We believe our culture enables us to develop future leaders from within and deliver a consistent Shack experience as we continue to grow.

Our vision, to stand for something good, impacts all aspects of our business, including the exceptional team we hire and train, the premium ingredients that make up our menu, our community engagement and the design of our Shacks. Stand for something good is a call to action for all of our stakeholders and this commitment drives our integration into the local communities in which we operate, fostering an unparalleled lasting connection with our guests.

Shake Shack has led to the creation of a new fine-casual category in the restaurant industry. Fine-casual couples the ease, value and convenience of fast-casual with the high standards of excellence in thoughtful ingredient sourcing, preparation, hospitality and quality, grounded in our history as a fine dining Company. As with anything we've ever done, we stopped and asked the question, whoever wrote the rule. Whoever wrote the rule that we have -- what we have come to know as today's fast food culture was how it was supposed to be. We set out to change it. And with that in mind, we decided to grind our burgers fresh daily from whole muscles, premium cuts, all natural hormone and antibiotic free beef. We prepare our frozen custard fresh all day, every day with no corn syrup and we hand spin our shakes one by one. Everything is cooked to order. People always had an idea of what fast food could be and whoever wrote the rule that we couldn't change all that?

Each Shack has distinct menu elements. Using our fine dining ethos and our connections, we're truly able to team up with our communities best bakers, [chocolateers] or sausage makers and continue to innovate around our focused core menu. This unique understanding of taste and flavor allows us to continue to differentiate our menu wherever we go. We are fortunate that in this short time Shake Shack has become a beloved global brand with the power reaching multiples beyond our size. The excitement we create during our openings and the ongoing connection we have with our fans through an intensive social media strategy, graphic design and unique collaborations having, together, powered our voice and created a truly dynamic connection with our loyal Shack fans.

Remember, Shake Shack is in the [naissant] stage of growth. We are just getting started. We believe the greatest immediate opportunity pertains to the opening of new domestic Company operated Shacks. And our versatile real estate model is built for growth, already proven throughout the country in varied formats in urban, suburban, mall, train stations, airports and even ballparks. We have a disciplined growth plan in place and expect to open at least 10 new domestic Company operated Shacks each year in the near term, approximately doubling our domestic Company operated Shack count over the next three years and approximately tripling our domestic Company operated Shack count over the next five years. With only 34 domestic Company operated Shacks and five domestic licensed Shacks in 11 states and Washington D.C. today, we know there's tremendous [white] space opportunity for us to expand in both existing and new US markets.

We made the decision early in our life cycle to open restaurants internationally throughout the Middle East, Turkey, Russia and the UK. This early global brand acceptance and extended reach has allowed Shake Shack the distinct opportunity to go a bit further, a bit faster and capture this unique and efficient piece of our business model.

Before I hand it off to Jeff, I'd like to highlight a few notes from the forth quarter and FY14. Last year in 2014, we opened 10 domestic Company operated Shacks, including 5 of those shacks in the fourth quarter. And during the year, we executed our plan. We entered a number of new markets -- Orlando, Chicago, Atlanta and Las Vegas -- while we deepened our roots in our current markets of New York, New Jersey and Washington D.C. We're especially excited to have opened our first Shack west of the Mississippi on the Las Vegas Strip outside the MGM New York, New York where a brand new public park and Las Vegas' newest and largest arena will open in 2016.

Looking at 2015, we're right on pace to hit our growth targets for at least 10 domestic Company operated Shacks as we enter the important new markets of Austin, Texas and Baltimore, Maryland, while building on our existing base of Shacks on the East Coast and Midwest. Internationally, we're excited to have announced that we are bringing Shake Shack to Japan through an exclusive licensing arrangement with the Sazaby League for the development of up to 10 new Shacks in Japan over the next five years with the first Shack expected to open next year in 2016. We believe Sazaby, whose a world class proven operator with over 40 years of expertise, including the tremendous success leading Starbucks first international venture, represents the perfect partner for launching Shake Shack in Japan.

In our current international markets, we are on track to open five Shacks throughout the UK and Middle East. All of those will open later this year towards the end of FY15.

Briefly, in terms of our recent results during the fourth quarter, we grew our total revenue by 51.5%, which included a 7.2% increase in our same-Shack sales and produced a nearly 60% increase in adjusted EBITDA year-over-year. We're pleased with the strength of our fourth quarter financial results and are entering 2015 with great momentum as a public Company.

With that, let me turn the call back over to Jeff for a more detailed financial review of the quarter.

Thank you, Randy. Before we discuss the financials, let me briefly recap our recent IPO. On February 4, following the end of our fiscal year, we completed an initial public offering of our Class A common stock by issuing 5.75 million shares, including approximately 750,000 shares sold to our underwriters as part of the over allotment option. We received net proceeds of approximately $112.3 million net of related underwriting discount and commissions. Please note that the financial results presented today are for SSE Holdings LLC, which is the predecessor of Shake Shack Inc., and do not reflect what our results of operations would have been had the IPO occurred during the period.

Now turning to the results of our 14 week fourth quarter ending December 31, 2014, compared to the 13 week quarter ending December 25, 2013. Total revenue increased 51.5% during the fourth quarter to $34.8 million from $23 million a year ago. The majority of our revenues are made up of domestic Company operated Shack sales, which increased 51.6% during the quarter to $33.1 million versus $21.8 million in the year ago period. The increase was largely due to the addition of 10 domestic Company operated Shacks in the fiscal year. The results include an additional operating [link], which contributed approximately $2.8 million in Shack sales.

For the FY14, total revenue increased 43.7% to $118.5 million compared to $82.5 million in the prior year. Same-Shack sales increased 7.2% during the fourth quarter versus a 6.8% increase in the same quarter last year and consisted of a 1.7% increase in traffic combined with a 5.5% increase in price and mix. We attribute our stronger-than-anticipated performance to menu price increases taken during the quarter to partially offset higher commodity costs, the temporary closure of our Madison Square Park Shack, which is providing a lift to other Manhattan Shacks, which make up a significant portion of our small comp base as well as the reintroduction of crinkle cut french fries.

It's important to note that our comparable Shack base including those Shacks that have been open for 24 months or longer, which we feel provides a much more meaningful comparison given the long honeymoon period at our new Shacks. The comparable restaurant base in the fourth quarter of 2014 included 13 Shacks versus just 8 Shacks in the fourth quarter of 2013. Licensing revenue increased 49.7% to $1.7 million during the fourth quarter from $1.1 million a year ago, driven by the opening of 12 international licensed Shacks and one domestic licensed Shack during the fiscal year.

Now we turn to our expenses for the quarter. Food and paper costs, as a percentage of Shack sales, increased 180 basis points from the prior year to 32.3% due to higher commodity costs, particularly beef, which were only partially offset by the previously mentioned menu price increases. Looking ahead, we expect continued pressure on beef prices and, as a result, anticipate overall commodity inflation for at least 2015 to remain at elevated levels and do not expect to see any relief in the beef market until 2017. Labor and related expenses as a percentage of Shack sales were 26.3%, a reduction of 90 basis points compared to the prior year as a result of lower labor demands from the return of our crinkle cut fries. We expect continued pressure on the labor line as target model Shacks make up a large percentage of our base and as minimum wage increases continue to pressure the industry moving forward.

Other operating expenses decreased 20 basis points versus the prior year to 10.1% as a percentage of Shack sales, largely due to the fixed cost leverage from the 14th week. Occupancy and related expenses as a percentage of Shack sales decreased 30 basis points to 9% versus the prior year. The improvement was largely driven by the benefit of the 14th week. Shack-level operating profit, a non-GAAP measure, grew 49.2% to $7.4 million from $5 million last year. However, as a percentage of Shack sales, shack-level operating margins decreased roughly 40 basis points to 22.3% as higher commodity prices more than offset improvements in labor, occupancy and other operating expenses. Shack-level operating profit was also impacted by the introduction of new target model Shacks. As we discussed previously, as we continue to expand outside of Manhattan, we expect new Shack revenue to be between $2.8 million and $3.2 million, which will reduce overall Company operated Shack AUBs and will also reduce Shack-level operating profit margins.

General and Administrative expenses increased $2.7 million to $6 million during the fourth quarter of 2014 from $3.3 million for the same quarter in 2013. The fourth quarter of 2014 included increased payroll related to additional home office hires to support our long term growth as well as non-recurring IPO related expenses. As a percentage of total revenue, G&A increased 290 basis points to 17.2%. Included in G&A expenses are approximately $1.2 million of pretax costs associated with the Company's initial public offering representing approximately 3.4% of total revenue.

We would also like to call out two other items related to stock-based compensation for 2015. For the first quarter of 2015, we expect non-recurring IPO related expenses of approximately $13.5 million, which includes roughly $12.9 million in one-time compensation expenses, $11.8 million of which is related to the settlement of outstanding unit appreciation rights due to certain employees. In addition, because our IPO priced above the filing range, recurring stock based compensation expense will also be relatively high in 2015, as noted on Page 76 of the final prospectus that we filed on January 30.

Depreciation expense increased to $1.7 million primarily due to the opening of new Shacks. Pre-opening costs increased $1.7 million to $2.3 million and, as a percentage of total revenue, increased 380 basis points to 6.5%. This was due primarily to the opening of more Shacks and new geographic markets during the fourth quarter as well as support for our anticipated first quarter 2015 new Shack openings. Interest expense increased approximately $100,000 due to increased borrowings under our revolving credit facility. Adjusted EBITDA, a non-GAAP measure, grew 58.5% to $4.8 million in the fourth quarter compared to $3 million in the prior year period. As a percent of total revenues, adjusted EBITDA margins increased roughly 60 basis points to 13.9% for the fourth quarter. For the fiscal year, adjusted EBITDA increased 30.6% to $18.9 million versus $14.5 million in the prior year. Although as a percentage of total revenue, adjusted EBITDA decreased 160 basis points year-over-year.

We reported a net loss of $1.4 million, or $0.05 per diluted unit, for the fourth quarter of 2014 compared to net income of $1 million, or $0.03 per diluted unit, for the same period last year. The net loss for the fourth quarter of 2014 includes approximately $1.1 million, or $0.04 per diluted unit, of after-tax expenses that were incurred in connection with the Company's IPO. For the FY14, the net income was $2.1 million, or $0.07 per diluted unit, compared to net income of $5.4 million, or $0.18 per diluted unit, for the same period a year ago. For FY14, net income includes approximately $2.6 million, or $0.09 per diluted unit, of after-tax expenses incurred in connection with the Company's IPO. The pro forma earnings per diluted unit amounts presented today have been calculated assuming the recapitalization transactions connection with our IPO occurred at the beginning of the period but exclude both the 5.75 million shares issued to investors in the IPO and the approximately 339,000 shares issued to our employees to settle [the] depreciation rights.

For FY15 on a GAAP basis, we expect our weighted average diluted share count to be between 12 million and 13 million shares based on the current stock price. This amount excludes approximately 24 million shares of our Class B common stock that are considered to be anti-dilutive. On a non-GAAP basis, assuming all of the outstanding shares of the Class B common stock were exchanged for shares of Class A common stock, we would no longer present a non-controlling interest and our weighted average diluted share count would be between 36 million and 37 million shares.

Now, following our fourth quarter results, we would like to provide the following key metrics with respect to our FY15 outlook. We expect total revenue for FY15 to be between $159 million and $163 million. We expect same-Shack sales are expected to increase low single digits. I'd like to reiterate our long term guidance toward a low single digit comp in light of a number of factors contributing to the recent strength of comps, including the closure of our flagship Madison Square Park location, the return of crinkle cut fries and the recent price increases over the last year. As far as our development plan for 2015 calls for 10 new domestic Company operated Shacks opening throughout the year and 5 international license Shacks, which will be opening toward the end of FY15.

With that, I will now turn the call back over to Randy to discuss our growth strategy and some final points.

Thank you, Jeff. Thanks, everyone, on the call. We could not be more excited to be here today. This whole story was never supposed to happen and I think that sincerity, that truly organic growth, are what's made this story so special. Shake Shack has been a leader in the revolution that has changed our industry over the last decade. We're in the midst of a seismic shift in people's eating habits and it's thrilling for us to see that combination of peoples love of food, their great desire to know where ingredients come from and their passion to associate with companies whose values they share -- all coming together in the line and at the table at the Shack.

Our brand strength and thoughtful approach to growth have resulted in strong performance across a variety of geographic areas and formats. We're incredibly proud of our Shack-level economics. Our model is designed to generate attractive Shack-level op profit margins, a strong cash flow and high cash-on-cash returns. Longer term, given the increased penetration of target volume Shacks, we're targeting AUVs in the $2.8 million to $3.2 million range and Shack-level op profit margins in the 18% to 22% range. Taken together, we are targeting long term revenue and adjusted EBITDA growth of over 20% after 2015.

Given that most of our Shacks typically operate at very high, steady industry leading volumes, we expect our Shacks to deliver low single digit same-Shack sales growth. And as Jeff previously reiterated, we don't believe that over the long term the same-Shack sales growth we experienced in the fourth quarter is sustainable. That said, we will always focus on continually improving our same-Shack sales performance by providing an engaging and differentiated guest experience that's integrated with local community activities and always delivering on our high standards of excellence and hospitality to drive customer loyalty and stay true to our roots.

We'll also continue to innovate around our core menu while remaining focused on our signature items. Some menu news to that point, for a limited time we invite you all to try our ShackMeister Burger. This is the first major burger to debut into Shack since the SmokeShack back in 2012. We were awarded best burger at 2014's Food Network South Beach Wine and Food Festival Burger Bash. The ShackMeister Burger consists of 100% all natural Angus beef cheeseburger with crispy ShackMeister Ale beer, marinated shallots and Shack Sauce. This burger has been a fun addition to our Shack menus through Q1 2015 and will probably come off the menu later this spring.

We're also excited to share some great news with you today. In our continued effort to stand for something good, all Shacks worldwide will be serving burger and hot dog buns classified as non-GMO. This has been a journey that began as we developed buns for Shake Shack International. It took a lot of development time but we're incredibly thankful for the commitment at our partners at Martin's Famous Pastry Shop who worked with us and can now proudly state that our buns are non-GMO. This is another example of Shake Shack's vision to stand for something good.

Let me close by just saying we never dreamed we would be here today and we certainly never designed our Company at the outset to become the beloved and globally recognized brand we are proud to lead today. Before we move to the Q&A portion of today's call, I want to take a moment to thank all of our incredible Shake Shack team members who are the single most important factor in our success. I'm so proud of what our team has built at Shake Shack and I'm even more excited about what lies ahead. One burger at a time, we are focused on the tremendous long term growth opportunity ahead and we look forward to our future as a public Company.

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

(Operator Instructions)

We'll take our first question from John Ivankoe with JPMorgan.

Hi. Great, thank you. Two if I may. It does look like you had positive traffic -- same-store traffic in the fourth quarter. And I know you took an additional 3 points of pricing in first quarter, so running around 6 points of price in the first quarter. So just wanted to get a sense if there was any kind of read whether you think all that 6 points of price could actually flow through, in other words, influence the average ticket. And if there's been any effect of that level of pricing in terms of what the traffic trend may be. And I have a follow-up as well.

Thanks, John. The traffic, as you saw, in the fourth quarter was strong at the 1.7% increase. Let me reiterate comps. Let's just remind everybody, we've got 13 Shacks in the comp base and that's an extraordinarily small number. We've all talked about that quite a bit. Only 8 new Shacks will add to that base throughout this year. So as you know, we're going to continue to be conservative and guide you to a low single digit comp.

I'll say this, we were obviously very happy with the 7.2% comp in Q4 and many of those factors have continued into Q1. So let's remember the return of crinkle cut fries, the redistribution of the sales from our flagship -- remember, our flagship restaurant, Madison Square Park, is closed and under construction and will not reopen until the end of Q2. And that is distributing, redistributing some amount of sales around Manhattan. Hard to say how much and when and when exactly that will change. That's all -- so look, we're confident in where the comp is. We feel good about it. February was certainly a cold month, record setting cold here in New York and Boston. And we definitely felt that a little bit so we're going to continue to reiterate long term low single digit guidance as the effect of crinkle cut, Madison Square Park and the lapping of price into Q3 changes. So that's how we see the year.

And are you getting -- is it the view that when Shake Shack takes pricing that all that pricing flows through the average ticket?

It's a balance of some mix. And, again, looking at Q1, John, we've got the ShackMeister Burger and some other things that are a little bit early to say on how that's played out exactly for mix. But we think it's going to be a balance of some shift of mix and some price. A little early for us. And as you know, we've never taken 3 plus 3 in a six-month span ever. So we're watching real closely.

Okay, thank you. And then secondly, if I may, on labor. I know you mentioned, or you cited, minimum wage is kind of pressuring the overall industry. And I think you've been very, very good at paying your employees, certainly more than QSR, maybe not as much as casual dining. It's certainly a core tenant of your overall business to get the best people possible. Do you see kind of wage pressure overall as something that's materially changing in 2015 or is it still within your expectations?

Not for 2015. I think, as you know, we've been -- we've always taken care of our team real well and we've paid well above minimum wage in most markets. So we only have one market in Washington D.C. that will affect us for minimum wage later this year. And we've baked that into our planning. So other than that, we're fortunate that we've been ahead of that for a long time. We've been ahead of affordable care so that is not expected to be a hit to Shake Shack in the near term. So, John, I think over the long term, no question we'll see margin pressure due to minimum wage over the years but we don't expect that. And even into 2016 we don't expect a huge hit based on anything -- no change to our current plans here. We're in a fortunate position because of how we've done things for 10 years.

Okay, thank you.

We'll go next to John Glass with Morgan Stanley.

Thanks very much. Just first following up on the pricing so we're all clear, what was the average effective just pricing in the fourth quarter? I presume you took it some time during the quarter. And what do you think the average effective pricing is in the first quarter, just to get those details straight? Is it literally 3% and 3%?

We're not breaking out price and mix at this stage. So it's 5.5 together. And if you look at the majority of that being price because we had taken 1.5, 2 in Q1 of 2014 and then we took roughly 3 in September of 2014. So we think most of that was straight up price. But again, we're not going to break it out just yet. So -- and again, looking at Q1, reiterating, we're not going to give mid quarter guidance on that number at this point. So we will certainly get back to you guys at the end of the quarter on that.

But when did you take the 3% in the first quarter though? Can you tell us that at least?

January 1.

Got it. Okay. That helps, thank you. Can you give us a little commentary about the fourth quarter openings? You had a couple of -- you had some very large cities. You had Chicago, you had Las Vegas. Can you maybe -- I know you talked about this 2.8 to 3.2 but I would think that, given the high profile openings, maybe they were potentially better than that. So maybe some color around where you saw some real residents and any dispersion around that.

Sure. And looking forward, John, on balance, the 2.8 to 3.2 is how we see the average of Shacks as we look at a class moving forward. We are very happy with Q4 for the brand. We launched in many new markets -- Atlanta, Chicago, another one in New Jersey, another one in Chicago and then we really squeezed a couple days into Las Vegas. So that was brand new. But you're talking about three major new market entries for us, all of which are hitting where we thought they would hit. So the brand has been incredibly well received in those three new markets. Real early for the Vegas story, obviously. It's just been open a couple months but we are seeing the beloved brand play out in multiple new markets from the Q4 openings, which gives us a lot of confidence to the opportunity, especially this year we know we're going to open two more restaurants in Chicago. So that gives a lot of confidence in where those new markets are headed long term.

And if I could just sneak one more in, you opened two in Boston last weekend. We appreciate that here. But you have four in the market now. It's not a huge market. How do you think those play against each other? What was the thought process behind it putting two relatively close together in time against two in the market? And do you typically see cannibalization or is that not typically what you see when you've done that to the extent you've done that in the past?

We've rarely seen it in the past, John. And as you know, being a Boston guy, you've got the [world of] Dedham and great center we opened there in Legacy Place. It's really a world unto itself capturing the south market. Newberry Street is obviously one of the great retail streets in America, certainly a completely different crowd that's running out to Cambridge or even our other Shack in Chestnut Hill. So we wish it would stop snowing up there but, other than that, now that the snow is done, I think we're headed for a nice year in Boston. And we don't expect any major cannibalization from those new Shacks opening together.

Thank you.

We'll take our next question from Jeffrey Bernstein with Barclays.

Great. Thank you very much. Two questions as well. Maybe the first one just on the unit openings side. As you've just discussed, we've already seen three openings in the first quarter of 2015. I'm just wondering, we weren't expecting any necessarily in the first quarter. So as you think about -- I think you said 10-plus units in 2015. One, how do you think about that 10? Is it possibility that that becomes 15? I know the promise is at least 10 but it seems like we're ahead of schedule. And could you give any color at least by quarter of what you'd expect in 2015 for however many you'd expect to open in 2015? And then I have a follow-up.

So we're not going to break out the quarters here. Obviously we're very happy with the start we've had in Baltimore and the 2 Shacks in Boston opening in first quarter. Those will be the ones that happen for this quarter. We don't expect anymore openings in the rest of the first quarter.

The rest of the 7 Shacks, and we're going reiterate the 10 that we believe will open this year, will open on a good pace spread out throughout the rest of the year. And that's as much guidance [as we're going to give]. When we have some firm dates on those openings, we'll do a press release and let everybody know. But we don't have any firmed-up dates yet enough to give that guidance. What I will say is all 7 of those are signed leases and are either in construction or design at this time. So we're confident in hitting our plan that we've discussed here of the 10 Shacks throughout the rest of the year.

Got it. So those remaining 7 should be -- we should think about relatively spread out through the rest of the year and no more in the first quarter?

That's right.

Okay. Just the second thing kind of following up on the price and maybe how we think about the margin side of the things. It doesn't sound like the pricing is really having a negative impact on traffic, which is fantastic. I'm wondering whether you think that the pricing layer is in place right now is enough to offset the inflation that you're already running, especially on beef, to the point that you think you could protect the restaurant margin in 2015. Or maybe asked a different way, what do you think, in terms of your guidance, where the restaurant margin in 2015 plays out knowing the components that you know? Do you know the basket inflation number for 2015, or a best guess on that, and what you ultimately think the restaurant margin will play out?

So we aren't going to give guidance on the exact margin at this stage. Okay? I'll say this, we've always believed that Shake Shack has a lot of elasticity and price. We've been very cautious for 10 years taking 1% to 2%. We've never taken price like we've said in the last two quarters. So we still believe that long term Shake Shack is going to have a great opportunity to take price as needed. We have no intention at this stage to take anymore price in the near term. So the good news is we think it's being received really well in the market thus far.

And then, Jeff -- this is Jeff -- just to follow-up on both your questions. What I'd do, if you're building out your model, I'd just go back and look at the 10 that we talked about -- we expect the $2.8 million to $3.2 million in revenue and the 18% to 22% Shack-level profit margin. And if you just look at it as an average for those 10, build it in that way, it's, I think, the best way to look at this going forward right now.

And looking at commodities, everybody -- look we don't -- as we said -- Jeff said in the call, we don't see any major decreases coming in the beef market, certainly through this year and likely into 2016. So we don't see any real relief coming in the near term on the COGS line.

Got it. Thank you very much.

We'll go next to Karen Holthouse with Goldman Sachs.

Hi. Just a really quick modeling question and then a follow-up after that. What was free cash flow for the quarter for the year?

That's a number I'll get back to you with, Karen.

Why don't you go into the second question and we'll get that number as we go, Karen.

Alright. Really a follow-up question to your (inaudible) to the last question -- the comment that you believe that you have a lot of price elasticity. What's that based on? Is that historical reaction to price increases? I would think it's a very strong brand and the opposite would actually be true.

Well I think we're with a strong brand, I think that gives us that opportunity, Karen. And I also think that when you look at our competitive pricing versus the industry, and some of that you might look at better burgers, some you might look at just other fast-casual, I think we're really well priced. And you also have to consider what we're serving. We're talking about hormone, antibiotic-free beef at a price that is very competitive. So that gives us a lot of confidence. We believe that the generation today is willing to pay a little more to know where their food comes from and to know that it's a great quality of what Shake Shack serves. And with that brand power, I think it will give us long term pricing power as needed. And that said, again, no intention to raise any price at this time.

And then, Karen, the question on cash flows. For the year, and you'll see this in our 10-K when we file it, operating cash flow, the cash provided by operating activities, was just over $13 million for the year. And then we'll break out the CapEx. And that's a number we can get you if we talk further later too.

Okay, great. Thank you.

We'll take our next question from Sharon [Zackfia] with William Blair.

Hi. Good afternoon. I guess a question on longer term strategy given the restaurants are so busy. How do you think combining the enlightened hospitality thought process, perhaps mobile payment or mobile ordering, could eventually play into Shake Shack and maybe elevate the potential volumes of the location?

Thanks, Sharon. We -- that's something we've been working on quite a bit. I think we've been in a fortunate position having very busy restaurants where we've been able to watch the industry play out a little bit, really develop our strategy internally and make sure that when we enter the mobile space we do it the right way. We're constantly thinking about throughput at Shake Shack. Let's remember the AUVs here of Shake Shack are industry leading and there's a lot of people moving through our doors. Sometimes many more than 1,000 people a day at a Shake Shack. So you've got a lot of people moving through and different challenges for throughput than other brands. So we're super focused on that but nothing to announce in terms of a strategy yet for mobile. But we're thinking on it, working on it and we'll get back to you on that.

Okay, thank you.

We'll take our next question from Paul Westra with Stifel.

Great. Good afternoon, everyone.

Hi, Paul.

First question following up on international development. It seems like you might have an extra store, at least versus what we were expecting, open here in Q4. And maybe talk about your guidance for at least [32] throughout 2015 -- where that's been -- has that changed at all since your last -- your IPO commentary? And maybe give us a little idea where the locations might open up and should those volumes approximate the existing 30 -- or 27 units?

So we had a big push, obviously, last year and in the fourth Quarter with 5 Shacks that opened -- 2 in the UAE, 1 in Moscow and 2 in Kuwait. So towards -- if we look to 2015, it's really right where we've planned it. We think it's going to be at least 5 Shacks and that focus will be mostly in the Middle East and certainly one that we've announced in the UK in London We're going to be doing one in the Stratford Mall, right near the former Olympic site. It should be a really great site for Shake Shack to do its second follow-up to the success of our first one in Covent Garden.

Other than that we haven't announced -- not prepared to announce today where exactly the others will be. But I think it's a good way to think of it. And as we look at Japan, we're fully rolling now with getting that going, working on the supply chain and making sure we're set for 2016 launch to add to that.

And on the Japanese deal, any further commentary? Do you expect to extend that beyond the original 10? Maybe additional territories beyond the Japanese deal? Should we think about 1 a year or the cadence of potentially more geographies?

Yes. You should look at it as a five year plan with 10 Shacks. And that's what we're after. We're going to do 10 great Shacks with our partners there and we'll take it from there. That's are -- we are really excited about that. We know that there's been a great Japanese following for Shake Shack here in New York with many visitors coming for years and we think it's going to be a great market to launch. So that's how we see that playing out conservatively over the next five years.

Okay. And then commentary going back to your commodity basket -- sounds like you don't want to give an exact inflation number of the basket, but as you talk about maybe having some pressure on the cost of goods sold line, is safe to deduce that as you're pricing in the mid to lower single digit number once you roll off some of the current pricing and, therefore, the commodity basket you're looking at should be at least the same or a little bit higher than maybe mid single digits?

That sounds a little high. I think -- go ahead, Jeff.

I would think about inflation in the low to mid single digits. Beef is obviously our biggest component of our basket. We don't expect to see, as I mentioned earlier, any relief in that market to 2017. Over Q4, it was during that three-month period it didn't significantly get worse and it hasn't throughout the year. But when you look at it year-over-year, it's up quite a bit, as you know. But I think if you're looking at it in terms of our cost of goods sold going forward, I'd say low to mid single digits on the overall market basket inflation would be a good way to look at it.

Great. And the last question is what was the timing of the 1Q 2014 price [increase again]?

What month was that?

That happened -- that was, I believe, mid January price increase that was about 1.5% to 2% depending on the item in 2014 Q1.

Appreciate it. Thank you.

Thank you, Paul.

We'll take our next question from Alton Stump with Longbow Research.

Could you just clarify, if you could, or give some color directionally on the closure in the quarter in Manhattan? How much of a comp [lift] you think that that had at the nearby restaurants in the fourth quarter?

It's really hard to say. Honestly, we closed that restaurant in October. We don't intend to open it until the very end of Q2 here. Probably last few days of Q2 and it's hard. You don't know exactly how that sales is being redistributed. You don't know what would have happened given an especially cold February here. So we couldn't pinpoint a number for you. What I can tell you is, when it comes back, it will reenter the comp base. It's not going to -- we're not going to wait on that. So as soon as it comes back, it will reenter the comp base. And then it will come out again. So again, given the small amount of restaurants in our comp base, it's just something to be mindful of. So when we hit October again, when it closes, it will come out. And it won't then reenter until mid 2016. So it's definitely a big factor in the comp.

And one thing is, Randy said it, but I just want to reiterate. We talk about this a lot when Randy and I were on the road. With only 13 Shacks in the comp base, what 1 Shack that has a significant chance can really swing that number. So just keep in mind that when you're thinking about comps, it's a very, very small number in a small data set with not a lot of history. So it's just important to remember that when you're thinking through the same-Shack sales history as well.

Sure. Makes sense. And then one quick follow-up. Just on a price increases mix that I got that's right. You took 1.5% to 2% back in January last year and also 3% at the first of this year. But then I think you mentioned September as well. You took a hike -- when was that in September -- if you didn't mentioned it? And as the magnitude of that as well?

So you're right about the 1% to 2% in January of 2014. And in mid-September we took about 3%. And then at the beginning of 2015, the beginning of January 2015, we took about another 3%.

Okay, great. Thank you, guys.

You're welcome. Thank you.

That concludes the question and answer session. At this time I'd like to turn the conference back to Mr. Randy Garutti for any final or closing remarks.

Thanks, again, everybody. We are really thankful for your time today and your interest in our Company. We're looking forward to being a public Company as the years move forward. So thanks, again. Everybody have a great evening.

Take care.

This concludes today's conference. Thank you for your participation.