Greetings. Welcome to Shake Shack Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being record. I will now turn the conference over to your host, Melissa Calandruccio, Investor Relations. Ms. Calandruccio, you may begin.

Thank you, Umar, and good evening, everyone. Joining me for Shake Shack’s conference call is our CEO, Randy Garutti; and our President and CFO, Tara Comonte. 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. Reconciliations to comparable GAAP measures are available in our earnings release and the appendix to our supplemental materials. Some of today’s statements may be forward-looking and actual results may differ materially due to a number of risks and uncertainties, including those discussed in the Risk Factors section of our annual report on Form 10-K filed February 25, 2019. 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. By now, you should have access to our third quarter 2019 earnings release, which can be found at investor.shakeShack.com in the News section. Additionally, we have posted our third quarter 2019 supplemental earnings materials, which can be found in the Events & Presentations section on our website, or as an exhibit to our 8-K for the quarter. I will now turn the call over to Randy.

Thanks, Melissa, and good evening, everyone. We're pleased to report that total revenue grew nearly 32% to $157.8 million accompanied by another quarter of positive same-Shack sales at 2% and positive traffic of 1.2%. We opened 66 net Shacks system-wide since Q3 ‘18, taking us to 254 Shacks around the world at the end of the third quarter. Thanks to the hard work of our team and the continued strength of our brand, both of which are reflected in these results, we are raising our overall revenue guidance to between $592 million and $597 million for the year. It's been a great year for Shake Shack, having opened 32 domestic company-operated Shacks to-date of which 11 in the third quarter and expanding our footprint in South Florida, Detroit, Kansas City, Columbus, Houston and New Jersey. We're also thrilled to open for the first time the new markets of Louisiana, Raleigh-Durham and Greater Salt Lake City, Utah. While we’ve been able to drive a more evenly phased development schedule this year compared to last, our fourth quarter will see 11 to 13 new Shack openings, and we are reiterating, our previous guidance of 38 to 40 new company-operated Shacks for the full year. We will share our full 2020 guidance in our February call, but at this time, our plan is to open between 40 and 42 new domestic company-operated Shacks in 2020. Next year's opening schedule is currently looking more heavily back-weighted than we like. But despite that, we remain on track to exceed our previously communicated target of at least 200 company-operated Shacks by the end of the year. As the business has gained a strong foothold in major cities around U.S. over the last few years, our forward focus is shifting to greater existing market penetration. We will…

Thank you, Randy. Total revenue in the third quarter increased 31.9% to $157.8 million compared to the same quarter last year with Shack sales of $152.4 million, representing growth of 31.5% and licensed revenue of $5.4 million, growth of 43.3%. Same-Shack sales increased 2% in the third quarter, consisting of a 1.2% increase in guest traffic and a combined increase in price mix of 0.8%. Our digital channels continue to be a key contributor to our year-on-year growth, partially offset by a lower average item per check in the quarter, caused primarily by the strength in our LTO Shake offering last year and our decision to limit certain menu items on delivery channels as we work to streamline the guest experience. On a sequential basis, the quarter saw some seasonality impact of digital channels, as well as initial volatility relating to our delivery partner transitions. On that topic and as you've just heard from Randy, we've quickly progressed in our Grub integration and expect some degree of volatility to continue through the end of the year and into 2020 as we settle into this partnership and remove direct integrations with other pilot partners. Moving through the year and into next, you'll start to see more Shake Shack and Grub marketing rollout, now that we're one platform and can talk to our guests and future guests in a consistent manner. We’ll also start to integrate our customer data from Grub and pair it with our existing data insights capabilities, albeit, those are in early stage of development and a key investment area of the further build out in 2020. In addition, we will gradually see some financial benefit as our new economic terms with Grub start flowing through our financials. Our results to-date combined with the expected volatility from our delivery…

Thanks, Tara. Before we move to Q&A, I just want to take a moment to acknowledge and congratulate Tara on the recent and expansion of her role of the President and CFO. She’s had such a positive impact on our Company over the past few years, both in terms of her partnership with all of our key leaders, but also on a broader strategic development and execution as we build our Company for the growth ahead. And as we grow, it's more important than ever that I'm focused on what’s ahead for Shake Shack, I remain really close to our global and domestic development strategies, our site selection, our guest experience, our menu strategy and our ongoing innovation. Tara’s broader role enhances my ability to do these things even better, as we prioritize and execute our strategic priorities so critical to our growth by building a strong, long-lasting and scalable business built for generations to come. With that, we will open the call for questions.

[Operator Instructions] Our first question is from Nicole Miller, Piper Jaffray. Please proceed with your question.

Thank you and good afternoon. Two quick questions. The first one is very big picture long-term. You had some fantastic accelerated development this quarter. And taking that into consideration and looking a couple of years out, for us modeling that far, it’s very soon, relatively soon that we see it closing on 450 stores, which was a goal you set a while ago. So, how do you feel about that? What does that look like going forward? And then, just the second final question, which is a pivot, it’s really hard to tell from your tone if the same-store sales guidance is cautionary and very well documented, understood, or the trend -- current trend to-date? Thank you.

So, on the long-term, we still have never changed our initial guidance of 450 domestic company-operated Shacks. As of today, we've got 156 of those. So, we’re just about a third of the way there. Because there's so much growth still to come, we haven't changed that. But how do we look at it? Part of it, I mentioned in my earlier comments, when we are thinking about a number of formats that we can do, which are increasingly interesting to us, whether it’s food courts, outlets and some smaller formats. We're actually going to open a restaurant here in Manhattan at the end of the year, maybe early next year, depending to on one of those, that's right on the cusp, that would be a bit smaller and with very few seats inside, and built for really the digital and delivery experience. So, that will be an interesting test for us. And we've got a few more of those, not just urban, but some throughout the country that we are going to test that are different formats that will teach us some things. So, look, we continue to be encouraged. We continue to believe there's a huge opportunity out there, both domestically and as you saw internationally with so much of a good start we’ve had. This has been well over 40% growth in sales this year. It's been a tremendous year internationally. So, we are really bullish on where we're headed. For same-store sales, we never give mid-quarter guidance. But look, based on the trends we’ve seen in the fourth quarter to-date as well as the volatility we absolutely expect and as we've noted, have seen already with a Grub transition, so much of the shifting of all of these third-party marketplaces, we do expect a lot of volatility this year and ending the year. And that's all part of our guidance. When we look at the beginning of the year, we had initially guided zero to 1% same-store sales. We believe we will be right around 1.5% right now. We’ve had a solid year and the compares are tougher this quarter. And we’ll keep you posted on what it looks for next year, but there is going to be noise in the number for a while through this transition. We ultimately believe it's an important strategy we're on and right one for this next step in our digital experience. But, it's not going to come without its challenges in the near-term.

Our next question is from Sharon Zackfia, William Blair. Please proceed with your question.

I guess, just a question kind of a related question on the margin guidance being refined for this year. Is that just a direct reflection of the comp guidance change? And then, secondarily, is there any way to help quantify what you're seeing with the delivery disruption, maybe in a market like New York where Seamless is so strong or Grub, what things look like there versus somewhere where Postmates or Doordash might be stronger?

Sharon, thanks. I’ll start with the second question. Look, we're not going to quantify just yet, it's pretty noisy. Even if you follow our day-to-day, today was the actual launch day of Grub. We were actually trending on Twitter in the top 10 trending things for the last few hours. It's been kind of a huge day for us with Grub. And it is going to be a region-by-region conversation. That said, we have two years of people who have built up habits, whether it's on Postmates, or Doordash or Caviar. Very little of our tests were with Grub during this time. And we're going to have to move those people over. So, when those other third parties are eventually not integrated into our system in the near term, which will happen in this -- probably in this next quarter, if not sooner, we will see what happens. And we're going to have to do a lot of marketing, a lot of work to move people over to Grub platform, which we think we’ll do. That said, in New York, it's a strong Grub marketplace. But, we have done a lot with those other marketplaces in this last couple of years. In places, like LA where Grub is not the market leader, that's going to be even harder work. So, we just have seen it, we're not going to break out what that is and we’ll talk about that as best we can in the next quarter. But, we expect it to be pretty noisy. But, we feel really good about the path that we're on. It’s just going to -- it's going to have some turns and twists as we go here. I'll let Tara speak to the op profit.

Yes. I mean, I think, the 22, 22.5 is our best estimate of where we're going to end the year, right now. And I think, some of the new things that we're seeing since we last talked to you, and you see some of them in our numbers, we're definitely beginning to see some more inflation come through in beef, which is some new news since we last spoke to you and we expect to going to continue through the fourth quarter and potentially into next year. And in addition, you saw this in the Q3 numbers a little bit and our other OpEx just being a bit higher than it has been trending earlier in the year. We've got some marketing going on in there, we obviously still have delivery commissions in there, and we have R&M, which has always been in there, but also that decision to really strengthen some of our technology in Shack, so that our Shacks are really, really well set up for not just the digital business they have today in the multiple digital channels that they’ve got coming in today, but also as for increasing growth in digital as time goes on. So, there's a lot of headwinds in Shack level operating margin, I've listed many of them. And we're really busy across the Company doing as many things as we possibly can to mitigate them whether within our control. And I listed a number of those. Obviously, these are the challenging ones. But, supply chain is a good example where Randy alluded to the fact that we’ll be more focused on existing markets next year. And if that all -- that helps us start to leverage some of our existing cost base and some of our existing infrastructure, and supply-chain being one of them.

I think, one other thing you mentioned, the comp was on the average ticket side that you streamlined some of the offerings for delivery. Could you expand upon that and if that is -- just kind of order of magnitude, what you did, how that might impact the fourth quarter as well?

Yes. So, one of the things that has been a part of these pilots for last two years is being testing what things travel well, which things don't and which Shacks. So, there has been on and off over the course of this year as it compares to last year. We had various items, whether it is beverages, [ph] sodas, sometimes shakes, sometimes LTOs, sometimes regional specialties, not included in the offering. That's been something that we’ve needed to learn as we've tried to figure out how to make these a great guest experience. And we have multiple partners as we did, you have so much happening in the kitchen that you really want to streamline this. Now, as we move forward with Grub and part of our strategy is doing this is -- we can streamline that a little bit. We can begin to bring back some of those things, because we can count a little bit better on driver availability, and the ability to execute on those things. So, we believe that has an impact on some of the items per check and some of the impact on the numbers for this quarter.

Thank you.

Our next question is from Katheryn Fogertey, Goldman Sachs. Please proceed with your question.

Great. Thank you. I may have two questions here. So, first of all, can you expand a little bit more on what you mean with increased marketing cadence you're going to be doing around Grub, now that you are kind of nationally launched here? Will this include free promos and the likes, TV, anything on that? And then, the second question I have is with foreseeing higher beef inflation and dairy gearing inflation here, is that impacting or changing the way that you're thinking about taking price, is it possible that you take more price if we see higher inflation on these? Thank you.

So, on the Grub rollout, we’ve been pretty quiet about it. It's been happening over these last few months. We've just gotten the kind of nearly all Shacks rolled out now. And today was really the beginning of marketing. And for the most part, we've actually never really marketed delivery ourselves. It's been mostly partner-based and marketplace-driven. So, we now are marketing a deep program going with Grub. If you look at our Twitter, most or one of our most engaged Tweets ever was today, our ShackUp Tweet where we were doing these really cool neon ShackUp signs that people could win. And we had a ton of people come on and hit it back. We've also been doing some free delivery promos. Those things will come in and out. You'll see a lot of it. It will be national in certain areas and it will be regional for certain other things. Where we determine there is some interest, we may do some more regional promos. So, you are going to -- just got to see that our channels and Grub’s channels and throughout in an active way over this next period of time. And part of our partnership will be that there is a significant contribution that Grub will make in marketing dollars to fund a lot of conversation about this over the next period of time.

And then, in relation to price and I mean, we have typically always been quite conservative in terms of how we think about price typically taking 1.5% to 2% every year. And I think you will see us do the same next month. We expect to stay within that range as we did this time last year, at the end of December. So, I don't think at this point we are planning to take more price to offset those headwinds. And having said that, I think it’s definitely available to us and it’s something that we’re keeping a close eye on. Our pricing strategy, methodology continues to become more sophisticated as we span across the country and to different markets. And I think as we start to really build out these digital channels, particularly now with delivery being a formal part of the offering, we also have the ability to potentially differ price by channel, something that we have never done. So, I think it’s a watch and see. We will see how some of these headwinds play into next year, and how some of these channels perform, and definitely reserve the right to use price should we ever feel the need. I do think, you will see us overall remain relatively conservative though, just because the brand is still so early in terms of its expansion quite frankly across the country. And it’s still a very young company, and certainly very young in certain markets across the U.S. So, it’s an area that I don’t expect this to move certainly to be super aggressive in but it’s definitely a lever that we have to us that we continue to look at.

That's very helpful. And going back to the guidance and the fact that we're starting on pretty heavy marketing calendar, and promotions around Grub, with your guidance for 1.5% comp for the year, do you contemplate a lift from advertising around delivery?

Well, it’s all built into the guidance, which at the end of the day I think it’s going to a lot of shifting, a lot of change, a lot of it is hard for us to predict, which is why we’ve given the range that we’ve given right now and it’s approximately 1.5%. I think, the fourth quarter is going to be really interesting quarter for us to watch. And as I said earlier, we’ve got a lot of people who’ve built up behaviors on other marketplaces where they need to move them over to Grub. That's a lot of work, a lot of time and it’s going to be a real project here for a while.

Yes. And we really have to see how this channel plays out and how that delivery line plays out over the next few quarters as we unintegrate those partners. So, I think we alluded to in our prepared remarks that that Q4 comp number has a higher level of risk associated with it than I think would be typical for this time in the year. There is a lot of change being on in an increasingly important piece of our business.

Thank you.

Our next question is from Lauren Silberman, Credit Suisse. Please proceed with your question.

Thanks. I just wanted to clarify on delivery. It seems like you are available on Grub across the system. Are you also off of the other delivery platforms? And then, on your decision to be exclusive with Grub, we’ve seen many restaurant companies moving away from exclusivity in lieu of multiple partnerships. So, can you just speak to the strategic decision to partner just one at the risk of losing sales?

Yes. So, look, at the moment, we are available on Grub at all almost a less than handful of Shacks are not available. So, pretty much everyone across the country. We are still available on certain marketplaces for the time being on Postmates, DoorDash and Caviar. Although probably in the very near future, certainly in this fourth quarter, they will become unintegrated. So, whether they choose to keep us on their platforms or not, that will be up to them. But, our agreement with Grub is to only integrate directly and market with them. So, why would you that? For the same reasons we've been talking about, setting aside any other company decisions. Our decision has been consistent as we've talked about in the last few quarter's. And when we announced this in the last quarter, we were going after the greatest guest experience we possibly can, making sure that food gets there in the best way it can. And what we’ve seen with so many different platforms is that, it’s been more challenging for our operators, more challenging for our guests. So, we want to give a clear channel where that can happen in the best way possible. We also are going to benefit from the data that we learn about our guests, about Grub, people and how we can harness that. We are going to be able to directly market with them and that'll be exciting for us. We also believe over the long term, and this is -- we’re a long-term thinking company, we're not just going to jump on to the next quarter, that this has the best potential to be the best revenue we can get. And then, lastly, the overall improved economics that we expect to our Grub deal, they will be better in the OpEx line than the economics we've had in various pilots over the last few years. So, all of those things together, this is the next step. It may not be the forever step, we may, at some point in the future reconsider that as we learn. But today, it’s the next step we’re making. It's an important one. And we believe, it's the right step for Shake Shack today.

And then, just on the delivery mix, are you seeing a relatively similar mix across markets or pretty wide dispersion across Shacks?

Very wide dispersion, always has been to these pilots and that’s been partner -- for certain ones that are Shack related, right? And then, there -- most of it is partner strength. So, you have certain regions where various partners are stronger than others. And interestingly, in our pilots, we've add certain Shacks within a region be very different between partners. Overall, we think Grub is going to do the best job of all the potential partners we had of bridging that gap across the Company. But that's certainly going to impact certain Shacks at times. Grub’s got to continue to win market share in markets where they're not winning. That's their job to do that. And, we hope our presence on there can help them do that in the markets they want to continue to improve upon. And the markets where they’re already strong, we hope to capitalize. So, we'll be watching all of the regional data really closely as it goes.

Our next question is from Jake Bartlett, SunTrust.

Randy, I'm still a little confused as to what has been disruptive so far. It sounds like you've been rolling out to Grubhub, but I think you're still integrated with the other partners. It sounded out though, from your comments that you're already seeing a disruption from the transition to Grub. So help me understand what has gone on kind of to date to impact your same-store sales? And then, really the path forward, I guess, you talked about disintegrating with those partners really fairly shortly. But, the next step is that, and then we just kind of rebuild with Grub?

Yes. Jake, I think, when you are -- we've been piloting in these last couple years with all these different marketplaces. What creates noise is when pricing, whether it be delivery fee, service charge or other things, placement on their third-party marketplace side, various promotions that those companies may have done, when those things change, it makes a lot of noise. And as you might imagine, those things have changed from time to time, especially since our announcement with Grub. So that's been really part of it. And again, for all the reasons I just mentioned with previous questions, again, we believe this is the right next term. We're not just going to turn them all on just for the sake of sales. We want to make sure that we're building something that's lasting that the guest has a good experience most importantly. And the number one contributor for us to delivery being good is time, because making sure there's a driver available, that person is synced up with the timing in our kitchen, and that person gets their food as quickly as possible. If we can do that, long-term success is going to be the most important factor we're looking for. So, again, we've said this consistently, and we'll say it again, we expect some volatility in this piece of the business for some time.

Okay. And just to clarify, is volatility that you've already seen kind of quarter to date or since you made that announcement that you've been impacted by it so far?

We've begun to see it in the third quarter numbers and we expect to see a lot of it, especially when we do not -- when we no longer integrate those other partners in the fourth quarter.

Got it. And can you just talk about some other drivers to the same-store sales? I believe in 2020, you were going to potentially get more active with menu innovation after focusing in on digital integration and implying operations in Chick'n Bites. Is menu innovation a significant driver in 2020? And then, also lastly, if you could just touch on cannibalization. If you're talking about kind of infilling markets, and it seems like that's going to be even bigger part in 2020 than it has been in a long time. How much should that be a potential drag to same-store sales?

So, most of potential contributors to same-store sales growth that we're looking at in the future, we always talk about menu innovation. This year has been a lot about Chick'n Bites, mostly entirely about it, right. We've had some wins and some losses on some of our shakes that were better than others. So, some of the innovation we’ll be doing is we’ll be doing a trio of premium shakes in this upcoming couple of quarters, which we're excited about. A little bit more offering on the shake side. We’ll be -- we haven't announced it yet, but we'll be doing some LTO work next year with some of our classic items, all towards the goal though of continuing to drive this digital piece of our business and simplifying our operations. We really want to make sure with so much of the business changing and so much of the flow in the Shacks and the food moving in and out of Shacks has been the biggest concern for us and something we still need to work a lot on. So we're going to be working on those things. That's really going to be the biggest part of the -- of our goals for menu innovation.

Our next question is from Andy Barish, Jefferies.

Just a follow-up on that last question from Jake on a couple of things, as we look out. You've talked about some honeymoon impact coming off. Is that starting to show up in an overall average unit volumes and then, the point of development in more existing markets? Do you think that's a little bit of a headwind in 2022 to same-store sales as we look forward?

Well, we're learning a lot here, obviously it’s still such a new thing. Remember, we opened about a third of our restaurant the last year and we're going to do, not quite but roughly the same in next year with the early guidance we've given. So, so many new Shacks coming in, so much to learn. Generally, the sophomore class, as we mentioned here, has done a little bit better than we expected. It's kind of hit around its historical average of about -- generally, we model our sophomore class down around 5%. Some are down more than that if they’re really big launches, some are up. But generally, we feel pretty good about it. There's been a few things Shacks that'll be entering in Q4 that'll be sophomore in Q4, Seattle, Palo Alto, some of our big ones. But, I think, as we think about going to less new markets, it's hard to say what’ll happen. But my expectation is that, my hope is that we’ll have less of these huge bangs in the first year, and a little bit more of an even performance that allows us to grow over the long term. This is a long term comment I'm making. But, I think it's something we've got to continue to study and continue to see. It's been fun for us. Whenever we've not had a huge start, we’ve often seen those restaurants continue to grow at a nice pace. So, our hope is that that's where we go with all of this as we go deeper in new markets -- excuse me, deeper in our current markets, we've got more of that dynamic. So, will see. We’ll keep you posted. But as of now that business is performing similarly to how it has and when it comes to sophomore and potential cannibalization.

On long-term, Andy, there are obviously benefits for us, as we mentioned that we're going to focus more on existing markets, just leveraging that infrastructure in the system is already there, whether it comes to -- whether it's related to brand marketing in market or even centralized marketing, whether it’s just operational support training, and recruiting. It really -- supply chain for sure, and across the board. And these are light switch items that don’t change overnight with one additional Shack in the market, but over time as we do continue to build out around our existing footprint, it just allows us to start to think about better use of those existing resources and leverage over the long term.

Our next question is from Chris O'Cull, Stifel. Please proceed with your question.

Yes. Thanks. Tara, you mentioned, the Company doesn't expect G&A leverage next year. But, can you help frame up what type of growth rate we should expect in terms of G&A, maybe next year, at least over the next few years?

We haven't given these numbers at this point. We’ll give you our 2020 guidance, obviously in February as we mentioned. I think, it's just -- at this point, just more headline commentary around that line item and just again around where we are in the bigger long-term growth journey of this business. And we still feel really early in terms of that expansion, whether it be domestically or globally. So, there is just -- as Randy said it, we’re not managing this business for the quarter, we're managing the business for the long term. And we still see plenty of opportunities for continued investment for growth, the top-line growth and for bottom-line leverage or for bottom-line efficiency. And so, I think you should just -- the comment was to make sure that you expect that to continue. We've been very consistent in that. And yes, as I said, we’ll give you more details in February. But right now we're investing across the board. You'll expect to see a lot in guest experience. And Randy talked about Shack innovation and design, and we're investing and trading and people and recruitment and development, technology infrastructure, really is -- and across people. And so, that that's not going to stop anytime soon. And we feel really good about it. We feel really good about those areas that we're investing in, both this year and for the period of time to come.

And then, just a modeling question. The licensing revenue guidance you guys gave, implies about $4 million in revenue in the fourth quarter. And I may have missed this. But, was there any reason that you don't expect the current run rate to continue, especially given you’re going to have more license openings this year than you expected?

Are you asking about the run rate for the fourth quarter or into 2020?

Fourth quarter?

I don't have it broken out. I think, we've been -- part of why we were able to raise that guidance is we've done so well this year with so many of those big hitting Shacks. Shanghai, Singapore, Mexico and Philippines are just an outstanding start. We will see how that goes. It's hard to say where that goes in the fourth quarter. Part of the potential limitation there, through, Chris, is Hong Kong. We have definitely been impacted there. I talked about in my notes, mostly related to 2020, but we've definitely been impacted there. We have a lot of closures. We have our three Shacks that are opened there in some of best locations, you can imagine in Hong Kong, and that city has changed right now. And that's part of the balancing of the fourth quarter potential.

Our next question is from John Glass, Morgan Stanley. Please proceed with your question.

Thanks very much. First, I know you're not going to talk about 2020 now, but maybe at a high level, how we should think about Shack level margin, particularly given the pressure it had this year. Is it a foregone conclusion, it's likely down just given -- you talked four-day workweek for some managers and Fair Workweek and all these other pressures, conversation came up really about pricing. Is your margin level, which you are willing to fight for to say 22% is a good Shack level margin for a business and we are able to control factors such that we can achieve that in 2020 and beyond. How do you think about ‘20, just high level?

Well, I think, where we are at today, down from our expectations this year, but still a pretty fantastic business at 22% to 22.5%. I think, we will always fight for margin in every way. As we look at next year, John, it’s not a foregone conclusion that it should go down, okay? We're not saying that. We have not given that exclusive guidance. And we would do that coming up here. But, the major factors, a few things happening . Okay? Beef is all of a sudden quite a bit up, we need to watch that very closely. That will our number one impacted COGS and what happens there. Labor, we will see similar kind of mid single digit increases, but less so than this year. So, we do have a lot of the Fair Workweek staff, which is really an unknown in some many new markets as to that's going to work and its cost. We’ve certainly seen an impact to our New York Shacks quite a bit. And that's been a hard thing on our margins here in New York with Fair Workweek. So, as we look at OpEx a lot, there’s a lot we are attacking there, including the delivery costs, which hopefully will go down but a lot of things. There comes a point in this business where I know -- yourselves are going to say, oh, that’s going to like for the long-term. That's not a number we've given, but it is something we're very confident in leveling off over time. We've got -- we still are continuing to add various volumes away from where we used to be at these super high AUVs. That's starting to in the level. And as it does, we expect that’s a level with it and something that over time we can get back to growing. For the moment, we're still under pressure there and we will see how next year goes. It’s the best we can really say at this time, but we’ll do that exclusively in the next call.

If I can just ask one quick follow-up on Chick'n Bites, which you mentioned is one of the major initiatives this year. We've talked about it every quarter. But, you still refer to it is as LTO. Why is that? I mean, isn't it big enough now that you're kind of stuck within in the sense that there's a big sales mix there or a large enough to cheap notice it. And so, is it more like just modifying the product or modifying pricing, or however else you want to maybe modify it, or is it really an opportunity or possibility I should say that you actually just don't continue with that for some reason?

Yes. We’re definitely not stuck with anything, certainly not that. I think, why we say that is we're still looking to understand number one guest satisfaction, which I think is pretty good, but also our own ability to make these as consistently excellent as we want. So the supply chain issues that we've been through to get our costs in line, which have been great. There's also supply chain issues for just improvement of consistency in the product. So much as a young company here, we've got a lot of work to do and how we roll things out and how we listen to learn to our guests, and the way that we understand their shifts. So, the reason we haven't said that is, even though, you will see it in all Shacks, not all, nearly all Shacks. It's something we still not truly want to keep forever, we'll see. People like them and I know my kids order them and we're still we're still learning. So that doesn't mean we should remove something that's been on the menu this year. So, we'll keep an eye on it.

Our next question is from Jeffrey Bernstein, Barclays. Please proceed with your question.

Two questions as well. The first one just on the topic already discussed in terms of pricing power and seemingly you're not in a rush to take the incremental pricing, although it seemed like structurally speaking, now would be a good time in terms of justification. But I'm just wondering, how you measure pricing power whether there's any concern that maybe you don't have as much therefore you want to waste? Or how you go about testing or arriving at what kind of presence how you actually have? And then I have one follow-up.

We're spending more time and efforts right now, both internally and externally in answering that question. Yes, we've always felt like we have great pricing power. We've always been very conservative with a very long-term view on our pricing. Again, there was only one other time in our history that we went kind of above 2% and that's when beef really sky-rocketed a number of years ago. So, something we're keeping an eye on, we're not opposed to lots of different pricing opportunities next year in variations. I think as we look at December and we've modeled this out and the prizes, we kind of want to be out and the regions we want to be at, in that kind of 1.5% to 2% range is probably, where we'll land in this next one. That doesn't mean we couldn't take more next year. Doesn't mean we're not -- we're also willing to consider pricing in various channels which has opportunity, whether it's delivery otherwise to protect our margins. And those are all things we're really deeply considering right now. I'm doing quite a bit of research and homework on it to try to find something. So, you'll probably see us test some things next year. You'll probably see some interesting new regional things that we're looking at and continue to get a little bit more aggressive there. Before the meantime, we're going to stick with our conservative approach for the next the next near-term.

And, Randy, you mentioned before so many new Shacks, so much to learn which is obviously a great thing. Just wondering, how you think about the recent investments you've made in the people and infrastructure and supply chain? Do you think you guys are ready to handle the further outsized in the growth? Just wondering how you assess the corporate where it stands at this point?

I think there's been a lot this year with Project Concrete with the next phase. As Tara mentioned, the Project Concrete coming, which deeply impacts the Shacks, the most all of our ordering invoicing, procurement and inventory. That's a big one. And so much of this growth, we're looking, we're targeting a similar number of Shacks next year as we did this year. That's it. That's the right number, probably for us for this year. But all of that is to make sure that we're building great Shacks for the long-term that give us the opportunity to do what we want to do. You look at our focuses for next year. People, simplification of ops and really winning the guest experience, those are things we want to make sure we're doing well, no matter how many Shacks we open. And we don't open too many that that allows us to not do that well. So, our focus will be on continue to execute, execute at a high level as we have and build great community gathering places for the long term.

Our next question is from Andrew Charles, Cowen and Company. Please proceed with your question.

Randy, is Grub delivering now active to the Shake Shack app and website. And as we sit here on the first day of the platform is live nationwide, would it be a conscious effort on your end to try and channel delivery through the app and website through Shake Shack's app and website to help maximize that collection?

Eventually, but not today, data collection is one of the most important parts of why we chose Grub. We're going to have an active opportunity to understand truly our guests who come through their marketplace and asking to use for us. So, we can't also directly market there, when we choose to. Today, you cannot do a delivery through the app or the web, but it's something that we've targeted. It is actually a goal for us, but we don't have a date on when that will happen yet. We really want to focus on our own digital offerings that we're doing right now, as well as getting delivery going on Grub, but huge opportunity down the road for us. If we can continue to give people reasons to use our app in new and exciting ways.

Sure. And then, Tara, I want to come back to the margins. In the context of the updated 2019 restaurant margin guidance, that's brushing up against the high-end of long-term guidance 18% to 22%. The long term margin guidance for this year at the time of January 2015 IPO, so before you joined the Company, obviously. And since that time, we've seen persistent mid single-digit labor inflation, it's obviously issued before third-party delivery committees were a factor and the adoption of Fair Work Week Act that were not concentrated the original guidance. So, can you talk about the content you have, as we think about the long-term margin guidance? And what would you need to see that would lead to reconsider long-term margin range?

Yes, hi, Andrew. Yes, I mean, we still feel really good, you know, when we look at all of the Shacks that we are signing off and our real estate reviews or real estate committees that on average going forward, we still feel good about the $3 million in the 20% Shacks level operating margin. So, you're right, the business has changed I think a lot in the last few years. And I'm sure we'll continue to go through phases of more change, but those numbers are still hold for us to the extent that we feel -- they differ them will update you. But, I think we still got a long way to go. And again, at 156 domestic company operated Shacks as of today, there's still a long runway before we get the full 50. And we're adding Shacks of all volume still across the board. So -- but, it's the right question. There's certainly, we talked about the changing dynamic of our operating model, and we're working hard to make sure that as that changes and new costs come into the business with digital, whilst we also believe that will deliver incremental top line growth that we're working hard to mitigate other costs, whether within our control. Project Concrete is a perfect example of that, making sure that we streamline that operational process within the Shacks making sure we take out administrative tasks, and just continue to become more and more efficient in that core operating model. so that we can continue to invest in the future.

Our next question is from John Ivankoe, JPMorgan. Please proceed with your question.

I have a couple of development questions, if I may. First, Randy, as you guys were talking about smaller format urban stores, that was really going to be digitally focused. How would that different, differ from Astor Place if at all, or is Astor Place basically kind of a precursor of what you may roll out in a further way?

That's great. For those who don't know, Astor Place was our first kiosk Shack ever in New York City, pretty prime location. I think the difference there, John, of the few we're going to try it next year is mostly about footprint. Actually, it's still pretty big Shack at least, probably around 4500 square feet and has quite a bit of seats. Some of these that we're going to try are going to have less seats, they may not always, so that's one piece of it just doing a little bit smaller format seeing when -- and again we're not going to be are certainly not be our whole development schedule, but we're probably going to try a few shacks in that 2000 to 2500 square foot range. And then also really the design will do its best to separate in a more, in a better guest experience fashion, regular in Shack guests experience from the digital pickup experience. One of the things we found, it was so many careers drivers, people picking up on the app and web channels throw that in with kiosk in a Shack. It was just a it's busy at the pickup, it's really busy, something we are committed to making better. And it's not everywhere and it's not all the time, but it's not as good as it can be and we need to make it great all the time at every Shack. So, we're going to try some of these and see if some of these formats can work towards with a higher increase every year recently of the percentage of sales going towards digital. Those are orders that are originating outside Shake Shacks. And a way -- in the space that we give towards orders originally Shake Shack needs to evolve. So, this is one way to test and learn, and we're pretty excited about what we'll see. And we'll keep both of which Shacks to keep an eye for those.

Okay, perfect. And these are related questions, so I'm going to go opposite ways with them. To talk about your experience in the higher end food courts, which I would imagine probably wouldn't have as much digital it would be more about you're kind of tapping pop in and you to Shake Shack because it might be the best alternative there. So talk about your experience in the high end food courts, what that has taught you if the average unit volumes are close to the system average, and I don't know if they are they aren't and what kinds of margin that you get in obviously was a very different type of location than many of your others?

Yes. So, we've seen some recent good success in some of the food courts. So, we're generally not going to be a food court brand necessarily. But wonder our food courts that can be distinctive or Shake Shack can have a distinct position and feel really great for our brand, we want to do. We're on breakout average unit volumes that are pretty solid. Now granted in some of those depending on the mall itself is the user limited hours. So generally, they're probably not going to be of the highest volume Shacks, but they're very efficient they have a different OpEx line they have different labor line. We generally don't have bathrooms. We generally don't have HVAC to the same extent, right. The build outs can often be less, but we can still produce some pretty solid sales. So, we really like them. In each, we also liked about it, John, is the opportunity often to do to in a place that we might have previously pegged for one. For example, King of Prussia Mall, we have one outside the flagship and then we have one inside the food court. In Somerset in the suburb of Detroit and Troy, we have a Shack on the road right there, and we have a shack just about a mile away in Somerset mall. When we see those opportunities, we really like that because we think it's to different audiences that we can capture simultaneously. And when we can hit that, allows us was really good opportunity to maximize market whenever we have the opportunity there.

And then finally, one of your fast casual it kind of peers, Chipotle is obviously, going down the road at a fairly accelerated pace in terms of their digitally optimized pick up lanes, the drive-throughs is maybe for using different language. But have you guys begun to pencil out something like that? Do you think the brand is ready, you know, especially as your second, third, fourth unit in certain metropolitan areas and half of more suburban locations to where that may make something for the brand as the consumer gets strength?

Yes, it might. It's not something we have on the books right now, in design, but it's something we talk quite a bit about a lot. And whether that becomes to drive-through or not was what you said, I'm not sure that's what we're looking for. I think what we want to figure out is where the digital future of pre-ordering and how can you most easily get that food and stay, or get that food and go wherever you choose to gather with your community. So we've got our eyes on those type of ideas John, we'll keep you posted, nothing to announce just yet.

Our next question is from Brett Levy, MKM Partners. Please proceed with your question.

We've seen some interesting news at Microsoft today where they talked about the productivity of the four day work week. Can you give a little bit more segmentation on how many units you're doing the four-day work weekend? What you're seeing in terms of either sales productivity, profitability or even the internal metrics? And then just if you could share the number of units with really kiosk footprints? Thank you.

Sure. So we -- but I don't have the artificial intelligence capability that Microsoft does to examine it. So what I can tell you though is we've got about a third of our Shacks who are doing four-day work week, okay. About a quarter of our Shacks are doing kiosks, so let's separate those issues for a second. Four-day workweek is a big deal. It's something that we've dreamed of doing this for so long, and it's something that we are still intact on. This is not something you take lightly or rollout too quickly. So at about third of those shacks, we're really listening to our managers, understanding what their lifestyles were like, what are the things that they want. We're hearing things like, wow, this is so powerful. I don't need to get childcare for a fifth-day. Wow, this is amazing. We're hearing things like I saw that and that caused me to apply to Shake Shack that was pretty cool. Or you know what? It's hard for me to imagine going to work for another company or work a fifth day. So the recruiting possibilities are huge. As you know, we have deep goals for diversity inclusion that helps this issue in a big way. So these are all the positive goals. Some of the things that we still have to work through making sure that people can get all of the impact, training, and desires that they want that you get in that extra day. So it's different. And then we have to make sure we can cover our restaurants and still protect our margins in a way that makes a lot of sense. So we are cautious about it. We're excited about it. And it's something we are continuing to invest in. It is not something that's locked forever, but we're looking to learn. On kiosk, we're at about, again, about 40-plus Shacks, there's some more that'll be rolling out with kiosks. Still a lot to learn there in terms of its guest experience, number one. We still have to invest more to make the guest experience even better than it is. We're finding lot of shacks, people really love them, and they sometimes prefer them. And there is still going to be a group of people who would rather talk through cash here, and we're going to have that human element there with hospitality every time, whenever we and even when we have kiosk. So a lot of learning there is still before we go see any kind of deeper rollout. We're going to kind of keep going with what we've got, and see some of the new Shacks doing kiosks, and we'll see how we go. A lot of data there that we like and we're keeping eye on it.

This concludes the question-and-answer session. And I will now turn the floor back over to Randy Garutti for closing remarks.

Okay, thanks. Appreciate everyone for being on the call tonight. And always appreciate your support. Thanks so much, and we'll look forward to being in touch. Have a good night.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.