2023 Annual Report
$672M
$895M
$779M
$1,123M
$1,378M
$1,702M
2018 2019 2020 2021 2022 2023
$1,087.5M
FY 2023 Total Revenue
+ 20.8% growth year-over-
year
$1,702.1M
Shack System-wide Sales
1
+ 23.5% growth year-over-
year
$131.8M
Adjusted EBITDA
3
12.1% of Total Revenue
+ 81.3% growth year-over-
year
$208.2M
Shack-level Operating Profit
2
19.9% of Shack Sales
+ 36.8% growth year-over-
year
Total Revenue
Shack System-wide Sales
1. “Shack system-wide sales” is an operating measure and consists of sales from the Company's domestic Company-operated Shacks, domestic licensed Shacks and international licensed Shacks. The Company does not recognize the sales from
licensed Shacks as revenue. Of these amounts, revenue is limited to Shack sales from domestic Company-operated Shacks and licensing revenue based on a percentage of sales from domestic and international licensed Shacks.
2. "Shack-level operating profit," a non-GAAP measure, is defined as Shack sales less Shack-level operating expenses including food and paper costs, labor and related expenses, other operating expenses and occupancy and related expenses.
A reconciliation to the most directly comparable financial measure presented in accordance with GAAP is set forth in the Non-GAAP Financial Measures section within Item 7 of the Form 10-K for the fiscal year ended December 27, 2023.
3. “Adjusted EBITDA,” a non-GAAP measure, is defined as EBITDA excluding equity-based compensation expense, impairment and loss on disposal of assets, amortization of cloud-based software implementation costs, as well as certain non-
recurring items that the Company does not believe directly reflect its core operations and may not be indicative of the Company's recurring business operations. A reconciliation to the most directly comparable financial measure presented in
accordance with GAAP is set forth in the Non-GAAP Financial Measures section within Item 7 of the Form 10-K for the fiscal year ended December 27, 2023.
$459M
$595M
$523M
$740M
$900M
$1,088M
2018 2019 2020 2021 2022 2023
+20.8% growth year-over-year
+23.5% growth year-over-year
$5.9M
Operating Income
$21.0M
Net Income
GAAP Profitability Metrics:
Non-GAAP Profitability Metrics:
FULL YEAR 2023 RESULTS
Collaboration with artist P7
Peerapong Limtammarong for the
EmSphere Shack in Thailand
2
22%
24%
17%
21%
20%
21%
-20%
0%
20%
40%
60%
80%
100%
120%
$50
$55
$60
$65
$70
$75
AWS
Total YoY Shack Sales Growth (Decline)
Largely driven by in-Shack dining,
same-Shack sales (SSS) grew 4.4% in
2023 versus 2022. We retrofitted nearly
all of our Shacks with kiosk ordering
capabilities, which resulted in at least a high
single-digit check lift and was a tailwind to
sales. Kiosk was our highest margin channel
in 2023. The year ended on a high note with
positive traffic.
5%
10%
3%
2%
2.8%
(1%)
5%
(1%)
(4%)
1.4%
6%
6%
4%
7%
1.4%
Fourth
Quarter
2022
First
Quarter
2023
Second
Quarter
2023
Third
Quarter
2023
Fourth
Quarter
2023
Total SSS % Traffic % Price/Mix %
$77K
AWS
Second
Quarter
2023
$74K
Third
Quarter
2023
$76K
Fourth
Quarter
2023
Average Weekly Sales (“AWS”)
1
AWS grew 2.4% in 2023 versus
2022. Higher menu prices and strong
growth of in-Shack traffic including the
expansion of our kiosk strategy supported
our continued growth.
Same-Shack Sales %
1. Average Weekly Sales (“AWS”) is calculated by dividing total Shack sales by the number of operating weeks for all Shacks in operation during the period. For Shacks that are not open for the entire period, fractional
adjustments are made to the number of operating weeks such that it corresponds to the period of associated sales.
$73K
First
Quarter
2023
$73K
Full
Year
2022
$75K
Full
Year
2023
2023 BUSINESS HIGHLIGHTS
3
124
163
183
218
254
295
12
22
22
25
33
39
72
90
106
126
149
184
208
275
311
369
436
518
2018 2019 2020 2021 2022 2023
Domestic Company-operated
Domestic licensed
International licensed
System-wide Shack Count
+18.8%
System-wide Shack Count grew
18.8% in 2023 versus 2022. We
opened 41 new Company-operated Shacks
in a variety of formats including drive-thru.
We opened 44 new licensed Shacks with
our partners, including locations in Bahamas
and Thailand.
WE STAND
FOR
SOMETHING
GOOD
This year, we will be sharing our
progress and what's ahead in our
2023 Stand For Something
Good Summary. It will be made
available at investor.shakeshack.com
in the Corporate Governance
section. We will share our status
against our commitments, from social
impact to environmental responsibility
and governance. In creating this
summary, we will engage
stakeholders, collect impact data,
work with our leadership team to
ensure alignment, highlight suppliers’
focus on quality ingredients, and
identify areas for progress in the
future.
5
2024 STRATEGIC PRIORITIES
Deliver a Consistent Guest
Experience
Consistency, speed of service, and standardization
of the guest experience across all channels is
paramount to hospitality in 2024.
Grow Sales and Strengthen our
Brand Awareness
Driving traffic through increased marketing,
culinary initiatives and scaling our brand
awareness.
Make Shake Shack Even More
Profitable in 2024
We are working to improve Shack profitability
by driving sales, optimizing labor, off-premise
profitability, tactical menu pricing, and supply
chain initiatives.
We plan to target further leverage in G&A
while still making targeted investments in
advertising.
Improve How We Build and
Open Shacks
Focus on accelerating development
pipelines and bringing down our elevated
build and pre-opening costs.
Develop and Reward High
Performing Teams
Our teams are at the center of all we do,
and we will continue to invest in them.
6
Dear Valued Shareholders,
2023 was a year of milestones for Shake Shack. In just under two decades, we built this company into a global brand,
more than 500 Shacks strong, across 17 countries, while besting our previous years' highest revenue, Shack-level
operating profit, and Adjusted EBITDA marks. We're exceptionally proud of our amazing Shake Shack teams and the
work they do every day. In just the past three years, we have doubled System-wide sales to approximately $1.7 billion
and have line of sight to more growth ahead.
Our business performance in 2023 set the stage for continued profitable growth:
• We grew System-wide sales by 23.5% year-over-year to a record $1.7 billion and Total revenue of $1.1 billion.
• Our same-Shack sales grew 4.4% year-over-year, largely driven by in-Shack dining.
• We retrofitted nearly all of our Shacks with kiosk ordering capabilities, which resulted in at least a high single-
digit check lift and was a tailwind to sales. Kiosk was our highest margin channel in 2023.
• We opened more Shacks this year than in any single previous year, increasing system-wide Shack count by 18.8%,
including 41 Company-operated Shacks and 44 licensed Shacks across a variety of markets and formats.
• We ended the year with 29 drive-thru locations. We continue to invest in this critical new format to target
total addressable market opportunity growth and drive AUVs. This year we expect to open more drive-thrus
including openings in our legacy, core coastal markets.
• Operating income was $5.9 million. We generated Shack-level operating profit of $208.2 million, or 19.9% of Shack
sales, a 240 basis point improvement year-over-year, and showed leverage across each operating expense line item
for the year despite continued inflationary pressures across the business.
• Net income was $21.0 million. We generated Adjusted EBITDA of $131.8 million, an 81.3% increase year-over-year.
• We ended the year with Cash, cash equivalents, and marketable securities of $293.2 million, as we invest with
discipline to support new Shacks, digital initiatives, renovations and our long-term growth opportunity.
Our 2024 Strategic Priorities:
We are a profitable growth company. Our focus remains to build an enduring brand and business that will provide
opportunities for all of our stakeholders. Last year, we drove strong progress in terms of retention and team building,
revenue growth, and profitability. In 2024, we are building on our success and continue to strive for profitable growth
and margin expansion. Additionally, we are centered on the guest experience, with specific targets to help our operators
broadly deliver an amazing Shake Shack visit rooted in Enlightened Hospitality. We know that our guests are facing
inflationary pressures across the board and we want their visit to our Shacks to be the very best in terms of consistency,
predictable order times, and quality of food. The better we can execute on these goals, the more likely our guests are to
return, and the more profitable we will be.
Our team is focused on:
• Deliver a Consistent Guest Experience – We’ve spent two decades building the next generation’s burger joint
with a menu that uses only premium ingredients cooked with the highest-level quality. We’ll never stop working to
improve our guest experience which today means serving our guests across all channels and meeting our guests’
expectations for warm hospitality, ease, and cleanliness wherever and however they want their Shack today. A core
priority is to improve wait times across all Shacks and all channels. We're working to simplify operations, evolve
kitchen flow, and order accuracy, while maintaining our culture of Enlightened Hospitality, and that special feeling our
guests have when they come to the Shack.
• Grow Sales and Strengthen our Brand Awareness –There's a love for this brand that transcends cultures
across the globe and around the country and yet we know we're still introducing Shake Shack to new guests
everywhere. As we’ve expanded into new regions, we know we have an opportunity to educate guests on what
differentiates Shake Shack compared to traditional fast food and other competitors. We expect to materially step-up
investment in support of this effort through increased advertising spend with the goal to move the needle on aided
brand awareness, convert special occasion guests to higher frequency habits, and drive more guests to Shake Shack.
In this effort, we will continue to advance the kiosk experience while testing other added-value sales driving
opportunities.
• Make Shake Shack even More Profitable in 2024 – Since the pandemic, we have consistently increased
our profitability from the lows hit during 2020. We believe we can further improve profitability again this year and into
the future even as costs continue to increase. Our initiatives include (a) targeting supply chain costs and our total cost
to serve, (b) near-term operational improvements, (c) further standardizing labor scheduling and manager staffing
across formats, items, and sales levels, (d) continuing to take a strategic approach to menu pricing, and (e) engaging
operational consultants to work alongside our teams’ work in progress. We will also look to disciplined general and
administrative expense management following a year of significant leverage on this line in 2023. All the while
continuing to make the necessary strategic investments to drive profitable growth and the long-term success of the
Company.
• Improve How We Build and Open Shacks – A hallmark of our brand has been the differentiated look and feel
of our Shacks that fit specifically to each individual community. We had a record number of openings in 2023 and
with an outlook for another 80 Shacks globally this year, we continue to build more Shacks and reach more guests.
However, the cost of building Shacks has increased due to inflation, format mix, and select design decisions. Opening
timelines can also be lengthy which is costly and prevents us from generating revenue and serving our guests. We are
committed to bringing down build costs and pre-opening costs this year and beyond by leveraging format
standardization, quickly employing new prototypes, and standardizing opening processes. In doing so, we will focus
on generating top cash-on-cash returns as we capture longer-term economies of scale and expand our total
addressable market opportunity.
• Develop and Reward High Performing Teams – Our people must always be our core focus. We are better
staffed now than any time in the last three years and made great strides to improve turnover and retention in the prior
year, but our work is not done. As we look to this year, we will further elevate our team member experience through
areas of engagement, performance management, and professional development for their career journey. Our people
are integral to our continued success and we will continue to invest in them. Stand For Something Good.
7
All the while, our commitment remains to Stand For Something Good:
It’s a simple mission that guides everything we do and has never wavered: using the best ingredients, looking out for our
communities, and providing unforgettable experiences for our guests, team members, and partners. We believe all of this
can lead to compelling returns for our shareholders as we focus the work this year on consistent and reliable execution of
the plan. We’re excited to share our 2023 Stand For Something Good Report found on investor.shakeshack.com in the
Corporate Governance section. This expands upon our ongoing work to leading a company built for the long-term. We're
committed to continuing to learn, measure, improve and share what we're up to. Shake Shack aspires to hold an essential
place in the lives of our communities.
Lastly, shortly after the publication of this Annual Report, I, Randy, will be stepping down from my role as CEO of Shake
Shack, as announced in December of 2023. My focus this year has been to lead the team and solidify the foundation of
the Company as I transition leadership to our new CEO Rob Lynch.
I first joined Union Square Hospitality Group 24 years ago, and I've been part of the Shake Shack journey since our first
days as a hot dog cart in 2001 and then our first Shack in 2004. I never quite knew when this day would come, but in my
heart, I’ve arrived at the realization that for me, my family and the Company, this is the right time. Shake Shack has been
my life's work for the better part of two decades, and I remain ever optimistic about our team, our leaders and what's
ahead for the Company. I'd like to thank our shareholders who've believed in and trusted us along this journey. It's been
the honor of my career to lead this Company and I'll look forward to rooting for this special place and its amazing people
who've made it all possible every day.
Hope to see you soon for a burger!
Sincerely,
Randy Garutti
CEO
Danny Meyer
Chairman & Founder
8
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Explanatory Note
Restatement of Previously Issued Consolidated Financial Statements
In connection with the preparation of Shake Shack Inc.’s (“Shake Shack” or the “Company”) Annual Report on Form 10-K for the
fiscal year ended December 27, 2023, the Company concluded that in prior years it had not appropriately accounted for the
deferred tax asset associated with its investment in SSE Holdings, LLC, primarily due to incorrect accounting for state tax
depreciation. These errors led to an overstatement of income tax expense and an understatement of deferred tax assets during
the impacted periods.
On February 13, 2024, the Audit Committee (the “Audit Committee”) of the Company’s Board of Directors, after discussion with
senior management and the Company’s independent registered public accountants, concluded that the errors were material to
the Company's previously issued Consolidated Financial Statements (“Prior Financial Statements”) and the Prior Financial
Statements as of and for the fiscal years ended December 28, 2022 and December 29, 2021, included in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 28, 2022, should no longer be relied upon due to the impact of the
unintentional error noted above.
On February 24, 2024, the Audit Committee, after discussion with senior management and the Company’s independent
registered public accountants, concluded that the errors led to understatements of additional paid-in capital, retained earnings
(accumulated deficit) and deferred income tax assets of the amounts in the unaudited Condensed Consolidated Balance Sheets
included in the Company’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 30, 2022, June 29, 2022,
September 28, 2022, March 29, 2023, June 28, 2023 and September 27, 2023 (collectively, the “Prior Interim Financial
Statements”) and the Prior Interim Financial Statements should no longer be relied upon.
This Annual Report on Form 10-K includes restated Consolidated Financial Statements as of and for the years ended December
28, 2022 and for the year ended December 29, 2021. In addition, the Company has restated its unaudited quarterly Condensed
Consolidated Balance Sheets and Condensed Consolidated Statements of Stockholder's Equity for the first three quarters of the
each of the years ended December 27, 2023 and December 28, 2022.
Refer to Note 3, Restatement of Previously Issued Consolidated Financial Statements, in the accompanying Consolidated
Financial Statements included in Part II, Item 8 for additional information, including the impact on the specific accounts.
Items Restated in this Form 10-K
The following items have been restated, as appropriate, to correct the errors noted above:
▪ Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
▪ Part II, Item 8. Financial Statements and Supplementary Data
▪ Part IV, Item 15. Exhibits and Financial Statement Schedules
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Cautionary Note Regarding Forward-Looking Information
This Annual Report on Form 10-K ("Form 10-K") contains forward-looking statements, within the meaning of the Private
Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other
important factors that may cause actual results to be materially different from the statements made herein. All statements other
than statements of historical fact included in this Form 10-K are forward-looking statements, including, but not limited to,
statements about our growth, strategic plan, and our liquidity. Forward-looking statements discuss our current expectations and
projections relating to our financial position, results of operations, plans, objectives, future performance and business. You can
identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may
include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "likely," "outlook,"
"potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," the negatives thereof
and other similar expressions.
All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Some of the factors which
could cause results to differ materially from the Company's expectations include the continuing impact of the COVID-19
pandemic, including the potential impact of any COVID-19 variants, the Company's ability to develop and open new Shacks on a
timely basis, increased costs or shortages or interruptions in the supply and delivery of our products, increased labor costs or
shortages, the Company's management of its digital capabilities and expansion into delivery, as well as its kiosk, drive-thru and
multiple format investments, the Company's ability to maintain and grow sales at our existing Shacks, and risks relating to the
restaurant industry generally, and the impact of any material weakness in our internal controls over financial reporting identified
in connection with the restatement described herein. You should evaluate all forward-looking statements made in this Form 10-K
in the context of the risks and uncertainties disclosed in Part I, Item 1A of this Form 10-K under the heading "Risk Factors," in
Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in Item 7A
"Quantitative and Qualitative Disclosures About Market Risk."
The forward-looking statements included in this Form 10-K are made only as of the date hereof. We undertake no obligation to
publicly update any forward-looking statement as a result of new information, future events or otherwise, except as otherwise
required by law. If we do update one or more forward-looking statements, no inference should be made that we will make
additional updates with respect to those or other forward-looking statements.
Shake Shack Inc. Form 10-K | 1
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▪ Building our Employer Branding — Dedicated employer branding resource within Talent Acquisition to work cross
functionally with Marketing to execute a recruitment marketing media strategy focused on brand awareness in new
markets. This included our Day in the Life of a Team Member video series and refreshed recruitment marketing
collateral.
▪ Expanded Enterprise Resource Planning System (ERP) Resources — We expanded capabilities in our ERP
system to deliver compliance training and increased access to information and support. This included a new learning
management system, a messaging platform to enhance candidate communication during the hiring process, and a
knowledge portal with 230 help articles that was utilized over 29,000 times by team members.
▪ Employee Resources — We are developing a new team member handbook to be rolled out in 2024 that is being
updated for new and current legal requirements. Further, in fiscal 2023 we launched compliance and safety e-learning
courses, which include materials tailored by location and level and automated course progress tracking.
▪ Improved Candidate and Hiring Platform — We began implementing a simple, intuitive, and mobile-friendly tool for
our candidates to apply for roles and schedule interviews, with an expected rollout in early 2024. This tool is intended
to transform our candidate experience and aims to reduce hours spent by Shack managers on recruiting.
As of December 27, 2023, we had 12,196 team members, of whom 11,795 were hourly team members and Shack-level
managers and 401 were home office personnel.
Recruit A Winning Team
To keep pace with our continuing growth, we attract and hire talent by improving our employer branding landscape in alignment
with our team member value proposition, and lean into new technology and development. Within the Talent Acquisition function,
fiscal 2023 has been a year of significant improvement to our applicant flow. We achieved this by implementing and expanding
automation tools to support the staffing needs of the business as well as new Shack growth. By focusing on a framework that
supports integration and automation, we have attracted and hired top talent more successfully than before, and have done so in
a highly competitive labor market. We are committed to improving relationships with external partners, collaborating cross-
functionally, utilizing analytics to deliver a strong talent acquisition strategy, and enhancing our employer branding presence.
With a robust candidate focused framework placed alongside our refined employer branding message, we executed on our
strategic plan to recruit the best and the brightest talent to our Shacks. We have expanded our foundation and current resources,
and remain focused on diversifying our talent acquisition strategy. We have optimized our career site, began implementing a new
mobile-friendly platform for applying and scheduling interviews to be rolled out in early 2024, and have created the framework
and execution strategy to launch a college campus internship program and a new Shack recruitment guide. The internship
program will open up a new market that can consistently support our Shack staffing needs to keep pace with our growth, and our
new Shack recruitment guide will establish groundwork to ensure we hire the right people to lead our new Shacks forward.
We have a full team of regional talent acquisition partners and coordinators supporting our operations. We have partnered with a
marketing media firm to focus on team member brand awareness and reach new markets for recruiting.
Reward A Winning Team
In fiscal 2023, we made great strides to improve employee retention and turnover rates. We have evolved our value proposition
for attraction and engagement to encompass a wider range of pay, benefits, and development. We took steps to think differently
about the designs and practices of our benefits, including health and well-being benefits, absence support, tipping and wages,
and incentive plan evaluation. We continue to work diligently to ensure our team members have access to benefits to support
their personal and family wellness.
By unlocking opportunities in our benefits design, we provide new ways to more effectively and efficiently engage our teams. Key
initiatives included:
▪ Tipping — Our tipping availability has offered team members the opportunity for increased hourly wages and is
optional if our guests are inclined to reward our teams for additional hospitality and service. In fiscal 2023 we began
running food to tables in nearly all Shacks to improve hospitality.
Shake Shack Inc. Form 10-K | 4
▪ Expanded Benefits — Expanded our health benefit offerings to include reproductive health benefits with options for
family planning, coverage for pregnancy terminations, and counseling support.
▪ Team Member Recognition — Enabled consistency and ongoing recognition of team members, including
standardizing the process of rewarding early career accomplishments for all team members.
We want to incentivize our Shack leaders, give them the opportunity to feel like owners and reward them for their performance.
One way we try to achieve this is by extending our equity-based compensation program to all General Managers. We are not
immune to the staffing challenges presented across our industry, but we are committed to building teams that drive growth for
the long term.
Retain A Winning Team
We are committed to delivering a strong pipeline of talent for our teams while retaining our solid performers.
We help foster an environment that attracts and welcomes diverse talent; enables a culture of belonging, inclusion, and equity;
and supports an engaging, and overall positive team member experience. We continued to lean into our team member value
proposition by training managers in positive team member relations and effective people practices. We have also established a
recruiting and retention cross-functional workshop that assisted in identifying causes of our turnover and discovering possible
hurdles to our retention that has allowed for several branding and engagement improvements. We hosted regional talent
meetings to get a holistic view of our operations leadership talent which included individualized talent assessments and
calibration. We plan to continue this exercise periodically to evaluate leadership gaps and potential capabilities. We also look to
broaden our continued education offerings and focus on development to further empower the frontline leaders of our business.
These practices will help drive retention, ensure compliance with existing and new regulations and establish Shake Shack as an
employer of choice.
We Are All-In
To make sure every Shake Shack team member at every level has a positive experience, we strive to build an inclusive
workplace, made up of diverse talent throughout the Company. Our diversity, equity and inclusion program, All-In, is part of that
mission. With the support of executive leaders, All-In works to ensure Shake Shack provides equal opportunities for all, and
removes obstacles or barriers to success, while also fostering a culture of inclusion and belonging. Our All-In program's initiatives
include:
▪ Workforce Diversity — We aim to be as diverse as the communities we serve. Women make up 48%, and people of
color comprise 76% of our total workforce. Having diverse representation across all functions and levels of our
business is key to our success and future growth. Our team is committed to a continued focus on diversity and gender
parity across all leadership roles.
▪ Employee Resource Groups (ERG) — We strive to empower our team members and strengthen the Shake Shack
community through our ERGs. Our current ERGs focus on women, Black, Hispanic, Asian, and LGBTQ+ identifying
team members. Led by volunteers and sponsored by members of our executive team, our ERGs actively work to
educate the broader Company on their demographic group; support each other through mentoring, networking, and
professional development; and provide their unique perspective on business initiatives. We also host a Stand Together
Series forum to discuss ongoing social issues. It is an internal storytelling platform used to educate, connect, and
inspire our team members to take action to create a more equitable and inclusive world. Through the series, we have
amplified the stories, experiences, and voices of diverse team members. These groups support both personal and
professional development while helping to foster an inclusive workplace.
▪ Diversity, Equity & Inclusion (DEI) Curriculum — All team members participate in our foundational DEI course
which aims to help them understand what DEI means and why it’s important to Shake Shack. In fiscal 2023, we
improved our unconscious bias learning modules for leaders to better help them recognize bias and provide them with
tools to address its harmful impacts in the workplace.
▪ External Recognition — For the fifth year in a row, we are proud to be recognized as a "Best Place to Work for
LGBTQ+ Equality" by the Human Rights Campaign, earning a 100% score on their Corporate Equality Index for our
support of the LGBTQ+ community in the workplace. In addition, we were honored by Newsweek's America's Greatest
Shake Shack Inc. Form 10-K | 5
Workplaces series for Greatest Workplaces for Diversity, and Greatest Workplaces for Job Starters. These
designations highlight the core of our Enlightened Hospitality ethos and our commitment to a great workplace for all.
▪ LGBTQ+ Inclusion — We are committed to creating welcoming spaces for our team members and guests and
continue to do so by educating our team members on how to be an ally through our LGBTQ+ ally guide and our new
transgender ally guide. In addition, we encourage our team members to share their pronouns and gender identity
beyond binary classifications within our internal human capital system and wear patches on their work attire in our
Shacks. We address gender identity and sexual orientation discrimination as part of required anti-harassment training
and work towards classifying more single-stall restroom facilities as gender inclusive in our Shacks.
The HUG Fund
One of the ways we embrace Enlightened Hospitality internally is through the administration of our own Help Us Give (HUG)
Fund, a 501(c)(3) organization funded by and available for our team members. The HUG Fund was created to support the values
in our Shack Pact by providing timely financial assistance to team members impacted by emergency circumstances beyond their
control and means. Since launching in 2017, the HUG Fund has provided over 170 grants to help team members dealing with
hardships such as loss of income due to major medical setbacks, homelessness or housing insecurity, and other family
emergencies. During fiscal 2023, we provided over 40 team members with grants to help alleviate financial hardships or
emergency circumstances.
Leadership & Talent Development
We are dedicated to cultivating the human capabilities the Company needs to accomplish its business objectives, and to provide
modern content and experiences that develop and retain team members.
At Shake Shack, we continue to rethink how we provide career growth opportunities with lattice mobility replacing the traditional
promotion ladder to ensure team members continue to succeed in a market that is rapidly changing. To help develop our Shack
leaders, we created a library of content, programs, and approaches essential to scale and grow alongside our people and
business. During fiscal 2023, development focus areas included:
▪ Providing effective feedback
▪ Learning to navigate and lead change
▪ Organizing and delegating work
▪ The culture of Shake Shack
▪ Essential communication methods
▪ Hospitality trends and business operations
▪ Managing a team and delivering results
▪ New learning management system for trainings and measurement of completion and engagement
On-going Leadership Programs
We invest in leadership development programs so that Shake Shack remains a compelling career choice for team members at
every level, through their entire career. As our team continues to grow, we believe that our culture of Enlightened Hospitality
helps us deliver a consistent Shack experience, and to develop future leaders from within. In fiscal 2023, the learning and talent
development team focused on our mission to promote, support, and enable people capabilities. Shake Shack offers a wide
variety of programs and courses that are designed to support growth and development including:
▪ Executive Education — In fiscal 2023, we launched a 14-week customized leadership course including a 360 degree
assessment survey and a capstone project. The course focused on upskilling leaders in key competencies and
resulted in 15 high potential leaders receiving Columbia Business School certificates and a 95% satisfaction rate.
▪ Women's Leadership — In fiscal 2023, we hosted our largest gathering focused on women's leadership in Shake
Shack history, with 88 attendees from all functions present for speakers featuring leaders as teachers covering topics
such as advocacy, work-life balance, and finding personal purpose. We focused on developing women leaders with
facilitated dialogues with influential women leaders.
Shake Shack Inc. Form 10-K | 6
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offerings across our own digital channels. Specifically, we implemented Braze’s Content Cards to present personalized offers
across our app and web channels. Guests can now see and receive personalized offers and content on our app and web home
screens, as well as in their personalized notification center. These features are still in the early adoption phase, but we have
already seen incremental sales driven by redemptions of offers on our app and web channels.
Kiosk Product Customization
In September 2023, we introduced a new functionality on our kiosks that highlights a prescribed customization to many of our
menu items in order to increase visibility of attachment and modification options to our guests. Since the launch, we continue to
refine this feature to ensure our kiosk experience enables us to deliver Enlightened Hospitality to our guests on this channel. We
have seen strong adoption from our guests, as we are seeing prescribed customization attachment rates on par or higher than
attach rates on our digital platforms.
Digital Hospitality: Live Chat
As our guests have become more accustomed to our digital channels, it is increasingly important for our hospitality team to be
able to meet the guest wherever and whenever they prefer. We expanded our customer engagement platform with the launch of
a chat feature on our website that allows guests to engage live with our hospitality team to remediate any order issues they
encountered. This investment continues to empower our hospitality team to deliver Enlightened Hospitality beyond the in-Shack
experience by improving the speed and effectiveness by which we resolve guest contacts.
Large Orders
We have heard from guests that they would like an easier way to order multiple items at once. In response, we introduced large
order boxes in the first quarter of 2023, which allows guests to purchase 12 ShackBurgers and 12 servings of crinkle cut fries.
Since then, we have expanded the menu items available in large order boxes to include Chicken Shack, Veggie Shack, ‘Shroom
Burgers, Cheese Burgers, and Hamburgers.
Location Selection on iOS
We took fiscal 2023 as an opportunity to modernize the location selection experience on our iOS app and introduced a new,
map-centric flow that allows guests to seamlessly select a Shack during their order building experience.
Engaging the Community
A Warm Community Gathering Place
Our Shacks are so much more than a place to get burgers, fries and shakes; they’re places for the community to gather. We
place a high premium on connecting with our communities through the physical design of our Shacks or by the local causes we
support. We provide the option of an omnichannel experience to suit the needs of our guests wherever and however they want
their Shack today. We remain laser focused on delivering a great guest experience both digitally and in-Shack with elevated
offerings reflective of our fine-dining culinary roots.
No matter the format or region, each Shack is specifically designed to be of its place and connect with its community. The
original Shake Shack in Madison Square Park, for instance, was designed to set the tone for a dynamic dialogue inside the park
and the surrounding neighborhood. Today, across our domestic and international locations, we secure vibrant sites and give
them a hand-crafted, community-appropriate look by blending unique local features with our core Shake Shack design elements.
We have also developed a number of iconic brand identifiers, like wrap-around steel beams; open kitchens; large, distinctive
menu boards; and comfortable furniture that advances our sustainability initiatives. We believe these identifiers are key
components to the expression of the brand and the Shake Shack experience.
The overall atmosphere of our Shacks evokes our original upbeat and relaxed park ambiance, combined with the fine-dining
experience that has become part of our brand's DNA. We use high-quality tactile materials, warm lighting that highlights every
table and textured wall, as well as seating layouts that encourage guests to relax and stay for a while. Additionally, whenever
possible, our Shacks feature either outdoor seating or easy access to a park or green space. We are actively focused on creating
standardization and prototypes to bring down build costs over the long term while still maintaining the relaxed atmosphere of
Shake Shack's design.
Shake Shack Inc. Form 10-K | 8
Each Shack is designed to convey a consistent brand message while also tailoring marketing efforts to its specific region. We
may offer menu items that feature ingredients and beers specific to each Shack's community, and we often team up with local
chefs and restaurants to offer our guests unique, collaborative menu items. We also collaborate with local artists and designers
to bring beautiful artwork and installations to our Shacks. We participate in local celebrations and develop relationships within the
community, helping position Shake Shack as a premium brand that is connected to its neighborhood.
Community and Charitable Partners
In addition to special events, we regularly serve our communities in a variety of ways including 25% Donation Days to show
support for local schools and organizations. Guests who participate in these fundraisers have a portion of their order totals
donated to a local nonprofit by mentioning the fundraiser when checking out in-Shack or using a fundraiser code on the Shack
app for pick-up or delivery. Additionally, we provide a Donation Day flyer for the local school or organization to use as an
invitation to the community.
For certain new Shack openings, we partner with local charities for opening day. In some markets, we have existing tenured
partnerships with organizations, like Food Bank of the Rockies in Colorado, and in other markets we are building new
relationships in our local communities with Shacks we open. At select new Shack openings in fiscal 2023, we donated $1 from
each designated menu item sold on opening day to the chosen local nonprofit partner. As we continue to grow our footprint
across the U.S., our opening day charitable partners are an example of how we continue to drive home our Stand for Something
Good mission.
We listen to our communities and seek opportunities to get involved; whether it is charity events or disaster relief, we are on the
ground helping. We regularly donate cash, food and gift cards to support dozens of local nonprofit organizations, schools, and
hospitals around the country. For example, in fiscal 2023, we donated approximately $8,000 to local children's hospitals as part
of Child Health Day and made donations to local food banks, parks, and youth sports through our Shake Shack Pickleball Club
event series. We find ways to support charity events such as serving food at Taste of the Cowboys, Alex's Lemonade Stand,
Southern Smoke Festival, DC Commanders Holiday Charity Bowling, Love Rocks NYC and so many more.
Engaging with our Guests
Shake Shack grew up alongside social media and we believe we have benefited from our close relationship with passionate fans
who want to engage with us and share their real-time experiences. We're proud to be recognized by media, influencers, and
creators alike, garnering attention around the world.
Our positioning and brand voice, derived from the spirit, integrity and light-hearted nature of Shake Shack, are reinforced by our
contemporary, responsible designs and hospitable team members who Stand for Something Good. This identity also anchors our
marketing efforts, with the heart of our marketing strategy to provide an uplifting experience while cultivating community and
connecting with guests both in our Shacks and through digital channels.
Social Media
Just as we design our Shacks as community gathering places, our social media strategy creates an online community gathering
place. Through our social media presence, we bring Enlightened Hospitality to new audiences by mirroring the in-person
experience a guest has when they visit a Shack. We interact with fans across Instagram, TikTok, X (formerly Twitter), Facebook,
and more by sharing engaging content, comments, replies and the use of user-generated content; a quick search of
"#shakeshack" on Instagram reveals over 1.1 million organic posts from our fans. This year, we doubled down on our creator
partnerships, expanded our brand storytelling with new types of content and introduced several timely partnerships from Spirit
Halloween to Universal Pictures. In addition to social media, we also connect with our guests through our email marketing
program via targeted menu item alerts, local event invites, new Shack opening information and other relevant Shake Shack
news.
Media, Product Placement and Influencers
Shake Shack’s unique positioning has helped us garner robust media coverage across food, lifestyle, business and trade
publications. We have also been featured across various media outlets, allowing us to increase brand awareness. Shake
Shake Shack Inc. Form 10-K | 9
Shack’s popularity and cultural relevance are reflected in our many celebrity and influencer fans across Hollywood, music,
fashion, sports and more leading to Shake Shack showing up organically outside of larger brand initiatives.
Campaigns, Promotions and Events
Throughout fiscal 2023 we continued to extend our brand by collaborating with celebrated chefs, developing new creative
concepts, unveiling exciting promotions and participating in special events to drive brand awareness and engage with our guests.
These initiatives were key to harnessing the growing strength of the Shake Shack brand and helping it stand out through unique
moments. Some notable campaigns, promotions and events included:
▪ Veggie Shack & Non-Dairy Launch — After months of taste tests, we unveiled three new plant-based options that
are now a part of our core menu. The Veggie Shack comes as a veggie option made from a proprietary blend of real
garden vegetables and grains, seared to perfection with American cheese, pickles, crispy onions and ShackSauce all
on a toasted potato bun. The Non-Dairy Chocolate Shake and Non-Dairy Frozen Custard are made with NotMilk from
NotCo – providing a plant-based dessert option for guests.
▪ Truffle Table — To celebrate the White Truffle Menu offerings, we tapped into our fine-dining roots to bring “The
Truffle Table” to select Shacks across the country. From February 27 to March 2, participating locations hosted a fine-
dining pop-up complete with white tablecloths and a prix fixe tasting menu for $20 per guest.
▪ Super Mario Bros x Shake Shack — We teamed up with Nintendo’s The Super Mario Bros movie and offered fans an
unforgettable takeover experience at our DUMBO Shack including exclusive menu items like the Gold Star Shake and
4 Cheese ‘Shroom + Fire Sauce. The in-store experience opened to the public and greeted the first 100 guests each
day with exclusive swag items. For those not in the New York City area, we offered the chance to win tickets to see the
film for any guests who ordered the ‘Shroom burger via the app or online.
▪ Trolls x Shake Shack — To bring some extra holiday cheer, we teamed up with DreamWorks for the release of Trolls
Band Together and created three holiday shakes inspired by the Trolls characters Poppy, Branch and Viva. The
holiday shake trio is inspired by elements of the Trolls Band Together characters as well as exciting new flavors
including Pink Sugar Cookie, Mint Chocolate and Cinnamon Roll, served in limited-edition Trolls-themed packaging. To
further drive excitement of the shakes, we created three larger-than-life Troll heads that popped up at our West
Hollywood and Beverly Hills Shacks in parallel with the movie release.
▪ Nina Compton x TABASCO x Shake Shack — We teamed up with renowned award-winning chef Nina Compton to
bring a taste of New Orleans to a New York City and New Orleans Shack. Over the course of the two nights across two
cities, guests enjoyed a selection of delicious dishes, including Crawfish Grilled Cheese, Gumbo and Chef Nina’s Fried
Chicken Sandwich – all infused with the flavors of TABASCO hot sauces.
▪ Chief Avocado Officer — To drive awareness of our Avocado Bacon Menu, we invited fans to apply to be Shake
Shack’s first-ever Chief Avocado Officer (CAO) through a fun “job application” where they could share their passion for
avocados. The CAO campaign served as a unique way to talk about our core menu offerings and play up our premium
ingredient story while also giving our fans a new way to engage with the brand. We had an estimated TV audience of
over 4 million who watched local news stories about the CAO role as a result of our press outreach.
▪ STUDS x Shake Shack — We teamed up with STUDS, a cult-favorite ear-piercing brand, to create a limited-edition
Burger huggie earring. In partnership with STUDS, we hosted an influencer event in New York City, consumer events
in key markets including Los Angeles, Chicago, New York, and Dallas and coordinated burger drops to key media
offices.
▪ EEEEEATSCON with the Infatuation — This year, we headlined Chicago, New York City and Los Angeles
EEEEEATSCON. In Chicago, we teamed up with Esmé, a fine-dining restaurant known for fun dishes, to create the
Esmé Shack and Hot N Spicy Custard featuring Esmé’s signature Cheeto puffs. In New York City, we teamed up with
WenWen, a Taiwanese restaurant in Brooklyn, to create the Taiwanese Beef Noodle Soup Burger and a Jade Rouge
Milk Tea Sundae. In Los Angeles, we partnered with Found Oyster, a Hollywood-based restaurant bringing east coast
seafood shacks and west coast flavors together, to create a Chicken Schnitzel and Loaded Fries.
Capitalizing on Our Brand Strength
Since 2004, Shake Shack has become a globally recognized brand with significant consumer awareness relative to our current
footprint of 518 Shacks system-wide. We pride ourselves on providing a vibrant and authentic community gathering place that
delivers an exceptional experience to our loyal guests. One great advantage for Shake Shack has been our birthplace and
Shake Shack Inc. Form 10-K | 10
headquarters in New York City, and our origination from a fine-dining company. This gives us tremendous media and brand
power, often outweighing our relative size. Shake Shack continues to receive recognition for being a fan and industry favorite. In
fiscal 2023, Shake Shack was awarded USA Today 10 Best Reader’s Choice Awards, Newsweek's Greatest Workplaces for
Diversity, Fast Company's Innovation by Design (Drive Thru) and more.
Culinary Approach
Shake Shack's unique value proposition is partially defined by our roots in fine-dining. We embrace that heritage and are
committed to sourcing premium ingredients, such as antibiotic-free and no added hormone proteins while offering excellent value
to our guests. Our core menu is inspired by elevated versions of American classics. We often supplement our menu with limited
time offers, and we experiment with potential new categories we may consider adding to the menu over time.
We are committed to culinary creativity and excellence, collaborating with award-winning chefs, talented bakers, farmers and
artisanal purveyors, each of whom bring their unique skills and expertise to the Shake Shack experience. As we grow across the
country, we are excited to expand these collaborations with industry-leading chefs and suppliers.
While we’re extraordinarily proud of our legacy and current position, we will continue to look for the best ingredients and culinary
partners to exceed our guests' expectations in every aspect of their experience.
Our Menu
All of our locations offer premium food and beverages, carefully crafted from a range of classic American foods at more
accessible price points than full-service restaurants. While ingredient specifications and menu options can vary by country, the
core menus at our US-based locations include the following:
Burgers
Our burgers are made with a proprietary whole-muscle blend of 100% all-natural, no added hormone, and
antibiotic-free Angus beef, ground fresh, cooked to order and served on a non-GMO potato bun. We take great
care in the preparation of our burgers — from sourcing, to handling, to cooking — to ensure their taste and quality
is second to none. Our signature burger is the ShackBurger®, a four-ounce cheeseburger topped with lettuce,
tomato and ShackSauce™. Our burger offerings also include the SmokeShack®, 'Shroom Burger™ (a vegetarian
burger), Shack Stack®, Avocado Bacon Burger and Hamburger.
Chicken
Our Chicken Shack is a 100% all-natural, no added hormone, and antibiotic-free chicken breast, slow cooked in
buttermilk and herbs, hand-battered, hand-breaded and crisp-fried to order. Our Chicken Bites are made with all-
natural, antibiotic-free whole muscle chicken that is sous-vide cooked for optimum flavor, moisture and texture.
Crinkle Cut Fries
Our classic, passionately beloved crinkle cut fries are made from premium potatoes and are prepared 100% free
of artificial trans fats. So many of our guests love the crispiness and ridges of our crinkle cut fries; a nostalgic ode
to the roadside burger stand of yesteryear. Guests can also enjoy our Cheese Fries; our crinkle cut fries topped
with a proprietary blend of cheddar and American cheese sauce.
Hot Dogs
Shake Shack was born as a hot dog cart in 2001 and we’re proud to honor that legacy by continuing to offer a
premium hot dog. Our hot dogs are made from 100% all-natural, no added hormone and antibiotic-free beef.
Shake Shack Inc. Form 10-K | 11
Shakes and Frozen Custard
Our premium, dense, rich and creamy frozen custard, hand-made daily on-site, is crafted from our proprietary
vanilla and chocolate recipes. We use only real sugar (no high-fructose corn syrup) and milk from dairy farmers
who pledge not to use artificial growth hormones. Shakes remain our guests' favorite in this category, and they're
scooped and hand-spun to order.
Beer, Wine and Beverages
Our proprietary ShackMeister® Ale, brewed by Brooklyn Brewery, was specifically crafted to complement the
ShackBurger's flavor profile. At select locations, we also offer local craft beers. Our Shack Red®, Shack White®
and Shack Rose wines are sourced and produced exclusively by Gotham Project, providing our guests with
premium beverage options not commonly found in our industry; a nod to our fine-dining roots. In addition, we
serve Abita Root Beer, Shack-made lemonade, organic fresh brewed iced tea, Fifty/Fifty (half lemonade, half
organic iced tea), Honest Kids organic apple juice and Shack|20® bottled still and sparkling waters.
Innovation Kitchen
Our Innovation Kitchen is located on the lower level of the West Village Shack in New York City, connected to our home office
and allows us to explore exciting new menu items for our guests. The culinary team uses this dedicated space to get even more
creative, dig deeper into our fine-dining roots, collaborate with other chefs and explore new opportunities as we continue to grow.
The West Village Shack’s menu has all our classic items and features items from the Innovation Kitchen, with guest-favorite test
items potentially becoming national limited time offerings and permanent menu items. This space also allows us to house our
quality assurance and culinary teams together, ensuring that every item on our menu meets our strict standards.
Shack-Wide Limited Time Offerings ("LTO")
Our LTO program generally features a new, premium burger or chicken sandwich, and special fry options for varying time
periods throughout the year along with unique beverages and shakes. Some of our notable LTOs throughout fiscal 2023 were:
▪ White Truffle Burger, ‘Shroom and Parmesan Fries — In February, we put an elevated spin on our burger, pairing it
with a signature white truffle sauce made with real white truffle oil. The menu also featured our iconic 'Shroom Burger
in an LTO menu for the first time ever and White Truffle Parmesan Fries.
▪ Bourbon Bacon Jam Burger — In June, we brought back a fan-favorite from 2022 and partnered with renowned
bourbon producer Maker’s Mark to feature a burger that showcased a bourbon bacon jam made with Maker’s Mark
Bourbon, crispy onions and applewood smoked bacon.
▪ Hot Menu — In September we launched a new Hot Menu with the return of our classic Hot Chicken alongside a new
Spicy ShackMeister Burger. The menu was complete with Spicy Fries and Spicy Cheese Fries bringing the heat.
▪ Featured Shakes — Throughout fiscal 2023 we offered our guests new shakes, including fan-favorites like Tiramisu
and OREO Cookie Funnel Cake, while launching exciting new shakes like Dreamsicle and Triple Chocolate Brownie.
We partnered with PFLAG during Pride month by encouraging guests to sprinkle their June with Pride by adding
sprinkles to any shake or frozen custard; the sprinkle sales were donated to PFLAG. In November, we launched our
Troll’s Holiday Shakes, a collaboration with Universal Pictures and DreamWorks Animation to celebrate the launch of
the new Trolls Band Together film with tasty shakes inspired by beloved Trolls characters.
▪ Lemonades — Throughout fiscal 2023, we launched seasonal flavors like Dragonfruit Pomegranate Lemonade, Kiwi
Apple Limeade, Blood Orange Lemonade, Harvest Berry Lemonade and fan-favorite Sunset Lemonade along with
corresponding Fifty/Fifty options. We also offered caffeinated versions of these specialty lemonades to add a little
boost to guests’ beverages.
Shake Shack Inc. Form 10-K | 12
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improvements, furniture, fixtures and equipment ranged from approximately $1.1 million to $6.4 million. Shacks opened during
fiscal 2023 took between 16 and 56 weeks to build, compared to 17 and 52 weeks in the prior year.
Although fiscal 2023 is targeted to be the high water mark for new Shack investment costs, we believe we can build a more
standardized operation in a slightly smaller footprint, with less seats and a lower cost to build, while maintaining the great guest
experience Shake Shack is known for. In addition to investments in new Shacks, we also undertook some special projects to
renovate and refresh some of our existing Shacks. As our Shacks continue to age, we will need to make additional investments
to keep them operating effectively.
Shake Shack Drive-Thru
We remain encouraged by the drive-thru opportunity to not only increase our total addressable market but to also provide our
guests with an additional option to enjoy Shake Shack. We continue to refine, take down cost to build and improve the model
overall for guests and team members alike, including reducing our total experience time, and look forward to significant progress
over time. As of December 27, 2023, we had 29 drive-thru Shacks in operation and we are particularly excited to expand drive-
thrus in our strong coastal markets in 2024, including Long Island, New York, New Jersey and California, where we generally
expect higher brand awareness.
Kiosk & Digital Capital Expenditures
To further support our Shacks and improve the guest experience, we have made investments in various digital tools to expand
our reach, laying the groundwork for sustainable, long-term growth.
Kiosk is an example of how we are bridging the in-Shack and digital world. In fiscal 2023, we completed our kiosk retrofit
program with approximately 95% of our domestic Company-operated Shacks now having kiosks, making it our largest and
fastest growing channel. Kiosk is also our highest margin channel and an important tool we can leverage to learn and improve
our marketing efforts over time, maximize labor efficiency, and enhance guest experience. We are also testing further
optimization of the kiosk experience with new functionality that allows for upsell add-on opportunities. Additionally, we have
implemented plans to further enhance merchandising capabilities, add omnichannel features, and integrate operator
management tools.
In addition to scaling our kiosk infrastructure, we continue to make investments in our digital business through digital marketing
initiatives and development of additional product features. These enhancements are strategically tailored to promote guest
loyalty and retention, as well as to enrich the overall guest experience. Moreover, we have bolstered our home office capacities
to provide greater levels of support to our Shacks.
Growing Our Licensed Shack Business
In addition to expanding the footprint of our Company-operated Shacks, we see additional opportunities to continue growing our
licensed portfolio by expanding further, both domestically and internationally. To date, our licensed business has been an asset-
light and high-return strategy for growing our brand awareness and increasing cash flow. As of December 27, 2023 we had 223
licensed Shacks, of which 184 were international and 39 were domestic.
Through learnings from our licensed partnerships, we are able to share insights with the broader Company and we continue to
work with our licensees to navigate macroeconomic uncertainty, inflationary challenges, and geopolitical interdependency across
the globe. Thanks to our roots in New York and the success of our licensed Shacks around the world, we continue to attract
interest from potential licensees from many different markets. In 2024, we look forward to opening our first Shack in three new
markets — Kuala Lumpur, Tel Aviv, and Toronto — and we are optimistic about future expansion opportunities beyond these
exciting new markets. The enduring strength of our brand continues to create opportunities to expand domestically and abroad.
Shake Shack Inc. Form 10-K | 14
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In fiscal 2023, we commenced a project to consolidate data from across the enterprise to enable fresh insights and informed
decision making while ensuring the data is validated, secured and accessible. With an emphasis on cost management, we began
to transition our data to hybrid cloud and optimized our cloud infrastructure to support digital growth and analytic ambitions as
well as automating repetitive and manual processes. These platforms are already enabling our Business Intelligence team to
mine new insights across the organization. In the coming year, our focus will be on adding supply chain data and analytics and
delivering insights to help our operators to better run our Shacks.
As cybersecurity continues to be a challenge, our focus remains on enhancing cyber maturity with a combination of end user
training, third-party tooling and services, updated policies and benchmarking. During fiscal 2023, we continued to see elevated
levels of cyber attacks including phishing, malware and bot attacks.
Sourcing and Supply Chain
We pride ourselves on sourcing premium ingredients from partners who share our dedication to quality, like 100% all-natural
proteins with no added hormones or antibiotics, that are humanely raised and source-verified. We are currently sourcing 100%
cage-free eggs across our U.S. supply chain and are striving to advance the sourcing in our global supply chain to include 100%
cage-free eggs as well, while maintaining the quality and standards we are known for.
Our domestic regional strategy for ground beef production is designed to help ensure we consistently serve freshly ground beef
at our domestic Shacks. As we've expanded domestically, we have nine approved raw beef suppliers and 10 approved ground
beef processors around the country who produce our burgers on a daily basis. To ensure dependable quality, we have a limited
number of domestic suppliers for our major ingredients, including beef patties, chicken, potato buns, custard, portobello
mushrooms and cheese sauce.
During fiscal 2023, we purchased all of our (i) ground beef patties from 10 approved ground beef processors, with approximately
41% of our ground beef patties from one supplier; (ii) chicken breasts from two suppliers; (iii) potato buns from one supplier;
(iv) custard base from two suppliers; (v) 'Shroom Burgers from one supplier; (vi) crinkle cut fries from two suppliers; and
(vii) ShackSauce from one supplier. We believe we have developed a reliable supply chain, but we have also taken strides to
identify alternative sources to help lessen the possible interruptions of service and product, including testing with new suppliers.
Distribution
We have a centralized distribution process with one distributor, which we refer to as our "broadline" distributor, to provide virtually
all of our food distribution services in the U.S. As of December 27, 2023, approximately 95% of certain food and beverage
ingredients including chicken, fries and custard were fulfilled through our broadline distributor for distribution and delivery to each
Company-operated Shack which collectively represents approximately 47% of our total purchases.
As of December 27, 2023, we were utilizing 20 affiliated distribution centers to supply our domestic Company-operated Shacks.
We recognize that the safety and consistency of our products begins with our suppliers, so suppliers must meet certain criteria
and strict quality control standards in the production and delivery of our food and other products. Finally, we regularly evaluate
our broadline distributor to ensure the products we purchase conform to our standards and that the prices they offer are
competitive.
Food Safety and Quality Assurance
Food safety is our top priority. We have rigorous quality assurance and food safety protocols in place throughout our supply
chain and in our Shacks. We conduct quarterly third-party food safety audits of our Shacks, utilize technology to manage and
document food safety procedures, and ensure appropriate corrective actions are implemented for any noncompliance findings.
We have a comprehensive supplier and ingredient selection process, and we maintain a limited list of approved suppliers that
meet our standards. We thoroughly review the results of suppliers' internal and external quality audits, insurance coverage and
track record on an on-going basis. To stress test for exceptional scenarios, we conduct mock food recalls across a selection of
our suppliers on a quarterly basis. We have developed and implemented training and operating standards related to the food
preparation, cleanliness and safety in each Shack, and of course, we have a dedicated Quality Assurance team.
Shake Shack Inc. Form 10-K | 16
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Item 1A. Risk Factors.
Described below are risks that we believe apply to our business and the industry in which we operate. You should carefully
consider each of the following risk factors in conjunction with other information provided in this Annual Report on Form 10-K and
in our other public disclosures. The risks described below highlight potential events, trends or other circumstances that could
adversely affect our business, reputation, financial condition, results of operations, cash flows, liquidity or access to sources of
financing, and consequently, the market value of our Class A common stock. These risks could cause our future results to differ
materially from historical results and from guidance we may provide regarding our expectations of future financial performance.
The risks described below are not the only risks we may face and additional risks not currently known to us or that we presently
deem immaterial may emerge or become material at any time.
Summary Risk Factors
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may
adversely affect our business, financial condition and results of operations. These risks are discussed more fully below and
include, but are not limited to the following:
Risks Related to Our Growth Strategies and Operations
▪ Our long-term success is dependent on the selection, design and execution of appropriate business strategies.
▪ Our investments to enhance the customer experience through expanding the availability of our drive-thru options has
required and will continue to require significant capital expenditures and may not generate the expected returns.
▪ Our primary growth strategy is highly dependent on the availability of suitable locations and our ability to develop and
open new Shacks on a timely basis and on terms attractive to us.
▪ Our plans to open new Shacks, the ongoing need for capital expenditures at our existing Shacks and our ongoing digital
enhancements require us to spend capital.
▪ Our expansion into new domestic markets may present increased risks, which could affect our profitability.
▪ Our failure to manage our growth effectively could harm our business and operating results.
▪ New Shacks, once opened, may not be profitable, and may negatively affect Shack sales at our existing Shacks.
▪ If we are unable to maintain and grow Shack sales at our existing Shacks, our financial performance could be adversely
affected.
▪ Our mission to Stand For Something Good subjects us to risks.
▪ We have a limited number of suppliers for our major products and rely on one national distribution company for the
majority of our domestic distribution needs. If our suppliers or distributor are unable to fulfill their obligations under our
arrangements with them, we could encounter supply shortages and incur higher costs.
▪ Our marketing strategies and channels will evolve and our programs may or may not be successful.
▪ We rely on a limited number of licensees for the operation of our licensed Shacks, and we have limited control with
respect to the operations of our licensed Shacks, which could have a negative impact on our reputation and business.
▪ If we fail to maintain our corporate culture, our relationships with our team members and guests could be negatively
affected.
Risks Related to Operating in the Restaurant Industry
▪ Incidents involving food safety and food-borne illnesses could adversely affect guests' perception of our brand, result in
lower sales and increase operating costs.
▪ Rising labor costs and difficulties recruiting and retaining the right team members could adversely affect our business.
▪ Increased food commodity and energy costs could decrease our Shack-level operating profit margins or cause us to limit
or otherwise modify our menu, which could adversely affect our business.
▪ The digital and delivery business, related expenses, execution and expansion thereof, is uncertain and subject to risk.
▪ We face significant competition for guests, and if we are unable to compete effectively, our business could be adversely
affected.
▪ Shortages or interruptions in the supply or delivery of food products could adversely affect our operating results.
▪ Inflationary environment poses a risk to broader demand for restaurants, including ours.
▪ Pandemics or disease outbreaks, such as the COVID-19 pandemic, have disrupted, and may continue to disrupt our
business, and have materially affected our business, results of operations and our financial condition.
▪ The increasing focus on environmental sustainability and social initiatives could increase our costs, harm our reputation
and adversely impact our financial results.
Shake Shack Inc. Form 10-K | 20
▪ Our international licensed Shacks import many of our proprietary and other core ingredients from the United States and
other countries. If this international supply chain is interrupted, our international licensed operations could encounter
supply shortages and incur higher costs.
▪ We are subject to risks associated with leasing property subject to long-term leases.
▪ Restaurant companies have been the target of class action lawsuits and other proceedings that are costly, divert
management attention and, if successful, could result in our payment of substantial damages or settlement costs.
▪ Our business is subject to risks related to our sale of alcoholic beverages.
General Business and Economic Risks
▪ Damage to our reputation could negatively impact our business, financial condition and results of operations.
▪ Changes in economic conditions, both domestically and internationally, could materially affect our business, financial
condition and results of operations.
▪ Because many of our domestic Company-operated Shacks are concentrated in local or regional areas, we are
susceptible to economic and other trends and developments, including adverse weather conditions, in these areas.
▪ Security breaches of either confidential guest information in connection with, among other things, our electronic
processing of credit and debit card transactions, kiosk ordering or mobile ordering app, or confidential team member
information may adversely affect our business.
▪ If we are unable to maintain and update our information technology systems to meet the needs of our business, our
business could be adversely impacted.
▪ If we experience a material failure or interruption in our systems, our business could be adversely impacted.
▪ Because a component of our strategy is to continue to grow our licensed business internationally, the risks of doing
business internationally could lower our revenues, increase our costs, reduce our profits or disrupt our business.
▪ We may not be able to adequately protect our intellectual property, which, in turn, could harm the value of our brand and
adversely affect our business.
▪ We depend on key members of our executive management team.
▪ Our insurance coverage and self-insurance reserves may not provide adequate levels of coverage against claims.
Regulatory and Legal Risks
▪ We have identified a material weakness in our internal control over financial reporting.
▪ We are subject to many federal, state, local and foreign laws and regulations, as well as other statutory and regulatory
requirements, with which compliance is both costly and complex. Failure to comply with, or changes in these laws or
requirements, could have an adverse impact on our business.
▪ Our ability to use our net operating loss carryforwards may be subject to limitation.
▪ Changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could
adversely affect our results of operations and financial condition.
Risks Related to Our Organizational Structure
▪ Shake Shack has non-controlling interest holders, whose interests may differ from those of our public stockholders.
▪ Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the non-controlling
interest holders that will not benefit Class A common stockholders to the same extent as it will benefit the non-controlling
interest holders.
▪ The non-controlling interest holders have the right to have their LLC Interests redeemed or exchanged into shares of
Class A common stock, which may cause volatility in our stock price.
▪ We will continue to incur relatively outsized costs as a result of being a public company and in the administration of our
complex organizational structure.
▪ Our anti-takeover provisions could prevent or delay a change in control of our Company, even if such change in control
would be beneficial to our stockholders.
▪ We do not currently expect to pay any cash dividends.
Risks Related to Our Tax Receivable Agreement ("TRA")
▪ We will continue to incur relatively outsized costs as a result of our complex organizational structure.
▪ We are a holding company and our principal asset is our interest in SSE Holdings, and, accordingly, we will depend on
distributions from SSE Holdings to pay our taxes and expenses, including payments under the TRA. SSE Holdings' ability
to make such distributions may be subject to various limitations and restrictions.
▪ In certain cases, payments under the TRA to the non-controlling interest holders may be accelerated or significantly
exceed the actual benefits we realize in respect of the tax attributes subject to the TRA.
▪ We will not be reimbursed for any payments made to the non-controlling interest holders under the TRA in the event that
any tax benefits are disallowed.
Shake Shack Inc. Form 10-K | 21
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The number and timing of new Shacks opened during any given period may be negatively impacted by a number of factors
including:
▪ identification and availability of attractive sites for new Shacks;
▪ difficulty negotiating suitable lease terms;
▪ shortages of construction labor or materials;
▪ recruitment and training of qualified personnel in the local market;
▪ our ability to obtain all required governmental permits, including zonal approvals;
▪ our ability to control construction and development costs of new Shacks, particularly in the current inflationary
environment;
▪ competition in new markets, including competition for appropriate sites;
▪ failure of the landlords to timely deliver real estate to us and other landlord delays;
▪ proximity of potential sites to an existing Shack, and the impact of cannibalization on future growth;
▪ anticipated commercial, residential and infrastructure development near our new Shacks;
▪ cost and availability of capital to fund construction costs and pre-opening costs; and
▪ COVID-19 or pandemic related factors such as longer permitting cycles and availability of construction and
restaurant equipment and services.
Accordingly, we cannot assure you that we will be able to successfully expand as we may not correctly analyze the suitability of a
location or anticipate all of the challenges imposed by expanding our operations. Our growth strategy, and the substantial
investment associated with the development of each new domestic Company-operated Shack, may cause our operating results
to fluctuate and be unpredictable or adversely affect our profits. In addition, as has happened when other restaurant concepts
have tried to expand, we may find that our concept has limited appeal in new markets or we may experience a decline in the
popularity of our concept in the markets in which we operate. If we are unable to expand in existing markets or penetrate new
markets, our ability to increase our revenues and profitability may be materially harmed or we may face losses.
Our plans to open new Shacks, the ongoing need for capital expenditures at our existing Shacks and our ongoing
digital enhancements require us to spend capital.
Our growth strategy depends on opening new Shacks and continuing our digital evolution, which will require us to use cash flows
from operations. We cannot assure that cash flows from operations will be sufficient to allow us to implement our growth strategy.
If these funds are not allocated efficiently among our various projects, or if any of these initiatives prove to be unsuccessful, we
may experience reduced profitability and we could be required to delay a project or delay, significantly curtail or eliminate
planned Shack openings, which could have a material adverse effect on our business, financial condition and results of
operations.
In addition, as our Shacks and digital infrastructure mature, our business will require maintenance, investment, renovation and
improvement expenditures to remain competitive and maintain the value of our brand standard. This creates an ongoing need for
cash, and, to the extent we cannot fund capital expenditures from cash flows from operations, funds will need to be borrowed or
otherwise obtained.
If the costs of funding new Shacks or renovations or enhancements to existing Shacks exceed budgeted amounts, and/or the
time for building or renovation is longer than anticipated, our profits could be reduced. Additionally, recent inflation of material
and labor costs in addition to our larger drive-thru formats have resulted in higher construction costs. If we cannot access the
capital we need, we may not be able to execute our growth strategy, take advantage of future opportunities or respond to
competitive pressures.
Our expansion into new domestic markets may present increased risks, which could affect our profitability.
We plan to open domestic Company-operated Shacks in markets where we have little or no operating experience. Shacks we
open in new markets may take longer to reach expected Shack sales and profit levels on a consistent basis, may be less
profitable on average than our current base of Shacks and may have higher construction, occupancy or operating costs than
Shacks we open in existing markets. New markets may have competitive conditions, consumer tastes and discretionary
spending patterns that are more difficult to predict or satisfy than our existing markets. We may need to make greater
Shake Shack Inc. Form 10-K | 23
investments than we originally planned in advertising and promotional activity in new markets to build brand awareness. We may
find it more difficult in new markets to hire, motivate and retain qualified team members who share our values. We may also incur
higher costs from entering new markets if, for example, we assign area directors to manage comparatively fewer Shacks than we
assign in more developed markets. Also, until we attain a critical mass in a market, the Shacks we do open may incur higher food
distribution costs and reduced operating leverage. As a result, these new Shacks may be less successful or may achieve target
Shack-level operating profit margins at a slower rate, if ever. If we do not successfully execute our plans to enter new markets,
our business, financial condition or results of operations could be adversely affected.
Our failure to manage our growth effectively could harm our business and operating results.
Our growth plan includes opening a large number of new Shacks. Our existing personnel, management systems, financial and
management controls and information systems may not be adequate to support our planned expansion. See the risk captioned
“We have identified a material weakness in our internal control over financial reporting” included below in this Item 1A of this
Annual Report on Form 10-K. Our ability to manage our growth effectively will require us to continue to enhance these systems,
procedures and controls and to locate, hire, train and retain management and operating personnel, particularly in new markets.
We may not be able to respond on a timely basis to all of the changing demands that our planned expansion will impose on
management and on our existing infrastructure, or be able to hire or retain the necessary management and operating personnel,
which could harm our business, financial condition or results of operations. These demands could cause us to operate our
existing business less effectively, which in turn could cause a deterioration in the financial performance of our existing Shacks. If
we experience a decline in financial performance, we may decrease the number of or discontinue Shack openings, or we may
decide to close Shacks that we are unable to operate in a profitable manner.
New Shacks, once opened, may not be profitable, and may negatively affect Shack sales at our existing Shacks.
Our results have been, and in the future may continue to be, significantly impacted by the timing of new Shack openings (often
dictated by factors outside of our control), including landlord, construction and permitting delays, associated Shack pre-opening
costs and operating inefficiencies, as well as changes in our geographic concentration. We typically incur the most significant
portion of pre-opening costs associated with a given Shack within the several months preceding the opening of the Shack. Our
experience has been that labor and operating costs associated with a newly opened Shack for the first several months of
operation are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of
Shack sales. Our new Shacks take a period of time to reach target operating levels due to inefficiencies typically associated with
new Shacks, including the training of new personnel, new market learning curves, inability to hire sufficient qualified staff and
other factors. We may incur additional costs in new markets, particularly for transportation and distribution, which may impact the
profitability of those Shacks. Although we have specific target operating and financial metrics, new Shacks may not meet these
targets or may take longer than anticipated to do so. Any new Shacks we open may not be profitable or achieve operating results
similar to those of our existing Shacks, which could adversely affect our business, financial condition and results of operations.
The opening of a new Shack in or near markets in which we already have Shacks could adversely affect the Shack sales of
those existing Shacks. Existing Shacks could also make it more difficult to build our consumer base for a new Shack in the same
market. We will continue to cluster in select markets and open new Shacks in and around areas of existing Shacks that are
operating at or near capacity to leverage operational efficiencies and effectively serve our guests. Cannibalization of Shack sales
among our Shacks may become significant in the future as we continue to expand our operations and could adversely affect our
Shack sales growth, which could, in turn, adversely affect our business, financial condition and results of operations.
If we are unable to maintain and grow Shack sales at our existing Shacks, our financial performance could be adversely
affected.
The level of same-Shack sales growth, which represents the change in year-over-year revenues for domestic Company-operated
Shacks open for 24 full months or longer, could affect our overall Shack sales growth. Our ability to increase same-Shack sales
depends, in part, on our ability to successfully implement our initiatives to build Shack sales. It is possible such initiatives will not
be successful, that we will not achieve our target same-Shack sales growth or that same-Shack sales growth could be negative,
which may cause a decrease in Shack sales and profit growth that would adversely affect our business, financial condition or
results of operations.
Shake Shack Inc. Form 10-K | 24
Our mission to Stand For Something Good subjects us to risks.
Our mission to Stand For Something Good is a significant part of our business strategy and who we are as a Company. It's our
commitment to all that is good in the world and is a reflection of how we embrace our values both internally and externally. We
pride ourselves on sourcing premium ingredients from like-minded producers — 100% all-natural proteins with no added
hormones or antibiotics that are humanely raised and source verified. We are dedicated to using sustainable materials and
equipment whenever possible, and distinctive furniture and fixtures that advance our sustainability and diversity initiatives, as
well as being committed to achieving ethical and humane practices for the animals in our supply chain. We also strive to be the
best employer and a good citizen in each community we call home.
We do, however, face many challenges in carrying out our mission to Stand For Something Good. We incur higher costs and
other risks associated with purchasing high quality ingredients grown or raised with an emphasis on quality and responsible
practices and paying highly competitive compensation to our team members. As a result, our food and labor costs may be
significantly higher than other companies who do not source high quality ingredients or pay above minimum wage. Additionally,
the supply for high quality ingredients may be limited and it may take us longer to identify and secure relationships with suppliers
that are able to meet our quality standards and have sufficient quantities to support our growing business. If we are unable to
obtain a sufficient and consistent supply for our ingredients on a cost-effective basis, our food costs could increase or we may
experience supply interruptions which could have an adverse effect on our operating margins. Additionally, some of our
competitors have announced initiatives to offer better quality ingredients, such as antibiotic-free and fresh meat. If this trend
continues, it could further limit our supply for certain ingredients and we may lose our competitive advantage as it will be more
difficult to differentiate ourselves.
Because we hold ourselves to such high standards, and because we believe our guests have come to have high expectations of
us, we may be more severely affected by negative reports or publicity if we fail, or are believed to have failed, to comply with our
own standards. The damage to our reputation may be greater than other companies that do not have similar values as us, and it
may take us longer to recover from such an incident and gain back the trust of our guests. Our mission to Stand For Something
Good also exposes us to criticism from special interest groups who have different opinions regarding certain food issues or who
believe we should pursue different strategies and goals. Any adverse publicity that results from such criticism could damage our
brand and adversely affect guest traffic.
We believe that our Stand For Something Good philosophy has been a major contributing factor in our past success because we
believe consumers are increasingly focused on where their food comes from and how it is made, and that consumers want to
associate themselves with brands whose ethos matches that of their own. However, if these trends change we may no longer be
able to successfully compete with other restaurants who share different values than us.
We have a limited number of suppliers for our major products and rely on one national distribution company for the
majority of our domestic distribution needs. If our suppliers or distributor are unable to fulfill their obligations under our
arrangements with them, we could encounter supply shortages and incur higher costs.
We have a limited number of suppliers for our major ingredients, including beef patties, chicken, potato buns, custard, portobello
mushrooms and cheese sauce. In fiscal 2023, we purchased all of our (i) ground beef patties from 10 approved ground beef
processors, with approximately 41% of our ground beef patties from one supplier; (ii) chicken breasts from two suppliers;
(iii) potato buns from one supplier; (iv) custard base from two suppliers; (v) 'Shroom Burgers from one supplier; (vi) crinkle cut
fries from two suppliers; and (vii) ShackSauce from one supplier. Due to this concentration of suppliers, the cancellation of our
supply arrangements with any one of these suppliers or the disruption, delay or inability of these suppliers to deliver these major
products to our Shacks may materially and adversely affect our results of operations while we establish alternate distribution
channels. In addition, if our suppliers fail to comply with food safety or other laws and regulations, or face allegations of non-
compliance, their operations may be disrupted. We cannot assure you that we would be able to find replacement suppliers on
commercially reasonable terms or a timely basis, if at all.
We contract with one distributor, which we refer to as our "broadline" distributor, to provide virtually all of our food distribution
services in the United States. As of December 27, 2023, approximately 95% of certain food and beverage ingredients, including
chicken, fries and custard, collectively representing 47% of our purchases, were processed through our broadline distributor for
distribution and delivery to each Shack. As of December 27, 2023, we utilized 20 affiliated distribution centers and each
Shake Shack Inc. Form 10-K | 25
distribution center carries two to three weeks of inventory for our core ingredients. In the event of a catastrophe, such as a fire,
our broadline distributor can supply the Shacks affected by their respective distribution center from another affiliated distribution
center. If a catastrophe, such as a fire, were to occur at the distribution center that services the Shacks located in New York and
northern New Jersey, we would be at immediate risk of product shortages because that distribution center supplies
approximately 21% of our domestic Company-operated Shacks as of December 27, 2023, which collectively represented 25% of
our Shack sales for fiscal 2023. The other 19 distribution centers collectively supply the other 79% of our domestic Company-
operated Shacks, which represented the remaining 75% of our Shack sales.
Although we believe that alternative supply and distribution sources are available, there can be no assurance that we will
continue to be able to identify or negotiate with such sources on terms that are commercially reasonable to us. If our suppliers or
distributors are unable to fulfill their obligations under their contracts or we are unable to identify alternative sources, we could
encounter supply shortages and incur higher costs, each of which could have a material adverse effect on our results of
operations.
Our marketing strategies and channels will evolve and our programs may or may not be successful.
Shake Shack is a growing brand, and we incur costs and expend other resources in our marketing efforts to attract and retain
guests. Our strategy primarily includes public relations, digital and social media, promotions and in-store messaging, which
typically require less marketing spend as compared to traditional marketing programs. As the number of Shacks increases, and
as we expand into new markets, we expect to increase our investment in advertising and promotional activities, including
targeted marketing offers to unique guest segments and incentivizing and rewarding loyal guests. Accordingly, in the future, we
will incur greater marketing expenditures, resulting in greater financial risk and a greater impact on our financial results.
We rely heavily on social media for many of our marketing efforts. If consumer sentiment towards social media changes or a new
medium of communication becomes more mainstream, we may be required to fundamentally change our current marketing
strategies which could require us to incur significantly more costs.
Some of our marketing initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenues.
Additionally, some of our competitors have greater financial resources, which enable them to spend significantly more on
marketing and advertising than we are able to at this time. Should our competitors increase spending on marketing and
advertising or our marketing funds decrease for any reason, or should our advertising and promotions be less effective than
those of our competitors, there could be a material adverse effect on our business, financial condition and results of operations.
Additionally, we face additional expenses as it relates to our digital business which can vary over time and may impact our
overall profitability.
We rely on a limited number of licensees for the operation of our licensed Shacks, and we have limited control with
respect to the operations of our licensed Shacks, which could have a negative impact on our reputation and business.
We rely, in part, on our licensees and the manner in which they operate their Shacks to develop and promote our business. As of
December 27, 2023, 10 licensees operated all of our domestic licensed Shacks and six licensees operated all of our international
licensed Shacks, with one such licensee operating 36% of our international licensed Shacks and one such licensee operating
28% of our domestic licensed Shacks. Our licensees are required to operate their Shacks according to the specific guidelines we
set forth, which are essential to maintaining brand integrity and reputation, all laws and regulations applicable to Shake Shack
and its subsidiaries, and all laws and regulations applicable in the countries in which Shake Shack operates. We provide training
to these licensees to integrate them into our operating strategy and culture. However, since we do not have day-to-day control
over these Shacks, we cannot give assurance that there will not be differences in product and service quality, operations, labor
law enforcement, marketing or that there will be adherence to all of our guidelines and applicable laws at these Shacks. In
addition, if our licensees fail to make investments necessary to maintain or improve their Shacks, guest preference for the Shake
Shack brand could suffer. Failure of these Shacks to operate effectively could adversely affect the results of operations from our
licensed business or have a negative impact on our reputation.
The success of our licensed operations depends on our ability to establish and maintain good relationships with our licensees.
The value of our brand and the rapport that we maintain with our licensees are important factors for potential licensees
Shake Shack Inc. Form 10-K | 26
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costs to conduct such recalls could be significant and could interrupt our supply to unaffected Shacks or increase the cost of our
ingredients.
Additionally, consumer preferences could be affected by health concerns about the consumption of beef, our key ingredient. For
example, if a pathogen, such as "mad cow disease," or other virus, bacteria, parasite or toxin infects the food supply (or is
believed to have infected the food supply), regardless of whether our supply chain is affected, guests may actively avoid
consuming certain ingredients. A negative report or negative publicity surrounding such an incident, whether related to one of our
Shacks or to a competitor in the industry, may have an adverse impact on demand for our food and could result in a material
decrease in guest traffic and lower sales.
Rising labor costs and difficulties recruiting and retaining the right team members could adversely affect our business.
As our culture remains an important factor to our success, it in part depends on our ability to recruit, reward and retain a sufficient
number of qualified managers and team members to meet the needs of our existing Shacks and to staff new Shacks. We aim to
hire talented people who have integrity, who are warm, motivated, self-aware, intellectually curious, and possess the
competencies and skills to continue to foster our growth. We value people who are excited and committed to high performance,
remarkable and enriching hospitality, embodying our culture, and actively growing themselves and the brand.
In many markets, competition for qualified individuals is intense and we may be unable to identify and recruit a sufficient number
of individuals to meet our growing needs, especially in markets where our brand is less established. As a result, because we aim
to hire the best people, we may be required to pay higher wages and provide greater benefits. Our commitment to taking care of
our team may cause us to incur higher labor costs compared to other restaurant companies. Additionally, several states in which
we operate have enacted minimum wage increases and it is possible that other states or the federal government could also
enact minimum wage increases, scheduling and benefit changes and increased health care and workers' compensation
insurance costs. Such increases have and may continue to cause an increase to our labor and related expenses and cause our
Shack-level operating profit margins to decline. In the event there are additional minimum wage increases, increases in
employee turnover or other legislation related to employee benefits are enacted or changed, such as the Affordable Care Act, we
may be required to implement additional pay increases or provide additional benefits in the future in order to continue to recruit,
reward and retain the most qualified people, which may put further pressure on our operating margins by increasing costs.
Overall, we expect wages at all levels to continue to increase in the near term and we expect these rising wages to add pressure
to our operating profit.
In addition to the expected increased costs of labor, if we are unable to identify and recruit a sufficient number of individuals to
meet our growing needs, we may need to decrease the operating hours of some of our Shacks, which would result in lost sales.
We place a heavy emphasis on the qualification and training of our team members and spend a significant amount of time and
money training our team members. Any inability to recruit and retain qualified individuals may result in higher turnover and
increased labor costs, and could compromise the quality of our service, all of which could adversely affect our business. Any
such inability could also delay the planned openings of new Shacks and could adversely impact our existing Shacks. Such
increased costs of attracting qualified team members or delays in Shack openings could adversely affect our business, financial
condition and results of operations.
Increased food commodity and energy costs could decrease our Shack-level operating profit margins or cause us to
limit or otherwise modify our menu, which could adversely affect our business.
Our profitability depends, in part, on our ability to anticipate and react to changes in the price and availability of food
commodities, including among other things beef, poultry, grains, dairy and produce. Prices may be affected due to market
changes, increased competition, the general risk of inflation, shortages or interruptions in supply due to weather, disease or other
conditions beyond our control, or other reasons. For example, the current avian flu is causing increased costs of poultry and
eggs. Other events, including events for products we do not serve, could increase commodity prices or cause shortages that
could affect the cost and quality of the items we buy or require us to further raise prices or limit our menu items. Furthermore,
increasing weather volatility or other long-term changes in global weather patterns, including any changes associated with global
climate change, could have a significant impact on the price or availability of some of our ingredients. These events, combined
with other more general economic and demographic conditions, could impact our pricing and negatively affect our Shack sales
Shake Shack Inc. Form 10-K | 28
and Shack-level operating profit margins. While we have been able to partially offset inflation and other changes in the costs of
core operating resources by increasing menu prices, coupled with more efficient purchasing practices, productivity improvements
and greater economies of scale, there can be no assurance that we will be able to continue to do so in the future. From time to
time, competitive conditions could limit our menu pricing flexibility. In addition, macroeconomic conditions could make additional
menu price increases imprudent. There can be no assurance that future cost increases can be offset by increased menu prices
or that increased menu prices will be fully absorbed by our guests without any resulting change to their visit frequencies or
purchasing patterns. In addition, there can be no assurance that we will generate same-Shack sales growth in an amount
sufficient to offset inflationary or other cost pressures.
We may decide to enter into certain forward pricing arrangements with our suppliers, which could result in fixed or formula-based
pricing with respect to certain food products. However, these arrangements generally are relatively short in duration and may
provide only limited protection from price changes. In addition, the use of these arrangements may limit our ability to benefit from
favorable price movements.
Our profitability is also adversely affected by increases in the price of utilities, such as natural gas, electric and water, whether as
a result of inflation, shortages or interruptions in supply, or otherwise. Our ability to respond to increased costs by increasing
prices or by implementing alternative processes or products will depend on our ability to anticipate and react to such increases
and other more general economic and demographic conditions, as well as the responses of our competitors and guests. All of
these things may be difficult to predict and beyond our control. In this manner, increased costs could adversely affect our results
of operations.
Additionally, with elevated inflationary pressures across the business, we face an above average risk that we will have to
renegotiate contracts and agreements with suppliers on a more frequent basis. Shortened windows of certainty can impact our
ability to plan our business from a supply and profitability perspective and we face greater risk of margin volatility.
The digital and delivery business, related expenses, execution and expansion thereof, is uncertain and subject to risk.
Digital innovation and growth remains a key focus for us. We continue to execute upon our digital strategy, including the
continued integration of our data platforms enabling segmentation and targeted marketing strategies. We believe these digital
investments to be a critical differentiator for our business, creating the opportunity to drive greater engagement and frequency
with both new and existing guests. As the digital space around us continues to evolve, our technology needs to evolve
concurrently to stay competitive with the industry. If we do not maintain and innovate our digital systems that are competitive with
the industry, and as we face execution risks around upgrades of existing and new digital platforms, our digital business may be
adversely affected and could damage our sales as well as profitability. We rely on third-party service providers for our ordering
and payment platforms relating to our mobile app and kiosks. Such services performed by these third parties could be damaged
or interrupted by technological issues, which could then result in a loss of sales for a period of time. We also could see higher
costs from our digital partners which we may not be able to fully offset by price. Information processed by these third parties
could also be impacted by cyber attacks, which could not only negatively impact our sales, but also harm our brand image.
Recognizing the rise in delivery services offered throughout the restaurant industry, we understand the importance of providing
such services to meet our guests wherever and whenever they want. We have invested in marketing to promote our delivery
partnerships, which could negatively impact our profitability if the business does not continue to expand. We rely on third-party
service providers to fulfill delivery orders timely and in a fashion that will satisfy our guests. Errors in providing adequate delivery
services may result in guest dissatisfaction, which could also result in loss of guest retention, loss in sales and damage to our
brand image. Additionally, as with any third party handling food, such delivery services increase the risk of food tampering while
in transit. We developed sealed packaging to provide some deterrence against such potential food tampering. We are also
subject to risk if there is a shortage of delivery drivers, which could result in a failure to meet our guests' expectations.
Third-party delivery services within the restaurant industry is a competitive environment and includes a number of players
competing for market share. If our third-party delivery partners fail to effectively compete with other third-party delivery providers
in the sector, our delivery business may suffer resulting in a loss of sales. If any third-party delivery provider we partner with
experiences damage to their brand image, we may also see ramifications due to our partnership with them. Additionally, some of
our competitors have greater financial resources to spend on marketing and advertising around their digital and delivery
campaigns than we are able to at this time. Should our competitors increase their spend in these areas, or if our advertising and
Shake Shack Inc. Form 10-K | 29
promotions be less effective than our competitors, there could be an adverse impact on our business in this space. Third-party
delivery services within the restaurant industry typically charge restaurants a fee per order. We currently have contracts with our
major delivery service providers for a fixed period of time. However, there is uncertainty as to how these fees will evolve. In 2021,
we implemented menu price inflation on our third-party delivery platforms to help offset a portion of this fee; the higher menu
prices could result in loss of sales.
We face significant competition for guests, and if we are unable to compete effectively, our business could be adversely
affected.
The restaurant industry is intensely competitive with many well-established companies that compete directly and indirectly with
us with respect to taste, price, food quality, service, value, design and location. We compete in the restaurant industry with multi-
unit national, regional and locally-owned and/or operated limited-service restaurants and full-service restaurants. We compete
with (i) restaurants, (ii) other fast casual restaurants, (iii) quick service restaurants and (iv) casual dining restaurants. Our
competitors may operate company-owned restaurants, franchised restaurants or some combination. Many of our competitors
offer breakfast, lunch and dinner, as well as dine-in, carry-out and delivery services. We may also compete with companies
outside of the traditional restaurant industry, such as grocery store chains, meal subscription services and delicatessens,
especially those that target customers who seek high-quality food, as well as convenience food stores, cafeterias and other
dining outlets. Many of our competitors have existed longer than we have and may have a more established market presence,
better locations and greater name recognition nationally or in some of the local markets in which we operate or plan to open
Shacks. Some of our competitors may also have significantly greater financial, marketing, personnel and other resources than
we do. They may also operate more restaurants than we do and be able to take advantage of greater economies of scale than
we can given our current size.
Our competition continues to intensify as new competitors enter the burger, fast casual, quick service and casual dining
segments. Many of our competitors emphasize low cost "value meal" menu items or other programs that provide price discounts
on their menu items, a strategy we have just begun to test. We also face increasing competitive pressures from some of our
competitors who have announced initiatives to offer better quality ingredients, such as antibiotic-free meat.
Changes in consumer tastes, nutritional and dietary trends, traffic patterns and the type, number, and location of competing
restaurants often affect the restaurant business. Our sales could be impacted by changes in consumer preferences in response
to dietary concerns, including preferences regarding items such as calories, sodium, carbohydrates or fat. Our competitors may
react more efficiently and effectively to these changes than we can. We cannot make any assurances regarding our ability to
effectively respond to changes in consumer health perceptions or our ability to adapt our menu items to trends in eating habits.
Additionally, as we continue to expand upon our digital strategy and offer more ways to reach our guests through digital
channels, such as the app, web ordering and delivery, we compete with other competitors who currently, or are beginning to,
offer the same options as well as new and improved technologies. With these digital channels, there is also an increased
opportunity for customer credit card fraud to occur, which may have a negative impact on guest traffic and our reputation
temporarily.
Our continued success depends, in part, on the continued popularity of our menu and the experience we offer guests at our
Shacks. If we are unable to continue to compete effectively on any of the factors mentioned above, our traffic, Shack sales and
Shack-level operating profit margins could decline and our business, financial condition and results of operations would be
adversely affected.
Shortages or interruptions in the supply or delivery of food products could adversely affect our operating results.
We are dependent on frequent deliveries of food products that meet our exact specifications. Shortages or interruptions in the
supply of food products caused by problems in production or distribution, inclement weather, unanticipated demand or other
conditions could adversely affect the availability, quality and cost of ingredients, which would adversely affect our operating
results.
Our burgers depend on the availability of our proprietary ground beef blend. Availability of our blend depends on two different
components: raw material supplied by the slaughterhouses and ground and formed beef patties supplied by regional grinders
Shake Shack Inc. Form 10-K | 30
who further process and convert whole muscle purchased from the slaughterhouses. The primary risk we face is with our
regional grinders. If there is an interruption of operation at any one of our regional grinder's facilities, we face an immediate risk
because each Shack typically has less than three days of beef patty inventory on hand. However, we have agreements with our
regional grinders to provide an alternate back-up supply in the event of a disruption in their operations. In addition, our second
largest regional grinder can, in an emergency, supply us in the event of a disruption of operations at one of our beef grinders
through our broadline distributor's network, but there would be a delay in availability due to production and shipping.
We currently have nine approved raw beef suppliers and 10 approved beef processors in the United States. If there is a supply
issue with all U.S. raw beef, we have 12 approved raw beef suppliers and nine approved beef processors in other countries. The
risks to using international suppliers are shipping lead time, shipping costs, potential import duties and U.S. customs. It is
unknown at this time how long it would take and at what cost the raw material would be to import from any such other country,
but the delay and cost would likely be adverse to our business.
Inflationary environment poses a risk to broader demand for restaurants, including ours.
Our continued success depends on our guests' ability and willingness to pay for rising menu prices across our channels. The
restaurant industry broadly has faced widespread inflation over the past two years, and is likely to continue to face inflationary
pressures for the foreseeable future. In a bid to help offset these additional cost pressures, many restaurants have raised menu
prices as well as charge a premium price through third-party delivery channels. There is risk that guests may not absorb our price
increases, resulting in changes to their visit frequencies or purchasing patterns. As of December 2023 and December 2022, the
U.S. Bureau of Labor and Statistics reported increases in year-on-year inflation of 5.2% and 8.3%, respectively in the Food Away
From Home index and 5.9% and 6.6%, respectively in the Limited-Service Meals index.
Pandemics or disease outbreaks, such as the COVID-19 pandemic, have disrupted, and may continue to disrupt our
business, results of operations and our financial condition.
The World Health Organization officially declared the COVID-19 health emergency a global pandemic in March 2020 and
subsequently declared an end to the health emergency in May 2023, more than three years after its original declaration.
However, the COVID-19 pandemic may continue to impact the United States and the global economy, including impacts to
travel, work patterns, commuting, leisure, vacation and other activities in the future. We continue to follow public health
guidelines to ensure the health and safety of our teams and guests. An increase in restrictions or a return to shutdowns imposed
by governmental authorities may have a material impact to our business, financial condition and results of operations.
Throughout the COVID-19 pandemic, state and local governments in the U.S. and throughout the world have alternated between
removing and easing certain restrictions and reintroducing restrictions on businesses, such as imposing curfews, restrictions on
public gatherings, human interactions and restaurant operation, depending on the severity of local or regional outbreaks.
Additionally, different jurisdictions have seen varying levels of outbreaks or resurgences in outbreaks, and corresponding
differences in government responses, which may continue to make it difficult for us to plan or forecast an appropriate response.
For example, a material portion of our licensed revenue comes from Asia, a region which has seen more severe restrictions from
rising COVID-19 pandemic cases than the United States. In many jurisdictions, the pandemic has continued to disrupt consumer
activity and negatively impact the foot traffic in our Shacks, as employees continue to work from home more frequently.
The significance of the operational and financial impact on the Company will depend on how long and widespread the disruptions
caused by the COVID-19 pandemic, and the corresponding response to contain the virus and treat those affected by it prove to
be. Further uncertain or changing economic and market conditions, including prolonged periods of high unemployment, staffing
issues, inflation, deflation or prolonged weak consumer demand or a decrease in consumer discretionary spending, or political or
other changes resulting from the pandemic or other factors would continue to impact our business, sales and operating results.
Viruses such as COVID-19 may be transmitted through human contact and airborne delivery, and the risk of contracting viruses
could cause team members or guests to avoid gathering in public places. Additionally, government authorities, from time to time,
may impose curfews, restrictions on public gatherings, human interactions and restaurant operations which may impact our
ability to offer all sales channels at all Shacks, and employees in many jurisdictions continue to work from home at a higher rate.
These restrictions and changing travel patterns may adversely affect our guest traffic and the ability to adequately staff our
Shacks.
Shake Shack Inc. Form 10-K | 31
Additionally, if a significant percentage of our workforce or the workforce of our business partners are unable to work due to
reasons including illness or travel restrictions in connection with pandemics or disease outbreaks, our operations may be
negatively impacted, which could have a material adverse effect on our business, financial condition and results of operations.
The increasing focus on environmental, sustainability, social and governance matters could increase our costs, harm
our reputation and adversely impact our business and financial results.
There has been increasing public focus by investors, environmental activists, the media, governmental and nongovernmental
organizations and other stakeholders on a variety of environmental, sustainability, social and governance matters, commonly
referred to as "ESG". With respect to the restaurant industry, concerns have been expressed regarding energy management,
water management, food and packaging waste management, food safety, nutritional content, labor practices and supply chain
and management of food sourcing. We experience pressure to make commitments relating to sustainability matters that affect
companies in our industry, including the design and implementation of specific risk mitigation strategic initiatives relating to
sustainability and the environment. If we are not effective in addressing environmental, sustainability and social matters affecting
our industry, or setting and meeting relevant environmental, sustainability or social goals and meeting evolving stakeholder
expectations, our brand image may suffer, which could lead to a loss of revenue. Certain investors may choose not to invest in
our securities if we do not meet their relevant ESG expectations, which may continue to evolve over time. We may also
experience increased costs in order to execute upon our ESG goals and measure achievement of those goals and our ability to
achieve any stated goal, target, or objective is subject to numerous factors and conditions, many of which are outside of our
control. Any failure to achieve our ESG goals or meeting evolving stakeholder expectations, or a perception of our failure to act
appropriately with respect to environmental, sustainability, social or governance matters could adversely affect our business and
impact our reputation with investors, guests and other business partners and impact our ability to attract and retain team
members. Standards for tracking and reporting on ESG have not been harmonized and continue to evolve. Additionally, this
increased focus on ESG has resulted in and may result in new laws, regulations and requirements that could cause us to
experience increased reporting or implementation costs or require us to make changes to our operations to comply with those
laws, regulations and requirements. These increased costs could have an adverse impact on our business, financial condition
and results of operations.
Our international licensed Shacks import many of our proprietary and other core ingredients from the United States and
other countries. If this international supply chain is interrupted, our international licensed operations could encounter
supply shortages and incur higher costs.
Our international licensed Shacks import many of our proprietary ingredients from the United States as well as other countries.
For example, our proprietary blend of beef patties and/or raw materials for beef patties primarily originate from the United States,
Australia and Uruguay and our mushrooms originate from the United States and United Kingdom. We have worked to expand
our international supply chain with secondary suppliers for various key ingredients across Turkey, Japan, South Korea and
China. While we have established secondary supply solutions for some of these ingredients, we have not acquired secondary
suppliers for all of them.
Due to the increasingly long lead time and general volatility in the supply chain and global ocean freight disruptions, the third-
party logistic providers for our international licensed Shacks carry at least three months of inventory to allow for delays or
interruptions in the supply chain. Specifically, we have had past and ongoing issues ensuring that timely and adequate supplies
reach our international licensed Shacks. Our licensees delegate the supply function to their internal or third-party logistics
providers in each country in which they operate, with which we have limited and restricted communication, preventing us from
exercising direct control or instruction over such entities.
If our international licensed Shacks are unable to obtain our proprietary ingredients in the necessary amounts in a timely fashion
as a result of logistics issues, sanctions or other challenges, it could harm its business and adversely affect the licensing revenue
we receive, adversely impacting our business, financial condition and results of operations.
We are subject to risks associated with leasing property subject to long-term leases.
We do not own any real property and all of our domestic Company-operated Shacks are located on leased premises. The leases
for our Shacks generally have initial terms ranging from 10 to 15 years and typically include two five-year renewal options.
Shake Shack Inc. Form 10-K | 32
Generally, our leases are net leases that require us to pay our share of the costs of real estate taxes, utilities, building operating
expenses, insurance and other charges in addition to rent. We generally cannot cancel these leases. Additional sites that we
lease are likely to be subject to similar long-term, non-cancelable leases. If we close a Shack, we may still be obligated to
perform our monetary obligations under the applicable lease, including, among other things, payment of the base rent for the
remaining lease term. In addition, as each of our leases expire, we may fail to negotiate renewals, either on commercially
acceptable terms or at all, which could cause us to close Shacks in desirable locations. We depend on cash flows from
operations to pay our lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash flow
from operating activities, and sufficient funds are not otherwise available to us from borrowings or other sources, we may not be
able to service our lease obligations or fund our other liquidity and capital needs, which would materially affect our business.
Restaurant companies have been the target of class action lawsuits and other proceedings that are costly, divert
management attention and, if successful, could result in our payment of substantial damages or settlement costs.
Our business is subject to the risk of litigation by team members, guests, suppliers, licensees, stockholders or others through
private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation,
particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. In recent years, restaurant companies
have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state laws regarding workplace
and employment matters, discrimination and similar matters. A number of these lawsuits have resulted in the payment of
substantial damages by the defendants. Similar lawsuits have been instituted from time to time alleging violations of various
federal and state wage and hour laws regarding, among other things, employee meal-time deductions, overtime eligibility of
exempt managers and failure to pay for all hours worked.
Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for an alleged illness or injury they
suffered at or after a visit to one of our Shacks, including actions seeking damages resulting from alleged food-borne illness or
accidents in our Shacks. We are also subject to a variety of other claims from third parties arising in the ordinary course of our
business, including contract claims. The restaurant industry has also been subject to claims that the menus and actions of
restaurant chains have led to the obesity of certain of their customers.
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may
divert time and money away from our operations. In addition, they may generate negative publicity, which could reduce guest
traffic and Shack sales. Although we maintain what we believe to be adequate levels of insurance to cover any of these liabilities,
insurance may not be available at all or in sufficient amounts with respect to these or other matters. A judgment or other liability
in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our
business, financial condition and results of operations.
Our business is subject to risks related to our sale of alcoholic beverages.
We serve beer and wine at most of our Shacks. Alcoholic beverage control regulations generally require our Shacks to apply to a
state authority and, in certain locations, county or municipal authorities for a license that must be renewed annually, or as
required, and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous
aspects of daily operations of our Shacks, including minimum age of patrons and team members, hours of operation, advertising,
trade practices, wholesale purchasing, other relationships with alcohol manufacturers, wholesalers and distributors, inventory
control and handling, storage and dispensing of alcoholic beverages. Any future failure to comply with these regulations and
obtain or retain licenses could adversely affect our business, financial condition and results of operations.
We are also subject in certain states to "dram shop" statutes, which generally provide a person injured by an intoxicated person
the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. We
carry liquor liability coverage as part of our existing comprehensive general liability insurance. Litigation against restaurant chains
has resulted in significant judgments and settlements under dram shop statutes. Because these cases often seek punitive
damages, which may not be covered by insurance, such litigation could have an adverse impact on our business, financial
condition and results of operations. Regardless of whether any claims against us are valid or whether we are liable, claims may
be expensive to defend and may divert time and resources away from operations and hurt our financial performance. A judgment
significantly in excess of our insurance coverage or not covered by insurance could have a material adverse effect on our
business, financial condition and results of operations.
Shake Shack Inc. Form 10-K | 33
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Because many of our domestic Company-operated Shacks are concentrated in local or regional areas, we are
susceptible to economic and other trends and developments, including adverse weather conditions, in these areas.
Since our founding, we have built some of the industry's favorite community gathering places. As a result, much of our real estate
footprint has been centered in urban, office, travel and dynamic traffic-driving sales environments. Our urban Shacks make up
approximately 39% of our total domestic Company-operated Shacks as of December 27, 2023. Additionally, our financial
performance is highly dependent on Shacks located along both the East and West Coasts. As a result, adverse economic
conditions in any of these markets or regions could have a material adverse effect on our overall results of operations. In
addition, given our geographic concentrations, negative publicity regarding any of our Shacks in these areas and other regional
occurrences such as local strikes, terrorist attacks, increases in energy prices, inclement weather or natural or man-made
disasters could have a material adverse effect on our business and operations.
In particular, adverse weather conditions, such as regional winter storms, floods, severe thunderstorms and hurricanes, could
negatively impact our results of operations. Temporary or prolonged Shack closures may occur and guest traffic may decline due
to the actual or perceived effects of future weather related events.
Security breaches of either confidential guest information in connection with, among other things, our electronic
processing of credit and debit card transactions, kiosk ordering or mobile ordering app, or confidential team member
information may adversely affect our business.
Our business requires the collection, transmission and retention of large volumes of guest and team member data, including
credit and debit card numbers and other personally identifiable information, in various information technology systems that we
maintain and in those maintained by third parties with whom we contract to provide services. The integrity and protection of that
guest and team member data is critical to us. Further, our guests and team members have a high expectation that we and our
service providers will adequately protect their personal information.
Like many other retail companies, and because of the prominence of our brand, we have experienced, and will likely continue to
experience, attempts to compromise our information technology systems. Additionally, the techniques and sophistication used to
conduct cyber-attacks and breaches of information technology systems, as well as the sources and targets of these attacks,
change frequently and are often not recognized until such attacks are launched or have been in place for a period of time. While
we continue to make significant investment in physical and technological security measures, team member training, and third-
party services designed to anticipate cyber-attacks and prevent breaches, our information technology networks and infrastructure
or those of our third-party vendors and other service providers could be vulnerable to damage, disruptions, shutdowns or
breaches of confidential information due to criminal conduct, team member error or malfeasance, utility failures, natural disasters
or other catastrophic events. Due to these scenarios we cannot provide assurance that we will be successful in preventing such
breaches or data loss.
Additionally, the information, security and privacy requirements imposed by governmental regulation are increasingly demanding.
Our systems may not be able to satisfy these changing requirements and guest and team member expectations, or may require
significant additional investments or time in order to do so. Efforts to hack or breach security measures, failures of systems or
software to operate as designed or intended, viruses, operator error or inadvertent releases of data all threaten our information
systems and records and that of our service providers. A breach in the security of our information technology systems or those of
our service providers could lead to an interruption in the operation of our systems, resulting in operational inefficiencies and a
loss of profits. Additionally, a significant theft, loss or misappropriation of, or access to, guests' or other proprietary data or other
breach of our information technology systems could result in fines, legal claims or proceedings including regulatory investigations
and actions, or liability for failure to comply with privacy and information security laws, which could disrupt our operations,
damage our reputation and expose us to claims from guests and team members, any of which could have a material adverse
effect on our business, financial condition and results of operations.
If we are unable to maintain and update our information technology systems to meet the needs of our business, our
business could be adversely impacted.
We rely heavily on information systems, including point-of-sale processing in our Shacks, for management of our supply chain,
accounting, payment of obligations, collection of cash, credit and debit card transactions, digital ordering and other processes
Shake Shack Inc. Form 10-K | 35
and procedures. As a rapidly growing business, our current information technology infrastructure may not be adequately suited to
handle the increasing volume of data and additional information needs of our organization. If we are unable to successfully
upgrade our information systems to meet the growing needs of our business or are delayed in doing so, whether through current
or future initiatives, our growth and profitability could be adversely affected.
Additionally, as technology systems continue to evolve and as consumers adopt new technologies, we may need to enhance our
systems or modify our strategies in order to remain relevant in our industry and to our guests. If we are unable to successfully
identify and implement new and emerging technologies, our business could be adversely affected.
If we experience a material failure or interruption in our systems, our business could be adversely impacted.
Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of our
information technology systems. Our operations depend upon our ability to protect our computer equipment, kiosks and systems
against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from
internal and external security breaches, viruses and other disruptive problems. The failure of these systems to operate
effectively, maintenance problems, upgrading or transitioning to new platforms, expanding our systems as we grow or a breach
in security of these systems could result in loss of sales, interruptions to or delays in our business and guest service and reduce
efficiency in our operations. If our information technology systems fail and our redundant systems or disaster recovery plans are
not adequate to address such failures, or if our business interruption insurance does not sufficiently compensate us for any
losses that we may incur, our revenues and profits could be reduced and the reputation of our brand and our business could be
materially adversely affected. In addition, remediation of such problems could result in significant, unplanned capital investments.
Additionally, as we continue to evolve and innovate our digital platforms and enhance our internal systems, we place increasing
reliance on third-party vendors to provide infrastructure and other support services. We may be adversely affected if any of our
third-party service providers experience any interruptions in their systems, which could potentially impact the services we receive
from them and cause a material failure or interruption in our own systems.
Because a component of our strategy is to continue to grow our licensed business internationally, the risks of doing
business internationally could lower our revenues, increase our costs, reduce our profits or disrupt our business.
As of December 27, 2023, 184 of our 223 licensed Shacks are located outside the United States and we expect to continue to
expand our licensed operations internationally. As a result, we are and will be, on an increasing basis, subject to the risks of
doing business outside the United States, including:
▪ changes in foreign currency exchange rates or currency restructurings and hyperinflation or deflation in the
countries in which we operate;
▪ the imposition of restrictions on currency conversion or the transfer of funds or limitations on our ability to
repatriate non-U.S. earnings in a tax effective manner;
▪ inability to achieve international tax treaty status with select licensed partners;
▪ the possibility of business corruption in various international markets;
▪ the ability to comply with, or impact of complying with, complex and changing laws, regulations and policies of
foreign governments that may affect investments or operations, including foreign ownership restrictions, import
and export controls, tariffs, embargoes, intellectual property, licensing requirements and regulations and changes
in applicable tax laws;
▪ the enforceability of contract rights;
▪ the difficulties involved in managing an organization doing business in many different countries;
▪ the ability to comply with, or impact of complying with, complex and changing laws, regulations and economic
policies of the U.S. government, including U.S. laws and regulations relating to economic sanctions, export
controls and anti-boycott requirements;
▪ increase in an anti-American sentiment and the identification of the licensed brand as an American brand;
▪ the effect of disruptions caused by severe outbreak of disease, weather, natural disasters or other events that
make travel to a particular region, as well as domestic visits, less attractive or more difficult; and
▪ political, social and economic instability.
Shake Shack Inc. Form 10-K | 36
Any or all of these factors may adversely affect the performance of and revenues we receive from our licensed Shacks located in
international markets or cause delays to the licensees' opening timelines. We may also face a loss of sales, globally, related to
negative sentiment towards American brands. Our international licensed Shacks operate in several volatile regions that are
subject to geopolitical and sociopolitical factors that pose risk to our business operations. If political, social or business conditions
were to change we may need to temporarily suspend or cease operations in a particular region or country entirely, close our
existing Shacks and suspend our expansion activities. Also, the economy of any region in which our Shacks are located may be
adversely affected to a greater degree than that of other areas of the country or the world by certain developments affecting
industries concentrated in that region or country. For example, a health outbreak, such as the COVID-19 pandemic, could slow
traffic in the impacted regions and could result in a loss of sales. Additionally, in the past, certain licensees have been negatively
impacted by currency devaluation, and we have seen a reduction in licensing revenue from those respective Shacks. While
these factors and the impact of these factors are difficult to predict, any one or more of them could lower our revenues, increase
our costs, reduce our profits or disrupt our business. As our international licensed operations increase, these risks will become
more pronounced.
We may not be able to adequately protect our intellectual property, which, in turn, could harm the value of our brand
and adversely affect our business.
Our ability to implement our business plan successfully depends in part on our ability to further build brand recognition using our
trademarks, service marks, proprietary products and other intellectual property, including our name and logos and the unique
character and atmosphere of our Shacks. We rely on U.S. and foreign trademark, copyright, and trade secret laws, as well as
license agreements, non-disclosure agreements, and confidentiality and other contractual provisions to protect our intellectual
property. Nevertheless, our competitors may develop similar menu items and concepts, and adequate remedies may not be
available in the event of an unauthorized use or disclosure of our trade secrets and other intellectual property.
The success of our business depends on our continued ability to use our existing trademarks and service marks to increase
brand awareness and further develop our brand in both domestic and international markets. We have registered and applied to
register trademarks and service marks in the United States and foreign jurisdictions. We may not be able to adequately protect
our trademarks and service marks, and our competitors and others may successfully challenge the validity and/or enforceability
of our trademarks and service marks and other intellectual property. Additionally, we may be prohibited from entering into certain
new markets due to restrictions surrounding competitors' trademarks. In addition, the laws of some foreign countries do not
protect intellectual property to the same extent as the laws of the United States.
If our efforts to maintain and protect our intellectual property are inadequate, or if any third party misappropriates, dilutes or
infringes on our intellectual property, the value of our brand may be harmed, which could have a material adverse effect on our
business and might prevent our brand from achieving or maintaining market acceptance.
We may also from time to time be required to institute litigation to enforce our trademarks, service marks and other intellectual
property. Such litigation could result in substantial costs and diversion of resources and could negatively affect our sales,
profitability and prospects regardless of whether we are able to successfully enforce our rights.
Third parties may assert that we infringe, misappropriate or otherwise violate their intellectual property and may sue us for
intellectual property infringement. Even if we are successful in these proceedings, we may incur substantial costs, and the time
and attention of our management and other personnel may be diverted in pursuing these proceedings. If a court finds that we
infringe a third party's intellectual property, we may be required to pay damages and/or be subject to an injunction. With respect
to any third party intellectual property that we use or wish to use in our business (whether or not asserted against us in litigation),
we may not be able to enter into licensing or other arrangements with the owner of such intellectual property at a reasonable cost
or on reasonable terms.
We depend on key members of our executive management team.
We depend on the leadership and experience of key members of our executive management team. As previously announced,
our Chief Executive Officer, Randy Garutti, has informed the Company's Board of Directors that he will retire from the Company
in 2024. Mr. Garutti will serve as an advisor to the Company following his resignation to ensure a proper transition to his
successor. The loss of the services of any of our executive management team members, including Mr. Garutti prior to and during
Shake Shack Inc. Form 10-K | 37
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remediate the material weakness. These remediation measures may be time consuming and costly, and there is no assurance
that these initiatives will ultimately have the intended effects. Any failure to maintain effective internal control over financial
reporting could adversely impact our ability to report our financial position and results from operations on a timely and accurate
basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise,
if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the NYSE, the
SEC or other regulatory authorities, or other potential claims or litigation. Ineffective internal control over financial reporting could
also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading
price of our stock.
The SEC has proposed new rules which, if adopted, would impose significant new disclosure obligations related to climate
change, and has recently adopted new rules relating to cybersecurity which have required us to develop and implement effective
controls with respect to these new obligations. Ineffective disclosure controls and procedures and internal control over financial
reporting could also cause investors to lose confidence in our reported financial and other information, which may have a
negative effect on the trading price of our Class A common stock. In addition, if we are unable to continue to meet these
requirements, we may not be able to remain listed on the New York Stock Exchange.
We are subject to many federal, state, local and foreign laws and regulations, as well as other statutory and regulatory
requirements, with which compliance is both costly and complex. Failure to comply with, or changes in these laws or
requirements, could have an adverse impact on our business.
We are subject to extensive federal, state, local and foreign laws and regulations, as well as other statutory and regulatory
requirements, including those related to:
▪ Nutritional content labeling and disclosure requirements - There are various legislative, regulatory and consumer-
focused requirements on the food industry including nutritional and advertising practices. These changes have resulted
in, and may continue to result in, the enactment of laws and regulations that impact the ingredients and nutritional
content of our menu items, or laws and regulations requiring us to disclose the nutritional content of our food offerings.
For example, a number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant
operators to disclose certain nutritional information to customers, or have enacted legislation restricting the use of
certain types of ingredients in restaurants. These labeling laws may change consumer buying habits in a way that
adversely impacts our sales. Additionally, an unfavorable report on, or reaction to, our menu ingredients, the size of our
portions or the nutritional content of our menu items could negatively influence the demand for our offerings.
▪ Food safety regulations - There is a potential for increased regulation of certain food establishments in the United
States, where compliance with a Hazard Analysis and Critical Control Points ("HACCP") approach may be required.
HACCP refers to a management system in which food safety is addressed through the analysis and control of potential
hazards from production, procurement and handling, to manufacturing, distribution and consumption of the finished
product. Additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability
of certain products, result in adverse publicity or require us to take actions that could be costly for us or otherwise
impact our business.
▪ Local licensure, building and zoning regulations - The development and operation of Shacks depend, to a significant
extent, on the selection of suitable sites, which are subject to zoning, land use, environmental, traffic and other
regulations and requirements. We are also subject to licensing and regulation by state and local authorities relating to
health, sanitation, safety and fire standards. Typically, licenses, permits and approvals under such laws and
regulations must be renewed annually and may be revoked, suspended or denied renewal for cause at any time if
governmental authorities determine that our conduct violates applicable regulations. Difficulties or failure to maintain or
obtain the required licenses, permits and approvals could adversely affect our existing Shacks and delay or result in
our decision to cancel the opening of new Shacks, which would adversely affect our business.
Shake Shack Inc. Form 10-K | 39
▪ Employment regulations - We are subject to various federal and state laws governing our employment practices,
including laws relating to minimum wage requirements, employee classifications as exempt or non-exempt, payroll and
unemployment tax laws, requirements to provide meal and rest periods or other benefits, family leave mandates,
requirements regarding working conditions and accommodations to certain employees, citizenship and work
authorization requirements, insurance and workers' compensation rules, scheduling notification requirements and anti-
discrimination laws. Compliance with these regulations is costly and requires significant resources. For example, the
Fair Workweek legislation implemented in New York City requires fast food employers to provide employees with
specified notice in scheduling changes and pay premiums for changes made to employees' schedules, among other
requirements. Similar legislation has been and may be enacted in other jurisdictions in which we operate as well, and
in turn, could result in increased costs. Additionally, we may suffer losses from or incur significant costs to defend
claims alleging non-compliance. Although none of our employees are currently covered under collective bargaining
agreements, certain employees of other companies in our industry have recently become unionized, and our
employees may elect to be represented by labor unions in the future. If a significant number of our employees were to
become unionized and collective bargaining agreement terms were significantly different from our current
compensation arrangements, it could adversely affect our business, financial condition or results of operations. In
addition, a labor dispute involving some or all of our employees may harm our reputation, disrupt our operations and
reduce our revenues, and resolution of disputes may increase our costs. Further, if we enter into a new market with
unionized construction companies, or the construction companies in our current markets become unionized,
construction and build costs for new Shacks in such markets could materially increase.
▪ The Affordable Care Act - We are required to provide affordable coverage to substantially all full-time employees, or
otherwise be subject to potential excise tax penalties based on the affordability criteria in the Affordable Care Act.
Additionally, some states and localities have passed state and local laws mandating the provision of certain levels of
health benefits by some employers. Increased health care and insurance costs, as well as the potential increase in
participation by our employees who previously had not participated in our medical plan coverage, could have a material
adverse effect on our business, financial condition and results of operations.
▪ The Americans with Disabilities Act ("ADA") and similar state laws - We are subject to the ADA and similar state laws,
which, among other things, prohibits discrimination in employment and public accommodations on the basis of
disability. Under the ADA, our Shacks are required to meet federally mandated requirements for the disabled and we
could be required to incur expenses to modify our Shacks to provide service to, or make reasonable accommodations
for the employment of, disabled persons. The expenses associated with these modifications, or any damages, legal
fees and costs associated with resolving ADA-related complaints could be material.
Shake Shack Inc. Form 10-K | 40
▪ Privacy and cybersecurity - Our business requires the collection, transmission and retention of large volumes of guest
and team member data, including credit and debit card numbers and other personally identifiable information. The
collection and use of such information is regulated at the federal and state levels, as well as internationally. Regulatory
requirements, both domestic and abroad, have been changing with increasing regulation relating to the privacy,
security and protection of data. Such regulatory requirements may become more prevalent in other states and
jurisdictions as well. It is our responsibility to ensure we are complying with these laws by taking the appropriate
measures as well as monitoring our practices as these laws continue to evolve. As our environment continues to
evolve in this digital age and reliance upon new technologies becomes more prevalent, it is imperative we secure the
private and sensitive information we collect. Failure to do so, whether through fault of our own information systems or
those of outsourced third-party providers, could not only cause us to fail to comply with these laws and regulations, but
also could cause us to face litigation and penalties that could adversely affect our business, financial condition and
results of operations. Our brand's reputation and our image as an employer could also be harmed by these types of
security breaches or regulatory violations.
▪ Laws and regulations related to our licensed operations - Our licensed operations are subject to laws enacted by a
number of states, rules and regulations promulgated by the U.S. Federal Trade Commission and certain rules and
requirements regulating licensing activities in foreign countries. Failure to comply with new or existing licensing laws,
rules and regulations in any jurisdiction or to obtain required government approvals could negatively affect our
licensing revenue and our relationships with our licensees.
▪ U.S. Foreign Corrupt Practices Act and other similar anti-bribery and anti-kickback laws - A significant portion of our
licensed operations are located outside the United States. The U.S. Foreign Corrupt Practices Act, and other similar
anti-bribery and anti-kickback laws and regulations, in general prohibit companies and their intermediaries from making
improper payments to non-U.S. officials for the purpose of obtaining or retaining business. While our license
agreements mandate compliance with applicable laws, we cannot assure you that we will be successful in preventing
our employees or other agents from taking actions in violation of these laws or regulations. Such violations, or
allegations of such violations, could disrupt our business and result in a material adverse effect on our financial
condition, results of operations and cash flows.
The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional
requirements and the consequences of litigation relating to current or future laws and regulations, uncertainty around future
changes in laws made by new regulatory administrations or our inability to respond effectively to significant regulatory or public
policy issues, could increase our compliance and other costs of doing business and, therefore, have an adverse effect on our
results of operations. Failure to comply with the laws and regulatory requirements of federal, state and local authorities could
result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal
liability. In addition, certain laws, including the ADA, could require us to expend significant funds to make modifications to our
Shacks if we fail to comply with applicable standards. Compliance with all of these laws and regulations can be costly and can
increase our exposure to litigation or governmental investigations or proceedings.
Our ability to use our net operating loss carryforwards may be subject to limitation.
As of December 27, 2023, our federal and state net operating loss (“NOL”) carryforwards, for income tax purposes were $596.3
million and $327.2 million, respectively. If not utilized, $544.5 million of our federal NOLs can be carried forward indefinitely and
the remainder will begin to expire in 2035. If not utilized, $49.9 million of our state NOL carryforwards can be carried forward
indefinitely, and the remainder will begin to expire in 2024. As of December 27, 2023, the Company had federal tax credit
carryforwards of $25.7 million which will begin to expire in 2025 and gross state tax credit carryforwards of $0.4 million which will
begin to expire in 2024.
In addition, under Section 382 of the Internal Revenue Code (“IRC”) of 1986, as amended, and corresponding provisions of state
law, if a corporation undergoes an “ownership change,” its ability to use its pre-change NOLs to offset its post-change income
may be limited. A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who
own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage
within a rolling three-year period. Similar rules may apply under state tax laws. We may experience ownership changes in the
future, some of which are outside our control. This could limit the amount of NOLs that we can utilize annually to offset future
taxable income or tax liabilities. Subsequent statutory or regulatory changes in respect of the utilization of NOLs for federal or
Shake Shack Inc. Form 10-K | 41
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In addition, certain of the non-controlling interest holders are in the business of making or advising on investments in companies
and may hold, and may from time to time in the future acquire interests in or provide advice to businesses that directly or
indirectly compete with certain portions of our business or the business of our suppliers. Our amended and restated certificate of
incorporation provides that, to the fullest extent permitted by law, none of the non-controlling interest holders or any director who
is not employed by us or his or her affiliates has any duty to refrain from engaging in a corporate opportunity in the same or
similar lines of business as us. The non-controlling interest holders may also pursue acquisitions that may be complementary to
our business, and, as a result, those acquisition opportunities may not be available to us.
Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the non-
controlling interest holders that will not benefit Class A common stockholders to the same extent as it will benefit the
non-controlling interest holders.
We are a party to the Tax Receivable Agreement with the non-controlling interest holders. Under the Tax Receivable Agreement,
we are required to make cash payments to the non-controlling interest holders equal to 85% of the tax benefits, if any, that we
actually realize, or in certain circumstances are deemed to realize, as a result of (i) the increases in the tax basis of the net
assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests from the non-controlling interest holders
and (ii) certain other tax benefits related to our making payments under the Tax Receivable Agreement.
We expect that the amount of the cash payments that we are required to make under the Tax Receivable Agreement will be
significant. Any payments made by us to the non-controlling interest holders under the Tax Receivable Agreement will generally
reduce the amount of overall cash flow that might have otherwise been available to us. Furthermore, our future obligation to
make payments under the Tax Receivable Agreement could make us a less attractive target for an acquisition, particularly in the
case of an acquirer that cannot use some or all of the tax benefits that are the subject of the Tax Receivable Agreement.
Payments under the Tax Receivable Agreement are not conditioned on any non-controlling interest holders continued ownership
of LLC Interests or our Class A common stock.
The actual amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of
factors, including the timing of redemptions or exchanges by the holders of LLC Interests, the amount of gain recognized by such
holders of LLC Interests, the amount and timing of the taxable income we generate in the future, and the federal tax rates then
applicable.
The non-controlling interest holders have the right to have their LLC Interests redeemed or exchanged into shares of
Class A common stock, which may cause volatility in our stock price.
We have an aggregate of 160,525,685 shares of Class A common stock authorized but unissued, including 2,834,513 shares of
Class A common stock issuable upon the redemption or exchange of LLC Interests held by the non-controlling interest holders.
Subject to certain restrictions set forth in the SSE Holdings LLC Agreement, the non-controlling interest holders are entitled to
have their LLC Interests redeemed or exchanged for shares of our Class A common stock.
We cannot predict the timing or size of any future issuances of our Class A common stock resulting from the redemption or
exchange of LLC Interests or the effect, if any, that future issuances and sales of shares of our Class A common stock may have
on the market price of our Class A common stock. Sales or distributions of substantial amounts of our Class A common stock,
including shares issued in connection with an acquisition, or the perception that such sales or distributions could occur, may
cause the market price of our Class A common stock to decline.
Our organizational structure, including our Tax Receivable Agreement, is very complex and we require the expertise of various
tax, legal and accounting advisers to ensure compliance with applicable laws and regulations. We have and will continue to incur
significant expenses in connection with the administration of our organizational structure. As a result, our expenses for legal, tax
and accounting compliance may be significantly greater than other companies of our size that do not have a similar
organizational structure or a tax receivable agreement in place.
Shake Shack Inc. Form 10-K | 43
We will continue to incur relatively outsized costs as a result of being a public company and in the administration of our
complex organizational structure.
As a public company, we incur significant legal, accounting, insurance and other expenses that we would not incur as a private
company, including costs associated with public company reporting requirements. We have also incurred and will continue to
incur costs associated with compliance with the Sarbanes-Oxley Act and related rules implemented by the SEC, and will incur
additional costs in connection with remediating the material weakness we have identified in our internal control over financial
reporting. Refer to Note 3, Restatement of Previously Issued Consolidated Financial Statements, in the Consolidated Financial
Statements in Part II, Item 8 for additional information. The expenses incurred by public companies generally for reporting and
corporate governance purposes have been increasing, and the SEC has proposed new rules which, if adopted, would impose
significant new disclosure obligations on us related to climate change, and has adopted new rules relating to cybersecurity.
These rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming.
These laws and regulations also make it more difficult or costly for us to obtain certain types of insurance, including director and
officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs
to obtain the same or similar coverage. Furthermore, if we are unable to continue to satisfy our obligations as a public company,
we would be subject to delisting our common stock, fines, sanctions and other regulatory action and potentially civil litigation.
Our organizational structure, including our Tax Receivable Agreement, is very complex and we require the expertise of various
tax, legal and accounting advisers to ensure compliance with applicable laws and regulations, and we have identified a material
weakness in our internal control over financial reporting in connection with internal controls over the calculation of state deferred
taxes and the related income tax expense (benefit). We have and will continue to incur significant expenses in connection with
the administration of our organizational structure. As a result, our expenses for legal, tax and accounting compliance may be
significantly greater than other companies of our size that do not have a similar organizational structure or a tax receivable
agreement in place.
Our anti-takeover provisions could prevent or delay a change in control of our Company, even if such change in control
would be beneficial to our stockholders.
Provisions of our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of
Delaware law could discourage, delay or prevent a merger, acquisition or other change in control of our Company, even if such
change in control would be beneficial to our stockholders. These provisions include:
▪ the authority to issue "blank check" preferred stock that could be issued by our Board of Directors to increase the
number of outstanding shares and thwart a takeover attempt;
▪ our classified Board of Directors providing that not all members of our Board of Directors are elected at one time;
▪ the removal of directors only for cause;
▪ prohibiting the use of cumulative voting for the election of directors;
▪ limiting the ability of stockholders to call special meetings or amend our bylaws;
▪ requiring all stockholder actions to be taken at a meeting of our stockholders; and
▪ our advance notice and duration of ownership requirements for nominations for election to the Board of Directors
or for proposing matters that can be acted upon by stockholders at stockholder meetings.
These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors
of your choosing and cause us to take other corporate actions you desire. In addition, because our Board of Directors is
responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our
stockholders to replace current members of our management team.
In addition, the Delaware General Corporation Law (the "DGCL"), to which we are subject, prohibits us, except under specified
circumstances, from engaging in any mergers, significant sales of stock or assets or business combinations with any stockholder
or group of stockholders who owns at least 15% of our common stock.
Shake Shack Inc. Form 10-K | 44
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the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in
these activities on desirable terms, which could result in a default on our debt obligations.
The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating
results.
In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert their Notes at
any time during specified periods at their option. If one or more holders elect to convert their Notes, unless we elect to satisfy our
conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any
fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which
could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under
applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-
term liability, which would result in a material reduction of our net working capital.
Conversion of the Notes may dilute the ownership interest of our stockholders or may otherwise depress the price of
our Class A common stock.
The conversion of some or all of the Notes may dilute the ownership interests of our stockholders. Upon conversion of the Notes,
we have the option to pay or deliver, as the case may be, cash, shares of our Class A common stock, or a combination of cash
and shares of our Class A common stock. If we elect to settle our conversion obligation in shares of our Class A common stock
or a combination of cash and shares of our Class A common stock, any sales in the public market of our Class A common stock
issuable upon such conversion could adversely affect prevailing market prices of our Class A common stock. In addition, the
existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to
satisfy short positions, or anticipated conversion of the Notes into shares of our Class A common stock could depress the price
of our Class A common stock.
Certain provisions in the indenture governing the Notes may delay or prevent an otherwise beneficial takeover attempt
of us.
Certain provisions in the indenture governing the Notes may make it more difficult or expensive for a third party to acquire us. For
example, the indenture governing the Notes will require us, except as described in the offering memorandum, to repurchase the
Notes for cash upon the occurrence of a fundamental change and, in certain circumstances, to increase the conversion rate for a
holder that converts its Notes in connection with a make-whole fundamental change. A takeover of us may trigger the
requirement that we repurchase the Notes and/or increase the conversion rate, which could make it costlier for a potential
acquirer to engage in such takeover. Such additional costs may have the effect of delaying or preventing a takeover of us that
would otherwise be beneficial to investors.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity,
and availability of our critical systems and information. Our cybersecurity risk management program includes a cybersecurity
incident response plan.
We design and assess our program based on the National Institute of Standards ("NIST") Cybersecurity Framework ("CSF").
This does not imply that we meet any particular technical standards, specifications, or requirements, but that we use the NIST
framework as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
Shake Shack Inc. Form 10-K | 47
Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and shares
common methodologies, reporting channels and governance processes that apply across the enterprise risk management
program to other legal, compliance, strategic, operational, and financial risk areas.
Our cybersecurity risk management program includes:
▪ Risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products,
services, and our broader enterprise IT environment;
▪ A security team led by our Chief Information Officer principally responsible for managing our (1) cybersecurity risk
assessment processes, (2) security controls, and (3) response to cybersecurity incidents;
▪ the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security
controls and designed to anticipate cyber-attacks and prevent breaches;
▪ cybersecurity awareness training of our employees, incident response personnel, and senior management;
▪ a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and
▪ a third-party risk management process for service providers, suppliers, and vendors.
Cybersecurity risks are monitored on an ongoing basis, and the security program and practices adjusted as necessary. As part of
our ongoing cybersecurity risk management program, we have from time-to-time identified risks or threats to our digital and
corporate systems, including attempts to obtain team member credentials through bot and phishing attacks or through social
engineering. While these risks and threats, as well as others we identify, require active and ongoing efforts to mitigate, we have
not currently identified any prior cybersecurity incidents, that have materially affected or are reasonably likely to materially affect
us, including our operations, business strategy, results of operations, or financial condition.
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee oversight
of cybersecurity and other information technology risks. The Audit Committee oversees management’s implementation of our
cybersecurity risk management program, including reviewing risk assessments from management with respect to our information
technology systems and procedures, and overseeing our cybersecurity risk management processes.
The Audit Committee receives quarterly reports from management on our cybersecurity risks. In addition, management will
update the Audit Committee, as necessary, regarding cybersecurity incidents, that we may experience.
The Audit Committee reports to the full Board regarding its activities, including those related to cybersecurity. The full Board also
receives briefings from management on our cyber risk management program. Board members receive presentations on
cybersecurity topics from our Chief Information Officer, who has been designated as our Chief Information Security Officer
("CISO"), internal security staff or external experts as part of the Board’s continuing education on topics that impact public
companies.
Our management team, including our Chief Information Officer, is responsible for assessing and managing our material risks
from cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management program and
supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants. Our management
team’s cybersecurity risk management is led by our Chief Information Officer, who has significant experience across digital
innovation and technology-enabled growth, information security, infrastructure, operations and compliance.
Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through
various means, which may include briefings from internal security personnel; threat intelligence and other information obtained
from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by
security tools deployed in the IT environment.
Shake Shack Inc. Form 10-K | 48
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Item 6. Selected Financial Data.
Not applicable.
Shake Shack Inc. Form 10-K | 53
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
This section and other parts of this Annual Report on Form 10-K (“Form 10-K”) contain forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks,
uncertainties and other important factors that may cause actual results to be materially different from the statements made
herein. All statements other than statements of historical fact are forward-looking statements, including, but not limited to,
statements about the Company's growth, strategic plan, and liquidity. Forward-looking statements discuss our current
expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and
business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts.
These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend,"
"likely," "outlook," "potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," the
negatives thereof and other similar expressions.
All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all
forward-looking statements made in this Form 10-K in the context of the risks and uncertainties disclosed in Part I, Item 1A of this
Form 10-K under the heading "Risk Factors," in this Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and in Item 7A "Quantitative and Qualitative Disclosures About Market Risk."
The forward-looking statements included in this Form 10-K are made only as of the date hereof. We undertake no obligation to
publicly update any forward-looking statement as a result of new information, future events or otherwise, except as otherwise
required by law. If we do update one or more forward-looking statements, no inference should be made that we will make
additional updates with respect to those or other forward-looking statements.
Restatement of Previously Issued Consolidated Financial Statements
The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the
restatement of the Company’s previously issued Consolidated Financial Statements for the fiscal year ended December 28,
2022.
The restatement was related to incorrect accounting for the deferred tax asset associated with the Company's investment in SSE
Holdings, LLC primarily due to incorrect accounting for state tax depreciation. The error led to an overstatement of income tax
expense and an understatement of deferred tax assets during the impacted period. The error did not impact total revenue or loss
before income taxes for the fiscal year ended December 28, 2022.
Refer to Note 3, Restatement of Previously Issued Consolidated Financial Statements, in the accompanying Consolidated
Financial Statements included in Part II, Item 8 for additional information.
Shake Shack Inc. Form 10-K | 54
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Average weekly sales were $76,000 for the thirteen weeks ended December 27, 2023, which was flat compared to the same
period last year, driven by higher menu prices, partially offset by menu mix and the performance of the 2022 class of Shacks.
Average weekly sales were $75,000 for the fifty-two weeks ended December 27, 2023 compared to $73,000 for the same period
last year, driven by higher menu prices and the opening of 41 new domestic Company-operated Shacks.
System-wide sales increased 21.4% to $442.1 million for the thirteen weeks ended December 27, 2023, versus the same period
last year. System-wide sales increased 23.5% to $1,702.1 million for the fifty-two weeks ended December 27, 2023, versus the
same period last year. Average unit volume for domestic Company-operated Shacks was $3.9 million for the fifty-two weeks
ended December 27, 2023 compared to $3.8 million in the same period last year.
Digital sales for the thirteen and fifty-two weeks ended December 27, 2023 increased 15.9% and 6.9% respectively, compared to
the same periods last year. Digital sales includes orders placed on the Shake Shack app, website and third-party delivery
platforms, which represented 35.0% of Shack sales during the thirteen weeks ended December 27, 2023.
Shake Shack Inc. Form 10-K | 56
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Adjusted Pro Forma Net Income (Loss) and Adjusted Pro Forma Earnings (Loss) Per Fully
Exchanged and Diluted Share
Adjusted pro forma net income (loss) represents Net income (loss) attributable to Shake Shack Inc. assuming the full exchange
of all outstanding SSE Holdings, LLC membership interests ("LLC Interests") for shares of Class A common stock, adjusted for
certain non-recurring items that we do not believe are directly related to our core operations and may not be indicative of our
recurring business operations. Adjusted pro forma earnings (loss) per fully exchanged and diluted share is calculated by dividing
adjusted pro forma net income (loss) by the weighted average shares of Class A common stock outstanding, assuming the full
exchange of all outstanding LLC Interests, after giving effect to the dilutive effect of outstanding equity-based awards.
During the fiscal year ended December 27, 2023 , the Company revised its definition of Adjusted Pro Forma Net Income to
exclude executive transition costs as an adjustment to the measure. Previously reported periods have been revised to conform to
the current period presentation. See "EBITDA and Adjusted EBITDA" above for additional information.
How These Measures Are Useful
When used in conjunction with GAAP financial measures, adjusted pro forma net income (loss) and adjusted pro forma earnings
(loss) per fully exchanged and diluted share are supplemental measures of operating performance that we believe are useful
measures to evaluate our performance period over period and relative to our competitors. By assuming the full exchange of all
outstanding LLC Interests, we believe these measures facilitate comparisons with other companies that have different
organizational and tax structures, as well as comparisons period over period because it eliminates the effect of any changes in
Net income (loss) attributable to Shake Shack Inc. driven by increases in our ownership of SSE Holdings, which are unrelated to
our operating performance, and excludes items that are non-recurring or may not be indicative of our ongoing operating
performance.
Limitations of the Usefulness of These Measures
Adjusted pro forma net income (loss) and adjusted pro forma earnings (loss) per fully exchanged and diluted share may differ
from similarly titled measures used by other companies due to different methods of calculation. Presentation of adjusted pro
forma net income (loss) and adjusted pro forma earnings (loss) per fully exchanged and diluted share should not be considered
alternatives to Net income (loss) and earnings (loss) per share, as determined under GAAP. While these measures are useful in
evaluating our performance, they do not account for the earnings attributable to the non-controlling interest holders and therefore
do not provide a complete understanding of the Net income (loss) attributable to Shake Shack Inc. Adjusted pro forma net
income (loss) and adjusted pro forma earnings (loss) per fully exchanged and diluted share should be evaluated in conjunction
with our GAAP financial results. A reconciliation of adjusted pro forma net income (loss) to Net income (loss) attributable to
Shake Shack Inc., the most directly comparable GAAP measure, and the computation of adjusted pro forma earnings (loss) per
fully exchanged and diluted share are set forth below.
Shake Shack Inc. Form 10-K | 67
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Valuation of Long-Lived Assets
We assess potential impairments to our long-lived assets, which includes property and equipment and operating and finance
lease assets, at least annually or whenever events or circumstances indicate that the carrying amount of an asset may not be
recoverable. The recoverability evaluation is first performed at the market service area level ("MSA"). If the carrying value of the
MSA exceeds its estimated undiscounted future cash flows, a secondary recoverability test is performed for all individual Shacks
within the identified MSA. An impairment charge is recognized when the carrying amount of the asset exceeds the fair value of
the asset, considering external market participant assumptions, and is allocated across all assets of the impaired Shack.
Significant judgment is involved in determining the assumptions used in estimating future cash flows, including projected sales
growth, operating margins, economic conditions and changes in the operating environment. Changes in these assumptions could
have a significant impact on the recoverability of the asset and may result in additional impairment charges.
Leases
We currently lease all of our domestic Company-operated Shacks, the home office, and certain equipment under various lease
agreements. Determining the probable term for each lease requires judgement by management and can impact the classification
and accounting for a lease as financing or operating, as well as the period for straight-lined rent expense and the depreciation
period for lease hold improvements.
We calculate operating lease assets and lease liabilities as the present value of fixed lease payments over the reasonably
certain lease term beginning at the commencement date. We use an incremental borrowing rate (“IBR”) in determining the
present value of future lease payments as there are no explicit rates provided in the leases. The IBR is an estimate based on
several factors, including financial market conditions, comparable company and credit analysis as well as management
judgement. If the IBR was changed, our operating lease assets and lease liabilities could differ materially.
Income Taxes
In determining the provision for income taxes for financial statement purposes, we make estimates and judgments which affect
our evaluation of the carrying value of our deferred tax assets as well as our calculation of certain tax liabilities. We evaluate the
carrying value of our deferred tax assets on a quarterly basis. In completing this evaluation, we consider all available positive and
negative evidence. Such evidence includes historical operating results, the existence of cumulative earnings and losses in the
most recent fiscal years, taxable income in prior carryback year(s) if permitted under the tax law, expectations for future pre-tax
operating income, the time period over which our temporary differences will reverse, and the implementation of feasible and
prudent tax planning strategies. Estimating future taxable income is inherently uncertain and requires judgment. In projecting
future taxable income, we consider our historical results and incorporate certain assumptions, including projected Shack
openings, revenue growth, and operating margins, among others. Deferred tax assets are reduced by a valuation allowance if,
based on the weight of this evidence, it is more likely than not that all or a portion of the recorded deferred tax assets will not be
realized in future periods.
Concluding that a valuation allowance is not required is difficult when there is significant negative evidence which is objective
and verifiable, such as cumulative losses in recent years. As of December 27, 2023, we are in a three-year cumulative loss
position. This is considered significant evidence that is difficult to overcome. However, the three-year cumulative loss position is
not solely determinative, and, accordingly, management considered all available positive and negative evidence in our analysis.
Although we are in a three-year cumulative loss position as of December 27, 2023, we have a recent history of earnings prior to
the onset of the COVID-19 pandemic. Additionally, we have returned to a profitable pre-tax earnings position for the year ended
December 27, 2023 and are forecasted to continue this trajectory. We have recorded a valuation allowance against certain state
tax attributes that are not expected to be utilized prior to expiration. As of December 27, 2023, we had $326.2 million of net
deferred tax assets, net of valuation allowances. Based upon the weight of the positive and negative evidence, we determined
that the positive evidence outweighs the negative evidence to support the conclusion that future taxable income should be
included in the evaluation of the need for a valuation allowance.
Shake Shack Inc. Form 10-K | 72
Liabilities Under Tax Receivable Agreement
As described in Note 15 to the Consolidated Financial Statements included in Item 8, we are a party to the Tax Receivable
Agreement under which we are contractually committed to pay the non-controlling interest holders 85% of the amount of any tax
benefits that we actually realize, or in some cases are deemed to realize, as a result of certain transactions. Amounts payable
under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the
term of the Tax Receivable Agreement and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the
aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the
related TRA Payments. Therefore, we would only recognize a liability for TRA Payments if we determine it is probable that we
will generate sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits.
Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, we consider
our historical results and incorporate certain assumptions, including projected Shack openings, revenue growth, and operating
margins, among others. As of December 27, 2023, we recognized $235.6 million of liabilities relating to our obligations under the
Tax Receivable Agreement, after concluding that it was probable that we would have sufficient future taxable income to utilize
the related tax benefits. There were no transactions subject to the Tax Receivable Agreement for which we did not recognize the
related liability, as we concluded that we would have sufficient future taxable income to utilize all of the related tax benefits
generated by all transactions that occurred in fiscal 2023. If we determine in the future that we will not be able to fully utilize all or
part of the related tax benefits, we would de-recognize the portion of the liability related the benefits not expected to be utilized.
Additionally, we estimate the amount of TRA Payments expected to be paid within the next 12 months and classify this amount
as current on our Consolidated Balance Sheets. This determination is based on our estimate of taxable income for the next fiscal
year. To the extent our estimate differs from actual results, we may be required to reclassify portions of our liabilities under the
Tax Receivable Agreement between current and non-current.
Shake Shack Inc. Form 10-K | 73
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We have implemented certain remedial measures including, but not limited to, a review of all existing accounting for income
taxes to ensure that it was in compliance with GAAP prior to filing the Consolidated Financial Statements as of and for the year
ended December 27, 2023. In addition, we are in the process of developing enhanced control procedures designed to ensure
proper accounting for our tax related accounts and balances, which will include adding technical resources to perform and
oversee income tax accounting. Based on additional procedures and post-closing review, management concluded that the
Consolidated Financial Statements included in this report present fairly, in all material respects, our financial position, results of
operations, and cash flows for the periods presented, in conformity with GAAP.
The material weakness cannot be considered remediated until the applicable remedial controls operate for a sufficient period of
time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
Except as otherwise discussed above, there were no changes in our internal control over financial reporting that have materially
affected or are reasonably likely to materially affect such controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Shake Shack Inc. Form 10-K | 77
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Measurement of the valuation allowance against deferred tax assets
Description of the
Matter
As discussed in Notes 2 and 15 of the consolidated financial statements, a valuation allowance is recognized
if the Company determines it is more likely than not that all or a portion of a deferred tax asset will not be
recognized. In making such determination, the Company considers all available evidence, including scheduled
reversals of deferred tax liabilities, tax planning strategies and recent and forecasted results of operations. As
of December 27, 2023, the Company is in a three-year cumulative book loss position and is looking to its
forecasted future U.S. taxable income to conclude that it is more likely than not that these deferred tax assets,
except for certain local unincorporated business tax credits and state loss carryforwards, will be fully realized
prior to their expiration. As of December 27, 2023, the Company had a net deferred tax asset balance for U.S.
income taxes of $326.2 million, for which a valuation allowance of $0.4 million was provided.
Auditing management’s analysis of the realizability of these U.S. deferred tax assets is highly judgmental
because it requires the evaluation of positive and negative evidence to support the position that the Company
will generate sufficient future U.S. taxable income to realize the deferred tax assets as tax deductions on
future income tax returns. The Company’s forecasted financial information, which is inherently subjective, is a
significant component of management’s analysis.
How We
Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company’s evaluation of deferred tax asset realizability. In addition, we obtained an understanding,
evaluated the design and tested the operating effectiveness of controls over the Company’s financial
forecasting process. Such controls include management’s review of forecasted pretax income, including
significant assumptions such as projected Shack openings, operating margins, and operating costs, among
others.
In our testing of management’s assessment of deferred tax asset realizability as described above, we
performed audit procedures that included, among others, evaluating the conclusions reached by the Company
regarding the realizability of deferred tax assets, which involved performing procedures over (i) the scheduled
reversal of deferred taxes and (ii) forecasted financial information. In order to test management’s financial
forecasts, we assessed the historical accuracy of management’s forecasts and compared the significant
assumptions used to current industry and economic trends and changes to the Company’s operations. In
addition, we performed sensitivity analyses to evaluate the impact of changes in assumptions to future taxable
income and ultimately, realizability of deferred tax assets.
Measurement of the Tax Receivable Agreement liability
Description of the
Matter
As discussed in Note 15 of the consolidated financial statements, the Company has a Tax Receivable
Agreement (“TRA”) with certain current and historical holders of LLC interests, which is a contractual
commitment to distribute 85% of any tax benefits (“TRA Payment”), realized or deemed to be realized by the
Company to the parties to the TRA. The TRA payments are contingent upon, among other things, the
generation of future taxable income over the term of the TRA and future changes in tax laws. As of December
27, 2023, the Company’s liability due to the holders of LLC interests under the TRA (“TRA liability”), was
$235.6 million.
Auditing management’s accounting for the TRA liability is especially complex and judgmental as the
Company’s calculation of the TRA liability requires estimates of its future qualified taxable income over the
term of the TRA as a basis to determine if the related tax benefits are expected to be realized. Significant
changes in estimates could have a material effect on the Company’s results of operations.
Shake Shack Inc. Form 10-K | 79
How We
Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company’s process for determining the measurement of the Company’s TRA obligation. Such controls
include management review controls over the computation of the TRA liability, which is based on several
inputs including the Company’s share of the tax basis in the LLC, as discussed above, as well as the estimate
of future qualified taxable income over the term of the TRA. We also tested management’s review control over
the calculation of the TRA liability in accordance with the terms set out in the TRA.
We tested the measurement of the Company’s TRA liability by performing audit procedures that included,
among others, evaluating the reasonableness and existence of the redemption activity, and recalculating the
Company’s share of the tax basis in the net assets of LLC.. To test the Company’s position that there is
sufficient future taxable income to realize the tax benefits related to the redemptions discussed above, we
evaluated the assumptions used by management to develop the projections of future taxable income. For
example, we compared management’s projections of future taxable income with the actual results of prior
periods, as well as management’s consideration of current industry and economic trends. We also
recalculated the TRA liability and verified the calculation of the TRA liability was in accordance with the terms
set out in the TRA.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2014.
New York, New York
February 29, 2024
Shake Shack Inc. Form 10-K | 80
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
New York, New York
February 29, 2024
Shake Shack Inc. Form 10-K | 82
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date of the financial statements, and the reported amounts of sales and expenses during the reporting period. Actual results
could differ from those estimates.
Segment Reporting
The chief operating decision maker (the "CODM") is the Chief Executive Officer. The Company determined it has one operating
segment and one reportable segment, as the CODM regularly reviews Shack operations and financial performance at a
consolidated level to allocate resources.
Fair Value Measurements
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a recurring basis. Assets and liabilities are categorized based
on the priority of the inputs to the valuation technique into a three-level fair value hierarchy as set forth below.
▪ Level 1 — Quoted prices in active markets for identical assets or liabilities.
▪ Level 2 — Observable inputs other than quoted prices in active markets for identical assets or liabilities, quoted prices
for identical assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the asset or liability.
▪ Level 3 — Inputs that are both unobservable and significant to the overall fair value measurements reflecting an entity's
estimates of assumptions that market participants would use in pricing the asset or liability.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash on hand, deposits with banks, money market funds and short-term, highly
liquid investments that have original maturities of three months or less. Cash equivalents are stated at cost, which approximates
fair value.
Marketable Securities
Marketable securities classified as available-for-sale securities consist of mutual funds that primarily invest in corporate bonds,
certificates of deposits, asset-backed securities, commercial paper, U.S. Treasury obligations, and foreign government securities.
Available-for-sale securities are recorded at fair value, with unrealized gains and losses recorded in Other income, net. Dividend
and interest income are recognized when earned and are recorded in Other income, net on the Consolidated Statements of
Income (Loss). Held-to-maturity securities consist of U.S. Treasuries for which the Company has the ability and intent to hold to
maturity and are reported at amortized cost, net of a valuation allowance for credit losses. Interest income and the amortization
of discounts and premiums are recorded in Other income, net on the Consolidated Statements of Income (Loss). No expected
credit losses were recognized as of December 27, 2023.
Accounts Receivable, Net
Accounts receivable, net consist primarily of receivables from our licensees for licensing revenue and related reimbursements,
credit card receivables and vendor rebates. The collectability of accounts receivable is evaluated based on a variety of factors,
including historical experience, current economic conditions and other factors.
Inventories
Inventories, which consist of food, paper goods, beverages, beer, wine and retail merchandise, are valued at the lower of
weighted average cost or net realizable value. No adjustment is deemed necessary to reduce inventory to net realizable value
due to the rapid turnover and high utilization of inventory.
Shake Shack Inc. Form 10-K | 90
Property and Equipment, Net
Property and equipment, net is stated at historical cost less accumulated depreciation. Property and equipment are depreciated
using the straight-line method over the estimated useful lives of the assets, which generally range from five to seven years for
equipment, furniture and fixtures, and two to five years for computer equipment and software. Leasehold improvements are
depreciated over the shorter of their estimated useful lives or the related lease terms.
Costs incurred when constructing Shacks are capitalized. The cost of repairs and maintenance are expensed when incurred.
Costs for refurbishments and improvements that significantly increase the productive capacity or extend the useful life of the
assets are capitalized. When assets are disposed, the resulting gain or loss is recognized in Impairment and loss on disposal of
assets on the Consolidated Statements of Income (Loss).
Valuation of Long-lived Assets
The Company assesses potential impairments to its long-lived assets, which include property and equipment and operating and
finance lease right-of-use assets, whenever events or circumstances indicate that the carrying value of an asset may not be
recoverable. The recoverability evaluation is first performed at the market service area level ("MSA"). If the carrying value of the
MSA exceeds its estimated undiscounted future cash flows, a secondary recoverability test is performed for all individual Shacks
within the identified MSA. An impairment charge is recognized when the carrying amount of the asset exceeds the fair value of
the asset, considering external market participant assumptions, and is allocated across all assets of the impaired Shack. Since
the determination of future cash flows is an estimate of future performance, there may be future impairments in the event that
future cash flows do not meet expectations. Refer to Note 5, Fair Value Measurements, for additional information.
Deferred Financing Costs
Deferred financing costs incurred in connection with the issuance of long-term debt and establishing credit facilities are
capitalized and amortized in Interest expense based on the related debt agreements. Deferred financing costs are included in
Other assets on the Consolidated Balance Sheets.
Other Assets
Other assets consist primarily of capitalized implementation costs from cloud computing arrangements, certain custom pre-
ordered furniture, fixtures and equipment for future and existing Shacks, transferable liquor licenses, and security deposits.
Implementation costs associated with cloud computing arrangements hosted by third-party vendors are capitalized when incurred
during the application development phase. Amortization is calculated on a straight-line basis over the contractual term of the
cloud computing arrangement and is recorded within General and administrative expenses on the Consolidated Statements of
Income (Loss). As of December 27, 2023 and December 28, 2022, capitalized implementation costs from cloud computing
arrangements totaled $5,572 and $6,212, respectively, net of accumulated amortization.
The costs of obtaining non-transferable liquor licenses that are directly issued by local government agencies for nominal fees are
expensed as incurred. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited
number of authorized liquor licenses are capitalized as indefinite-lived intangible assets. Annual liquor license renewal fees, for
both types of licenses, are expensed over the renewal term. As of December 27, 2023 and December 28, 2022, indefinite-lived
intangible assets relating to transferable liquor licenses totaled $1,903 and $1,837, respectively. Indefinite-lived intangible assets
are evaluated for impairment at least annually during the fourth quarter, and whenever events or circumstances indicate that an
impairment may exist. When evaluating intangible assets for impairment, the Company first performs a qualitative assessment to
determine whether it is more likely than not that an intangible asset group is impaired. If determined that it is more likely than not
that the carrying value of the intangible asset group exceeds its fair value, the Company performs a quantitative assessment to
derive the fair value of the intangible asset group. If the carrying value of the intangible asset group exceeds the estimated fair
value, an impairment charge is recorded to reduce the carrying value to the estimated fair value. In addition, the Company
continuously monitors and may revise the useful lives of intangible assets when facts and circumstances change.
Shake Shack Inc. Form 10-K | 91
Revenue Recognition
Revenue primarily consists of Shack sales and Licensing revenue. Generally, revenue is recognized as promised goods or
services transfer to the guest or customer in an amount that reflects the consideration the Company expects to be entitled to in
exchange for those goods or services.
Shack Sales
Revenue from Shack sales is recognized when payment is tendered at the point of sale, net of discounts, as the performance
obligation has been satisfied at that time. Sales tax collected from guests is excluded from Shack sales and the obligation is
included as sales tax payable until the taxes are remitted to the appropriate taxing authorities.
Delivery services are fulfilled by third-party delivery partners whether ordered through the Shack app, website ("Company-owned
platforms") or through third-party delivery platforms. Revenue from orders through Company-owned platforms includes delivery
fees and is recognized when the delivery partner transfers the order to the guest as the Company controls the delivery. For these
sales, the Company receives payment directly from the guest at the time of sale. Revenue from orders through third-party
delivery partners is recognized when the order is transferred to the third-party delivery partner and excludes delivery fees
collected by the delivery platforms as the Company does not control the delivery. The Company receives payment from the
delivery partner subsequent to the transfer of the order and the payment terms are short-term in nature. For all delivery sales, the
Company is considered the principal and recognizes revenue on a gross basis.
The Company sells gift cards which do not have expiration dates. Revenue from gift cards is recognized when gift cards are
redeemed by the customer or, in the event a gift card is not expected to be redeemed, in proportion to actual redemptions of gift
cards ("gift card breakage"). The gift card breakage rate is determined from historical gift card redemption patterns. Gift card
breakage income for fiscal 2023 and 2022 was $327 and $1,472, respectively. During fiscal 2022, the Company concluded it had
accumulated a sufficient level of historical data from a large pool of homogeneous transactions to allow it to reasonably and
objectively determine an estimated gift card breakage rate and the pattern of actual gift card redemptions. In accordance with
ASC 250, Accounting Changes and Error Corrections, the Company concluded that this accounting change represented a
change in accounting estimate. As a result, a cumulative catch-up adjustment was recorded during fiscal 2022 that resulted in
$1,281 of gift card breakage income. Gift card breakage income is included in Shack sales in the Consolidated Statements of
Income (Loss).
Licensing Revenue
Licensing revenue includes initial territory fees, Shack opening fees and ongoing sales-based royalty fees from licensed Shacks.
Generally, the licenses granted to develop, open and operate each Shack in a specified territory are the predominant good or
service transferred to the licensee and represent distinct performance obligations. Ancillary promised services, such as training
and assistance during the initial opening of a Shack, are typically combined with the license and considered one performance
obligation per Shack.
The Company determines the transaction price for each contract, which is comprised of the initial territory fee and an estimate of
the total Shack opening fees the Company expects to be entitled to. The calculation of total Shack opening fees requires
judgment, as it is based on an estimated number of Shacks the Company expects the licensee to open. The transaction price is
then allocated equally to each Shack expected to open. The performance obligation is satisfied over time, starting when a Shack
opens through the end of the license term for the related Shack therefore revenue is recognized on a straight-line basis over the
license term.
Generally, payment for the initial territory fee is received upon execution of the license agreement and payment for the Shack
opening fees is received either in advance of or upon opening the related Shack. These payments are initially deferred and
recognized in revenue as the performance obligations are satisfied. Revenue from sales-based royalties is recognized as the
related sales occur.
Equity-based Compensation
Equity-based compensation expense is measured based on the grant-date fair value of the awards. For awards with graded-
vesting features and service conditions only, compensation expense is recognized on a straight-line basis over the total requisite
Shake Shack Inc. Form 10-K | 92
service period for the entire award. For awards with graded-vesting features and a combination of service and performance
conditions, compensation expense is recognized using a graded-vesting attribution method over the vesting period based on the
most probable outcome of the performance conditions. For awards with cliff vesting features and a combination of service and
performance conditions, compensation expense is recognized on a straight-line basis over the total requisite service period for
the entire award. Actual distributed shares are calculated upon conclusion of the service and performance periods. Forfeitures
are recognized as they occur for all equity awards. Equity-based compensation expense is included in General and
administrative expenses and Labor and related expenses on the Consolidated Statements of Income (Loss).
Advertising
Most advertising costs are expensed as incurred, with the exception of advertising production costs, which are expensed at the
time the advertising first takes place. Advertising costs totaled $12,437, $12,376 and $5,677 in fiscal 2023, fiscal 2022 and fiscal
2021, respectively, and are included in General and administrative expense and Other operating expenses on the Consolidated
Statements of Income (Loss).
Leases
Shake Shack currently leases all of its domestic Company-operated Shacks, the home office and certain equipment under
various non-cancelable lease agreements that expire on various dates through 2045. The Company evaluates contracts entered
into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in
the contract. The Company evaluates whether it controls the use of the asset, which is determined by assessing whether
substantially all economic benefit from the use of the asset is obtained, and whether the Company has the right to direct the use
of the asset. If these criteria are met, the Company has identified a lease, within the contract, and therefore a right of use asset
and lease liability are recorded on the Consolidated Balance Sheets. Upon possession of a leased asset, the Company
determines whether the lease is an operating or finance lease. All of the Company's real estate leases are classified as operating
leases and most equipment leases are classified as finance leases.
Generally, real estate leases have initial terms ranging from 10 to 15 years and typically include two five-year renewal options.
Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain
at commencement date that the Company would exercise the renewal options. Real estate leases typically contain fixed
minimum rent payments and/or contingent rent payments which are based upon sales in excess of specified thresholds. When
the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales
recognized during the period.
For operating leases, fixed lease payments are recognized as operating lease costs on a straight-line basis over the lease term
within the Consolidated Statements of Income (Loss) in the following line items. Lease expense incurred before a Shack opens is
recorded in Pre-opening costs. Once a domestic Company-operated Shack opens, the straight-line lease expense and
contingent rent, if applicable, are recorded in Occupancy and related expenses. Many of these leases also require the Company
to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and
related expenses. Finance leases are recognized in depreciation expense on a straight-line basis over the remaining lease term,
along with recognition of interest expense associated with accretion of the lease liability.
For both operating and finance leases that contain lease and non-lease components, the components are combined and
accounted for as a single lease component. Variable lease costs for both operating and finance leases, if any, are recognized as
incurred. Leases with a term of 12 months or less are deemed short-term and are not recognized on the Consolidated Balance
Sheets. Fixed lease payments for short-term leases are recognized on a straight-line basis over the lease term.
The Company calculates operating lease assets and lease liabilities as the present value of fixed lease payments over the
reasonably certain lease term beginning at the commencement date. The Company uses its incremental borrowing rate (“IBR”) in
determining the present value of future lease payments as there are no explicit rates provided in the leases. The IBR used to
measure the lease liability is derived from the average of the yield curves obtained from using the notching method and the
recovery rate method. The most significant assumption in calculating the IBR is the Company's credit rating and is subject to
judgment. The credit rating used to develop the IBR is determined by utilizing the credit ratings of other public companies with
similar financial information as SSE Holdings.
Shake Shack Inc. Form 10-K | 93
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Item 13. Certain Relationships and Related Transactions, and
Director Independence.
The information required by this item with respect to transactions with related persons and director independence is incorporated
by reference to the sections entitled “Certain Relationships and Related Party Transactions” and “Corporate Governance --
Composition of our Board of Directors” in our Proxy Statement.
Item 14. Principal Accountant Fees and Services.
The information required by this item with respect to principal accountant’s fees and services is incorporated by reference to the
sections entitled “Audit and Related Fees” and “Audit Committee Report” in our Proxy Statement.
Shake Shack Inc. Form 10-K | 140
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CORPORATE INFORMATION
Transfer Agent & Registrar
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
www.amstock.com
Phone: 800-937-5449
Email: [email protected]
SWRFNKROGHU Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, proxy statements,
statements of changes in beneficial ownership and
amendments to those reports are available for free on our
investor relations website at investor.shakeshack.com.
To obtain copies of these reports, you may email, call or write
to us:
Attn: Investor Relations
Shake Shack Inc.
225 Varick Street, Suite 301
New York, NY 10014
Phone: 844-SHACK-04
Email: [email protected]
We webcast our earnings calls and certain events we participate
in or host with members of the investment community on our
investor relations website. Additionally, we provide notifications
of news or announcements regarding our financial performance,
including SEC filings, investor events, press and earnings
releases as part of our investor relations website. Investors and
other can receive notifications of new
information posted on our investor relations website in real
time by subscribing to email alerts. We also make certain
corporate governance documents available on our investor
relations website, including our corporate governance
guidelines, board committee charters, codes of conduct
and ethics, as well as certain company policies.
Annual Meeting of SWRFNKROGHUV
June 14, 2024, 9:00 a.m. ET
www.virtualshareholdermeeting.com/SHAK2024
Independent Registered Public Accounting Firm
Ernst & Young LLP
Board of Directors
Daniel Meyer (Chairman)
Union Square Hospitality Group, LLC, executive chairman
Sumaiya Balbale
, operating
Charles Chapman III
Panera Bread, former chief operating officer
Lori George
The Coca-Cola Company, former Global Chief Diversity,
Equity and Inclusion
Anna Fieler
,
Jeff Flug
Union Square Hospitality Group, LLC, former president
Randy Garutti
Shake Shack Inc., chief executive officer (resignation effective
May 20, 2024)
Jeffrey Lawrence
ShiftKey, LLC, chief financial officer
Jenna Lyons (resignation effective immediately prior to 2024
Annual Meeting)
J.Crew Group Inc., former president, executive creative director
Joshua Silverman
Etsy, Inc., chief executive officer
Jonathan D. Sokoloff
Leonard Green & Partners, L.P., managing partner
Robert Vivian (resignation effective immediately prior to 2024
Annual Meeting)
P.F. Chang's China Bistro, former co-chief executive officer
Tristan Walker
Heirloom Management Co., founder
former
Senior Leadership Team
Randy Garutti*
chief executive officer (resignation effective May 20, 2024)
Rob Lynch
chief executive officer and director (appointment effective
May 20, 2024)
Katherine Fogertey*
chief financial officer
*Named executive officer
Stock Exchange Listing
Trading Symbol: SHAK
New York Stock Exchange
(resignation effective immediately prior
to 2024 Annual Meeting)
Mountain View Village, Utah
