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Shake Shack’s Sales Boosted by New Chicken Sandwich

Shake Shack's Chick'n Shack sandwich boosted sales in the first quarter of 2016.Shake Shack's Chick'n Shack sandwich boosted sales in the first quarter of 2016.
Shake Shack's Chick'n Shack sandwich boosted sales in the first quarter of 2016.Photograph by Evan Sung — Shake Shack

Shake Shack is serving up Wall Street a bigger-than-expected sales increase for the latest quarter. And the high-end burger chain can thank the new Chick’n Shack sandwich for helping boost results.

CEO Randy Garutti told analysts during a conference call that first-quarter sales were bolstered greatly by the national debut of the Chick’n Shack, which was launched in January. He said the sandwich has been viewed as a “long-term game changer,” driving traffic to stores from new customers and also current fans that want to try a new Shake Shack (SHAK) offering.

Essentially, Chick’n Shack has been acting as a limited-time offering. Called LTOs, these menu item offerings often debut quarterly as a way for restaurant chains to tinker with innovation. When successful, a LTO can become a permanent menu item. Along those lines, Garutti on Thursday announced that Shake Shack would launch a new sandwich this spring, called the Bacon Cheddar Shack. It is priced at $6.89 across all markets (Chick’n Shack costs $6.29).

The New York-based chain on Thursday delivered first-quarter results that indicated the business is performing strongly across the board. Total revenue soared 43% to $54.2 million, while same-shack sales grew an impressive 9.9%. Higher prices, increased traffic and new restaurant openings all helped lift sales. Not only were sales and net income growth for the quarter exceed analysts’ estimates, but Shake Shack (SHAK) also raised financial targets for 2016.

The chain now expects revenue for the year between $245 million to $249 million (up from the prior target of $237 million to $242 million). It expects sales to grow faster than anticipated at existing stores, and also now plans to open 16 new domestic company-operated Shacks this year. Previously, the company had anticipated 13 openings.

“With the extraordinary results in Q1, we are off to a strong start to the year,” Garutti said in a statement.

Shares of Shake Shack soared when the company went public in early 2015, and over the next few months, the stock nearly doubled to about $93 at its peak. That run was a bit too hot for investors, which in subsequent months sent the stock tumbling. It now trades at around $36.

Operationally, Shake Shack is taking an almost slow-and-steady attitude when it comes to growth. The chain—which originated as a hot dog stand when it opened in New York City’s Madison Square Park in 2001—has since expanded to 84 locations by the end of 2015. If it meets the targeted expansion for this year, it will still only have 100 global locations. That means Shake Shack still has a lot of room to grow as it aims to become a behemoth in a fast-casual world now dominated by restaurant chains like Panera (PNRA) and Chipotle (CMG).