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Shake Shack Inc (NYSE:SHAK) 3Q Earnings – Investors Seek Clarity

Shake Shack Inc is gearing to announce third-quarter results after the market closes on Thursday. Analysts polled by FactSet expect earnings of 7 cents per share. The Estimize consensus is for 9 cents a share. FactSet has forecast quarterly sales of $47.3 million. The Estimize consensus is for a figure around $49 million.

The upstart burger chain has had a rocky ride since its January debut. Shares reached a post-IPO high of $96.75, but are down 31 percent in the past three months.

Shake Shack Inc (NYSE:SHAK)

Shake Shack Inc’s Same-store Sales can be Misleading

Comparable-store sales get a lot of focus for restaurants and retailers. FactSet expects same-store sales growth of 9.6 percent. But investors need to remember that the metric can be misleading for an upcoming company like Shake Shack Inc .

The firm’s restaurants aren’t included in the same-store sales base until they are 2 years old. And since expansion is an ongoing theme, only 16 out of its total domestic locations of 47 are included in the comparable base. Hence, don’t rely solely on same-store sales growth to understand the underlying trend.

For a fast casual chain like Shake Shack Inc , a much better figure would be average weekly sales, which is the sum total of sales from all its stores. In the last reported quarter, average weekly sales gained 7.4 percent to $102,000. Investors should watch out for any increase in this category to get a sense of restaurant-level profitability.

Look for Updates on New Product Offerings

In July, Shake Shack Inc  launched its first chicken sandwich, the ChickenShack, at three of its Brooklyn outlets. The new addition was an instant hit and garnered rave reviews. But the firm has been mum on whether the sandwich will be rolled out at its other locations.

During August earnings call, CEO Randy Garutti said it was “really early” to comment on any plans for deploying it nationwide. ChickenShack makes sense, and not just because customers will like it. Poultry is currently cheaper than beef. So adding the item to the menu will help lower costs. Look for any fresh update on that front.

Insider Selling Has Hit Investor Sentiment

One of the major reasons for the stock’s dismal performance in the past 3 months has been insider selling. Shortly after its second quarter earnings, Shake Shack Inc issued a secondary offering, sending shares down as much as 16 percent in a single trading session. Shake Shack didn’t issue any fresh stock, and the bulk of the shares on offer were from major stockholders. This sent a message to investors that insiders were offloading their stake amid calls from many analysts that the stock was overvalued.

If that did not hurt sentiment enough, the company went ahead and filed a similar issue in October. This time, it was for as many as 26 million shares at the price of $47.28 each.

The perception that insiders are opting out, has put severe downward pressure on the stock. CEO Garutti needs to address those concerns during the conference call.

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