Shake Shack Secures $ 10 Million PPP Loan, Looks To Sell Shares
Shake Shack on Friday announced an “to market” equity program in which it can offer and sell up to $ 75 million in stocks to bolster cash flow as it battles the setbacks of COVID-19. The movement is similar to that Dave & Buster’s unveiled earlier this week in order to clean up its balance sheet.
Shake Shack said the money would be used for “general corporate purposes” and to further improve its ability to “resume execution of its long-term strategic growth plan.” The timing of any sale depends on a variety of factors determined by the business.
Shake Shack is offering the shares through JP Morgan as the primary selling agent. BofA Securities and Wells Fargo Securities will also act as sales agents.
Meanwhile, the fast casual burger shared preliminary first quarter results on Friday, providing another window into the dramatic effect of COVID-19 on daily activities. Shake Shack also revealed that it received a $ 10 million paycheck protection program loan through JP Morgan on April 10.
In the first quarter, which ended on March 25, Shake Shack reported total revenue of $ 143 million. Comparable store sales fell 12.8% compared to the same period a year earlier. However, it really is a three part equation.
The months of January and February correspond to management’s expectations, the company said. March, however, saw a 28.5% drop from last year.
Shake Shack recorded an operating loss of approximately $ 800,000 during the period, or 5% of total sales. This included $ 1.1 million of depreciation on property, plant and equipment.
The company’s store-level operating profit was about $ 26 million, or 19.1 percent of sales. Shake Shack had $ 104 million in cash and marketable securities at the end of the quarter. It also opened four national corporate restaurants and eight licensed units during the period.
Here’s a look at what’s happening today:
Shake Shack said domestic sales (excluding close locations) have seen consistent week-over-week growth over the past 14 days.
While there is no assurance that this rise will continue, the company said, it is a welcome sign nonetheless. On April 2, Shake Shack said sales across its entire U.S. footprint were down 50 to 90 percent, compared to the average of 70 percent.
Fast casual didn’t provide exact weekly trends, only to say they have improved.
However, he listed some initiatives at work:
Shake Shack said it has turned to new and modified drive-thru, curbside and digital order / take-out models. It also increased marketing on the company’s social media, mobile apps, and web channels.
Shake Shack has expanded the scope of delivery to include DoorDash, UberEats, Caviar, and Postmates. Prior to COVID-19, the chain was in the process of moving to an exclusive deal with Grubhub, which it has since abandoned.
“Given the continued impact of COVID-19 on our business, our Shack teams have demonstrated their entrepreneurial spirit and have continued to adapt our operating models and business strategy,” said CEO Randy Garutti in a press release. “As a result, we have seen strong sequential increases in sales on a weekly basis since the last week of March. We took this time to double our digital toolbox and increased engagement and messaging in our own channels over the past few weeks, while successfully developing new and existing integrated delivery partnerships with DoorDash, UberEats, Caviar and Postmates. We are encouraged that these and other crucial business hubs have resulted in an improvement in recent sales trends and have continued to build on our brand strength.
Shake Shack said its own channels continued to account for the largest proportion of sales, with digital options (mobile app and web) seeing significant growth in recent weeks.
As of Friday, the company said, 17 Shake Shacks were temporarily closed. It is against nine at the beginning of April. About half of those closures are the result of forced closures by local authorities, or due to closed developments, the company said. The remaining closed restaurants operate in areas with high tourism or travel restrictions.
Shake Shack has laid off or laid off more than 1,000 employees in its operations and head office. In addition, Shake Shack headquarters employees and management teams receive a reduced salary for an indefinite period.
The brand said it is committed to providing a full salary to general managers during the crisis, whether their store remains open or not, in addition to paying for the PTO and covering 100% of medical benefits until. July for all directors and home office workers on leave. .
Shake Shack’s licensed business has been hit hardest, when it comes to closures. Currently, 57 of its 120 stores are open. All restaurants in the UK, Turkey and Japan have closed. The same goes for national stadiums.
U.S. airports have also been either completely closed or significantly slowed down with air travel almost at a standstill, Shake Shack said.
There are still some positive signs. Dining rooms are open in Korea, Hong Kong, and mainland China. Singapore is open for delivery and take-out, and after several weeks of closure, the Philippines and some units in the Middle East have reopened for delivery and take-out. The company said average weekly sales in mainland China and Hong Kong have continued to increase steadily in recent weeks.
Shake Shack has also been expanding its distribution channels in recent times. The company has established a relationship with the online marketing site Goldbelly. And also sells take out home cooking packs in the San Francisco Bay Area. Since its inception, Shake Shack and Goldbelly have shipped and delivered more than 8,000 home kits across the country, the company said.
As of April 16, Shake Shack held $ 112 million in cash and marketable securities.
Based on current sales levels and cost reductions in place, the company’s current cash consumption rate is estimated to be between $ 1.3 million and $ 1.5 million per week. This includes approximately $ 800,000 in cash rent payments, which are currently scheduled for discussion, or already in discussion with the owners of Shake Shack for a possible deferral or reduction.
The cash consumption rate excludes new restaurant capital spending, which has been temporarily suspended. Shake Shack expects future cash outflows of $ 12 million related to construction spending for work already started or already completed but not open, or restaurants that were on the verge of completion at the time of the contract. epidemic.
There are 33 additional leases signed, which Shake Shack said it intends to close and open as soon as the business environment “improves to more standardized levels.”
The company also hinted at future growth opportunities opened up by COVID-19, noting: “the company has identified a pipeline of leases under negotiation for continued growth in 2021 and beyond, and believes additional and improved development opportunities may become available over time due to the impact of COVID-19 on the global retail and real estate environment.
Shake Shack used its $ 50 million scalable credit facility on March 24. Turning to the next quarter, he said he was in talks with his lender RCF regarding potential changes that would create additional financial flexibility throughout the period affected by COVID-19 and further improve his ability to resume recovery. strategic growth.