ADVERTISEMENT

Shake Shack is churning out new stores, but there are still some issues (SHAK)

SSS and margins were weak in Q1.

null

More stores doesn't always translate into better results, and Shake Shack provides a good case study.

ADVERTISEMENT

On Thursday, the burger and shake maker reported adjusted earnings per share of $0.10, beating some analysts' estimates.

In a note out to clients on Friday Morgan Stanley said Shake Shack's first quarter was strong in some respects.

"SHAK remains a development machine — driving EBITDA growth — with new stores continuing to perform well," the bank said.

ADVERTISEMENT

According to Morgan Stanley, Shake Shack opened up seven stores in the first quarter of 2017, three more than the bank expected. But more stores didn't translate into a completely rosy quarter for the firm. According to the bank, Shake Shack reported shaky margins and lower same-store sales.

"Restaurant margins, however, missed by 150bps vs our model, with labor 120bps above our estimate (27.6% of sales vs our 26.4%), and up 240bps Y/Y," the bank said.

"March SSS of down 8% — due in part to the Easter holiday shift — were a significant drag on the overall 1Q comp of down 2.5%, and we don’t currently expect full recapture of March's negative performance in April," the bank added.

As such, Morgan Stanley has reduced its 2017 EPS estimate to $0.49 from $0.50. It has a price target of $34 per share, which is lower than the firm's current share price of $35.41.

FOLLOW BUSINESS INSIDER AFRICA

Unblock notifications in browser settings.
ADVERTISEMENT

Recommended articles

Sony’s creators convention redefines the creative landscape for content creators

Sony’s creators convention redefines the creative landscape for content creators

Egypt, Nigeria, and South Africa ranked as Africa's most polluted countries in new report

Egypt, Nigeria, and South Africa ranked as Africa's most polluted countries in new report

10 African countries with the lowest life expectancy according to the World Bank

10 African countries with the lowest life expectancy according to the World Bank

Kenyan women are more obese than their men - here’s why

Kenyan women are more obese than their men - here’s why

Africa’s richest man Dangote stands between Europe and $17 billion in revenue

Africa’s richest man Dangote stands between Europe and $17 billion in revenue

After months of exchanging blows, Kenya and Uganda takes steps towards resolution

After months of exchanging blows, Kenya and Uganda takes steps towards resolution

Africa's first black billionaire could join $2.9 billion Vivendi bid for MultiChoice

Africa's first black billionaire could join $2.9 billion Vivendi bid for MultiChoice

10 most dangerous African countries in 2024

10 most dangerous African countries in 2024

Russia’s nuclear influence expands further north of Africa

Russia’s nuclear influence expands further north of Africa

ADVERTISEMENT