Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Shake Shack Third Quarter 2021 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] As a reminder, this conference is being recorded. I will now turn the conference over to your host, Annalee Leggett, Senior Manager of Investor Relations and FP&A for Shake Shack. Thank you. You may begin.

Thank you, and good evening, everyone. Joining me for Shake Shack’s conference call is our CEO, Randy Garutti; and CFO, Katie Fogerty. 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 financial details section of 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. As a reminder, and as we have discussed and disclosed for several quarters now, 2020 included a 53rd week and to normalize for a consistent like-for-like peer comparison, our comparable periods for both 2020 and 2019 have been shifted forward one week from the fiscal calendar. We’ve included an example calendar on Page 19 of the supplemental materials. By now, you should have access to our third quarter 2021 earnings release, which can be found at investor.shakeshack.com in the News section. Additionally, we have posted our third 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. I will now turn the call over to Randy.

Thanks Annalee. Good evening, everyone. I want to start off this call as I often do by thanking our teams. There simply has never been a more challenging, but simultaneously more rewarding time to be working in the restaurant industry and in our Shack family. Our teams continue to lead the dynamic sales recovery we’re experiencing across the globe, while navigating some real pressures in a constantly changing environment. Opportunity, a balance for this team and I’m proud of them for always standing for something good. This quarter represented the highest total revenue quarter in our company’s history. With all the noise, it’s easy to overlook that revenue is up 49% this quarter versus the same time last year. In October, we had our highest ever company operated Shack Sales Day hitting just under $3 million. And in the fourth quarter, we expect to surpass $1 billion in system-wide sales for the year, a first for us that is quite a comeback our team is making. Our Same-Shack sales compares continue to improve and are nearly back to 2019 levels on average, most notably exiting fiscal October at down, just 1%. Our hometown of New York, our hardest hit urban Shacks are leading the way building every day as the energy of offices, events, commuters, and eventually tourists slowly return. For Shake Shack long-term we believe the balance of urban renewal and the strength and focus of our suburban models will build a solid foundation for the future. None of us knows what’s ahead in this environment, but we’re hopeful this momentum continues. Yet as sales keep climbing back, we acknowledge profitability challenges remain, and there’s a fair amount of uncertainty for the world in the coming quarters. As many industries are shared, we too are experiencing a swift and…

Thank you, Randy, and good evening, everyone. I want to begin with a big thank you to our team and expressing my appreciation for all that they do. Even though, this environment has its challenges, is our people and our immense dedication to creating uplifting guest experiences that is truly laying the building blocks of what is to come. It is our teams that make Shake Shack such an incredible place for all of us to work. In the third quarter, we reported total revenue of $193.9 million marking the highest revenue in the company’s history with year-over-year growth of 49%. We landed at the bottom end of our guided total revenue range of $194 million to $200 million that we provided you in August. And I want to provide some more context and discuss the puts and takes of our Shack sales this quarter. So the negative impact of COVID related and extreme weather across our business in the quarter resulted in about 100 days of temporary closures, which totaled and approximate $850,000 in lost sales. Despite this, our third quarter average weekly sales. And that’s the figure that normalizes for closures was $72,000 that exceeded our historical seasonality expectations by coming in flat quarter-over-quarter. While our October average weekly sales have historically declined month-by-month, we were pleased to have generated $70,000 in average weekly sales for the month, which was above September levels. We provide further detail of monthly and quarterly average weekly sales performance on Page 6 of the supplemental materials. Same-Shack sales rose 24.8% year-over-year in the third quarter, driven by a strong recovery in traffic, offset slightly by mix as more guests came to dine in our restaurants. As a reminder, our in-Shack check is lower than our digital check. As we have shown throughout…

Thanks, Katie. It’s really encouraging to see our teams capitalize on the broad base sales recovery and renewed momentum we’re seeing across the country. Shake Shack was built as a community gathering place, and it’s gratifying to again, see our Shacks filled with friends, colleagues and visitors. There’s no doubt a number of macro factors impacting our business at the moment, we expect much of that uncertainty to remain through this year and well into 2022. I’ve been working in restaurants since I was 13 years old, it has never been an easy business and I believe most would agree that this is a particularly challenging time with so many persistent pressures hitting all at once. But history tells us that there are seasons to these challenges and great teams and great brands endure. None of us knows exactly what’s coming next and what we do know is that our team is working harder than ever to take care of each other, bring hospitality to our neighborhoods, transform our Shack formats, invest in critical digital infrastructure and uplift everyone in our Shack community along the way. We look forward to sharing a Shack burger with you soon. And as always, hope you and your family safe and healthy. With that operator, go ahead and open up the call for questions.

Thank you. [Operator Instructions] Our first question is from Jim Sanderson with North Coast Research.

Yes. Thanks for the question and congratulations on an improving quarter. I wanted to dig into your commentary about some temporary operational delays in the third quarter and how that impacted average weekly sales. Are you experiencing any reduction in average weekly sales in the current quarter related to staffing challenges?

From time to time Jim. Thanks. We named a couple of things in the third quarter, right? About 100 days of full closures right, now the average weekly sales adjust for that, okay. So that is not included in those. But what we saw in the third quarter, obviously we had hurricanes in the south, we had some pretty dynamic weather in the Northeast as well. But a lot of those were COVID related closures. From time to time as Katie noted, we do see either shortened hours or sometimes some small disruptions from the staffing. It’s not broad, but it is from time to time and in certain Shacks. We also see certain things with supply chain, right? We’ve had moments like every company has talks about where certain things we need to operate on a given day don’t arrive on the truck. It’s frustrating for our team. It’s not foreseeable in most cases and it’s hard and that does at times impact our sales. Again, it is not broad-based. It is more here and there. But there’s some small impact in this quarter and we would expect for some time to come, that’s going to continue.

All right. And a quick follow-up question on pricing. I think you mentioned low single digit pricing. A lot of your peers are taking their prices up mid to high single digits. In some instances, we’re seeing menu prices increase 10%. Given the cost inflation pressures on food and labor, wondering how you’re looking at menu pricing going into the fourth quarter and into 2022, meaning can we expect maybe a few more menu price adjustments over the next several quarters in addition to what you’ve already proposed?

Yes. We’re going to look at it really closely. Look, we have a history of 17 years of basically taking 1% to 2% a year. We have been at or below CPI increases forever. We don’t love taking more price, we want to be a brand that sustains the test of time. Even now with these pressures, we may be taking less price than we could. However, we are going to be patient about it. So we’ve taken roughly 3% to 3.5%. We’ve done some of that in our digital channels where we’ve increased – we talked about this last quarter on our third-party delivery we have a 10% upcharge in there. So we’re doing it more surgically. Should we continue to see rapid inflationary costs on any part of the P&L? We may consider taking more price earlier next year that we plan. Today we don’t have a plan that we got our – towards the end of October, we got our 3% to 3.5% price flowing through the system. I feel good about that. That’s hitting now. And again, it’s not going to offset all of the pressures we see at the moment. But for Shake Shack, we take a long view on these things and we’ll keep an eye on it, closely.

And just building on that point there. When you think about how early we are on our growth potential, I think that’s something that’s really important to keep in mind. We still have many more Shacks to build and to open, many new markets to enter and many new formats. And so, echoing on Randy’s point here, being mindful of that as we think about price will be absolutely essential.

All right. Thank you very much. I’ll pass along.

Our next question is from Jared Garber with Goldman Sachs.

Hi. Thanks for the questions. Lots of great details to digest. I wanted to dive into the suburban trends that you guys disclosed. In October the trends are particularly encouraging that plus 7. But there seemed to be a pretty meaningful step up versus September. And just wanted to know if there’s anything specific that’s driving that? Is there a seasonality impact there something in the consumer or something more granular to your strategy that drove that?

Hi, Jared. Yes, October really across the board for us was just very broad-based. There was a small benefit from the price that we took in the month – we took it mid month. But what we’re seeing here is a strong rebound in traffic across the board. We thought – we outlined and gave a little bit more detail around our different types of suburban formats and really it was all of those improved. And the important thing here is that we’re beating seasonality. So typically you would expect a more muted October and across the board, we outperformed that. I’d really also highlight here. We have a pretty strong performing LTO right now with black truffle. We launched that through our app only channel to begin with and then rolled it out to our stores and just recently through third-party. We’re seeing a lot of strong reception there. On that point, we talked about it a little bit in the script, but we were charging $8.99 for the black truffle burger in our core urban markets. And we’re really learning a lot about our ability to kind of pass on a really premium elevated product to our guests.

And Jared, I would also just note, you’re talking about suburban. I think one of the notes that – is a good vital sign is urban continues to improve and with that suburban improved. So that was encouraging. Now, look, we’ve said it, we’ve shared it, we still had a long way to go in our urban business, especially in New York City and other large metropolitan areas, still not fully recovered and have great impact on the company overall. But it’s encouraging to see the continued recovery in all those markets.

Yes. That’s great. And if I can just quickly follow-up, just a quick question on beef prices. I know you noted that beef was up 30% year-over-year in the third quarter. I’m not sure if I missed it, but did you give an update on what the fourth quarter was looking like so far? Are you seeing that measure accelerate, decelerate kind of holding that 30%. Any color will be really helpful? Thank you.

Yes, sure. So, beef prices, again, as we talked about really kind of spiked up in the third quarter. We’ve seen them come down a little bit, but they are still at elevated levels and we’re seeing them hold a little bit, come down from the high highs. But we’re definitely still in an inflationary environment.

Great. Thank you.

Our next question is from Nicole Miller with Piper Sandler.

Thanks. Good afternoon. Two quick ones. The first is just a numbers question. When you think about October, November and December in the prior year, was there anything notable in – well, maybe a two year trend, anything notable in seeing store sales adjustments that we would want to know like it’s an easy comparison or more challenging comparison? And then just making sure October would be the lowest average weekly sales month of the quarter. Is that the right way to think about it?

Well, there’s a couple of things, there’s some calendar shifts and some other things. Generally in 2019, if you look back at that quarter we talked about sort of a decelerating trend and being a little bit weaker towards the end of the year. Now we’ve got because of the week shift and also there’s a little call out which matters for Shake Shack when holidays and where they fall. So if you look at the calendar, we’re going to have a few days of that Christmas holiday in this year of 2021 and others going into the first quarter. That will have a negative impact on our P12 upcoming. Additionally Christmas is on a Saturday. We will lose that day of sales. That is worse than in years past when you lose a Thursday or Friday day of sales. So that’s a little bit of a pressure for us as we look at pressure.

And then just a high-level question, like super appreciative of the color and commentary around the different venues that you’ll have going forward. Like I’m thinking about drive-thrus and there was some commentary around the kiosk and the employee’s efficiency there. But the fact of the matter is the friction point changes as you change your channels and modes of operation. And so I don’t really – or a customer doesn’t walk in and get that necessarily Shack hospitality at the point of sale. And so I can understand everything you’re doing from a sales and marketing and consumer facing perspective. But the question is, what are you doing from an employee training perspective to align yourselves in that way to still produce like the hospitality that you’re known for?

Yes. That’s where you heard me, Nicole say so many things about our focus on the guest experience, specifically to your question because we think about your question a lot. And I’ll – I’ve noted, I’ve been working in restaurants my whole life. Like I can remember the days when we switched our reservation systems at Union Square Cafe from a pencil and paper to open table, right? And these things that you said, geez, this could kind of hurt hospitality. If we do it right and we will, technology should enable hospitality, digital hospitality should exist in the way that our products work, in the way that they should be on your side, make the experience easier. I can tell you as a consumer, I don’t ever want to wait in line. I haven’t ordered with a human being myself at Shake Shack in years, right? Because the experience I want is the digital hospitality for the stuff that is more annoying, that is ordering and paying. However, when I get to my Shack, I still want to talk to a nice person. I want it to be well prepared. I want my food hot and cold where it belongs. And I want that to be seamless, whether I’m staying or leaving. And we are going to have to continue to work on that as we add convenience factors, such as drive-thru, drive-ups and all these other things. What we generally see is that people are very pleased when we do those things. And as in-Shack sales has returned, people will still love coming to Shake Shack. And as this COVID recovery we hope continues in the right trend people are coming back, they are coming back. And they’re also coming back, but pre-ordering on the app or ordering with our kiosk as Katie talked a lot about.

Yes. And on that point too, there is just such an increased opportunity, there’s such a strong opportunity to continue to invest in digital in the Shack to provide an even better guest experience. I know many of – everybody on the line has probably been into a Shake Shack. And one of the things that we are investing in next year, even more on and I talked about this in the script, it’s just really a pickup screen to help direct people to where they should be waiting for their order. Now it might seem like that might not be that big of a deal, but what that does for the guest experience and how to be able to figure out, where to go and in some cases how long their wait time will be, that we think will lead them delighted and better understand where their ordering process will play out. And then from just a staffing perspective alone, freeing up people from taking cash, orders at a cash register and actually greeting guests and making sure that they’re – keeping the dining rooms fresh. That is all a great opportunity to enhance our guest experience. And so, when we – as Randy said, we closely look at our guest experience, of course, all the time. And we are very pleased with what we see from kiosk versus our in-Shack at the register transactions.

Great context. Thank you so much.

Our next question is from Michael Tamas with Oppenheimer and Company.

Thanks. Good afternoon, everyone. You’ve always talked about how important menu innovation is to your business. So does the current environment with commodity, supply chain and staffing limiting your ability in any way to sort of test this menu innovation and roll it out at the pace and with the items you’d like to meaning that as the environment improves, does that actually give you an opportunity to sort of drive your sales in a way you may not be able to do so today?

Yes. A little bit of balance on that, yes. There’s definitely disruptions we have from time to time, certain things like already things we have planned just getting caught up in supply chain challenges. There’s also of things that can seem small, but basic paper goods that we may not be able to get and you’re seeing this across every industry, every retailer where different things are popping up. That’s happening to us too. So sometimes that is happening, but it isn’t really a material distraction for us. Look, we simplified the menu a bit during COVID, right. We removed Chicago style hotdogs, which had a high number of items. We removed concretes, which had a high number of items. Some of those things we may test bringing back again, but now is not the environment. When you have both supply chain and labor disruption challenges, we really want to be as focused as possible. And when we do LTOs, like we’re doing now, we want them to be run for a significant period of time, so we can work through some of that disruption and to be impactful. That’s so far what we’re seeing with black truffle, and we’ll have a fun slate of LTOs that we hope can be impactful next year.

And then on your 22 development, are all those sites sort of signed and locked and ready to go and maybe just sort of construction and equipment you’re waiting on. And then just maybe on the equipment side of things, can you buy stuff today that you may not need for a little while, but just so it’s ready to go, so you minimize your interruptions. Thanks.

Yes, as much as possible. Not every one of those 45 to 50 is signed, but they’re certainly identified, right. And we have more than that that we identify this far out in a class where we’re looking at what that class could be with the goal and target of 45 to 50, but we name this and it’s really important to name it. You’re seeing more disruption than ever in the development side, right, whether it is a landlord who can’t get materials and therefore cannot deliver the space to us permitting supply chain challenges, local governments. I mean, it’s just a series of cascading items that you hear about every day. You listen to the news. Now, we still believe we can deliver on the 45 to 50. We think it will be more back weighted as often happens, but certainly going to happen next year, we know this and where we can either pre-buy or pre-prepare, we’ll do that. And certain things – certain things you may have American made items that are waiting for a part that couldn’t – that needs to go somewhere. You may have things as basic as some of our some of our kitchen equipment, some of our WiFi equipment from time to time, you’re just having funky disruptions. And we expect that stuff is going to be choppy for a bit. And I, I don’t think we’re alone in that.

Thank you.

Our next question is from Lauren Silberman with Credit Suisse.

Thanks for the question. And so culture is a core to how you operate the company in the face of current challenges. Can you talk about what you’re seeing with turnover as well as just overall sentiment among your teams and managers? Are there any markets or regions where you’ve seen outside pockets of labor challenges?

Yes. Well, okay, a couple – couple ways to answer that. Yes, I would say turnover is generally elevated this year than in years past. We expect that you’re seeing that everywhere. That’s true of our industry right now. And I expect that will continue for a while. We’re hopeful that people continue to come back to the workforce and that they make the choice to work with Shake Shack. We’re doing more than ever in our recruiting and our investments there. And then I’m sorry, remind me the second part of your question.

If you’re seeing – yes, so, well, one which is overall sentiment amongst your team, and then I guess the second part was any markets or regions where you’re seeing outside pocket…

Oh, yes. Sorry. Yes. Sorry, Lauren, yes. It – I’ve said this before, where it was hard before COVID, it’s hard, and where it was easier, it’s easier. And that just kind of exists. I think you see that in certain markets around the country that have always been hard, especially in some of our further out, some of our suburban markets where you have younger workforce generally working and you may not have as many of them whose parents don’t want to work during the time of COVID, right, or small examples like that that get bigger over time. But look, this is going to be an ongoing journey. It’s hard. It’s been hard. It’s going to be hard and we’re going to continue to focus to take care of our team.

Thanks. If I could just have a quick one on commodity costs. So how are you thinking about the sustainability of elevated commodity costs? And I understand sort of the near term dynamics, high demand, labor shortages, due to that labor costs increasing across the supply chain. So trying to feel or understand how you’re thinking about that in the context of willingness to take price? It’s more of this is a bit structural in nature.

Yes. So on that point, we expect to be in this inflationary environment for the foreseeable future. And while we might be seeing moderation at elevated levels in beef, we’re starting to see, and we’ve called this out that paper, packaging and freight are moving up. So we’re just in a very – a pretty inflationary time and certainly not immune from the effects of the broader industry here. And as Randy said, we are pleased so far with the price increase that we put through in October, but we’re going to wait and see how that plays out. And we could take more price next year, but it’s not something that we have committed to at this point in time.

Thank you.

Our next question is from Andrew Charles with Cowen.

Great. Thank you. I had a question for both of you. So first, just Randy, on the October price increase, if I recall I think you guys were running 5% pricing premium on the third-party delivery and you mentioned you’re now at 10%. Was that price increase that you took in October? Was that exclusively on marketplace channels? Or can you tell us how much was balance between marketplace as well as in-store if that’s possible?

Yes, so, it’s a balance. It’s regional also netting out to 3 to 3.5 we think over the whole system, okay. We moved from 5% to 10% in July on our third party delivery services, okay. So, obviously that you can work that out, it was less than that in the overall regular pricing of in-Shack pricing.

Got it. Okay. That’s helpful. And then Katie, totally get the industry staffing commodity challenges that wait on 3Q margins or guide persist in 4Q. It sounds like unfortunately they will be around for a good portion of 2022. And I know you’re not ready to formally guide 2022 restaurant margins, but I think investors looking for some guardrails. So is it fair to say 2022 margins will be able to trend above the 18% the low end of the long-term guidance?

Yes. We’re not giving guidance at this point. What we try to do is just kind of highlight the pressures that the business is facing.

And we expect these pressures that you’re seeing now to continue. I think that’s the punchline on COGS labor and the main pressures that we have, we expect to continue into 2022. Now, again, we look at the vital signs of our business right now in a long-term basis. And that looks like the continued straight line recovery of our sales that we’ve talked about for the last year. And that’s where we are really focused, there’s going to be some things out of our control right now. There are some things that we can do about those elevated costs that are hurting our margins. But in general, we are expecting margins to be pressured for some time.

Thanks for that color.

Our next question is from Jeffrey Bernstein with Barclays.

Great. Thank you very much. Two questions. The first one on the pipeline for next year, the 45 to 50 U.S. company operated. I think you mentioned already, you’ve already got the sites chosen. You’re still working on some of the paperwork. But it seems like people would be more of the issue based on the conversations thus far. I know some of your peers are talking about having a tough time recruiting and retaining managers, and it would seem like it’ll be more of an issue for a brand that’s actually adding 50 units above and beyond the hiring just to fill the existing posts. So I’m just wondering if you can give any qualitative color or some metrics to demonstrate your confidence in the people pipeline that you’re opening up these stores, but they’re set up for success with. However, many hundreds of managers you’ve got lined up and ready to run their own restaurant. And then I had one follow-up.

Yes. That is exactly what we talk about every day in making sure that we are recruiting, retaining and developing. Katie talked about Shift Up our program where right now we have nearly 60 of our shift managers who are going through a leadership development program in order to work their way up to exempt salary level managers. We also are strategically this important thing we’re doing here, not going to too many new markets next year, right. That helps you when you need to grow teams from within and not have to move people that helps. But you’re hitting on the right pressure. It’s not going to be easy. And that is hard work. Now, if you look at our percentage growth, we have strong percentage unit growth call it roughly 25-plus-percent next year, just in our company operated domestic. Those are the kind of numbers we’ve looked at year-on-year. And that’s some impressive growth and we believe we can hit it. And again, if for some reason we see that we need to slow those down, we would. But that’s the bench we’re building. It’s the opportunities we’re giving, it’s why we’re going to spend money. If you follow this story for a long time on our leadership retreat, which will be next year in first quarter, we expect to spend a lot of time and money developing the nearly 1,100 managers that we have across all of our restaurants across the country.

Understood. And then the follow-up is just on the restaurant margin. I know you said, there’s no specific guardrails that you’re providing for 2022 at this point other than the puts and takes. I’m just wondering if there’s a certain level of time that you’d say here’s a line in the sand where we will take incremental pricing because this business needs to hold a certain margin, whether or not it’s via incremental cost savings that you might have, or I know a lot of people are pushing on the incremental menu pricing opportunity. But is there a level where you say these pressures are just too much and therefore that would dictate a certain minimum amount of price increase just to hold that certain margin level, whether it’s in 2022 or beyond,

We’ve never thought about it that linearly. I would say we’ve always thought about it as what is the point where the guest is having a great experience and this restaurant is going to be here for many years to come. We don’t run our restaurants by percentages. We run them by guests and human beings and people who need to come in and love our product. If we sense that, we continue to have added pressures and it would be accepted and well received by that community. Then we may certainly choose to take more price in those, but we’re long-term thinkers. We’re not going to overreact because we are having we are all as a world, Shake Shack is not unique in this conversation. The world is experiencing very high inflationary pressure and let’s be patient. And let’s see where that goes in the coming quarters.

Understood. Thank you.

Our next question is from John Glass with Morgan Stanley.

Thanks very much. Randy, just wanted to come back to the development question. And I guess, given the pressures on labor, given the pressures on costs, which you have to live within development forever, have you ever contemplated that this is a time to maybe go slower, get them right. And if not, why not? And maybe how do you pro forma on new store now, right. I mean, what margin assumption do you want to use? What cost assumption – it would seem like that’s a harder thing to do that it used to be. I just wonder if you’ve changed your assumptions based on that.

Yes, lots of good questions in there. I think getting it right is not necessarily about the number, the quantity or the speed, getting it right is choosing a great size with the right format for its community now. We have some major changes in that, right. The evolution of this brand is going to do 10 drive-thrus between now we’ve never done one. We’re doing that in the next 15 months. It’s going to be super exciting, different levels of convenient formats with Shack Track windows, drive up and walkups. So we are really, really excited about that. So I think John, we have always believed that we’re going to grow to the extent we can continue to develop great sites and great teams that can execute them. When you think about the returns, yes, look, we’ve obviously outperformed any targeted returns we’ve shared since the day of our IPO, right. And we’re not changing any long-term metrics at this time. We’re not reiterating anything other than to say, of course, when your margins are pressured and you’re spending a little bit more, as we are to develop larger units that have a higher investment cost. Our returns in the near-term will likely be impacted. There’s no question about that, right. It’s simple math. But the long-term return to the total addressable market opportunity that we can get from getting these formats right. And continuing to grow is what we’re after. And yes, look, if we need to slow down for any number of reasons, we’ve been through that over the last couple of years, we’ll certainly react. But we feel like that’s an appropriate development schedule for this next 15 months.

I appreciate the answer. And just, you did comment on new store productivity last quarter. I think – or I can’t remember it was a trailing 12 month class or whatever it was, was up 20%, I think either. And I can’t remember what it was versus something. It was good. What is that now? Is that still trending in that similar direction?

Yes, you’re commenting on, we talked about the new Shack class for the year, this year, so far versus the total company average being at those elevated numbers, those remain elevated were not breaking out the numbers every quarter, but we did reiterate the comment that they remain higher than our classes. A couple things to note, we only open five restaurants this quarter, we’re going to open 10 to 13 next, Shake Shacks as you know, tend to open big. We had a number of new market openings, which we’ve commented on and how strong they were, Indianapolis, Hoboken, the Bronx, Portland, Oregon, and some other really high volume ones. Tampa was our first there in that area of Florida. So again, those moderate, those come down over time and we have a new class of the next 10 plus that will likely open in this quarter. So that’s a number that will go back and forth. The whole point of giving that number is say, even during COVID, even during our sales recovery time, our new Shacks were and are continuing to perform.

Great. Thank you.

Our next question is from Jake Bartlett with Truist Securities.

Hey, thanks for taking the question. I just wanted to clarify on the menu pricing. 3 to 3.5, I believe you typically take it in December. So, is that the total pricing that’s in the menu right now? Or is there more until you last – what you had taken last December? Just trying to make sure we understand what the effect of pricing is in the first quarter – in the fourth quarter?

Yes, no, that’s exactly right. So we took in total 3% to 3.5% this in October inclusive of the 10% delivery premiums that we’re charging and that’s on top of the price that was taken last year. So now you’re looking at kind of a mid single-digit price right now.

Yes. We took about 2% in December, end of December last year. So that will roll off at that time next year.

Great. That’s really helpful. And then, just looking at G&A, the guidance for the fourth quarter is significantly higher than you think you saw in the third quarter. What is the right kind of level to, I don’t know if there’s anything abnormal in the fourth quarter in terms of a catch up or something or a crew or something. Just trying to really make sure we understand right. Understand what to grow from what’s the right kind of quarterly run rate from which to grow in 2022.

Yes. We’re going to keep growing and here’s how you should think about it. We’re going to keep growing in the fourth quarter, we are working our guidance implies and you will see through 2022, we intend to hire, we intend to build our teams. We intend to make big digital tech and marketing investments, as well as in the development schedule. We’re about to build the largest class of restaurants we’ve ever had. We’re also beginning to travel more, right. There’s G&A cost our international team in some cases has not been able to travel. We intend to get back at that in 2022. We intend you to really continue just make deep investments in the long-term. So to the point of – are we going to leverage G&A anytime soon. That’s not our – you’re not going to hear us use those words. So you’re going to hear us say, we’re going to continue invest in the people, infrastructure, marketing and all the things that will build this brand. We have just over 200 company-operated Shacks. We got a lot of opportunity out there and we’re going to keep investing in it.

Great. And then last, last quick question. The digital sales mix it’s really held in, I think more than most just on a kind of monthly basis and an absolute kind of average weekly sales, but how incremental is that? It’s a little different with other concepts we think about off-prem that’s being really totally incremental. Is this just, I mean, this could just be a shift from people using that channel and doing the same behavior they did before. So how do you think on about how that increases your opportunity, the digital mix here and really the incrementality of it?

Yes. I mean, what are the stat that I find to be really helpful when understanding what that digital mix to us is, when we talked about how we grew our first time app and web purchasers by 14% in the quarter. And we have seen, and when we study, our data, when we bring a guest into our digital ecosystem, we see higher frequency, we see a higher lifetime value of that guest. And so it’s kind of that true omni-channel guest that we’re looking to get here. So we are really encouraged and excited about the fact that we were able to retain about 80% of the digital business that we had built in the peak of the pandemic. And that our mix remains strong even though in-Shack is growing much faster than our digital business right now. All of that aside, this is just, we think kind of planting the seeds of greater frequency of our core guests in years to come.

Great. Thanks a lot. Appreciate it.

Our next question is from Chris O’Cull with Stifel.

Great, thank you guys. This is Patrick on for Chris. I wanted to ask a quick follow up on John’s question, but is the new store curve that you’re seeing today and new openings and the way they’re outperforming the system. Is that similar to what you saw pre-COVID or do you still have room there for the honeymoon period to recover relative to what you saw before the pandemic and then I had one follow up?

We haven’t – we never really talked about those numbers in the past, so it’s hard to get into that today. Other than to say, in the past, we have talked for many years about how Shake Shacks, especially in new markets, generally perform strong out of the gate and then come down to some extent in year or two, and then generally come back out. But it’s hard, they’re all different. Every class is different, every Shack is different. So that comment was really about this year, as we look at recovery and overall sales having been remained down a bit,

I think just piling on here, it’s really hard to make it kind of broad sweeping, generalizations here given we are still recovering and in the midst of COVID.

Got it. That’s helpful. And then just a quick longer term question on the international business and the license segment, as you continue to grow there and your partners do, obviously there’s the near-term challenges of COVID, but is there a point in the longer term where you see density get to a point where you can actually have a step change in the level of development, particularly in markets where you have a lot of white space like China?

Yes. We’re obviously really excited about Asia generally, especially China. We’ve had just incredible starts there. I noted that Hangzhou which is a new city, which is a smaller city – I mean, small by China relative terms, but a very major city in the world outside of Shanghai where we’ve had a tremendous start. And we have still just very few Shacks in China but we’re going to keep growing there. So look, we want to focus on the most important markets and we’re also really proud of our mature markets, like the Middle East, where we have a huge business like the UK where we have a number of great restaurants that are still recovering. So look, we got our eyes on a big global license opportunity and domestic license opportunity that we noted. We love this part of our business. It’s really asset-light, cash accretive and brand exciting. So everything about it is an important and exciting piece for our business. We can’t wait to keep growing it.

Great. Thanks guys.

Our next question is from David Tarantino with Baird.

Hi, good afternoon. Katie, just a quick clarification on the guidance for the fourth quarter comps. Can you give some perspective on what that would imply for a two-year comp or I guess a comp versus 2019? I guess, the number I would calculate would be different given the fiscal period shift. So just wondering what that would be.

Yes. We’re not going to go into that again. 4Q 2019 had a lot of different noise – had a lot of noise in it. And we have the 53rd week adjustment we’ve made here. So I feel very good about the guidance that we’ve given you and that’s as much detail as we’re going to get into. On the back of that comment though, I do want to clarify, the guidance that we’re providing you for 4Q on Shack sales and on our same-store sales guidance that is using the trends that we are seeing today and expecting that those trends will continue with normal historical seasonality patterns to help kind of address that point.

Okay. That’s essentially answers the question. Thank you. And then Randy, I just wanted to ask what do you think the ultimate solution is for the staffing issues? Do you think it’s just much higher wage rates or do you think, I guess something else related to the employment proposition is necessary? I guess, as you think about your long history in the industry, I’d be curious to get your thoughts on that question.

Yes, it’s such a deep – we’re going to need a lot more time for that one. And I think I’m not sure I’m going to answer that for the world’s challenges right now. Look, there’s such a host of things that are causing this, and I think it’s probably nine or 10 different things. I’m not going to name one or the other. They’re all included, all leading towards, I believe ultimately we have to be the best employer in our industry. I do believe the restaurant business is an incredible occupation. I’ve lived it my whole life. And I have seen how many people, we have lifted from entry level jobs into leadership jobs across the country. And the restaurant business is not for everyone, but it is for a lot of people. And we’ve got to keep focusing on that. I do think time will be a heal for this as well. I do think we have to get people. I do think will continue to return to the workforce. I believe we’ve got to be leaders there and we’ve got to give people reasons to join Shake Shack instead of somewhere else. Part of that is pay, part of that is leadership development and all of it is pride in the place that you work. So, boy, it’s a great question. It’s a host of things. I wish I had the silver bullet and I think it’s just going to be heads down, ton of work for our operators and our people teams for a while as we get back to optimal staffing labors. And I believe we will, and I believe the industry will and we’ll proudly move forward.

Right. Thank you for your thought.

Our next question is from Peter Saleh with BTIG.

Great, thank you. I wanted to ask about the menu price. I know you guys have taken some recently. But I guess if you look back to the last, maybe couple of menu prices that you’ve taken, have you seen any resistance from the customer on the menu pushback and how have you guys measured that in the past?

Not really. I mean, you obviously see it through sales and traffic. I mean, that’s the best measure of anything in this regard. I think it’s hard to answer that definitively, but no, look, that’s why we’ve always been cautious and always been in that 1% to 2% range. So, we’ve talked a lot about on this call tonight, the different pieces of that and how we see it now.

Another point to add here, because we just have a little bit more time of observation here is with – now 10% that we’re charging through our third-party delivery channels. We’re still seeing our guests favor that – look and willing to – they’re willing to pay for that convenient channel. So that gives us a little bit of hope there too.

Got it. And then I know this one may be a little bit more difficult to answer, but as you talk to your suppliers and your partners on the supply chain, is there any sort of sense on how much of this inflation may be transitory in nature? Clearly, I think everybody’s struggling with the same thing, but nobody’s really sure. How much of the commodity inflation is transitory? I think the labor component is likely not at this point.

Yes. I think that’s probably fair. I’m not a big agreer with transitory inflation at the moment. I think of course everything is supply and demand curve. And we’re going to swing very far in one direction here during this tough time. And then I believe that will ultimately swing back. Certain commodities will swing back sooner than others. Some might never. And I think we’re going to live in a high cost of environment for a while and that’s going to translate into inflation. So, I don’t think anyone knows, I think every quarter has been more surprising than the last for everyone involved in the discussion. And we’re just going to keep watching and reacting as we can and making sure we give a good, great guest experience in the meantime.

Thank you very much.

Our next question is from Brett Levy with MKM Partners.

Thanks for taking the question. I’m going to try one. I know you might not want to answer. With all of the different performances you’re seeing now across your different segments. Would you care to either share a little bit more margin color on segments or top and bottom quartiles? Just how far down that the bottom have fallen or how well the top are holding up. Thanks.

Yes. That’s okay. I mean, I’m going to answer it with exact numbers other than to say, it’s the same theme we’ve talked about. There are restaurants in high urban density areas that are significantly down from their highs. It’s very far down that remains if you are in Midtown Manhattan, while things continue to get better every day. And you’ve seen that through our numbers quarter-after-quarter, they remain deeply impacted. And there are some Shacks in high traffic suburban areas that continue to win. By the way, there’s some urban Shacks that continue to win for various reasons. So it’s balanced, it’s balanced and you can see it in our numbers, look at period 10, look at the third quarter, every region continued to grow and improve. And we’re still down in the deep urban regions. And that’s just what’s going to be for a while. There’s high highs, low lows. And we still believe we haven’t closed a single Shack during all of this, except for Penn Station that we force to go as because of a construction project. So if that gives you an indication, how we feel about these Shacks ability to recover, there you have it.

Our next question is from John Van Hout with J.P. Morgan.

Hi, I’ll try to be quick. I thought during this call, how – as some of your employees aren’t necessarily benefiting directly from customer tips where some of your service providers actually are, do you think and to some extent, this is back to David Tarantino’s, can we solve some of the pay issue of just giving customers more of an opportunity to tip maybe through some of the new next generation point of sale systems, whether in your kiosk or through your app, if you think pay is part of the problem, could you put it to some extent in the customer’s hands?

John, you’re are always ahead of the curve as usual, and appreciate that we’ve talked about tips for a long time. And I’ll tell you how we think about it, for many, many years, our guests have said, can I give you a tip? And we’ve always said, no, no, no, we’re good. We don’t do that here. It’s something we’re talking about a lot and mostly because our guests have asked for it and of course, to ultimately hopefully have higher pay, we’re actually testing right now in just two Shacks. And it’s a test that literally began weeks ago, just weeks ago. So we’re going to test that. We’re going to see various versions of that, and we want to make sure that we don’t ever want to be the brand that people feel compelled, guilty about it like they have to do it. It should only be for superior service and hospitality. And if we can set up a system where that could work in some of our channels and that could then benefit our team, that’d be great. But again, really new and just testing at it too so this is a long-term project, so don’t expect to see a massive rollout anytime soon here, but thank you for asking.

Yes. And listen, and I’m sure a lot of customers would be happy just for that opportunity and I’m sure you’ll do it in the right way. So, the month of October, you did mention the Regalis Truffle Burger doing well. I think that’s obvious, I mean, how significant do you think that actually was for the month of October? And I mean, you also said, you might consider other higher price products like that. I mean, do you have a full pipeline as kind of the first point? And then secondly, if I could sneak it in, were your staffing levels in the month of October materially better than some of the proceeding months that also could have contributed to some of the cross regional performance in that month?

Okay. So starting with staffing, no, it wasn’t materially better staffing wise, but it also wasn’t materially worse. It was still challenging. Let’s start there. So we certainly were not optimized at every Shack every day to capture the best sales and that remains a challenge. And when it comes to LTOs, we love this truffle burger. It’s something we tested last year, just in a couple markets to see and it’s hitting and people love it and they’re willing to spend. So that gives us a lot of confidence and potential premium LTOs, or also not just LTOs, John, but you’re seeing us more and more look to the premiumization of current items. If you actually pay attention in our app, you’ll see bacon avocado, which wasn’t LTO and is not anymore, but you can still get it, right. You can see more easily able to add on features like adding bacon, like adding avocado on a burger, those are things that we’re really excited about being able to do, so trouble didn’t really launch till mid to end of October. So it wasn’t a huge part of the October performance, but certainly had some fun involved in it. We also last comment, we did that digitally only in that first couple weeks. So there was time when it was only available in our app. Then there was a time where we didn’t have it on third-party channels and it finally did. And we think it’s going to be a fun item to run for a couple months. So we’ll see where that goes. And we’ve got our eye on other exciting LTOs for next year.

Our next question is from Brian Vaccaro with Raymond James.

Hey, thanks for squeezing me in, just a real quick one. I wanted to circle back on the suburban trends. And I always really appreciate the monthly total AWS that you provide in the presentation, but could you speak to what you’re seeing sort of from a suburban AWS standpoint. Specifically, I’m just trying to work through any noise in that improvement you’re seeing in October that might be seasonality, COVID world versus pre-COVID. And also trying to get a read beyond just the comp base a bit since you’re growing so rapidly so any additional color there would be great.

Yes, Brian, I mean, what we’ve shown here is, and what we’re going to share with you is just the same-store sales trends. So if you go to Page 7 of the supplementals, we outline the urban versus the suburban and the overall blend. Just to give you some more color there. We saw a broad based and improvement across the board. And it was across a variety of the different mix of formats in suburban that we talked about.

Okay. Would you say the AWS, since in the suburban markets were higher in October than they were September and August.

We’re not commenting on AWS for October.

Understood. Thank you.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Randy Garutti for closing remarks.

Thanks, everybody. Appreciate the long hour plus here and look forward to getting a Shack Burger with you soon. Thanks for joining. Take care.

This concludes today’s conference. Shake Shack, thank you for your participation. You may disconnect your lines at this time.