No more waiting for that handheld buzzer to vibrate at one of Shake Shack Inc.’s busy locations.
Along with its second-quarter earnings Shake Shack SHAK, +18.24% announced that it has partnered with GrubHub Inc. GRUB, +0.98% to take delivery service nationwide.
Shares rose 18.2% in Tuesday trading, the biggest one-day percentage leap since the company went public in May 2015.
The announcement comes after a pilot phase in which Shake Shack Chief Executive Randall Garutti said the company learned about the needs of guests and company operations.
The delivery system will roll out over the next two to three quarters, Garutti said.
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“And as we work through that period, we expect a degree of volatility across the system in our delivery and overall sales, which is reflected in our updated guidance for the year,” said Tara Comonte, chief financial officer for the company, according to a FactSet transcript.
Shake Shack now expects fiscal-year revenue of $585 million to $590 million, up from previous guidance for $576 million to $582 million. The FactSet outlook is for revenue of $598.1 million.
Garutti went on to explain the volatility, saying it will stem from the effort to “un-integrate” the technology that had been used with other partners like Postmates and DoorDash. For now, those relationships will remain intact, but eventually, they’ll have to be undone.
“You’ve got two years of behavior in various marketplaces and they all have slightly different regional strengths,” he said.
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“Delivery is a hard business. Shake Shack’s food is hard to deliver and we need to do it really, really well.”
Some analysts were more concerned about same-store sales and margins than the new delivery service. Same-store sales rose 3.6% during the second quarter, while operating profit margin fell 380 basis points in the second quarter to 24.4%.
Shake Shack’s full-year outlook is guiding for same-store sales growth of about 2%, up from 1% to 2% previously. The outlook for full-year operating profit margin was narrowed to 23% from 23% to 24%.
“The increase in [comparables] was driven by 2.3% average check and 1.3% traffic as delivery and Chick’n Bites both contributed,” wrote Wedbush analysts led by Nick Setyan. “However, unit-level margins declined nearly 400 basis points year-over-year for a second consecutive quarter as delivery costs, the higher costs associated with the chicken bites, labor inflation and the lapping of one-time benefits in 2Q18 offset top-line outperformance.”
Wedbush rates Shake Shack shares neutral with $75 price target, up from $70.
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“Continued new unit volume declines are a key part of our thesis, as the decline in overall average unit volumes make margin expansion difficult,” wrote JPMorgan analysts.
JPMorgan rates Shake Shack shares underweight with a $69 price target, up from $58 previously.
“We maintain the highest praise for management, the brand, and continued industry leading growth, in the spirit of J.P. Morgan’s balanced ratings system, we have an underweight recommendation as we do not have enough valuation support for a different rating,” analysts said. “Shake Shack is a big brand with even bigger potential, but a small company.”
Shake Shack now has more than 240 locations across 29 U.S. states, Washington D.C. and internationally, including Mexico, Tokyo and London.
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SunTrust Robinson Humphrey highlighted the GrubHub partnership calling it “difficult to judge.”
“The transition of delivery to one partner may cause some near-term same-store sales achievable and potentially beatable,” analysts said.
SunTrust Robinson Humphrey rates Shake Shack shares buy with an $86 price target, up from $76.
Shake Shack stock has soared nearly 73% for the year to date while the S&P 500 index SPX, +1.30% has gained 14.4% for the period.
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