Greetings, and welcome to the Shake Shack First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rik Powell, Senior Vice President of Finance and Investor Relations. Thank you, Rik. You may begin.

Thank you, Paul, and good evening, everybody. Joining me for Shake Shack's conference call is our CEO, Randy Garutti; and 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 the 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 our annual report on Form 10-K filed on February 26, 2021. 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 first quarter 2021 earnings release, which can be found at investor.shakeshack.com in the News section. Additionally, we have posted our first quarter 2021 supplemental earnings materials, which can be found in the Events and Presentations section on our site, or as an exhibit to our 8-K for the quarter. And with that, I'll turn the call over to Randy.

Thanks, Rik, and good evening, everyone. We're really happy today to share the continued comeback and forward momentum here at Shake Shack. Spring is effervescing a great energy around the country and our hometown of New York City too. With COVID cases stabilizing and more regions steadily loosening restrictions, we're optimistic that improving trends can continue for our industry. As always, I want to start with a shout out to our team members, who've worked through so much hardship, and now with a full year of the pandemic behind us, they're still leading the way back to our resuming growth. We move forward today with confidence, the opportunity we see ahead. In the first quarter of 2021, and so far through April, our financial performance continues on an upward trend. Total revenue was at $155.3 million in the first quarter, up 8.5% from last year, with average weekly sales improving to $64,000 compared to $62,000 in the fourth quarter. We exited the first quarter with March average weekly sales of $68,000, improving again to $69,000 in fiscal April. Same-Shack sales were up 5.7% in the first quarter, and up 86% in fiscal April versus 2020. We'll also be sharing sales comparisons for the current comp base versus 2019. This was down 14% and 15% in fiscal March and April, respectively. Suburban Shacks continues to lead our recovery, with April nearly flat and down just 1% versus 2019. In terms of profitability, Shack level margin was 15% for the first quarter, exiting with March at just under 19%. Let's move now to talk about our strategic focus and priorities. Because we've moved through this period of continued sales and profit recovery, and to the significant opportunity ahead, our team is focused on opening and operating great Shacks. We're executing on the…

Thanks, Randy, and thank you all for joining us this evening. With all the momentum you just heard, we continue to be encouraged by our ongoing recovery and resulting performance. First quarter total revenue was $155.3 million, representing year-on-year growth of 8.5%, of which Shack sales were $150.7 million, delivering year-on-year growth of 9.1%, with trends continuing to be positive on all fronts. When we look at the monthly breakdown of our sales performance so far this year, we saw a strong start in January. Fiscal February was heavily impacted by severe winter weather, then followed by a rebound in March, exiting the quarter, with average weekly sales of $68,000. Sales continued to hold strong through April, increasing to $69,000, supported by the continued rebuild of in-Shack sales. As of the end of the fiscal April, the vast majority of our Shacks were operating both in dining rooms, albeit many under varying levels of capacity restrictions, particularly the urban Shacks. Looking at same-Shack sales, we delivered 5.7% year-on-year growth from the first quarter, and 86% in April. And additional compare that's helpful to gauge our recovery is to our 2019 sales level. When we compare the first quarter 2021 sales of our current comp base to their respective sales in the first quarter 2019, they were down 14.8%. When we do the same for fiscal April, we have a similar results, and 15% compared to 2019. When looking at our comp base, it's important to remember that it includes some of our previously highest volume Shacks in the country, and is disproportionately impacted by that performance, and the extent to which they've yet to recover, with many deeply impacted urban centers. It is particularly true for certain Shacks in cities such as New York, Las Vegas, Chicago or LA, where…

Thanks so much, Tara. As Tara just mentioned, tomorrow is going to be her last day here at Shake Shack, as she begins a new chapter as the CEO of a private life-science company. And I want to take this opportunity to just once again thank Tara for her huge contribution over these past four years. She leaves us in such a strong position. And I'm thrilled to see her take on a CEO role. And I'm going to be rooting for her every day. We will miss you, Tara, know that you are always part of the Shack fam. Our search process is well underway, and we look forward to strengthen our executive team through this transition. In the interim, Tara's responsibilities will be well transition to other existing members of our Shake Shack leadership team. We still have a considerable way to go until we reach full recovery. And every day we're seeing positive signs and increased confidence in Shake Shack's opportunity moving forward. You and your families stay safe and stay healthy. And with that operator, please go ahead and open up the call for questions.

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from Nicole Miller Piper Sandler. Please proceed with your question.

Thank you. Good afternoon. Appreciate the update. And certainly, a look at how things are going currently. I wanted to understand the pipeline in terms of how stores have opened. So want to reflect on pre-pandemic levels, I think you opened at just record revenues, they'd honeymoon and probably were a little disruptive or distorted the comp. And I wanted to understand how the stores have opened during this past year during the pandemic? And I'm wondering, if they open that more, maybe call it normalized, maybe you could share a percentage, or in AUV they open at or percentage of mature volume. Because I'm starting to think maybe they enter the comp base and produce a comp list. And while this is how it's been about dollar sales growth, it seems like this could turn into a comp story. Is there anything you can share on that thought?

Yeah. Thanks, Nicole. Some of the numbers we shared in the first quarter, just taking those 10 plus that we've opened, since we're opening at that $79,000 a week average. And, that's an over $4 million AUV, right, really strong start. If you look at going back call it 18-months or a little bit last maybe, pandemic entries, it's been mixed right, we've talked a little bit about it. Generally, our Shacks have opened pretty strong, but obviously nowhere near what they would have done pre-pandemic. So its mix. As you think about that, yeah, it certainly could be something down the road, that we expect all of these Shacks, both new and current to be growing well out of this. I mean, you see us over 80% in the cost base versus last year, which was the hardest hit time. We also are comping against '19, where's interestingly, in the beginning of '19, some of those new Shacks entering the base were some pretty busy Shacks. We had opened our first in the San Francisco area, near Stanford. Palo Alto, that was a really big start, that now comes into the comp base in Q1. So it's just another -- I talked a lot about this. But the comp base for Shake Shack has always been small relative to everything else going on in the company. It's always been something that we watch, but you have to understand it. And we call that out specifically, as we talked about some of the 2019 compares. And you look at it's a small amount of Shacks that are causing the negative, we really look at it. And I can tell you, walking around New York City myself today, we had a collab today, with a great chef, Madison Square Park, Shake Shack was packed, it felt incredible. But if you walk over to the Theater District, or Herald Square, two of our busiest shacks we've ever had, they are a fraction of themselves still today. Our Grand Central Shack, one of the best we've ever had, is still closed, still close. These are Shacks that will absolutely come back. It's just a matter of time. And when they're comping against 2019, right, it's pretty noisy. And that's probably why we wanted to share the 2019, and I hope everybody understand what that looks like. So, long way back flushing, we're really excited about the Shacks we've opened. Our first one in the Portland area, as well as Indianapolis, Hoboken, some superstars we're really excited about.

That's a lot to think about and digest and appreciate it. And of course, Tara congratulations to you. You'll be missed by our community as well. But good luck out there. Thanks.

Thank you, Nicole.

Thank you. Our next question comes from Jared Garber with Goldman Sachs. Please proceed with your question.

Hi, thanks so much for the question. I wanted to get a sense of, if you could give any color on the labor environment, what you're seeing there? Obviously, we've heard about the supply challenges on the hiring side. And I even noticed anecdotally some restaurant concepts in the area locally here kind of throttling, the in-store dining and going back and forth and having open restaurants and just doing digital only order. So, just wanted to get a sense of what you're seeing there and how you're viewing the market right now?

Yeah. Thanks, Jared. Yeah, I'll walk around my own neighborhood, and I'll see some restaurants that'll have a closing early due to staffing. That's something you rarely saw in the world. Look, you can read any article today and understand what that pressure looks like. It's obvious, it's clear, we're not immune to that. Look, Shake Shack has -- challenging staffing has always been a part of the restaurant business, always will be. But we're certainly at a particular moment where it's hard, right? It's hard. I think our teams have done extraordinary work in hiring, keeping and developing people in leadership positions. But it's not an easy time, that's for sure. We've not seen the material impact in any way. But there's moments where we certainly -- and it's certain Shacks too this is based country-wide every region from time to time, you'll have moments where, you'd like to hire a few more people and make sure that we are fully staffed up. So, look, we gave the majority of our Shack's raises last year, the entry level wages throughout the country, most places, that's part of the pressure on our labor line that you've seen and that we are proud to invest in our team. And there's no doubt, there's a lot of call for great people right now. So we'll be looking to keep strengthen our teams, and it'll be a challenge.

Thanks. Appreciate that. And just one more quick one, is there anything that we should think about in terms of the urban Shacks decelerating on a two-year trend from March to April? That would seem that, mobility data looks to be getting better in a lot of these urban environments. So just curious why maybe you're seeing a deceleration there?

Well, there's a couple of things. First of all, it's minor, right. I mean, if you look at the numbers, they're nearly the same. I mean, when you look March, April, but slight deceleration. This is Jared, why I'm going to keep saying how small the base is and how wildly impacted it is. So let me give you a great example. When you look versus 2019, you might have Las Vegas Strip, one of the busiest Shacks in the world, is actually not in the 2020 comp base, because at this time in 2020, it was closed, okay. So it's not helping us where it should be. And versus 2019 it's hurting us, because it was super busy in 2019. And that one Shack had the opportunity to bounce things around. And you got to understand and this is where we ask our shareholders and you all to really understand how impacted it can be by just a few Shacks. There's also some spring break movement in those March numbers and versus '19 is another thing that impacts it. But look, I think as we look at it, we are excited by the year-over-year compares. We've got work to do. And it's very clear, I've said this a couple times, I'll use this language again, when we look at the Shacks that are down, we ask ourselves, does it make sense that they're down? And you say, yeah, I understand why the Theater District in New York is way down and impacting us. When you look at the Shacks that are up, you say it makes sense that they're up. And we say, yeah. For the most part it does, and that's where we are encouraged by the signs. And we know we've got a lot of work to do, and we need offices to fill back up. We need cities to fill back up. We need Broadway and other things like it, events, games, and all the things that will be energetic. We're on the right track. We'll continue to improve, I think and, we will be impacting a little bit versus '19 individuals from time to time.

And just to add what Randy just said, as he said the spring break fell in a different month between the two years, which is the noise that he ended and he said fell in, April in 2019 and March 2021. So it’s creating a bit of noise when you look at such a short time period of between just two single months.

Thanks. Really appreciate the color there.

Thank you. Our next question comes from Lauren Silberman with Credit Suisse. Please proceed with your question.

Thanks so much. And Tara, congrats on the role. You'll certainly be missed. On the 2Q just a quick one comp guide of mid-40% to 50%. Can you help us understand what that implies for average weekly sales and/or the recovery relative to 2019, just given all the noise in the comp base?

No. Lauren, we're not breaking it down any further at this point. I mean, I think suffice to say as we said in the prepared remarks, it's really hard honestly to give any kind of forward-looking guidance right now at all, with a high degree of confidence. So, not breaking it down any further than that range right now. And, we'll keep you up to date if we see any major changes in that, but not giving AWS guidance.

And Lauren, I want to add too. In addition to the examples I already gave, which are challenging. We went through in Q2 of last year, numerous and various closures from time to time, whether there were protests in a city, where a Shack had closed and then comes out of the comp base. And the bouncing back and forth of that just, very hard for you to model certainly. But, it's all baked into that 45% to 50% comp expectation that we have.

Okay, appreciate that. And then just on digital, retaining 90% of January digital sales, it looks like digital weekly sales seems to be running in line or above what you saw throughout most of 2020. So at this point, together with all the enhancements you've made to your digital ecosystem, is your expectation that you'll be able to hold on to or even grow digital weekly sales. Has on-primus continues to rebuild, understanding the mix might come down or is expected to?

Yeah, I think it's really hard to say, I'm sorry to kind of answer without an answer. But, right now, I think we know how important digital has been through the last 12-months, when you have digital how important digital is going to be to our business for the long-term. And yes, we're really encouraged by some of these metrics that we're sharing. I think we do expect digital mix to continue to come down as in-Shack comes back. But, as I mentioned in the prepared remarks, we're also really bullish around digital as an acquisition tool, as a frequency tool, as an engagement tool. So I think, without being able to give specifics as to weekly sales levels or mixed numbers, digital is going to stay a very important part of our business and we will continue to be investing in the team and in marketing tools to continue to use what's really just a foundation at this point, in terms of some of these relatively new launched products.

Thank you guys very much.

Welcome.

Thank you. Our next question comes from Michael Tamas with Oppenheimer & Co. Please proceed with your question.

Hi, thanks. Hope you guys doing well. Your average weekly sales in April are a little bit above what you saw in March. But, your guidance for margins for the second quarter of 15% to 17% is well below than 19% exit rate, you guys were talking about from March. So, can you maybe walk through what's changed between March and what you're expecting for the second quarter? And then, I know you're not providing guidance on the second quarter. But is that a good base to think about as we build through the rest of the year? And what are some of the things that we should be keeping in mind, either headwinds or tailwinds to those numbers? Thanks.

Hey, Michael, it's Rik here. I can take margin question. As Tara mentioned, and I think Randy, in his prepared remarks too, we were in Q1 about 15% in terms of our Shack level margin. We exited pretty strongly at 19% of Shack level margin in mid-March. So, that gives us a bit of confidence on sort of going forward that we can get back to those sort of pre-COVID levels of margin. But, having said that, and this is where I think sort of the answer to your question lies, there's still a huge amount of moving parts within the various line items, Tara went through a bunch of them, but I'll cover a few of them on here. One, we got line of sight to some beef inflation in the second-half of the first quarter. We're starting to staff up the ongoing sales recovery, particularly in-Shack, dining room, for example types of things. And the thing also, the headwinds around some of these large Shacks that we've got that have really sort of reduced levels of staff, but that would be really sort of rely on those to recover before we could return to margin. So, I think, there's a lot of good signs in terms of how we're sort of managing the costs of the business, as the sales recover, but there's a bit of a lag. We want to start up, we want to be prepared. We want to give that guest a great experience when they walk in the Shack. And so, we're staffing up slightly in advance at the sales levels. But I think, as I say that's really what's driving the 15% to 17%, which would still be an improvement on our Q1 levels, which is about the 15% range. So, I think we're comfortable with where the margins are lying right now. We were pleased with the exit of 19% in March. We'll continue to manage that and very, very closely as we move through the next quarter and the rest of the year. And then, if you remind me the second part of your question, Michael, that would be helpful, sorry.

No, that was it. You entered it during the second-half of the year. So I appreciate it. Thank you very much.

Great. Thanks.

Thank you. Our next question comes from John Glass with Morgan Stanley. Please proceed with your question.

Hi. Tara, congratulations and best of luck. We will miss you for sure. Randy or Tara, just reflecting on your suburban Shack performance in March and April, and I don't want to beat this. But, almost every restaurant has seen a pretty massive acceleration. And I would say most restaurants are seeing sales levels well above '19 levels. Your stimulus spending, there's pent-up demand, there's just a lot of reasons. Why do you think that's not the case for Shack then? Because, I would think that you would get those same benefits.

Well, if you look I mean, John, if you look at it, we're basically flat. So, given where we've been if you follow that trend line, that's a certainly an improvement, and certainly an upward trajectory that we have been on. So, I won't speak to other more casual dining, but again, I'll keep speaking to the small involved comp base. This is -- comp base have half of our restaurants, they should be a little bit over that. And we've gotten to basically flat in the suburban versus '19. So, look, we certainly think we've benefited a bit from stimulus. It's hard to always quantify exactly how much and how that works. But that's probably been good for us, too. But look, we're continuing to rebuild. We're in a lot of places, whether suburban or otherwise, that don't act like anyone else in your coverage book. It's just what it is. If you look at the Shake Shack locations, even the suburbans they are generally put in places where people gather. And, that's taking time to come back, people are gathering differently. And again, if you look at everything is continuing on the upward trajectory, it's good news, and we want to get it further. And we'll be working on that. But, we definitely need to patterns of how people move to keep improving. Just to note, our suburban average weekly sales is also continuing to increase over time. So that's a good sign as well.

The only thing I would add -- a couple of things I’d add to that is, one, we've mentioned that the bottom 25 performing Shacks. I mean, they were mostly urban, but there are suburban in there, some large sort of shopping malls and things that are getting hurt sort of equally as hard. So, I think to you point, we've seen some really, really strong performances on the suburban side of things like Randy said. And they all goes an AWS basis, but on a comp basis staying relatively flat.

Okay. Thank you very much.

Thank you. Our next question comes from Jeffrey Bernstein with Barclays. Please proceed with your question.

Great. Thank you very much. One question and just a quick follow-up. The question, Randy, just as you think about '21 and '22 year-end openings primarily I guess, U.S. company-operated, but ramping up next year to 45% to 50%. Now, you're approaching, I guess, one a week, which would still be I guess, 20% or more unit growth year-on-year. So I'm just wondering if you can offer some confidence in terms of the people, the real estate, people are talking about slowdown in terms of getting people to actually build these sites? I'm just wondering, your confidence in accelerating and the system being able to handle that level of growth on what is now becoming a larger and larger base? And then I had one follow-up.

That's a great question. I think, we have a lot of confidence in that. The sites are there. We remain a premier brand and tenant for developers and all kinds of sites. So, the sites we're very confident in. The openings of [indiscernible] that's where we're working, right. As we said earlier, none of that is easy, it's never been easy, and it certainly won't be easy. But we feel really good about our company and our team's ability to meet those targets. That is something that we have continued to do over years. The thing we'll be watching a little bit is cost to build. You're seeing this in lumber and steel prices. We know that as we look ahead at contracts that are moving ahead into later this year, and into next year that will be built, we'll probably expect some cost inflation in some of those raw materials and the overall build costs. Hard to say whether that will stick. We all know, you can see lumber and steel are just up dramatically. We got to build building things, right. So that costs real money. So we're confident again. But, we're watching that as we take a look to keep an eye on the overall investment that we expect to tick up a bit. And we'll talk to that more later, as we start to see those prices start to come in. It hasn't really hit us yet. But we expect it to come.

Got you. And then just on the follow-up and it kind of ties in with my congratulations to Tara. But, as you think about the search to fill in the role, Tara obviously now was CFO and President, it seemed like you gave her the President role to give you more time to focus on the future growth and vision of the brands. So I'm just wondering whether you're thinking about hiring a CFO, and a separate President or whether there are other opportunities to expand in the C suite or whether you think one person might be able to fill that void. Thank you.

That's a great question. We're going to hire a great person, and that person is then going to fit their skill set into who we are as a company, as an executive team and the leadership team. We have some incredible candidates that want to be here. At this time, we're not assuming we will fill the President role that Tara grew into overtime. And she did amazing work in that role. And in the meantime, she also lifted her team. And she lifted the entire executive team to the point where we're really operating well, as a leadership team in this company right now. And we want to bring a CFO, who will be focused on those tasks mostly, and contribute to every bit of the strategy. So, we're excited to eventually find and hire the next right person. We'll keep you posted when that happens.

Great. Best of luck, Tara.

Thank you.

Thank you. Our next question comes from Andrew Charles with Cowen. Please proceed with your question.

Great. And Tara, best of luck to your next role. I'm sure it was a tough decision, but wish you the best and good luck. Two questions for me. I know, there's been a lot of questions around the underlying March to April performance. But, if I look at the overall 2Q guidance, it does imply underlying trends decelerate further in the combined May and June period. And I'm just trying to get a better sense of why that is? I know the reopening is something that we're all pretty excited about. But why does the guidance imply a bit more of deceleration looking forward?

Hey, Andrew, it’s Rik here. Yeah, can you hear me? Yeah. So, I think, look as we've guided forward through Q2 with some certainly a relatively flat seasonal period, when you take sort of the last part of the first quarter and the second quarter. We're pleased that we're focused on driving average weekly sales up into the right. But there's still a lot of uncertainty out there. And so I think we've taken what I think is, right approach which is a cautious approach to look at this point in time, even though as Randy stated springs initiatives to New York City. There is lot of recovery that we need out of those urban Shacks. And so we want to be cautious to that fact at this point.

Okay, great. And then final question was that the three years ago, the concept tested breakfast, I know it was pretty popular in travel centers. And right now, obviously, those are mentioned this with a high volume locations that are closed, given transit is obviously down significantly. But, looking ahead just with the reopening, is breakfast something you're looking to -- look more into? I know it's all for the Madison Square Park location, is this something that you guys are taking another look at take advantage of increased mobility for day part that's probably the most sensitive mobility?

It's not a focus today, Andrew, but one of the exciting things that we look at when we start talking about drive-through, drive-ups, Shack track with those in that curbside convenience is, it starts to open up that question a little bit, right. If you look traditionally Shack sites they are certainly ones that could certainly be great for breakfast opportunity. But we take that functionality as a format shift for the long-term, to create a better seasonality for moments like that. So, it's something we're looking at, not immediate focus. Our immediate focus is, most of the Shacks that serve breakfast are the airports and transit centers that are either closed or still trying to figure out their sales. So we'll get back to that for sure. We're actually going to be testing some new breakfast items not too far from now at some of those airport Shacks. We're learning a little bit and we'll see. But, it's definitely something we've got our eyes on for something down the road, not an immediate focus.

Thanks, Randy.

Thank you. Our next question comes from David Tarantino with Baird. Please proceed with your question.

Hi, good afternoon. And congrats, Tara and your new role. Very exciting. We'll miss you. On the -- I first have a clarification question on how you're viewing the sales trends. And I just want to maybe use Q4 as the starting point. And if I look at what you're running in March and April on that kind of two year comp, it doesn't look like there's been a lot of progress on the recovery. And, specifically, again, looking at some of the suburban sites, it looks like it actually ticked down a little bit. So I guess the clarification question is, are you saying that that is a function of what's happening underneath the surface on the comp base? Or is there something else in your mind that's maybe causing that trend to stall out a bit?

Yeah, it's a little bit of a mix. I mean, it's again, it is sort of straightforward. But, if you look at some of these Shacks and these huge Shacks, it's hard to improve. We're going to keep using the Theater District as a perfect example of a large swing Shack versus '19. So yeah, I mean, we've got recovery to go. It is our numbers and the comp base are wildly swung by large urban restaurants. And that's why, we're looking at average weekly sales to focus on, that has continued to see an upward trend, not percentages. And, we know that that's part of it. We know, that's some of the noise there. And, we're looking forward to that continuing to improve over time.

Okay, got it. And then my real question, Randy, you have over $400 million in cash on the balance sheet now, which is probably more than you'll ever need to grow the business. I guess, what are your thoughts on why you're having or sort of having that much cash on the balance sheet? And what are your specific thoughts on how you deploy it, including whether you would be interested in making an acquisition or something more transformational?

Yeah. Well, there were two critical fundraising moments that happened this year. And you know what, we're really thankful for them. If you go way back last year, there was a moment where no company was unsinkable, and we wanted to make sure we ensured our future we did that with an equity transaction. And that brought in a significant sum. And then, we were prepared as we saw the convertible debt market reaching incredible opportunities. Just to be clear, for everyone who doesn't know, we were able to issue debt for $250 billion at a 0% coupon for seven years. We may never see numbers like that in our lifetime. So we took that opportunity. And we took that opportunity to fortress this balance sheet in a way that we've never had at Shake Shack and very few restaurants, companies or companies of our type have it. So, what are we going to do with it, we're going to open more restaurants, we're going to accelerate growth as we told you. We're going to look to make digital investments and people investments that allow for growth. Take a look at our actual size versus anyone else in your coverage universe, and you see the opportunity, and how big and huge it can be when we get things going. And that's what our plan has been to invest in digital, drive-through, other opportunities that accelerate and open that funnel. We are wide open to other things, but it's not our focus today. And we will look at it. We're going to look at things that are exciting, and can continue to drive this company forward. And we're thrilled to have that basis of cash to do that. It gives us a really infinite playbook and mindset with which we can operate.

Thank you very much.

Thank you. Our next question comes from Peter Saleh with BTIG. Please proceed with your question.

Great. Thank you. And Tara, best of luck to you in the future. I want to come back at that last question, maybe in a different way with capital allocation. Randy, how are you thinking about maybe development costs per unit as we go through this year and into next year, given all the inflation on labor and building materials? Is there an opportunity for you to maybe to deploy more of that capital on a per unit basis? And, I don't recall how much TI allowances you guys received. But is there an opportunity to maybe reduce those allowances a little bit and take out a little bit of a lower rent on a go forward basis?

Yeah. With each Shack, I mentioned this just a few moments ago, but we definitely do think there's going to be some cost pressure on the total cost to build, for some period of time. It's really beginning now. You're seeing it in lumber and steel and other build out costs, some labor costs as well, depending on the market. So, we do expect that overall cost to build a Shack will increase for some period of time. We'll see. Nobody knows that this will be a long or short-term deal. There's obviously a lot of demand for growth, and limited supply on some of these items. So we feel prepared for that. We feel ready. And at the same time, we do in every bill look at TI. We're fortunate from a lot of landlords, we get some very significant TI. And we do measure with each time, whether it's best to have the cash, or to have potentially lower rent. And with each one we calculate it. With each one, we think about for that site, what makes the most sense, from an ROI perspective. And we look at our IRR and NPV and every decision on that and try to make the best possible approach to hit our long-term targets. And we do that as a class. We look at the 40 Shacks as a class and say how do we want to balance that out. And again, as we do more with these bigger forms, especially in the early days of drive-through, we're going to invest money and drive-through, some of these formats and pad sites that we think will be a lot of our future. They're going to require initially, at least an additional investment. And we'll bounce that out. It's not easier to build such as a food court that might be less and build a very strong return, some other balanced, urban and core format Shacks. So we want to do a little bit of everything. We believe now's the time to ramp that up, and we've got our eyes on the costs.

Great. And then just lastly, how are you guys thinking about commodity inflation? I don't recall hearing commodity inflation number expectation for the year?

Yeah, we didn't give a full commodity inflation number. What we did say was that we are seeing some recent inflation on the beef side of things, nothing too big we saw in the middle of last year. Of course, that's something we're monitoring closely, and sort of waiting to see exactly how that pans out from a timing perspective. But we didn't actually give an updated commodity guidance for the year.

But we do expect that beef inflation is likely to carry on through Q2 to some degree, so may have a bit of an uptick on that food line as a result.

Understood. Thank you very much.

Thank you. Our next question comes from Brett Levy with MKM Partners. Please proceed with your question.

Great. Thanks for taking my call. And Tara, enjoyed the time. Best of luck to you. Randy, you just mentioned drive-through, so I guess I'll just continue on your store base. If you think about what you're seeing now with all your different iterations on Shack track, what kind of learnings are you seeing in terms of sales, margins, makeup for the transactions? How your consumers are deferring? Just all of the insights that you might have from the different iterations of the track. Any color on that would really be appreciated. Thanks.

Yeah, there is so much learning, and it's so fast and exciting. I did a tour with our team this week in New Jersey, and we were looking at all types of sites, both current and future, drive-through drive up and Shack track, all and some that are more urban. And it's really exciting. I think what we love about it is, creating a new level of convenience and ease of use for the guests. With each one, they present different opportunities, so some might really leaning t curbside. Now, there are shacks, where curbside delivery has really taken off and it's great. There are shacks, where, we just opened in Indiana, for instance, with our first or second excuse me Shack track drive-up, and people are choosing it. We're figuring it out already. They go into our app, they know they can preorder, they know they can choose, hey, I don't have to get out of my car, boom, I go around. On margins, look, margins are noisy right now, given the recovery period, so hard to answer that. Our goal with all of this is to drive average check. We believe we could do that with these formats with digital especially, to drive ultimately strong AUVs and strong profits. That is our goal. We're on that road to rebuilding that. And we've got a lot to learn, and a lot to build. And that's why we're doing these formats. We think each one of them in their own way will point to different ways to capture some of that opportunity.

Thank you. Our next question comes from Jim Sanderson with Northcoast Research. Please proceed with your question.

Hey, thanks for the question. And Tara, congratulations on the new opportunity. I wish you well as you pursue that. I wanted to ask a little bit more about some of the pain points you're seeing for margin recovery going forward. And want to understand is it primarily just recapturing? [technical difficulty] And could you maybe give us a sense of how those 25 bottom performing stores are impacting or pulling down store margin or operating margin, to give us a sense of perhaps what the margins could look like had we excluded…?

Jim, I think we lost you for a couple of seconds. I think you were asking, correct me if I'm wrong, a couple of things, one about some of the pressure we see on the margin, right?

Yes, that's right. I'm trying to…

Yeah, and how bottom 25 Shacks are impacting that.

That's right.

Yes, I think Tara covered the numbers during the prepared remarks and I think we’ve touched on a few of them. But I think, for March we expected Q1 with a 15%, we exited the quarter with March of '19, albeit they had net benefit of 13th week. I'd say, some of the pressures are ones that we're taking, which are we want to be fully staffed and fully prepared for the sales recovery. So we're staffing up in advance of that. We want to make sure the Shacks are ready for people to come in and enjoy their food. So there's a bit of us sort of preempting the sales recovery and making sure that we're correctly staffed. I think, on the other side of things that we've had some headwinds that have been around pre-COVID, such as the delivery level, right. The delivery levels around the elevated sort of delivery located into that which, albeit any Shack is coming back, but retention in has been high. These transitions, we're really, really pleased about. From a commodity perspective, we've touched on beef, which we've seen in the second-half of really the first quarter. We've got line of sight, and expect that to be highly inflated through the second quarter. Again, I think, as we look at the bottom 25 Shacks, I mean, they tend to be in the higher cost than higher urban areas, right. And they are the Shacks that drive pretty high leverage across their cost base. So, the route to sales recovery is going to be dependent on those Shacks. And the route to our full margin recovery is also going to be dependent to a degree on those Shacks. Whilst, we're sort of maintaining and really managing costs around the remainder of the Shacks that are performing well. So, a number of things, a number of years, a lot of sort of moving parts across all of those line items, which we were managing on an individual basis to make sure we're making the right decisions. I mean, it's still tough operate in a restaurant right now, in terms of distancing, and those types of things. There's still some costs that are elevated around PPE that’s still a thing. So we're managing those and these costs are coming into the Shacks and moving out of the Shack, as we make those decisions very, very carefully each step of the way.

Understood. And just a quick follow-up question. As you've seen, your digital sales slightly slip, is there any noticeable change in mix? Meaning, our pickup orders slipping more rapidly, is it delivery, anything that would change that mix between what consumers picking up versus using the delivery service?

Yeah, we don't like to think of it as digital slipping. The mix is changing. But we're maintaining a lot of those digital sales. But we've not broken down that level. We know our customers move between all of our channels. Our guests move in a lot of our channels. So we don't manage it sort of on a channel by channel basis. We want to make sure that all of our channels are sort of receptive to the customer, depending on their needs for that particular day.

All right, thank you.

Thank you. Our next question comes from Chris O'Cull with Stifel. Please proceed with your question.

Thanks. Good evening. This is actually Alec Estrada on for Chris. Looking at the regional breakout of same-Shack sales, the southeast was the only region to comp positively in April relative to '19, presumably with dine-in still depressed? Should the off-primus volumes, they're kind of remained sticky. Do you have a sense for how much higher those AUVs could be in the region? And does that make it an increased focal point for future development plans?

Yeah, sorry, just trying to -- I'm looking at the suburban opportunity there. I mean, we've got -- every region got better on that chart, as you look at it. And, versus '19, as you said, Southeast sorts of pop up, as we look at development plans, we think every region has great opportunity, including our hardest hit, which includes Manhattan, and New York City. But if you look at it versus 2020, every region is significantly up, all on the right trajectory, including our hardest hit, including Manhattan. So when we think about development, we really think we can be everywhere. I mean, we've got a big opportunity here in every one of those major regions of the United States. We're obviously pretty focused on California, some of the other major regions in the northeast that we've been strong. But we're not going to let the pandemic dictate the growth plan solely. There's a lot of learning what's happened this year. And we're going to add that to our already, robust development plan.

Thank you. Our next question comes from Brian Vaccaro with Raymond James. Please proceed with your question.

Hi, thanks. Good evening. I appreciate the AWS disclosures, it really helps cut through the comp noise, the one year, the two year, taking into account the relatively small base of the comp base. I guess, I was hoping to get beyond the comp base, and maybe think about the 192 company units in total? And could you give us a sense of average weekly sales in suburban versus urban markets sort of including all class years in the portfolio? And maybe comment on store margins cut across those same lines?

Yeah, that's something we haven't disclosed. And I think, there's reason for that. Those are going to change significantly over time, right, as our guests moving around the country. So around that sort of environment in between the cities, and then more suburban areas. So that's what information we've Brian shared at this point.

Okay. And maybe we can take a step back sticking with Rik details, I guess I wanted to ask the question, what does a full recovery in average weekly sales look like in your view? I guess, I'm trying to level set expectations versus where you were pre-COVID. I think, by our math, you were doing something just under $80,000 a week in '19. But there's sort of this natural decline in average weekly sales as you layer in new units, as a reasonable recovery get back to maybe to low to mid 70s? Just curious given all the moving pieces pre and post-COVID.

It's not a number, Brian, that we've got into obviously. It's certainly going to continue to go up from here on average for weekly sales. As you said, we had about a $4 million AUV roughly pre-COVID, a little bit over that, I think in that $80,000 range, let's call it. And, as we've opened a lot of Shacks, as we've said, we expect that number to come down slightly as we add these classes in the $3 million Shack average range. So I think we all need to see COVID shakeout a little bit in the world, come back to a little bit more of a normal operating environment where more all of our Shacks sort of settle into where they belong. But it's not a number we've given, we expected to continue to go up over time, from where it is today though.

Alright. Fair enough. And last one if I could. Sorry, if I missed it. How many company unit openings do you expect in the third quarter and fourth quarter? Thank you.

Well, we have between 16 and 18 in the first-half about 35 to 40 for the year. We do think that'll be heavily fourth quarter weighted. So the third quarter would be a lighter development quarter as was the second quarter. So, most of the development this year is going to be the first and then the fourth quarter.

Great. Thank you.

Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to, Randy, for any closing comments.

Thank you, everybody. We really appreciate everyone who got in tonight, and thanks for following us. I look forward to seeing you soon at a Shack. Thank you.

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