Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Shake Shack First Quarter 2015 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded today, May 13, 2015. On the call today, we have Randy Garutti, Chief Executive Officer of Shake Shack; and Jeff Uttz, Chief Financial Officer. And now, I'd like to turn the conference over to Mr. Uttz. Please go ahead, sir.

Thank you, sir, and good afternoon, everyone. By now, you should all have access to our first quarter 2015 earnings release. If not, it can be found at shakeshack.com in the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. Actual results may differ materially from those indicated by these forward-looking statements due to a number of risks and uncertainties, including those discussed in the Risk Factors section of our Annual Report on Form 10-K, which was filed on March 27, 2015. Additionally, any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change. Lastly, during today's call, we will discuss non-GAAP financial measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. And reconciliations to comparable GAAP measures are available in the earnings release. With that, I would now like to turn the call over to Randy.

Thank you, Jeff, and good afternoon, everyone. In the first quarter, our team executed on our plan and carried forward the strong momentum from the fourth quarter and following our January 30th IPO. I want to share a few of the highlights for the 13 weeks ended April 1, 2015. Total revenue grew 56.3% to $37.8 million. That includes an 11.7% increase in same-Shack sales on a calendar basis. Shack-level op profit, a non-GAAP measure, increased 78.3% to $9.3 million, a 25.7% Shack-level operating profit margin. Adjusted EBITDA, a non-GAAP measure, increased 94% to $7 million. On an adjusted pro forma basis, we earned $0.04 per share for the quarter, driven in large part by our much stronger-than-expected same-Shack sales growth. As discussed on our last call, we saw many of the dynamics that benefited us in the fourth quarter of 2014 continue through this first quarter, including the 2 price raises taken in September 2014 and January 2015 to partially offset commodity cost pressures, the temporary closure of our Madison Square Park Shack, providing a lift to other Manhattan Shacks, which make up a significant portion of our small and limited comp base; the continued lift in sales due to the return of crinkle-cut fries; and the extraordinary amount of press surrounding our initial public offering, cultivating new Shack fans and an even greater brand awareness. In addition, we've seen a positive mix shift from our limited time offering of the ShackMeister Burger, which we intend to continue to run through Q2. We are very pleased with our results. And in light of our Q1 performance, we expect full year same-Shack sales growth to be in the low to mid-single digits. However, we remain consistent in our long-term expectation and guidance to deliver low single-digit same-Shack sales growth in…

Thanks, Randy. Now turning to the results of our 13-week first quarter ended April 1, 2015. Total revenue, which includes Shack sales and licensing revenue, increased 56.3% to $37.8 million during the first quarter, from $24.2 million in the first quarter a year ago. Shack sales increased 59.2% to $36 million during the quarter, versus $22.6 million in the year-ago period. The increase was largely due to the addition of 13 domestic company-operated Shacks over the past year, as well as our stronger-than-expected same-Shack sales growth. Same-Shack sales increased 11.7% on a calendar basis during the first quarter, versus a 3.9% increase in the same quarter last year, and this consisted of a 2.1% increase in traffic, combined with a 9.6% increase in price and mix. We attribute our stronger-than-anticipated performance to menu price increases that were taken in September 2014 and January 2015 to partially offset higher commodity costs; the temporary closure of our Madison Square Park Shack, which is providing a lift to the other Manhattan Shacks, which make up a significant portion of our small comp base; the reintroduction of crinkle-cut fries; and lastly, the limited offering of our ShackMeister Burger. As a reminder, our comparable Shack base includes those Shacks that are open for 24 months or longer, which we feel is the best comparison, given the long honeymoon periods of the new Shacks. The comparable restaurant base in the first quarter of 2015 only included 13 Shacks versus 9 Shacks in the first quarter of 2014. Average weekly sales for domestic company-operated Shacks increased 7.2% to $89,000 for the first quarter of 2015, from $83,000 in the same quarter last year, primarily driven by menu price increases, positive shifts in mix from menu innovation and strong performance from several Shacks opened in the second half…

Thank you, Jeff. And before we close today, I do want to bring your attention to our most important charitable moment of the year. Throughout the month of May, Shake Shack has teamed up with Share Our Strength and No Kid Hungry to launch our fourth annual Great American Shake Sale throughout all domestic company-operated Shacks. This whole month, when a guest chooses to donate just $2 to No Kid Hungry, Shake Shack will gift them a free shake coupon to be used on their next visit. Our goal this year is to raise at least $350,000 and provide 3.5 million free meals to kids in need. This is a great month for our company, and we hope you'll come out and have a shake with us. Before we move to the Q&A portion of today's call, I would like to once again thank all of our truly dedicated and passionate team members. We know this past quarter has been an exceptional one for our team, and we know that Shake Shack’s success has only been made possible because of the hard work and dedication put forth by our team each and every day. With that, operator, please go ahead and open the lines for questions.

[Operator Instructions] We'll take our first question from John Glass with Morgan Stanley.

Randy, when you talk about the Boston and Baltimore stores being sort of better than expected, or very encouraged, can you give any color around are they well above kind of your targeted pro forma openings? Any sort of color around how these new and maybe some of these suburban stores are performing relative to expectations?

A little early to say, John, and we did just open those in the quarter. So the 2 in Boston are really new, Baltimore a little bit longer. I think what I'd say is Vegas and Chicago are obviously performing ahead of the $2.8 million to $3.2 million long-term targets that we've given you for our AUVs. We always have a quick honeymoon in new Shacks, and that would be the case in Baltimore and the 2 Boston Shacks. However, we still believe, over the long term, on average, we're going to be in the $2.8 million to $3.2 million Shack AUV. And I think those 3 will probably play right in that over time. So very early to say.

And Jeff, how do you assume -- or what do you assume for restaurant margins in your guidance for the balance of the year? I understand you don't expect comps to necessarily stay at these levels, but since a lot of it's been driven by price and mix, it probably won't -- it's probably easier to predict, let's say, than traffic, right? So given this level of pricing and maybe the mix you experienced in the first quarter, how does the restaurant-level profit really look, even if assuming traffic is flat for the balance of the year?

Yes, John, in terms of -- just in the guidance on the Shack-level operating profit, we're not going to head there right now. But I can tell you that we are going to continue to see some pressure on beef. We don't expect to see any relief on that until probably 2017. We do expect, as I mentioned in the call, some deleverage on the labor line. But again, I would steer you back towards looking at that 18% to 22% average Shack-level profit that we expect to see on the units that we're opening during the year and build it in that way.

And can you just give us the precise -- I know you gave us the total check, but the exact breakdown of price and mix, and why mix, I think, got much stronger this quarter? What was it -- was it just the ShackMeister or were there other components that drove mix?

Yes, John, it was 9.6% on price and mix. Most of that was the 6%, 2 price raises that we talked about. it was 2.1% on traffic. The ShackMeister Burger, I think some new trial following the IPO had people trying a lot more things. We also made a change that's been pretty good for us, where we have introduced a new Custard Calendar, where we change our flavor every week, and that has started in Q1. We now have a shake of the week flavor. We never had that before. So I think the combination of the shift in custard, shake of the week increasing a little bit of sales, because we charge a bit more for that, and some of our seasonal beverages, has been what's led to the 9.6% total price and mix shift. So it's been positive for us.

And we'll take our next question from John Ivankoe with JPMorgan.

It's Amod Gautam, filling in. Congrats on the strong quarter. The first question was just around what you were just talking about. I mean, the ShackMeister was running, I think you guys said it'll run through the second quarter and it's been a driver of mix. So can you just talk about maybe the plans for the second half of the year? Would you plan to replace that with another maybe LTO-type of burger or make that a permanent thing on the menu?

That is our intention right now, John. Being the fine casual guys that we are, with our fine-dining background, we're constantly tinkering in the test kitchen and having a lot of fun. So we've got a lot of fun ideas. And we're going to continue to run the ShackMeister for a while, it's been a huge hit, and continues to be. But as we look towards second half of the year, we like the program that we've gone with, with an LTO burger happening. So we'll stay tuned on that. Nothing to announce just yet, but that strategy will continue.

And then the California 2016 market entry, can you talk a little bit about how you chose the location there? I think it's in West Hollywood. And then how fast do you think, you're planning to kind of internally to scale up the business there? Can you maybe put it in context with some of the non-New York markets, such as the pace of openings in Boston or D.C. relative to what you think you can do in California?

Yes, so how did we choose it? We've been looking at California, obviously, for a very long time. We've gotten to know the neighborhoods real well. This was a really special opportunity. We found a pad site that we're able to build something. As you know, we spend a lot of time and focus on design. So we're going to build a real roadside shack, just like we always do, but for the L.A. car culture. It's going to be something really special. And we found that lot where we can do that. It has parking. It has proximity to every great neighborhood in L.A. on Santa Monica and La Cienega. It is really in a strong spot, and we felt that was the best way to introduce L.A. to everything that Shake Shack is. That's how we chose it. As we look at the future of California, I think we're going to go about it in the same cautious and conservative fashion that you've seen us take on every other market, whether it's D.C. or Boston. We want to get that one landed, do it right, of course, we have our eyes on the next opportunities out there. Nothing to announce yet. No new leases signed beyond that site. So we're going to do it cautiously and creatively to make sure that the brand resonates the way we believe it will with our fans in L.A. And what's been cool is, with the Vegas opening last quarter in December, we have seen, more than ever, people from Southern California coming to the Shake Shack, understanding what it is and asking us to bring one to L.A. So that's why ultimately, we went ahead and did that.

And we'll take our next question from Jeffrey Bernstein with Barclays.

A couple of questions. Just first, to follow up on the menu pricing discussion with the -- I guess, you've said in total, it's roughly 6% at this point. I'm just wondering what learnings you've had from that, whether or not you feel you have additional pricing power or whether you feel like there's any pushback? Obviously, the traffic was more low single-digit, so how do you think those 2 dynamics play off of each other?

We have not seen pushback, Jeff, thanks for that. I think what we continue to learn about Shake Shack is, Shake Shack is for people who want to understand where their food is from and have a higher expectation of, when they go out to eat a burger, where they want to get it. And they're willing to pay a little more for it. We do continue to be really proud about where our pricing is relative to other burgers out there and relative to other fine casual operators. But we think, even after taking that 6% over this last couple of quarters, we're still really well positioned with future price opportunities. No plans at all to take price through the rest of this year, and that's going to really depend on how we fare with the commodities. And again, first quarter, we had a lot of things in our favor. Beef mostly helped from the fourth quarter. It was significantly up from the first quarter of '14, but we've won quite a bit in dairy from last year and from the fourth quarter, and that's what helped us maintain our cost of goods at a level that was better than we expected. However, we still think there's some continued pressure through the end of the year on that, but hopefully, not enough to cause us to take price just yet. But stay tuned and again, we'll keep you posted if we think a price raise is coming.

Yes. And then the second question was just on the pace of openings for the, I guess, the rest of this year. I know you mentioned some cities where you're coming to, but should we assume any more in the second quarter and/or how do they break out between the third and fourth, your best guess, I guess?

Yes, so it's really well paced. We've got 3 opened in the first quarter of the 10. We've gotten 2 opened so far and we expect probably one more in the quarter. So we'll probably be right on track for roughly half of our plan through Q2. We'll probably have a little break in the early summer and open the majority of those other 4 towards the end of Q3 and into Q4. That looks how it's going to play out, which is kind of right in line with the expectations that we've had through the year. So we will -- the development team is doing a heck of a job and they're really hitting their schedule. They're executing on the plan we have.

Got it. And my last question was just kind of as you look out and try and drive incremental traffic into your stores, I know you often get the question on capacity and throughput, but do you see any, whether it's technology or otherwise, opportunities? Obviously, you don't want to damage the customer experience, but any way to see how to get more traffic through your stores, so that's not a constraint?

Well, we're constantly thinking about that. And this has been, I think, an extraordinary quarter to say the ops guys have run great restaurants this quarter. We had higher-than-expected sales and they did a great job flowing through that higher-than-expected sales through the op profit line, which is why we beat our op profit projections. And I think as we look at it, we're constantly thinking about how to raise that. We had our highest average weekly sales here at $89,000 a week, and that just shows, when you look at our AUVs, they're really at a high level, we're going to continue to focus on that and making sure every guest has a great experience each and every time.

Got it. And nothing new on the technology front, at least at this point, in terms of order and pay or payment or anything along those lines?

That's right. Nothing to announce at this time on that.

We'll take our next question from Andy Barish with Jefferies.

Guys, just 1 or 2 more on the cost side. I mean, prime costs were much better. I guess, if we can break out on the -- first of all, on food and paper, I just wanted to make sure I understood. You do think that's going to get a little bit higher from here in the first quarter going forward. And then secondly, on the labor cost, I understand the long-term impact of opening the target Shacks. But what do you think, near term, in terms of comp, you need to continue to get nice leverage on the labor line?

Andy, it's Jeff. So to cover the cost line, beef is obviously the biggest piece of our market basket as you know, and -- which has continues to remain a little bit elevated. Sequentially, over last quarter, it's still up a little bit, not incredibly high from over last quarter, Q4 of '14. But it is still up significantly over Q1 of last year. And we don't expect, and we haven't modeled, to see a lot of relief on that line for the remainder of the year. Dairy is down. We did see dairy come down. The purchasing team has done a good job at renegotiating contracts and doing what they can with that line. But I think with beef being the biggest piece of that market basket and just the volatility there, we're not expecting to see any significant leverage on that line going forward this year.

And for labor, we continue to feel additional pressure there. We will have -- as you know, we've always paid above minimum wage at Shake Shack. And this year, we'll have uptick in one of our markets in D.C. for 3 of our Shacks. So that will happen in July. So there's a little bit of labor pressure there. And as you said, as the target model Shacks enter the base, which there'll be a lot more of those than others, there will be continued pressure on the labor line as we go. So we're going to continue to be conservative there. The story here in Q1, really, is the flow-through and the work that the team did in capitalizing on that. So as we look at it, we still are going to staff our restaurants with great people who get paid well, and that costs money and we're going to continue to commit to that.

And Andy, it's Jeff, there's no doubt that the 11.7% same-Shack sales for the quarter helped to leverage that line. And as we've said, we don't expect that to be sustainable throughout the remainder of the year, and because of that, don't expect to see, as Randy said, significant leverage on that line any time soon.

And we'll take our next question from Sharon Zackfia with William Blair.

This is actually Matt Curtis, on for Sharon. I've got a question on the Madison Square Park location. Could you explain how comps exactly are going to be impacted as we move through the year? I mean, you said it's providing a lift to other Manhattan Shacks while it's closed, and then would be cannibalizing sales potentially when it comes back. So maybe you can just explain how this dynamic plays out as we move through the year.

Yes, so what happened in October of 2014 when we closed that Shack, it came out of the comp base. So it is still out of the comp base right now until it reopens, and we feel that that's providing a lift to the other Shacks, which are still remaining in the comp base. How many people have shifted their allegiance from MSP to another Shack? We don't know, but we do feel that there's some impact there. And then when it reopens, it will come back in during the time period up until October, when it won't have anything to comp against since '14 and will come back out until such time it hits the anniversary of the reopen and it would go back in. So when it does reopen, we're going to have the reverse effect and people will come from those Shacks that were in wherever else in New York and come back potentially to Madison Square Park. But we just can't quantify that, but we do believe there's some impact there.

And again, reiterating that there's only 13 Shacks in the comp base for this quarter, 15 today and 5 of those for this past quarter in New York City, right? So you got to take that for the data set that it is. And that is one of the bigger reasons why we're going to continue to be conservative in our low to mid-single digit comp guidance for this year, because we will see how the Madison Square Park reopening impacts the sales of those other 5 Shacks in the comp base.

[Operator Instructions] We'll go next to Paul Westra with Stifel.

I just have some follow-up the questions, first on same stores -- doing pretty well, I'm calling in from China. The first question is on the same-store sales. Give us an idea of how maybe comps progressed during the quarter. Was there any funny weeks of weather or was there funny laps or anything? And maybe the best and worst months of the quarter would be helpful.

Paul, you're asking about Q1, right? Not the current quarter, right?

Q1, yes.

Yes. So it was pretty balanced.

[indiscernible]

Well, that we're not going to share at this time. But Q1 was pretty balanced. As we've talked about, we did have a little more pressure in February. February was a cold month in the Northeast, obviously. And with the majority of our comp Shacks in the Northeast, that affected it. But generally, it was pretty straightforward. And there's a lot of factors, right? We had the IPO on January 30. So the bad weather was balanced by a lot of excitement on the brand and a lot of press. So that really caused a pretty straightforward comp throughout each month in the quarter.

Okay, that's helpful. And a follow-up to Andy's questions on commodities. We sort of anchor ourselves off the first quarter's cost of goods sold percent. Are you seeing any sequential sort of movement in the commodity cost basket going forward? I know you talked about potential pressure on a year-over-year basis, but just thinking from a sequential first quarter basis performance.

For the remainder of the year, Paul, we're building in sort of a mid-single digit inflation rate for the remainder of the year. I mean, you know beef is still volatile, crossing our fingers that it'll stay where it is or even go down. But we are projecting mid-single digit inflation rate for the remainder of the year for our cost of goods sold line.

Okay. And then maybe some additional color on your sort of Las Vegas and Chicago, clearly a source of upside on the revenue for the quarter. Anything to share, maybe where that upside is coming from, the shoulder periods, are you sort of operating better throughput during peak hours and maybe some takeout mixes? Or anything that you can share with us about these performances.

Without giving individual unit economics, which we're not going to do, I can just say we're really pleased with the response that people have given us in those markets. It's -- there's no question, Shake Shack has gotten in a lot of new markets in the last year, and so much positivity has happened there. So we have just found that in Chicago, and then in Las Vegas, people are coming out and they're coming out often. So we're excited about the performance there on all levels, especially as with guest visits and sales.

Okay. And last question, anything onetime expense issues with the reopening of Madison Square Park, outside, I would say, normal pre-opening?

Just regular -- there'll be regular preopening costs, like we have with every Shack, so start-up costs to go ahead and get the team retrained and reopened. So other than that, it's the majority of the spend is on the regular CapEx line to rebuild that restaurant, which we undertook a full renovation, both underground and above ground in a New York City park. So it was a CapEx expenditure. No major P&L hit other than a standard opening start-up cost, which we've assumed all along.

And that does conclude our question-and-answer session for today. I'd like to turn the call back over to management for any closing remarks.

I just want to say thanks, again, and thanks to our team for a great quarter. Thanks to all for listening. Take care.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.