Shake Shack 4Q16 Earnings Call Notes

Randy Garutti

Grew sales 20% though comps just 1.6%

“Looking at the fourth quarter, we grew total revenue over last year by 43%, driven mostly by 20 new domestic company-operated Shacks and Same-Shack sales growth of 1.6%. While trends were strong throughout October and November, Same-Shack sales performance softened in December; and this was driven by various factors, primarily the holiday shift contributing approximately 80 Bips of pressure, as well as comparatively colder weather in the Northeast region which makes up a high percentage of sales in our still very limited comp base of just 30 Shacks.

Rethink the restaurant w/ mobile pre-ordering

“Now let’s get to the Shack App. As we look into the future of Shake Shack, we know our business will continue to evolve as our guests’ expectations change. I’m fairly certain that my own young children will experience retail and restaurants in a very different way than I did. When we look at the digital landscape, our future is focused on removing those constraints and friction points that previous generations have accepted as a way of life, knowing that future generations just won’t accept it. For Shake Shack, that evolution begins now with our Shack App. Today, it’s focused on mobile pre-ordering.”

Push promotions through the app

“In mid-January, we turned on the gas and for the first time in Shack history, we chose to reward guests with a free Shack burger anytime they downloaded the app. Through February, the Shack App has been downloaded over 200,000 times and we’ve given away nearly 90,000 free Shack burgers which has translated into approximately 6% of our total orders nationwide. We do expect that percentage to decline now that the free burger promotion has ended and as we’ve set on to a more normal user rhythm.”

Don’t anticipate price increase, but labor is an issue

“No, we do not intend another price increase but as we said, labor is quite a Q4 and we’ve gathered that life really — that levers going to that we have a lot of minimum wage increases here in 2017 we are going to have them again in 2018 and 2019. We do business and the majority of our business will be in the highest minimum wage areas. Will also continue pay our managers better and necessary or play conference. With the best team we can to continue to ramp up growth”

JEff Utzz

Beef and dairy costs down

“Our beef costs have decreased both sequentially quarter-over-quarter and on a year-over-year basis. Beef was down approximately 8% over the prior-year fourth quarter. Our outlook for next year is that beef and dairy will continue to be down slightly on a year-over-year basis for the first half, but up on a sequential basis, with prices remaining flat in the back half of the year. ”

Dominos Pizza 3Q15 Earnings Call Notes

Levering up to 5.8x Debt/EBITDA

“As communicated in our September 28th press release the company intends to issue approximately $1.5 billion of new fixed rate notes in the fourth quarter. We plan to use the proceeds of the $1.5 billion issuance to call and retire at par $551 million of existing 2012 fixed rate note to pay transaction fees and use the remaining net proceeds for general corporate purposes. The refinancing would bring our total debt to EBITDA leverage ratio from approximately 3.6 times at the end of Q3 to approximately 5.8 times at closing.”

Cheese prices have fallen

“The average cheese block price in the third quarter was $1.69 per pound versus $2.04 in the same period last year, this lead to our overall market basket decreasing 5.7% as compared to the prior year quarter. Based on current forecast, we now expect that commodities we use will be down approximately 5% to 7% in 2015 compared to 2014 levels.”

Technology critical

“Switching to technology, the story continues to be about investing in innovation. Technology is now an absolutely critical part of our brand and an undeniable element of what Domino stands for. We don’t just talk about innovating, it’s generating real results. And for the second time this year we are using national television to promote a technology driven message.”

Our ad dollars are going to digital

“you may have notice we’re not advertising it on television right now. We’re advertising our digital and kind of the core of our business where the add dollars are going. So the Marbled Cookie Brownie is being done online and with prints”

Seeing a little bit of uptick in labor costs

“on labor rates specifically around our company-owned store first, we saw a little bit of an uptake in that line. Some of it wage rate, some of it just higher bonuses as our performance in our corporate operations has been very good. On the franchisees side on balance we only have 375 corporate stores. I think the other 4800 or so are generally seeing kind of the same environment around wages. The other thing I’d say is kind of despite any wage inflation, we haven’t seen a ton of wage inflation”

Have to take into account average tips in different markets

“And at the end of the day, we’ve got to pay at a level that’s going to get us great team members and ultimately that’s also going to include what their tips are going to be as drivers and that also varies market-to-market. And frankly as we look at their overall compensation we’re taking into account kind of the level of average tipping in different markets, because we know that’s going to be part of their decision, they’re going to make whether or not they’re going to work for us and what their total compensation picture is going to look like.”

I don’t think you can take aggressive price right now and not expect it to hit orders

“But in terms of is there significant pricing power for us, no, there is not. I don’t think you can take aggressive price in this economy right now and not expect that’s it’s going to hit your order counts.”

People are learning it’s not so easy to move packages around

“clearly we are kind of the world leaders in real time delivery. We’ve been doing it a long time, we are very efficient at it and we’ve got a lot of system built up around that particularly operationally. And I guess what I would say is there are a lot of people who have gotten into the space. My understanding is that as it relates to moving packages and food, very few if any of them are today making money doing that. There are folks that are doing pretty well out there moving people around, but I think people are learning that you know moving packages around and the scale that you need to do that it’s not easy.”

It’s not as easy to to do this as people think

“And you know there are real operational complexities to it beyond kind of building the software platform to do it. So we are really good at it as people have tried to compete with us around the world in delivery I think they have found out overtime that it’s operationally not as easy to operate as people may think and it has been a great source of advantage for us versus our competition both.”

China has been at the forefront for international delivery

“China I think has done a little bit more at the forefront for those brands in moving the delivery. There’s certainly lots of aggregators out there for kind of digital ordering and most of which are not as significant scale yet and then you’ve – I think from kind of the delivery service side, there are certainly markets where that’s moving faster than others but I don’t know that I would say it’s materially different in international than it is in the U.S”

Arcos Dorados 4Q14 Earnings Call Notes

Strong sales growth especially compared with corporate

“Organic revenues increased 12.7% and comparable sales grew 10%. While we anticipated economic and other obstacles heading into the year the deceleration of economic and consumption growth and the depreciation of some of the main currencies in our region were greater than anyone expected.”

2121 restaurants

“In 2014, we opened 82 restaurants with freestanding restaurants accounting for 60% of the total openings. The year-end 2014 overall restaurant count was 2,121 restaurants.”

Weak economic growth

We’ve been strengthening our value proposition in supporting our customers through this period of weak economic growth by offering more affordable menu options.”

That’s a big swing from currency

“The company’s fourth quarter consolidated adjusted EBITDA decreased 20.9% but rose 29.5% on an organic basis versus the prior year period.’

Economic environment is challenging in the short term

“he short-term outlook for our region and our company is challenging. However we are not standing still. We are confident that the strategic direction we’ve described today will prepare us, not only for the current economic challenges, but will also and more importantly put us in a position to accelerate this momentum when the macroeconomic environment recovers in the future.”‘

Looking at selling some franchises

“We are looking at selling some franchises, some franchise stores in areas where quite frankly they are far away from the main cities and where we spend considerable G&A. So there is a pickup there. Our current ownership is 74-26. We can go up to 50%.’

Economies are totally different now than they were in 2013

“Yeah, hi Martha. Look, the relationship that we have with McDonald’s could not be better. I mean we are great partners. We’re very happy and I’m very thankful that we’re franchises with this great brand. As you said the 2014 to 2016 opening plan was made in 2013. And the economies were totally different then. Argentina today is in technical default, Brazil is in recession and Venezuela is in an economic crisis and that’s a big percentage of our EBITDA in our company.”

Chipotle 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

56% earnings growth

“We have continued the momentum we build through the first half of the year growing revenue to $1.08 billion for the quarter, an increase of 31.1% on same store sales growth of 19.8% and the opening of 43 new restaurants. This produced diluted earnings per share of $4.15 for the quarter, an increase of 56%.”

We’re 21 years old. These results are extraordinary.

“These results would be remarkable for any restaurant company but for Chipotle where we are now more than 21 years old with more than 1700 restaurants and average unit volumes of more than $2.4 million, we think they are extraordinary.”

What’s wrong with traditional fast food and why we’re different

“The traditional fast food sector has traded food quality and taste for low cost and ease of preparation. It has aggressively marketed low prices to entice customers to visit more often which has resulted in the need to reduce cost by cheapening ingredients and by compromising the overall dining experience. We have not made these compromises because our fundamental belief is that in order to provide an extraordinary customer experience you cannot take shortcuts.”

We have proven that we can do things that are against conventional wisdom

“We have shown that we can spend more on ingredients not less and charge a fair price and at the same time, generate outstanding business results. That we can prepare food using classic cooking techniques in each and every one of our more than 1700 restaurants and have consistency. That we can provide great service and still be fast.”

Millenials are particularly willing to seek out better quality

“Food industry research indicates that millennial are turning away from traditional fast food in favor of better food and a more enjoyable experience overall. They are more concerned with how food is raised and prepared than previous generations and are willing to seek out and pay a little more for, something they recognize as better, better tasting, better for the environment and better for their wellbeing.”

Traditional fast food’s approach is filled with gimmicks

” traditional fast food companies are struggling to produce positive same-store sales growth at all. The gimmicks that have driven the fast food sectors for years, dollar menus, limited time offers, and merchandizing partnership are not producing results like they used to as consumers simply want better tasty nutritious food at a more compelling experience not gimmicks.”

Other companies are just revamping their branding not their culture

“these other companies are looking to revamp their branding efforts to change their customer’s perception but not the food. Fundamentally these are short sighted reactions that seem out of touch with what customers want, better food and a more compelling dining experience. This is exactly what we offer at Chipotle and we think its replicable with other kinds of cuisines.”

We have totally changed the culture of the restaurant

“We have totally changed the traditional fast food formula which depends on constantly lowering costs and simplifying the tasks in the restaurant to the point where they are essentially fool proof. Instead we are creating rewarding environments with skilled teams who do work that they are proud of.”

We do anticipate lower dairy costs

“we do anticipate dairy price will come down in 2015 from these 2014 highs.”

It costs $10 m to put on a big company conference. Moves the needle on SG&A for CMG

“G&A 6.6% in the quarter, 20 basis points higher than last year and the increase was primarily driven by our Biannual Managers Conference held in September. The conference cost just over $10 million with nearly 3000 Chipotle employees and suppliers in attendance including all of our GMs and restaurateurs. In 2015 we will hold our Biannual Field Leadership Conference in the third quarter, which we expect will cost around $1 million.”

We’re not trying to maximize our growth we’re trying to open stores without compromising quality

“we don’t really think in terms of maximums, in terms of maximizing our growth. What we do is, we continue to try to strike a balance and open restaurants when we — at the speed with which we can find great real estate that we think will be performed well, plus the speed with which we can create or develop managers to really run those restaurants really effectively.’

New ACA-compliant health insurance could add up to 1% cost of sales maybe less though

“it would be an incremental cost but we think it will not even reach 1%. We just don’t know how to estimate it and so we just put kind of an upper range on it that we don’t expect no matter how many. Even if more — way more people than we think or that we estimate will elect for the new insurance that we are offering that it will still not be more than 1%. We think it is likely to be less than that. We just won’t know until our people begin to enroll and that will happen here between now and the end of the year.’

Going to start hitting against tougher comps

“a 300 basis point tougher comparison so I would expect for that you will see our comps decline by that tougher comparison…the tougher comparison is going to have an impact for sure.”

Thoughts on the commodity environment

” we are seeing pressure from three main areas from beef, from dairy, and from avocados. Avocados we think is more cyclical. It is caused by weather…Beef is going to take a couple of years to grow out for to replenish the herd is going to take a couple of years. So we think that beef is probably going to remain at this elevated level, probably have additional pressure, hopefully not too severe a pressure going forward. Dairy we think will come back. We think that dairy has hit peaks and in fact just in last couple of weeks we have seen butter costs come down pretty dramatically”

We don’t have imminent plans to roll out Apple Pay. It’s not so easy

“Right now, we don’t have imminent plants to roll out Apple Pay support. It’s something that we are considering for 2015. There are considerable technological constraints implementing it, just based on the way payments are processed with our system.”

We don’t really have a way to target comps. All we do is try to continually improve customer experience

“we really don’t have a magic approach or a crystal ball to predict how you are going to exceed like a 19% comp for example. We are constantly working on improving our customer experience, we are constantly working on improving our people culture, we are constantly looking to upgrade the quality of our ingredients”

We’re the only ones doing what we’re doing

“Chipotle is the only one that’s doing what we are doing with food, with the people culture, where you feel like you are being treated to an authentic dining experience although it’s affordable and it doesn’t take that much time.’

Drought is really whats affecting commodity prices

“Right now the pressure that is affecting beef is that there were these droughts and the drought affected all these naturally raised and commodity beef as well. So that is something that when you look at the source of why there is a shortage, something like weather is likely to affect both naturally raised as well as commodity.’