Shake Shack Inc

NYSE:SHAK

Earnings Call Transcript 2022-Q4

[Operator]

Good day, and welcome to the Shake Shack Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

At this time, I'd like to turn the call over to Annalee Leggett, Senior Manager of Investor Relations and FP&A.

[Annalee Leggett, Senior Manager of Investor Relations & FP&A]

Thank you, and good morning, everyone.

Joining me for Shake Shack's conference call is our CEO, Randy Garutti; and CFO, Katie Fogertey.

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 on our earnings release and financial details section of our shareholder letter.

Some of today's statements may be forward looking, and actual results may differ materially to a number of risks and uncertainties, including those discussed in our annual report on Form 10-K filed on February 18, 2022. Any forward-looking statements represent our views only as of today and we assume no obligation to update any forward-looking statements if our views change.

By now, you should have access to our fourth quarter 2022 Shareholder Letter, which can be found at invest.shakeshack.com in the Quarterly Results section or as an exhibit to our 8-K for the quarter.

I will now turn the call over to Randy.

[Randy Garutti, Chief Executive Officer]

Thanks, Annalee. Good morning, everyone.

2022 was a year of continuous improvement in Shack formats and [feel] (ph), culinary innovation and focused strategic planning for the exciting road we have ahead. We ended the year opening 69 Shacks globally, growing our unit count by more than 18%, with system-wide sales expanding more than 22% year-over-year to a record $1.4 billion.

Our total revenue grew over 21% to approximately $900 million, led by new openings and 7.8% same-Shack sales. We continue to build back our Shack-level operating profit margins to 17.4% for the year, exiting the year at 18.8% in the fourth quarter, all the while continuing to demonstrate the global appeal of our brand as we stand for something good in all that we do, elevating our teams and communities along the way.

We ended the year with solid momentum in the fourth quarter, raising average weekly sales, expanding our margins and investing with discipline on G&A and CapEx. Our performance was led by price and strong in-Shack traffic growth, reaching $76,000 in average weekly sales and 5.1% in same-Shack sales. This momentum has carried into January with total revenue up nearly 35%, including a 17% comp and double-digit traffic growth, as we lapped last year's heavy impact from Omicron.

Our licensed business performed well in the fourth quarter despite pressures from COVID-related disruptions in China and other regions, and some of that volatility in our China Shacks has subsided in January and we're cautiously optimistic that things can begin to level out towards a more normalized sales environment internationally this year.

Our 18.8% Shack-level operating profit margin in the fourth quarter were supported by our October menu price increase, efficiencies in labor, and positive channel mix as more guests return in-Shack. Rest assured though that our work to build our profitability is far from done. We have a plan in place to continue this improvement in 2023.

And given the uncertain economic backdrop, we expect conditions to remain challenging for some time. However, we are confident that we have the right strategic priorities and team in place across the company to navigate these pressures and set us up for solid long-term growth.

We've shared a lot of detail around our '23 strategic plan at the ICR Conference in January, presentation and replay of which is available on our IR website. Today I want to recap where we're focused this year.

Our number one focus is on recruiting, rewarding and retaining a winning team. Fielding an exceptional team is the key ingredient to operating efficient and successful Shacks. We have not been immune to the staffing challenges the industry has faced and we've doubled down on recruitment, retention and training efforts. We've raised pay, expanded benefits, added tips and enhanced access to the opportunities our team members have to advance in making Shake Shack a real career choice.

Last year, we filled nearly 60% of operations leadership positions with internal candidates, a critical pipeline to meet our growth goals. 77% of our promotions were awarded to people of color and over 50% to women. While many Shacks remain below their optimal staffing levels, we've seen marked improvement in hiring over the last few months.

And let's remember that we opened 22 domestic company-operated Shacks in the fourth quarter, so we're still in the midst of a lot of training and moving team members around to support new openings. We're expecting to have some additional costs running into the first quarter as we get to more optimal operations. We still have a lot of work to do, but we're incredibly proud of how the team is developing.

Our second priority, keeping our relentless focus on the guest experience. Shake Shack has always been differentiated from traditional fast-food and we win by doing what most QSR and other restaurants are either unwilling or unable to do. Between collaborating with celebrity chefs for marquee events and LTOs to partnering with media companies like Hot Ones as well as brands like Maker's Mark for our bourbon bacon jam. We are continually learning how to better drive engagement with new and existing guests.

This past week, we launched our White Truffle LTO, which includes the White Truffle Burger, a vegetarian option, with the White Truffle 'Shroom and Parmesan White Truffle Fries. This is a great example of something only Shake Shack can do, creating an elevated affordable culinary experience.

It'll also be a big year for plant-based innovation. We plan to launch our Non-dairy Chocolate Shake as well as our new Veggie Shack Burger developed right here in our Innovation Kitchen in the West Village. It's an elevated and delicious alternative to the highly processed meatless offerings in the market today. It's packed with mushrooms, farro, quinoa, sweet potatoes, carrots and more, topped with American cheese, crispy onions, pickles and Shack Sauce. I think we've landed on a vegetarian option that's craveable and we look forward to introducing it to a wider audience to get feedback this year.

We also plan to keep a rotating group of LTOs to drive frequency and you'll see various tests on a number of new items through the year, including new packaging, caffeinated lemonades, mini shakes and more. We're offering a better overall experience, committed to premium ingredients and greeting our guests with genuine hospitality. This is our competitive advantage and our focus. If we do this well, we believe more people than ever will come.

Our third priority is focused on development and how we grow from here. We believe our total addressable market globally continues to expand. We opened 36 domestic company-operated Shacks in 2022. In the fourth quarter alone, we opened 22 restaurants in a balance of formats, including core Shacks, small formats and five new drive-thrus. While many of these Shacks opened just weeks and, in some cases, just days before the quarter ended, we're encouraged with the early results as they settle into 2023.

This coming year, we expect to open about 40 Shacks, with roughly six of them in this first quarter, having just opened a new drive-thru in Dublin, Ohio and a core Shack right here in New York City in Brooklyn's Bed-Stuy neighborhood. Currently, we have 24 Shacks under construction.

On drive-thru specifically, with 12 opened today, we're encouraged by the initial reads and are targeting to nearly double that with our plans to open 10 to 15 more drive-thrus this year. We know there's still much we have to learn and much to prove out as we've been rolling out a few different designs as well as kitchen flows so that we can optimize this investment for learning quickly and evolving the model for the long run.

Our licensed Shack business is the other key part of our development strategy. In 2022, our partners opened 33 licensed Shacks, 20 of those in Asia, three in the Middle East region, two in Mexico, and eight in the United States in our airports, travel plazas and event venues. This is an asset-light way to grow our profitability over the long term, speaks to the strength of our brand which resonates globally across geographies and cultures.

Very few, if any, restaurant companies at our scale have successfully grown with this level of excitement and brand acceptance around the globe, and you'll see us continue to build in existing markets while adding new markets in the future. This year, we expect our partners to open between 25 to 30 more licensed locations across formats and regions with six to seven more in the first quarter. Nearly half of our openings we expect to be in Asia, including a launch in Thailand later this spring.

We'll also unlock another format type as we partner with the Atlantis in the Bahamas to open our first ever resort hotel Shack. We will also test our first drive-thru in our licensed business with our partners Alshaya in Dubai. And lastly, we're spending a lot of time considering new countries, territories, and formats, we can grow this critical part of the Shack opportunity for the long term. Our licensed business and partners remain in an incredibly dynamic profitable and powerful way to keep expanding our presence in brands across the globe.

Our fourth priority is improving our overall company profitability with particular focus on our domestic company-operated Shacks. We know the dynamics over the last few years have impacted our historical margin profile, we're focusing our work to rebuild over the long term. We're committed to improving profitability by driving sales, emphasizing our own higher-margin channels, finding COGS, labor and OpEx efficiencies, improving off-premise profitability, and utilizing strategic menu pricing. We showed margin progression in the fourth quarter and we have the right plan in place.

Leading with sales, our priority has to be to retain our winning team. We have to keep improving staffing levels so that we can optimize total hours and sales potential. Our big opportunity, especially in newer markets, is around building our brand strength. We've been testing various brand campaigns across media channels, investing in targeted performance marketing and more than ever, building community marketing with our regional leaders participating in and supporting more local events than ever.

On the expense side, we've got an intense focus on every line of the P&L in our Shacks. We're building teams to collaborate with our operators, designers and suppliers to go after the profitability measures we can tackle this year, and Katie will talk more about these efforts in a bit.

Finally, as we build an enduring company, we are committed to investing with discipline. We see growth opportunities with a strong return potential across development, digital and our business overall. In the last few years, we made the critical decision to fortress our balance sheet with a historically low cost of capital. That's provided us with the dry powder to grow in this current environment and we're committed to doing it with discipline while remaining aggressive.

You'll see us continue to deploy capital towards strong returns in four main areas: building Shacks; updating our current Shacks; investing in our digital infrastructure; and structuring our home office capabilities to support our restaurants. We have historically outperformed our long-term AUVs targets while delivering strong cash-on-cash returns. Over the last few years with profitability under pressure and net build costs elevated on average, our new Shacks generated returns just below long-term targets. Building back our Shack-level op profit margin as well as addressing higher build costs is the work to be done to bring us back to our longer-term return targets.

The Shack class of '22 average net build cost is tracking around $2.4 million. Inflationary pressures in the building and construction market worked against us last year, but we're also investing in a more expensive mix of Shacks with drive-thrus included. In 2023, we expect a similar build and cost mix as we target 10 to 15 drive-thru Shacks. We're addressing cost-savings where we can for the class of '23 and beyond. We've cast our operational and construction design teams to work towards bringing down long-term average cost to build for all formats.

We're going to keep building Shacks to win with focused and scalable designs and formats where we know we can drive strong returns over the long term. We've got the right plan and team in place for '23 and we'll keep you posted on progress as we go.

With that, I'll hand it off to Katie to share more about the details of the quarter and expectations looking forward.

[Katie Fogertey, Chief Financial Officer]

Great. Thank you. So, good morning.

We ended the year on an optimistic note with increased momentum and evidence that our strategic priorities are the right ones to help build back our profitability and grow our long-term opportunity. We showed strong progress in the quarter with year-over-year measures at high-teens revenue growth, 240 basis points of restaurant margin expansion and over 55% growth in adjusted EBITDA. We executed on all of this despite facing labor availability pressures, supply chain challenges, high single-digit food and paper inflation, and many other pressures across our P&L.

We delivered fourth quarter total revenue of $238.5 million, up 17.4% year-over-year. Shack sales also grew 17.4% to $229.9 million and licensing revenue grew 16.6% to $8.6 million.

We generated Shack-level operating profit margin of 18.8% and grew adjusted EBITDA to $19.3 million. For the full year 2022, including the severe impact that Omicron had on our sales and our profitability earlier in the year, we grew adjusted EBITDA by 25.8% to $70.5 million.

In the fourth quarter, we [Technical Difficulty] $364.1 million in system-wide sales and for the full year, we exceeded $1.4 billion, with 436 total Shacks, including 69 new Shacks opened in 2022 in the U.S. and abroad.

In October, we raised our menu prices by mid to high single-digits. This is across the various strategy of between 2% to 10% across price tiers. This was needed to help address high single-digit food and paper inflation and the continued investments we're making in our team members. With this, we expect to maintain a blended high single-digit price across our channels in the first half of the year of 2023, as we will roll off the March 2022 price increase of 3.5% menu and additional 5% in third-party delivery premiums.

In the fourth quarter, we generated $76,000 in average weekly sales, up from $73,000 in the third quarter. This was supported by price increases and in-Shack traffic. We grew same-Shack sales by 5.1% versus 2021, our [Technical Difficulty] was down 90 basis points versus the prior year as we lapped a particularly strong 4Q '21 traffic of up 18%. In-Shack traffic was positive as guests returned to more normal patterns. Price/mix was 6% in the quarter, with the benefit of higher menu prices partially offset by a mix headwind due to stronger in-Shack performance that skews to more single-order -- protein orders.

We remain encouraged by the digital frequency and spend measures even as more customers are going back to omnichannel experiences and coming back into our Shacks. In the third -- in the fourth quarter, 36% of Shack sales were from our digital channels of app, web, and third-party delivery. And since March 2020, we have obtained 4.8 million digital first-time purchasers in our app and web channel.

This is one reason we are focused on refining and optimizing all of our channels, leveraging many of our existing investments in our app, web and kiosks to drive acquisition, frequency, and conversion. An example here is our digital work inside the Shacks, where we are on target to roll out kiosks to nearly all domestic company-operated Shacks by the end of the year. Kiosks remains our highest-margin channel and guests spend more on kiosk orders than non-traditional in-check orders.

In the fourth quarter, urban Same-Shack sales grew 8%. This was a function of positive price/mix and traffic growth. Suburban Shack sales grew 3% in the quarter, driven by positive price/mix and modest traffic declines year-over-year.

Going into January, return to work and overall mobility trends remained strong and, in some instances, improved. Our fourth quarter openings also performed well. We generated AWS of $72,000 and same-Shack sales of 17%, driven by increases in traffic and price. Now, while Omicron had the largest impact on our sales in January '22, our sales recovered throughout the first quarter, so we expect our comp to moderate throughout the remainder of the first quarter. In addition, we expect a number of the strong fourth quarter openings to see sales come back to more normalized levels in the coming months.

Licensing sales in the fourth quarter were $134.1 million, up 13% year-over-year, and licensing revenue was $8.6 million. Strong holiday demand and travel benefited our licensed Shacks, however, license sales saw a significant impact from COVID pressures in China and pressures from the stronger U.S. dollar.

In 2022, our licensed partners opened 33 new Shacks, including 13 in the fourth quarter, bringing our net licensed Shack count to 182 at the end of the year. Our licensed Shack expansion is off to a strong start this year with six licensed Shack openings quarter-to-date and we expect to open a total of 25 to 30 licensed shacks in 2023.

Fourth quarter Shack-level operating profit was $43.2 million or 18.8% of Shack sales, 240 basis points higher versus last year despite inflationary pressures across our Shack P&L. We achieved this with higher menu prices, strong sales performance, labor efficiencies and positive channel mix.

Our margin performance in the quarter really layers up to the four-point plan we have in place to show more sustained improvement in our profitability.

So, first, it's about building back sales with a priority on our own channels as we are more profitable there and can better communicate with those guests. We are highly focused on driving sales in our Shacks while at the same time building our digital guest footprint to support a true omnichannel guest experience.

Second, it's on labor efficiencies and our kiosk rollout here is one-way to better utilize labor in our Shacks. We continue to be encouraged by the strong returns on our investment for the strategy and how it allows our team members to better service our guest and manage through staffing pressures in select markets.

Third, we're making progress on our off-premise profitability with more discipline on packaging standards for off-premise orders as well as passing along a portion of the higher cost of delivery to our guests.

And then, last, we're taking a strategic approach to menu pricing, and we're pleased with the initial results of our October menu price raise. However, there is uncertainty around the inflation outlook. While we're not yet seeing these inflations, it's certainly something that's been widely discussed. We hope that in 2023, we see food and paper inflation at the lower end or even below our current expectations. Yet if we do not, we may take some targeted incremental pricing later this year to help protect our profitability.

These four points are really the largest bucket which are moving the needle and how we expect to build back our margins in the coming years, but we're really looking at all line items here for efficiencies. And while we're pleased with our Shack-level operating profit margin progression in the fourth quarter, we know for well not every quarter will show linear improvement. However, we believe addressing our profitability is one of the right priorities for our home office and our operators.

In the fourth quarter, food and paper costs were $67.9 million or 29.5% of Shack sales, down 140 basis points quarter-over-quarter and down 150 basis points year-over-year, with benefits driven by menu price, offset by high single-digit food and paper inflation. These costs decline by a low double-digit percent year-over-year, however, the cost of many other items in our basket were up sharply, led by dairy and fries, both of which were up over 25% in the quarter. Packaging was also up about 15% year-over-year.

Labor and related expenses were 660 -- $66.4 million or 28.9% of Shack sales, down from 29.6% in the fourth quarter of 2021 and down 50 basis points quarter-over-quarter. While staffing levels improved throughout the quarter, we still have an opportunity for further improvement in certain Shacks as well as increasing our overall throughput and efficiency with many of these newly hired team members.

Other operating expenses were $34.1 million or 14.8% of Shack sales, down 10 basis points from the fourth quarter of 2021, benefiting from a lower delivery sales mix. We continue to face inflationary pressures and aspects needed to operate our in-Shack business, including energy, repair and maintenance costs, and costs to maintain our dining rooms, but we are focused on managing these expenses as much as possible.

Occupancy and related expenses were $18.2 million or 7.9% of Shack sales, down 20 basis points from the fourth quarter with this really driven by sales leverage.

G&A was $31.8 million or 13.3% of total revenue, up from 11.7% of total revenue in the prior quarter, driven by investments needed to support our growth across marketing, operations, and technology. We ended 2022 with $112 million in G&A, adjusted for legal settlement, up over 30% year-over-year.

Pre-opening costs were $6.5 million in the quarter as we opened 22 new Shacks. Depreciation was $19.2 million.

On a GAAP basis, in the quarter, we reported a pre-tax loss of $4.3 million and a tax expense of $6.8 million. On an adjusted pro forma basis, we reported a pre-tax loss of $4.2 million and a tax benefit of $1.6 million. Excluding the tax impact of stock-based compensation, our adjusted pro forma tax rate in the fourth quarter was 38.5% These adjustments can be found on Page 32 of the Shareholder Letter.

We realized a net loss attributable to Shake Shack Inc. of $10.7 million or a negative $0.27 per share. On an adjusted pro forma basis, we reported a net loss of $2.6 million or a negative $0.06 per fully exchanged and diluted share.

Finally, our balance sheet is strong and we ended the quarter with $311.2 million in cash and cash equivalents and marketable securities.

Now, on to guidance for the first quarter and full year 2023, that does not assume any material changes in the macroeconomic conditions or further COVID disruptions.

For the first quarter, stronger-than-expected January results and what we're seeing so far in February, this is inclusive of the performance from the recently-opened Shacks, gives us confidence to raise our guidance for Shack sales to $232 million to $237 million and same-Shack sales to grow by high single-digit percent year-over-year.

While January results were far ahead of this range, just as a reminder, our compares will get sequentially harder posted mid-February as the Omicron impact subsided. We're also going to be lapping the 3.5% menu price and 5% delivery premium we took in March 2022 and we have no additional prices factored into our guidance today.

We're seeing strong performance in our domestic and international licensed business, including a rebound in China since lifting the zero-COVID policy and raised our guidance for the licensed revenue in the first quarter to $8.25 million to $8.75 million. We cannot be certain that this strength will persist throughout the quarter and this guidance range does not assume any new COVID closures or pressures.

So, taken altogether, we now expect total revenue of $240.25 million to $245.75 million, growing about 18% to 21% year-over-year.

We guide first quarter Shack-level operating profit margin of 16% to 18%. We're tracking towards the mid to the lower point of this range, primarily due to the pressures from the heavy opening calendar at the end of the fourth quarter. It typically takes several months for a new Shack to reach normalized profitability, as new teams and managers train and grow efficiencies. However, we're pleased with the sales that we're seeing for this group and expect that this pressure will subside in the coming quarters.

In the first quarter, we're also planning for high single-digit year-over-year inflation in food and paper costs, with these pressures led by fries, dairy, and paper and packaging. We expect beef costs, and that's the largest part of our basket, to decline by mid-single digits year-over-year, but this will still be up by a low-single digit percent quarter-over-quarter.

The inflationary outlook remains uncertain and we do not contract on many of our key inputs. We expect mid-to-high single-digit inflation pressures across our food and paper basket for 2023. We outlined more details around our inflation expectations on Page 10 of the Shareholder Letter.

We expect other operating expense as a percent of Shack sales in the first quarter to be similar to the fourth quarter and to be impacted by changes in delivery mix and other variable drivers. With the macroeconomic uncertainties we face today, our 2023 G&A guidance of $125 million to $130 million represents growth of 12% to 16% year-over-year.

Our plan reflects a disciplined approach towards spending, while still affording us the ability to invest and grow our business. While there are a number of unknowns that could impact our total revenue for the year, we believe this range is appropriate. We're building towards leverage relative to our unit guidance that represents approximately 16% year-over-year growth for the company-operated business and 14% to 16% for our licensed business.

We expect approximately $17 million of equity-based compensation expense with about $15.5 million in G&A. We expect full year depreciation of $86 million to $91 million and pre-opening of $17 million to $19 million.

On tax, we're not going to provide an adjusted pro forma tax rate guidance at this time, however, we are expecting to realize a minimal tax benefit this year. Our overall tax rate will be impacted by a number of factors including the level of our profitability, tax credit, state mix, and other impacts.

So, thank you for your time. And with that, I will turn it back to Randy.

[Randy Garutti, Chief Executive Officer]

Thanks, Katie.

Just want to wrap things up, and thank all of our teams for executing through 2022 and evolving for the work ahead in 2023. We're all squarely focused on our strategic plan, which begins with taking care of our team. That's what fuels our great culture. We believe our results from the fourth quarter is showing what our focus and dedication can do to help drive continued improvement in our business and longer-term returns.

As we all seek out what the new normal looks like in a post-pandemic 2023, we believe more than ever that people need places to gather, great food at the right price served by warm and hospitable people, and we'll look forward to sharing a White Truffle Burger with you soon at the Shack. As always, we hope you and your family stay safe and healthy.

With that, operator, please go ahead and open the call for questions.

[Operator]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] We'll take our first question from the line of Lauren Silberman with Credit Suisse. Please go ahead.

[Lauren Silberman, Credit Suisse]

Thank you very much. Just my first one, on new classes of Shacks, historically, Shacks has opened at high volumes at the honeymoon period and then settle. Have you been seeing the same trend with your newer classes of Shacks, recognizing there's a lot of noise in there? Just trying to understand if you're getting to a stage where there's less of a honeymoon period?

[Randy Garutti, Chief Executive Officer]

Thanks, Lauren. It's a great question, because that's obviously been such a big dynamic of both our comp and just in general the big pop. I think the answer is, yes, in a lot of places still, and no in others. So, generally, the way we think about it is in a really mature market like, let's say, New York City or Los Angeles or some of the places where we have quite a few Shacks built out, generally, you don't see the same like a huge pop and then come down. You just kind of start to see better kind of run rate out of the gate and we've seen that kind of sticking.

But there are so many places that we still haven't gone even if it's a tangential part of a neighborhood where we already are. I'll give you an example from last week. We just opened in Dublin, Ohio, right? We have a number of Shacks in Ohio already. But Dublin is kind of far enough away that there's a lot of people in that neighborhood who were coming out in that first week or so to really check it out. That will probably level off over time.

So, I think the way -- the best way to think about it when you think about our roughly 40 Shacks this year is if they are kind of new far enough neighborhoods and/or launch markets, we generally will see that Shake Shack trend of a big pop that then settles over time and then we believe rises over time. If it's something that is a mature market, unlikely to see the same dynamic.

[Lauren Silberman, Credit Suisse]

Very helpful. And then, just a follow-up on your commentary around opportunities with build costs. Can you expand on where you might see potential costs out? Just given the uniqueness of your sites, are there opportunities for more standardized images? Or how are you thinking about that? Thank you.

[Randy Garutti, Chief Executive Officer]

Definitely. Thank you. A lot of ways. First of all, we will see where the inflationary environment goes. We're still living in a very highly elevated construction environment around the country and we know that and everyone's experiencing that. So that'll be something that the macro environment will tell us where that heads. Hopefully, we'll get some wins there.

On the proactive side of what we're doing, with each of these formats, we're continuing to try to make them more standardized, more templated, better prototypes, in some cases, just kind of leveling down the size of things. Drive-thru is probably the best example, right? That first roughly 20-plus drive-thrus, I mean, we got out of the gate with a big investment doing kind of a little bit of everything so that we can learn what we like best. Now, as we learn that and we start to design our drive-thrus for 2024 and 2025, we expect we can really start to templatize that a lot better and bring down some of those costs. The same is true for small formats, the same is true for our core Shacks, which is mostly what we built.

So, we -- and we're also looking at different kinds of deals there, right? We may employ a couple of build-to-suit type deals that are a lot lower construction costs, do some of those. We may do some more small format to lower the average total. And it's really one of the most important focuses of the company right now. And again, we're in this elevated environment. We don't expect to reap those rewards this year. But as we look ahead towards the long term and building back our return profile over time, we think we've got a lot of opportunity in how we build our restaurants, design them and get more efficient for the long term.

[Lauren Silberman, Credit Suisse]

Thank you very much.

[Operator]

Thank you. We'll take next question from the line of Mike Tamas with Oppenheimer & Co. Please go ahead.

[Mike Tamas, Oppenheimer & Co.]

Hi, good morning. Thank you. I know you're not giving exact margin guidance for the full year in '23, but there's a group of analysts' consensus has you guys expanding margins quite a bit versus 2022, which would be pretty unique in the space. So, I know you gave guidance from mid- to high-single digit COGS inflation, mid-single digit labor inflation. But if you think about how you guys are modeling your business internally for sales and costs, you just sort of qualitatively think that you can expand margins in 2023 versus 2022?

[Katie Fogertey, Chief Financial Officer]

Thanks for the question. We haven't given guidance for the full year. How I would say about where our efforts are focused here, it really is to expand our margins. Again, not saying it's for a particular year, but we are building up to continue to build on the progression that we had in the fourth quarter. It's really a focus on four key tasks here.

So, one, it's on our sales and building back our sales, with a focus on driving those sales in our own channels where we're most profitable. Kiosks sales are most profitable across our entire mix, but in-Shack, we'll take that too. And certainly, what we saw as being a big margin pressure to us kind of at the onset of the pandemic was a lot of our sales moving to digital channels as they come back more in-Shack, that's a margin tailwind for us. And just really investing overall through marketing and other strategies to just grow brand awareness and continue to build our sales overall as a company.

So, the second thing is on our strategic approach to menu pricing, which we've talked about before, we are running -- expect to run about high-single digits of price throughout the first part of this year. And we haven't talked about any new addition -- potential to raise prices to offset inflationary pressures. But we are watching. We are watching beef in particular. If that does start to pick up a little bit here, another price increase, very small, could be on the table.

We're looking to be more efficient as well with labor. And so, it's about building efficiencies with our current team members. We've hired a lot of people very recently, investing to train and optimize our teams, grow our hours, making sure our staffs are fully -- our Shacks are fully staffed and open, and so we can maximize sales. And then, again, back to kiosks, it's about making sure that we're giving our operators tools that they can use to be just more efficient in the Shacks.

And then, kind of the final focus here is on our off-premise profitability. So, we do charge a premium through third-party delivery. But we've done a lot of work also to help refine our standards for packaging on off-premise orders. Randy talked about the packaging test that we're going to be trying out this year. I'd really look there as another example of a potential opportunity.

[Mike Tamas, Oppenheimer & Co.]

Okay. Thank you. And then, just want to follow-up on the commentary about some of the new store design and being more efficient with drive-thrus, I think, Randy just mentioned in '24 and '25 relative to the ones that are already in the ground. So, when you think about like what are some of those big changes that we can expect to see? And are they more like guest facing? Or are they more sort of like back-of-house in operations? Thanks.

[Randy Garutti, Chief Executive Officer]

It's a little bit of both. It's really about how we build it even from the skeleton on out, right. Everything from whether you use steel or wood construction, how our windows and things work. Some of those things the guests will note, but in a positive way, we think. And it's really about us saying, okay, we built these, this first group of 20 roughly with some varied kitchen designs, some varied flow, how do -- how many lanes do we need and how will the tech work, all of those things we really needed to, as I've said in previous calls, optimize for learning. We wanted to spend there. Now as we get in the ground, we understand how these things work, we got to make sure that we can standardize more and more elements of that, but still keeping the unique and powerful aspects that make Shake Shack.

We're pretty confident that when you go to a Shake Shack drive-thru, you go through, then you say, this is really cool, it's different, this makes sense to me, and I understand the continued elevated proposition that Shake Shack always brings in our design.

We're also learning the right size, right? When you learn -- we've noted before, it depends on the drop-thru, but roughly half of our sales at drive-thru are in the Shack. We really like that. So, we got to figure out how many seats do we need inside and out? What type of atmosphere are we building? And we're clearly building Shake Shack drive-thru to be a community gathering place as well. We are not just building a drive around and leave only options at this stage. We may try that someday, but today we're focused on kind of allowing our guests to choose whatever channel they really like, and we believe that's part of it.

So, look a lot of work to do on that. I think we'll have lots of different versions that we're going to test and learn from, but we're really targeting the efficiency of our builds as we look forward.

[Mike Tamas, Oppenheimer & Co.]

Awesome. Thank you.

[Operator]

Thank you. We'll take next question from the line of Sharon Zackfia with William Blair. Please go ahead.

[Sharon Zackfia, William Blair]

Hi, good morning. I apologize if you talked about this. My cellphone dropped in the middle of your comments. But I think I heard you say, Katie, that you're staffing is getting better, but still isn't kind of fully optimal. Can you give any kind of framework around like where you are relative to ideal staffing? Maybe currently versus the fourth quarter, where you are on hours of operation across all channels?

And then, on the drive-thru, I'm just curious whether you're seeing that bring in new customers, or if it's really more a function of increasing the accessibility and the frequency of your existing guests? Thank you.

[Randy Garutti, Chief Executive Officer]

Thanks, Sharon. On people, it's certainly gotten better over the last few months, but it's still hard. Let's be clear. We wish we were fully staffed everywhere, we're not. There are some restaurants that feel great all the time. And there are some that it's still really hard to optimize our teams and feel fully staffed. But we feel certainly a heck of a lot better than we did 12 months ago when it was probably at most challenging environment right now. We're feeling better than we were three months ago, but we still have work to do. And I think a combination of all the things we do for our people, raising wages, now including tips, added benefits, development opportunities, all the things we're doing to really highlight this as a great career choice for people, it's working and it's still tough.

So, on hours, we've been able to expand some of that over this -- over the fourth quarter. There's some of that, that we still have opportunity in certain Shacks, and somewhere we want to decide if we can push a little bit, and a little bit of that is going to be how the world continues to move around and where we think that optimal hours can really be for a Shack. So, we think there's still some opportunity there.

And on drive-thru guests, I think we're learning is the answer. We are seeing our omnichannel use. I think what we see as the most valuable Shake Shack guests is an omnichannel guest that uses us in all channels, that drive-thru -- that is included as well. And what we're trying to figure out here is can we get people to come more often because of the convenience, because of it. We're getting pretty high experience scores from people who go through the drive-thru and we really like what we see there. So, little early to say on any real data there, but we think it opens up new areas, it opens up the total addressable market for our real estate team, and new opportunities to meet guests in a way where they want to be met.

[Operator]

Thank you. Sharon, do you have any further questions? You have a follow-up?

[Sharon Zackfia, William Blair]

No, thank you.

[Operator]

Thank you. We'll take next question from the line of Jake Bartlett with Truist Securities. Please go ahead.

[Jake Bartlett, Truist Securities]

Great. Thanks for taking the question. My first was -- and these are follow-ups on the questions about margins. But my first is, there were some kind of abnormal or elevated costs in '22, like repair and maintenance, like the T&E as you kind of existing staff had to go help open stores and stick around. So, the question is how much in '22 was that normal that we can expect maybe to go away, so -- I mean a provide a boost in '23?

And then, also just bigger picture on the margin side, it sounds like you're very focused on building margins. But I'm wondering whether there's some bigger new initiatives going on. We have companies that are 50-years-old and they're still getting 30 basis points of savings here and there. Others are doing time-motion studies, really taking a look at operations and whether it can be really materially improved. So, I'm wondering whether that's going on, whether you're kind of thinking kind of big as well as you think about building up margins?

[Katie Fogertey, Chief Financial Officer]

Great. Yes. So, we did -- last quarter, we called out pressures around a couple of items that were impacting us. So, first of all, it was higher R&M. Equipment availability has impacted our ability to open up restaurants, but also is impacting how quickly we can replace equipment inside the restaurants and we're having to service it where we normally might replace it. So that was a little bit of an overhang. Higher T&E expenses to help support team members, and higher utilities cost.

The good news is that our teams did a good job managing that in the fourth quarter, but it was still higher than average levels. And we're continuing to focus on ways to bring that down overall. T&E to support Shack openings, that's also going to be a function of the number of Shacks that we open up in a specific quarter, especially if there's overlap in certain markets. So, kind of aiming towards having a more smoothed-out development year would help on that side. And then on utility, it's just really kind of the broader commodity landscape is a key driver on that.

But to your question about if we have any specific plans in place, I would say, yes. We've tried to outline those in the Shareholder Letter and on the call. We are taking a very -- let's say across driving sales, labor efficiencies, training our team members, all of that is definitely part of the focus here.

[Jake Bartlett, Truist Securities]

Okay. I guess on that point, just on the kind of the efficiencies, I mean, I'm wondering whether there is some -- whether you're looking at doing things really materially different, like a real concerted effort to -- you've been obviously growing faster young concepts. And I would think there's a lot of opportunity to maybe just do things more efficiently in the kitchen, but I'm wondering whether that's a concerted effort. So, that's just one question.

The other is on the food cost outlook. I just want to better understand, I think most investors and myself, we're more focused on beef as being a risk. Beef is actually, on your outlook, pretty good, flat to mid-single digits, yet other things are driving the inflation that you're seeing. So, what is the visibility on those other items? I'm trying to figure out what the big pieces that we should be looking at to kind of gauge whether you're on track to hit the guidance or not, whether it's dairy or poultry or any other big items we should be really tracking there?

[Katie Fogertey, Chief Financial Officer]

Yes. So, we had a pretty inflationary year for beef in general. It's been kind of a pressure for us for a while. So, calling for a flat to up mid-single digit inflation on that side, that does reflect a pickup in beef prices overall for the year. Certainly, we'll have to see how the year plays out and if it ends up being more extreme or less extreme than that. But we are factoring in a degree of beef inflation in our outlook.

And then, the other thing to keep an eye on it is chicken, it is dairy, it is fries, fryer oil, like we've called out a lot of these big drivers here of our COGS that are seeing a pretty material pick ups here. And we don't contract on a lot of it. And so, that would be kind of how we think about the inflationary cadence for the year.

[Jake Bartlett, Truist Securities]

Thank you very much.

[Operator]

Thank you. We'll take the next question from the line of Peter Saleh with BTIG. Please go ahead.

[Peter Saleh, BTIG]

Great. Thanks for taking the question. Randy, I think you mentioned this a couple of times on the tipping that's been implemented. Can you talk about the consumer response to the tipping maybe parsing out urban versus suburban or just how often you're seeing consumers actually tip the employees?

[Randy Garutti, Chief Executive Officer]

Thanks, Peter. Yes. We're not going to break out any of that urban, suburban or data on that other than to say, since the beginning of Shake Shack 20 years ago, people have asked us if they could add a little extra something for our team and we always said no. And this year we've said yes. And I think the beauty of the way we've done it is, it's not in your face, we don't start with this 20%, 25% expectation like many restaurants do, and you have this kind of moment as a consumer, where you are like, "Wow, 20%, 25%, that's a lot." We make it very on your side and if you would like to do that, great.

And we're happy to see how many people are doing it and there's a lot of people who don't and that's cool too. This is really an optionality feature that if you really want to take care of our team and feel like it, you want to give a little something, $1 or $2, or 10% or whatever, that can work. And it's making material impact for our team. In some cases, it's $2 to $3 more per hour that our teams can make, thanks to a percentage of people who are tipping.

So, we're hopeful that that's a continued strategy that will help us find the right overall wages for our team to take care of them and hopefully have people be retained, and allow our guests to feel good about it. It's like we always said, we all experienced this when you go to a coffee shop or anything else, if you don't want to tip, that's totally cool, and we appreciate that and we're never going to have a pressure-filled environment trying to make that work. It should feel great to both sides of the equation.

[Peter Saleh, BTIG]

Thank you. That was very helpful. Just on -- kind of staying on labor for a second. Katie, I think the last time we spoke, you had mentioned that it was maybe a little bit more challenging to staff some of the suburban versus the urban lately. Have you guys seen any improvement on that front just the staffing between those two, suburban and urban?

[Katie Fogertey, Chief Financial Officer]

Yes. I mean we are still seeing -- as Randy talked about, there are still an opportunity to regain our sales here from focusing on staffing. We had some success in some suburban Shacks in the quarter and really kind of exiting the quarter, started to get on a stronger footing with some, but there's still opportunity and others, and a lot of the trends that we talked about still hold.

[Peter Saleh, BTIG]

Thank you very much.

[Operator]

Thank you. We take the next question from the line of Andrew Charles with Cowen & Company. Please go ahead.

[Andrew Charles, Cowen & Company]

Great. Thank you. Randy, you guys seem open-minded about taking more price in 2023 as you mentioned with the beef prices that potentially could revert higher later this year. Can you talk about what gives you confidence that you guys have further pricing power, just given well-documented trade-down across the fast-casual industry and the quick service?

[Randy Garutti, Chief Executive Officer]

Yes. I think it's something we got to be cautious about and we're watching very closely as every company is. We've probably taken less prices than many others, certainly of our competitors in fast-casual and even fast-food as a percentage over this last few years. I think we've been more cautious and we want to remain that way. That's true to every way we thought about Shake Shack since the beginning of time here. Yet, we have to make sure we protect our margins.

So, again, sitting here today in February, we have no plan to take new price. We'll look at something as we see how inflationary pressures do or do not continue to persist at high levels. We expect they're going to persist at some level here this year, but I don't think anybody knows and we got to make sure that we're providing the great value that we always have. And then, we're also going to lean into all the strategic planning that we talked about today, making sure we're executing on our operations, hospitality, and the premium nature of Shake Shack that provides good value.

So, it will be something we watch. I think if we look at the evidence so far, we feel pretty good about the trends that we see generally in our average order values, in our items per check, and the kind of things that we track to look at how people are looking at it, our value scores overall, been very consistent. But I think it's -- everyone's living in a pressured inflationary environment and we got to be there.

Who are we not going to be? We're not going to be massive discounting fast-food giant, things like that. We are going to lean into ingredients. I mean, we're literally right now running a luxury ingredient of White Truffle. And when you think about our strategy of who Shake Shack is, we want to capture that trade-down and that person who says, "You know what, for $9.99 or less, I can get a White Truffle Burger that I could never get at any fast-food-type restaurant." While that's an elevated experience for that style, it's a great value and continues to position us as I think the leader in that affordable opportunity to just have something great.

So that's who we intend to continue to be. And we'll see how the year goes and we'll let you know if we change our mind on price anytime soon.

[Katie Fogertey, Chief Financial Officer]

Just also a reminder, we over-indexed to higher-income consumers and we're generally seeing pretty good trends from that group as well, so it just also something to keep in mind.

[Andrew Charles, Cowen & Company]

That's helpful. And then, Katie, beef guidance for the year flat- to mid-single digit guidance. So, obviously, a very wide range, just anticipating on certain backdrop. Curious though, you mentioned that you guys aren't seeing any inflation yet or any inflation on the comp, but can you just help us with the guidance is it fair to say that conversations with vendors which suggest that you guys would be closer to flat and that mid-single digit will perhaps be just conservatively baked in. Just, I guess, to understand the big guidance a bit more for the year.

[Katie Fogertey, Chief Financial Officer]

Yes. I mean, we -- just as you look at the difference between the first quarter and the full year, we're guiding for the first quarter to be down mid-single digits. So just that alone would just imply that we are baked into that guidance range is a pickup in beef prices in the back half of the year. We again don't contract on beef. We are both talking to our vendors and hearing what they're saying and also triangulating that with broader industry and analysts expectations. So, there is a wider range of uncertainty around that as we definitely have been clear about.

[Andrew Charles, Cowen & Company]

That's helpful. Thanks, guys.

[Operator]

Thank you. We take next question from the line of David Tarantino with Baird. Please go ahead.

[David Tarantino, Baird]

Hi. Good morning. Katie, I have a question about CapEx. I think the final number for 2022 came in quite above what we would have been anticipating at the beginning of the year. So, I was wondering if you could maybe break-down where some of the increases came from? And then, I have a follow up.

[Katie Fogertey, Chief Financial Officer]

Sure. I mean when we boil it down, it's really to -- we are much more [Technical Difficulty] development calendar than we were last year. And so, we just talked about we have 24 Shacks right now under construction and at the end of last year, we had a number more and we opened up a lot in the quarter. So, I think what you're seeing on that side is it's us having a lot more investment in our pipeline than we were at this time last year.

We also have some pickup in investments in IT and in digital, but the big chunk of that is really around that, and then we also had some added investments as we've rolled out kiosks to -- we're rolling out kiosks to a larger part of our Shacks.

[David Tarantino, Baird]

Great. And then, I guess the follow up is, if you're willing, is that a good number to maybe think about going forward or will it come down given that some of that investment might have been temporary?

And then, I guess, bigger picture as you think about how the business scales over the next several years, do you have a year in mind where you might get kind of breakeven on free cash flow or positive on free cash flow?

[Katie Fogertey, Chief Financial Officer]

Yes. We're not going to be talking about any guidance on that point, because we haven't given anything. But what we are focused on is building -- we're bringing down our build costs overall for our Shacks and really having a disciplined approach to capital investments and to G&A. And that inclusive of also building back our profitability, we feel like we're on a really good path here.

[David Tarantino, Baird]

Great. Thank you.

[Katie Fogertey, Chief Financial Officer]

Thank you.

[Operator]

Thank you. We take next question from the line of Jim Sanderson with Northcoast Research. Please go ahead.

[Jim Sanderson, Northcoast Research]

Hey. Thanks for the question. I wanted to talk a little bit more about store profit margin longer-term. If you can maybe give us your thoughts on how you look at flow through profit margin as you make these improvements, especially in labor adding some technology into the store with the kiosks, so maybe there is an opportunity to see basis point improvement and store margin going forward as you drive stronger AURs, let's say over the next year or two. Just how we should look at that as far as flow-through profit margin?

[Katie Fogertey, Chief Financial Officer]

I think that's definitely a very good way to be looking at it. Certainly, when we're building up our swap initiatives to bring back our profitability that is -- we start with sales. We start with sales in our own channel, but really driving sales overall for exactly at this point. There's going to be a number of factors though that impact that including our overall channel mix. So, nothing really to share at this point, but we do believe that sales will be a strong contributor to our overall profitability improvement.

[Jim Sanderson, Northcoast Research]

Okay. Just a quick follow up. Any thoughts on how your maybe budgeted labor hours for comp stores, how that's changing? Are you -- is it starting to lag sales growth or anything like that.

[Randy Garutti, Chief Executive Officer]

Well, I think it's really just budget to meet demand and how busy we think we can be. I think we're getting better than ever at the technology we use, and the way that we both take care of our team and budget for trying to meet peak demand and try not to be over staffed during the lighter times of the day. So that's an ongoing journey, Jim, that always will be.

But I don't think there's any real new data to say other than, I think the team did a really nice job in the fourth quarter. We'll be pressured a little bit in the first quarter as we name with 22 new Shacks that really just opened heading into that. So they will probably be tighter as we talked about in the first quarter and we've got to do the work to level all that out as we go through 2023.

[Jim Sanderson, Northcoast Research]

All right. Thank you very much.

[Operator]

Thank you. We take next question from the line of Rahul Krotthapalli with J.P. Morgan. Please go ahead.

[Rahul Krotthapalli, J.P. Morgan]

Hey, guys. Thanks for squeezing me in. I just wanted to focus a little bit more on the margin side here. Is there a significant gap between your highest and the lowest margin stores? And other than sales, what are the things that the higher margin stores are doing that the lower- margin stores can readily like -- can be shared with them? And is there -- is like something like a manager comp changes can be more focused on this addressable margin opportunities between the higher and the lower-margin stores?

[Katie Fogertey, Chief Financial Officer]

That's a great question. We do have a range of margin performance within our base, and if I was to kind of classify like where are our strongest Shacks, it's probably the ones that have the higher sales. We have a great group of Shacks that have very, very strong sales, and when you have great sales, you can leverage your rent, you can leverage your occupancy. And so those tend to be the best performers. You can also really get great labor levels as well. And then you kind of leverage up a lot of the fixed cost.

Where we have opportunity to improve and where we've been focused is in the Shacks that have a little bit of lower sales, and how we can kind of bring those back up. And that's kind of a lot of the work that's been going on right now. Kiosk is one example though, broadly of a strategy that we're using to help kind of improved labor throughput overall. So, instead of having two to three, maybe four people taking orders depending on how busy the Shack is, we were able to then redeploy that labor and have people just go to the kiosk when they come in the Shacks.

So that's how we would think about it. There's obviously areas where certain Shacks can improve and areas where other Shacks are doing exceptionally well, but if you're kind of looking at the biggest driver overall, it's likely sales.

[Rahul Krotthapalli, J.P. Morgan]

Is there like anything on the manager comp side at this point that you can tweak or adjust to address the part of this?

[Randy Garutti, Chief Executive Officer]

Well, I think on a manager comp side, we -- first of all, we have competitive pay which is what's most important, so that we can have a solid retention, which we do at our manager level and GM level. We feel good about that. But you're right to say that managers are highly incentivized on their bonuses by month and by quarter to hit their targets, and those targets vary based on what kind of Shack you are in. We set aggressive targets. We constantly reset them. And we feel really good about people's viewpoint into what they need to do to earn their bonus.

Our GMs are also shareholders, right? All of our GMs get a $10,000 per year Shake Shack stock grant and we feel really good about that, and that incentivizes them to act like entrepreneurs who want to see this stay for the long term and want to see the company succeed overall. So, we feel good like we have the right compensation mindset at the Shack level.

[Rahul Krotthapalli, J.P. Morgan]

Thanks for the color on that, Randy. And I just like to follow up on G&A spend, marketing specifically. What kind of spend are you planning for next year like going forward, like how can that be -- how would it look like?

[Randy Garutti, Chief Executive Officer]

Well, we haven't -- we don't break it out in the G&A, but when you look at marketing, I noted in some of my comments, we continue to invest deeply in a few main categories. Targeted performance marketing when it makes sense and where the cost to acquire and get guest is really a low-cost, we think we do that really well. We are spending more money and time thinking about as we scale and grow, we're not probably big enough yet you would see a mass media campaign at this stage, but at some point, we'll get there too.

But -- so we're investing in trials of that sort of localized brand media campaign in lots of different media channels. And then, localized marketing as our community managers, our regional marketing leaders, and ops leaders do various things to support their local communities. So, those three buckets are where you will see the main marketing spend into this year. We feel really good about the budget we have at the scale that we have. We've always had a brand that can lead for us. And we've got to keep ramping up that investment over the coming years as we scale and get to a point where we have more Shack doors to take in those sales to benefit from some of those marketing efforts.

[Rahul Krotthapalli, J.P. Morgan]

Understood. Thanks for the color, guys. I appreciate it.

[Operator]

Thank you. We take the last question from the line of Brian Harbour with Morgan Stanley. Please go ahead.

[Brian Harbour, Morgan Stanley]

Yes. Thank you. Good morning. I just wanted to ask about the mobile app. First, maybe and -- if you're still seeing kind of increasing usage of mobile ordering and what that looks like as a percent of sales today? And I would think that that's a fairly attractive margin order and it probably kind of helps you with throughput. So, how does kind of leaning into the mobile app factor into some of that margin improvement that you are targeting?

[Randy Garutti, Chief Executive Officer]

Yes. Definitely leaning into it, continue to have for the last few years quite a bit. We also feel like we've got a lot of that investment in there right now and now it's about continuing to just improve pieces of the experience, so that it's consistent, reliable, and something we can rely on all day. We're not going to break out the numbers. We don't break out the difference between that and our third-party and all of the web channels, everything we do, but we are really proud of the overall digital business.

We do things like drive engagement and downloads when we launched our White Truffle menu last week, we launched that in the app only. We also have done a little bit more campaign of delivery through our app. Margins on that are strong comparatively to straight third parties. So, there's a lot of ways that we'll continue to focus on the app, we love it, it's a significant part of our business, we see solid frequency usage there, and you'll see us continue to invest.

[Brian Harbour, Morgan Stanley]

Okay. Great. Thanks. And just kind of the suburban stores, obviously, you've seen those moderate a little bit from a same-store sales perspective, but maybe talk about what's kind of key to continuing to drive those sales? Are those better staffed? Are they worse staffed? What else can kind of help drive some of the suburban stores?

[Katie Fogertey, Chief Financial Officer]

Yes. Brian, hi. So, I would say we continue to do better at staffing in our urban markets and in our suburban, and we see potential to recapture some sales in suburban markets just due to better staffing levels. And then also, there's a couple other added dynamics really in suburban just to be mindful of. So first of all, some of our suburban locations are in malls or around malls, are near outlet centers, and what not. And so, ebbs and flows of consumer behavior of going to malls or not going to malls or going to outlet centers or not going to outlet centers that can kind of swing that around.

And then, just frankly, look, these -- our suburban Shacks massively outperformed our urban Shacks throughout COVID. And so, there's likely to be a little bit of shift as people go back to three days a week in the cities or four days a week in the cities, however that lands, we're expecting to see a little bit of share shift kind of between suburban and urban around the fringes. But these restaurants, we're really pleased with how they're performing and continuing to hold on their same-store sales strength even as urban recovers.

[Brian Harbour, Morgan Stanley]

Thank you.

[Operator]

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I'd like to turn the floor back over to Randy Garutti, CEO, for closing remarks. Over to you, sir.

[Randy Garutti, Chief Executive Officer]

Thanks so much, everybody. Really appreciate your time this morning and look forward to seeing you soon at the Shack. Take care.

[Operator]

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.