Shake Shack (SHAK)

Fast-food chain Shake Shack (NYSE:SHAK) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 15.9% year on year to $367.4 million. Its non-GAAP profit of $0.36 per share was 17.2% above analysts’ consensus estimates.

Company Overview

Started as a hot dog cart in New York City's Madison Square Park, Shake Shack (NYSE:SHAK) is a fast-food restaurant known for its burgers and milkshakes.

Modern fast food is a relatively newer category representing a middle ground between traditional fast food and sit-down restaurants. These establishments feature an expanded menu selection priced above traditional fast food options, often incorporating fresher and cleaner ingredients to serve customers prioritizing quality. These eateries are capitalizing on the perception that your drive-through burger and fries joint is detrimental to your health because of inferior ingredients.

Top competitors that also specialize in burgers include The Habit Burger Grill (owned by YUM! Brands, NYSE:YUM), Fatburger (owned by FAT Brands, NASDAQ:FAT), Burger King (owned by Restaurant Brands, NYSE:QSR), McDonald’s (NYSE:MCD), Wendy’s (NASDAQ:WEN), and Jack in the Box (NASDAQ:JACK).

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $1.37 billion in revenue over the past 12 months, Shake Shack is a mid-sized restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, Shake Shack’s 15.9% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was impressive as it opened new restaurants and increased sales at existing, established dining locations.

This quarter, Shake Shack reported year-on-year revenue growth of 15.9%, and its $367.4 million of revenue exceeded Wall Street’s estimates by 1%.

Looking ahead, sell-side analysts expect revenue to grow 17.6% over the next 12 months, an acceleration versus the last six years. This projection is admirable and suggests its newer menu offerings will catalyze better top-line performance.

Number of Restaurants

The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.

Shake Shack sported 630 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip by averaging 14.1% annual growth, among the fastest in the restaurant sector. This gives it a chance to become a large, scaled business over time.

When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.

Same-Store Sales

A company's restaurant base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales provides a deeper understanding of this issue because it measures organic growth at restaurants open for at least a year.

Shake Shack’s demand has been healthy for a restaurant chain over the last two years. On average, the company has grown its same-store sales by a robust 3% per year. This performance gives it the confidence to meaningfully expand its restaurant base.

In the latest quarter, Shake Shack’s same-store sales rose 4.9% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.

Shake Shack has great unit economics for a restaurant company, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 38.9% gross margin over the last two years. Said differently, roughly $38.93 was left to spend on selling, marketing, and general administrative overhead for every $100 in revenue.

In Q3, Shake Shack produced a 40.5% gross profit margin, up 2.1 percentage points year on year. Shake Shack’s full-year margin has also been trending up over the past 12 months, increasing by 2.3 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Shake Shack was profitable over the last two years but held back by its large cost base. Its average operating margin of 1.8% was weak for a restaurant business. This result is surprising given its high gross margin as a starting point.

On the plus side, Shake Shack’s operating margin rose by 4.6 percentage points over the last year, as its sales growth gave it immense operating leverage.

In Q3, Shake Shack generated an operating margin profit margin of 5%, up 10.7 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, and administrative overhead.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Shake Shack’s EPS grew at an unimpressive 8.9% compounded annual growth rate over the last six years, lower than its 15.9% annualized revenue growth. However, its operating margin didn’t change during this time, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

In Q3, Shake Shack reported adjusted EPS of $0.36, up from $0.25 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Shake Shack’s full-year EPS of $1.20 to grow 37.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Shake Shack has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 3.7% over the last two years, slightly better than the broader restaurant sector.

Taking a step back, we can see that Shake Shack’s margin expanded by 1.8 percentage points over the last year. This is encouraging because it gives the company more optionality.

Shake Shack’s free cash flow clocked in at $23.74 million in Q3, equivalent to a 6.5% margin. This result was good as its margin was 4.2 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Shake Shack has shown solid business quality lately, it struggled to grow profitably in the past. Its five-year average ROIC was negative 0.6%, meaning management lost money while trying to expand the business.

Shake Shack reported $357.8 million of cash and $848.4 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $200.5 million of EBITDA over the last 12 months, we view Shake Shack’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $1.07 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Shake Shack blew past analysts’ same-store sales expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 2.8% to $92.44 immediately after reporting.

Updated: December 4, 2025 at 9:45 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Shake Shack, you should also grasp the company’s longer-term business quality and valuation.

Shake Shack possesses a number of positive attributes. First off, its revenue growth was impressive over the last six years and is expected to accelerate over the next 12 months. And while its relatively low ROIC suggests management has struggled to find compelling investment opportunities, its new restaurant openings have increased its brand equity. On top of that, its gross margins are a strong starting point for the overall profitability of the business.

Shake Shack’s P/E ratio based on the next 12 months is 54.3x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in. This is a good one to add to your watchlist - there are better opportunities elsewhere at the moment.

Wall Street analysts have a consensus one-year price target of $114.36 on the company (compared to the current share price of $80.37).