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Shake Shack shares tumble after cutting same store sales forecast

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Via Financial Times

Shake Shack was facing the possibility of one of its largest one-day drops on record, as shares fell more than 15 per cent in after-hours trade following a sales outlook that fell short of Wall Street forecasts.

That wiped the gloss off a third quarter result that topped analysts’ expectations and actually prompted the company to raise its full-year guidance, just not by as much as the market hoped for some important metrics.

Revenue at the fast casual restaurant rose 31.9 per cent from a year ago to $157.8m in the three months ended September 25, which was ahead of the median forecast for $149.8m according to a Refinitiv survey of analysts. Earnings rose to 31 cents a diluted share from 17 cents a year ago, and higher than forecasts for 24 cents.

That performance prompted the company to raise its outlook for 2019, tipping total revenue of between $592m and $597m, an increase of $7m at both ends of the previous range. The high end still comes in slightly under analysts’ forecast for total revenue of $600m.

Disappointingly, the company downgraded its own forecast for same-store sales growth, a closely watched industry metric, to approximately 1.5 per cent from approximately 2 per cent previously. It also said operating profit margin at its stores would be between 22 per cent and 22.5 per cent, down from approximately 23 per cent previously, owing to the negative impact from a new lease accounting standard.

Investors dumped the stock after closing bell. Shares were down 16 per cent at $70.78, a decline that, if carried over into regular trading on Tuesday, would take its price to the lowest since early July and mark its largest one-day drop since it listed in 2015.

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Randy Garutti, chief executive, said he was “pleased” with the company’s revenue performance during the third quarter and its same-store sales growth of 2 per cent.

“This has been the biggest development year in Shack history as we’ve grown our presence around the country and internationally in the new markets of Mainland China, Singapore, the Philippines and Mexico. In 2020, we will continue to expand even further within key domestic and international markets,” he added.

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