Shake Shack Stock Plunges Despite Solid Sales and Earnings. Can Fried Pickles Give Shares a Boost?

Shake Shack reported solid sales and earnings, but its same-store sales saw a dip. Blame it on inflation. (Ilya S. Savenok/Getty Images for The House of Suntory)

Shake Shack shares tumbled nearly 20% on Thursday, even as the burger chain posted second-quarter earnings and sales that beat expectations. Lower-than-expected same-store sales and persistent inflation have investors worried about a weaker outlook.

For the three months ended in June, Shake Shack posted 44 cents in adjusted earnings per share on the back of $356 million in total revenue. Analysts polled by FactSet had expected 38 cents and $354 million in revenue, respectively.

Total revenue increased 12.6% from a year ago, mostly driven by the new restaurants opened over the past four quarters. The count of total restaurants has expanded from 547 a year ago to 610 by the end of the second quarter.

But investors were disappointed in the 1.8% growth in same-store sales, which came in slightly below the 2% growth expected by Wall Street. Same-store growth was driven largely by a 3% menu price increase, while traffic dropped 1%.

Shake Shack might be pressured to raise prices further. Beef costs are near historical highs as the U.S. cattle herd shrinks due to drought and high feed costs; beef makes up a third of the burger chain’s cost of goods sold. Dairy prices are elevated, as well.

The company expects the inflationary pressure to last throughout 2025, but noted that much of it could be offset by savings through supply-chain and productivity improvements. “We continue to see a large degree of uncertainty in the outlook for beef prices,” said the firm.

Higher menu prices have weighed on store traffic. But Shake Shack is pushing ahead with efforts to revive traffic, launching new products—such as fried pickles and a chocolate-pistachio shake—and investing more in advertising and loyalty programs.

The company noted that sales increased toward the end of the quarter thanks to its marketing efforts, new menu items, and improved guest experience. July’s same-store sales were 3.2% higher than a year ago, according to the firm.

The company expects third-quarter revenue to come between $358 million and $364 million. For the whole year, management maintained its forecast for total revenue at $1.4 billion to $1.5 billion and says it expects to open 45 to 50 restaurants in total.

Before the earnings report, the stock had gained 8.6% year to date through Wednesday’s close.

Write to Evie Liu at evie.liu@barrons.com