3. Shake Shack Inc. (NYSE:SHAK)
Mr. Ramin’s Stake Value: $231 million
Percentage of Mr. Ramin’s 13F Portfolio: 9.71%
Number of Hedge Fund Holders: 20
Shake Shack Inc. (NYSE:SHAK) is an American fast food provider that is based out of New York, New York after being founded in 2001. The company is known for its hamburgers, hot dogs, shakes, beers and other food items. It operates both globally and domestically.
In its third quarter 2021 earnings report, Shake Shack Inc. (NYSE:SHAK) reported $193.9 million in revenue and -$0.06 in GAAP EPS, beating analyst estimates for both. Northcoast downgraded the company’s shares to Neutral in a November 2021 analyst note, after the earnings, citing weak Q4 guidance and a worry that the company might not be able to turn revenue into earnings.
Mr. Ramin’s 12 West Capital held 2 million shares of Shake Shack Inc. (NYSE:SHAK) during the second quarter of this year, in a stake worth $231 million and representing 9.71% of its portfolio. During the same time, 20 of the 873 hedge funds polled by Insider Monkey had holdings in the company.
Shake Shack Inc. (NYSE:SHAK)’s largest shareholder after 12 West Capital is Robert Joseph Caruso’s Select Equity Group who owns $102 million of equity through 954,928 shares.
In its third-quarter 2021 investor letter, investment firm Alger had the following to say about Shake Shack Inc. (NYSE:SHAK):
“Shake Shack, Inc. was among the top detractors from performance. Shake Shack is a modern day “roadside” burger stand serving a classic American menu of premium burgers, hot dogs, crinklecut fries, shakes, frozen custard, beer and wine. Founded by Danny Meyer’s Union Square Hospitality Group (“USHG”), Shake Shack was created by leveraging USHG’s expertise in sourcing premium ingredients, community building, hospitality, fine dining and restaurant operations. There are currently 339 locations, including restaurants in 32 U.S. states and the District of Columbia and 116 international locations in cities like London, Hong Kong, Shanghai, Singapore, the Philippines, Mexico, Istanbul, Dubai, Tokyo, Seoul and more.
Shares of Shake Shack underperformed in the third quarter due to a slower-than-expected recovery in urban locations and a lower-than-expected margin outlook. Sales at Urban locations were still down 18% year over year in July compared to a 23% decline in May, a modest improvement but less than expectations. We believe a delay in return to work has caused a temporary stalling in the company’s margin recovery, but this should improve as urban mobility increases and tourism from foreigners normalizes. On margins, the company guided to 15%-17% restaurant-level margins, which was below expectations of 18.9%. This margin outlook factored in higher wage inflation, which the company will begin to offset with a 3.5% price increase in the coming months. We believe margin recovery can potentially follow a sales recovery so near-term revenue choppiness may result in margin weakness but we believe the company is well positioned for when the environment normalizes as the pandemic winds down. Ultimately, we believe the pandemic accelerated Shake Shack’s digital efforts, so the company is currently positioned to benefit from a strong online presence. Digital was only 12% of sales in the early months of 2020, but that increased to 47% as of the second quarter of this year.”
