Shake Shack’s data analysis

Setup
Imagine that you work at an investment firm. One day, your boss asks you to provide a brief report of Shake Shack’s expected EPS for the first quarter of 2020 (Q1 2020). She tells you that you do not have to do any modeling of your own. Instead, she wants you to gather information from and provide an opinion on what analysts, journalists, and other information intermediaries believe. Then, she wants you to write a short report and present its contents to the team.

Your task
The end goal is to provide an informed opinion about Shake Shack’s future quarterly earnings in an appealing and convincing format. Concretely, you should: • Gather information relevant for providing an informed opinion about Shake Shack’s EPS for the first quarter of 2020 (January-March). • Filter and weigh the information according to relevance. Some information is more relevant than others. New information is more up-to-date than old information; information from reputable sources tends to be more reliable than information from laymen; information that contradicts what a majority of others believe may be flawed, etc. • Provide a clear estimate of Shake Shack’s expected Q1 2020 EPS. • Create a 1-3-page1, visually appealing report with at least one Tableau graphic to illustrate and motivate your final estimate. The report may be created in Word or entirely within Tableau.

Potential data sources
• Yahoo! Finance is a good start to find what analysts currently believe the EPS will be (https://finance.yahoo.com/quote/SHAK/analysis?p=SHAK or search for Shake Shack, and click the Analysis tab. “Earnings” here refer to EPS). Other sources include seekingalpha.com, www.wsj.com, money.cnn.com, etc. A 14-day trial version of Tableau can be downloaded at tableau.com (students also get free access if they sign up).

Final instructions
• Do not forget to cite your sources. References give your opinion credibility and discloses that you are using somebody else’s analysis.
• Motivate your opinions. Why do you think analysts’ estimates may be too high (Coronavirus?) or too low (overreaction to Coronavirus?)? Are some analysts’ forecasts made before the outbreak hit and restaurants closed?
• Do not be frightened by the lack of concrete step-by-step instructions or directions as to what the report should contain. This is an open-ended assignment by design. Data analytics involves finding and working with unstructured data from multiple sources and imposing structure on it. That also means that there is no “wrong” way of doing this assignment—just different levels of “good”, ranging from acceptable to excellent.
Example of workflow with minimum effort (3-5 points out of a maximum of 10)
• Go to Yahoo! Finance and find what analysts in general believe (“consensus estimate”). Find
what EPS was for the previous quarter (Q4 2019).
• Find a few articles/analyst reports/opinions on Seeking Alpha and the Wall Street Journal that
discusses what has happened to Shake Shack’s business in the past quarter and how this can be
expected to affect Q1 2020 EPS.
• Contrast Q4 2019 with Q1 2020 in light of what has happened during the quarter.
• Create one graph/table in Tableau using the EPS trend datapoints from Yahoo! Finance, which
show how analysts have revised their expectations of Q1 2020 EPS historically over time (save
data points in Excel, import data points from Excel to Tableau).
• Write a one-page report, including the graph/table, with information and citations from the
articles you found which leads to a concrete expectation of Shake Shack’s Q1 2020 EPS.
• Record a 1-minute video in which you present your findings and your opinion using your phone
or computer.
More ambitious attempts will obviously result in more points.

Shake Shack’s Data Analysis

Name

Institutional Affiliation

Shake Shack’s Data Analysis

Shake Shack Profile

Shake Shack is a burger restaurant outlet that specializes in beef meals with offerings such as pure Angus beef burgers, chicken sandwiches, beef hot dogs, frozen custard, French fries, craft beer and wine, etc. The company focuses on organic, high quality meals and has maintained this focus since opening its doors in 2004 in New York City’s Madison Square Park. Today it has 280 locations in 30 States across America and 95 locations globally in cities like Dubai, Hong Kong, Istanbul, Mexico City, Manila, Seoul, Shanghai, Singapore, Tokyo, London, etc.

Report Purpose

The purpose of this report is to provide preliminary financial estimates about the company’s performance in the first quarter of 2020 that may or may not be accurate.  These estimates are a compilation of several expert opinions and may not eventually reflect reality when the company releases its official earnings report based on its audited accounts. Shake Shack is expected to release its First Quarter 2020 results by May 4, 2020, at the close of trading. The ultimate purpose of this report is to provide a reasonable estimate of the company’s estimated earnings-per-share based on partial returns that the firm has already released to the public.

Unaudited Results for Quarter One, ended March 25, 2020

According to its partial unaudited results which are already available in the company website, the firm managed to generate $143 million of which $138 million consisted of pure sales and $5 million in licensing revenue (seekingalpha.com, 2020; finance.yahoo.com, 2020).  These numbers represented a 12.8% decline in sales compared to the same quarter last year (2019), which the company revealed was within the expectations of management as far as January and February performance was concerned. However, in March the impact of the COVID-19 pandemic triggered a 28% decrease in sales compared to March 2019. This precipitated an operating loss of about $800,000 which represents 0.5% of total revenue, including a $1.1 million loss in property and equipment. However, the company still managed an operating profit of $26 million, representing 19.1% of the company’s sales. Cash in hand as well as marketable securities at the end of that period were worth $104 million and the firm managed to set up four company operated outlets and eight franchises.

Earnings Per Share

Calculating the EPS using the partial financial report proved difficult because the company did not provide preffered share as well as common share amounts. However, the consensus among various analysts using previous results is that the earnings per share for Shake Shack Inc are to hit a low of $0.01 when the official results are announced in May 4, 2020 on the back of global and national economic turbulence that has hit every sector. Some analysts are of the view that this could fall as low as -$0.07 or be as high as $0.13. They also estimate the revenue to rise slightly to hit $146 million, with a low of $135 million and a high of $166 million.

Justification

These views, largely fueled by analysis cognizant of the impact that COVID-19 has had on the economy are credible to some degree because of a number of issues that have affected the company and its industry in a unique way. First, Lockdowns at home and abroad have drastically reduced economic activity globally with restaurants among the worst hit industries due to closure and limited accessibility during the few relief hours that different countries and states in the US allowed (Dunsmuir & Saphir, 2020). Lockdowns prevented Shake Shack clients from patronizing its locations, debilitating revenues and effectively killing any type of sales that would have been possible especially in the month of March. First quarter earnings were therefore irreversibly wiped out, ensuring that revenues, sales and eventually, earnings per share, would drop to very low levels.

Table 1: COVID impact on US restaurants in February to March 2020 (opentable.com, 2020)

Second, in the few locations where there were no complete lockdowns, social distancing demands ensured that restaurants could not operate or could only operate at minimal capacity (McCann, 2020). This had the impact of drastically reducing revenues because of lower client engagement which translates into lower earnings per share.

Third, the COVID-19 pandemic drastically shifted spending priorities from their traditional destinations to new areas as individuals and societies adapted to the new realities. For instance, in cases where individuals would have preferred to dine out, they spend the money on stocking up food to prepare and consume at home, denying restaurants precious revenues that would have shored up business.

 Table 2: Products & services people spend less on due to COVID-19 (Statista, 2020)

In addition, the company has itself painted a bleak picture about its performance this year, attributing challenges to the pandemic which has driven down its sales by 70% and compelled it to lay off at least 20% of its staff at the corporate headquarters (Lalley, 2020).  The company has had to close a total of nine out of 280 locations in the US temporarily with dining rooms closed for all of March and attempted to stem the decline through home deliveries in partnership with Caviar Eats, DoorDash, Postmates and Uber Eats.  “We are navigating through an unprecedented time that continues to evolve rapidly … We are taking the crucial steps to safeguard the health of our teams and communities, while we work to serve our guests to the best of our ability,” Shake Shack CEO Randy Garutti said in a statement at the beginning of April.

In conclusion, the impacts of COVID-19 on the restaurant industry combined with the likelihood of Shake Shack not altering its share base means the EPS estimate of $0.01 is likely to be accurate or close to accurate when results are announced in May 2020.

References

Dunsmuir, Lindsay. “For U.S. Small Restaurants, Coronavirus Impact Is Swift and Brutal.” Reuters, Thomson Reuters, 20 Mar. 2020, www.reuters.com/article/us-health-coronavirus-usa-eateries/for-u-s-small-restaurants-coronavirus-impact-is-swift-and-brutal-idUSKBN2161GC.

Finance.yahoo.com “Shake Shack Unaudited Perfomance” 2 Apr. 2020. https://finance.yahoo.com/quote/SHAK/analysis?p=SHAK

Lalley, Heather. “Shake Shack Reports Dire Impacts of COVID-19 on Its Business.” Restaurant Business, Restaurant Business, 2 Apr. 2020, www.restaurantbusinessonline.com/operations/shake-shack-reports-dire-impacts-covid-19-its-business

McCann, Katie. “How Restaurants Are Handling Social Distancing and COVID-19.” TouchBistro, Mar. 2020, www.touchbistro.com/blog/restaurants-handing-social-distancing-covid-19/.

Opentable.com. “Daily year-on-year COVID-19 impact on U.S. restaurant dining Feb-Mar, 2020”. Apr. 2020. www.statista-com.ezproxy.nottingham.edu.cn/statistics/1104362/coronavirusrestaurant-visitation-impact-us/

Seekingalpha.com “Shake Shack Perfomance”. 2 Apr. 2020. www.seekingalpha.com/symbol/SHAK/earnings

Statista.com. “Products & services people spend less on due to COVID-19 (in %)” Apr. 2020. https://www-statista-com.ezproxy.nottingham.edu.cn/statistics/1107095/products-and-services-people-spend-less-on-due-to-the-covid-19-pandemic/