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Shake Shack Topples After Inaugural Earnings Disappoint Investors

|Includes: Shake Shack (SHAK)

The company reports roughly 240% quarterly loss in 4QFY14 attributed to higher costs of ingredients and a charge related IPO.

After the IPO of Shake Shack Inc (NYSE: SHAK) in January this year the company reported yesterday larger-than-expected quarterly loss of roughly 240 percent in the fourth quarter of fiscal year 2014 (4QFY14), attributed to higher costs of ingredients and a charge related to its IPO. Such inaugural earnings disappointed investors, owing to which the shares of company traded 5.86 percent down at $46.9 in pre-market trading today.

The New York-based burger maker posted a loss of $1.4 million ($0.05 per share) in 4QFY14, as compared to the earnings of $997,000 ($0.03 per share) in 4QFY13. The company failed to achieve the Street estimated loss per share of $0.03. However, it topped the Street's revenues estimates of $33 million during the quarter, as the burger maker's revenues jumped 52 percent YoY to $34.8 million. Same-store sales of the company climbed 7.2 percent YoY. The revenues were boosted due to lower fuel prices, as the consumers spent more out of their money saved on fuel.

Shake Shack's signature burgers are prepared with beef from Pat LaFrieda, which is considered to be of high quality and expensive. According to U.S. Department of Agriculture, consumer veal and beef prices have mounted 19 percent in 2014 and 12.6 percent YoY in January 2015. Higher beef prices narrowed the operating earnings of the burger maker from 22.7 percent to 22.3 percent in 4QFY14.

Like other famous fast food chains the company purchases meat from renowned suppliers who follow stringent health practices and do not use hormones or antibiotics. "We believe the generation today is willing to pay a little more to know where their food comes from," said Shake Shack CEO Randy Garutti in a statement. "That brand power is going to give us pricing power as needed."

According to CEO conference call with the analyst at Wall Street Journal, although the company does not intend to increase product prices to offset rallying ingredients costs in the short-term yet it may use this tactic to stop margins from further diminishing in the future.

The company's FY15 outlook is in line with the Street's estimates, as the burger maker expects revenues in the range of $159-163 million for FY15 whereas the Street expects revenues of $161 million. Same-store sales growth of low single digit is also expected.

Last month the company announced its plans to open 10 new stores in Japan. Yesterday the company elaborated its expansion plans by stating that it aims to open at least 10 domestic company-operated locations every year from 2015.