Greetings, and welcome to the Shake Shack Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to your host, Annalee Leggett. 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 Fogertey. 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 in the final 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, 2020 included a 53rd fiscal week and to normalize for consistent like-for-like comparison when discussing 2021 year-over-year sales and revenue metrics tonight, we've excluded the impact of the 53rd week in 2020. We've included metrics, including the 53rd week in our press release and a slide detailing the impact to the same Shake Shack sales calculation in the financial details section of our earnings supplemental. By now, you should have access to our fourth quarter 2021 earnings release, which can be found at investor.shakeshack.com in the News section. Additionally, we have posted our fourth quarter 2021 supplemental earnings materials, which can be found in the Events & 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. Tonight, we'll highlight the strong fourth quarter recovery and full year 2021 performance, following up from our prerelease of initial revenue and profitability results earlier in January. Katie and I will also be giving color on the current quarter's performance, especially in light of Omicron impacts. As always, I want to take a moment to thank our team. This recent Omicron wave amidst an already challenging staffing environment has been a tough hurdle for our teams. The way to get out there day after day to take care of each other and their communities amazes us, and they deserve our thanks. More than ever, it's important we maintain our commitment to stand for something good by elevating our people. This is Shake Shack. The fourth quarter represented a strong improvement in sales and profitability and highlighted what recovery can start to look like when urban centers, travel and return to pre-COVID movement patterns take hold. In 2021, we had a record system-wide sales of over $1.1 billion, growing over 47%, marking the highest sales in the company's history. Average weekly sales outpaced historical seasonality at $74,000. Same-Shack sales were up nearly 21% versus 2020 and for the first time, push positive versus 2019 at up 2.2% due to the strength in both urban and suburban markets. Our licensed Shacks in the U.S. and around the globe also performed well, contributing to record license revenue. Our Shack level operating profit in the fourth quarter was 16.4%, benefiting from strong sales, offset by continued labor and cost of goods inflation. The environment of commodity and labor wage inflation is still taking a material impact on our restaurant margins. We expect this dynamic for the foreseeable future. But in order to offset some inflationary pressures, we took a…

Great. Thank you, Randy, and good afternoon, everyone. I want to thank our amazing teams in our Shacks and at our home office for the tireless work that they do as we continue to work together and navigate this challenging landscape. Our deep dedication, perseverance and innovation is shining bright through the lingering pressures from COVID. We ended the year on an optimistic note with encouragement about what a recovery for our more urban and tourism heavy restaurant footprint can start to look like. We saw notable green shoots across Shacks even as consumers were still not fully back to recover behavior patterns in terms of international and domestic tourism, return to office as well as dining in restaurants. Our fourth quarter revenue grew over 38% year-over-year to $203.3 million as our Same-Shack sales rose 20.8%, more than closing the gap to 2019 Same-Shack sales. This was a long-awaited milestone for the company. And this happened even as many of our Shacks that had the largest sales volumes prior to COVID were still far from recovered. We generated Shack-level operating profit margin of 16.4% and up 40 basis points year-on-year. Our license business had a record quarter, and we generated adjusted EBITDA of $12.4 million, up 36% year-over-year. System-wide sales were $314.3 million in the quarter and more than $1.1 billion for the full year, up over 47% year-over-year and by more than 25% relative to 2019 levels. We are learning more insights as we enter new countries, markets and formats as there are now 379 Shake Shacks operating across 15 countries, and we have a strong digital presence in our company-owned business. We generated $74,000 in average weekly sales, up from 72,000 we reported last quarter, and each month of the quarter outperformed historical seasonality, driven by a function…

Thanks, Katie. I just want to end today sharing the optimism that our team feels around what's ahead. There's no doubt the whipsaw of COVID-induced impact continues, has been felt already in this first quarter but the team is forging ahead. We're driving excitement around our products, our Shacks in each and every way our guests can experience Shake Shack. We've got a big year ahead, and we're thankful you're along for the ride with us. As always, I hope that you and your family stay safe and healthy. With that, operator, please go ahead and open the call for questions.

[Operator Instructions]. Our first question comes from the line of Michael Tamas with Oppenheimer & Company.

You said you're planning to take more price in March to protect your margins. And I think the comment to protect margin sounds like a little bit of a shift from the last few calls. And so how do you want us to think about that comment specifically on protecting margins? Is that meaning that 2022 should look similar to '21? Or what's the right way that we should all be interpreting the protecting margins comment.

Well, I think you got -- I think you interpret it as the price of 6% to 7% that we're going to have in total running through the system as we head into Q2. And -- there's a lot of puts and takes. There's a lot of uncertainty in inflation, the cost of goods entering our business and our continued investments in our people and all the things. So we're not going to run this business to just hit some expected margin. We're going to run it the long-term return of sales. The #1 thing we'll do to protect margins is getting our sales fully back. And those are -- that's the #1 focus will always be sales on that. And we'll take price appropriate with that. I think what we've shared today is it's clear that inflation and its hit on our business remains persistent, may remain persistent, and we will watch closely to see if it gets worse into this year. So we'll keep you posted a change on that, Michael, but that's the plan for right now. And as Katie said, a couple of times, we'll keep an eye on whether we need more price next year. But at this moment, we have no plan to do that, but we'll keep an eye on that as the business implants come.

Makes sense. And then obviously, you're still really early in the process of drive-thrus and drive up you have 10 planned, I think, by the end of '22. And so as you think about your unit growth beyond '22, I know you're not giving us numbers, but if you were to just say, grow 50 units, I mean, this is just such a transformation for your business. Is there a point where you might see these be 30% to 40% here 30 to 40 of those 50 units? And if that wouldn't be the case, why not?

Well, I think we've got to get to no drive-thru, right? So we're not gotten any of those numbers today. And you can see here in my comments how excited we are about it to have 3 open. And we've got less than 2 months of experience where I'm going to drive-thru. We've got a lot to learn, a lot to do. And as the words I continue users, we're optimized for learning on that. We have various kitchen designs, various drive up scenarios that we're practicing. We're learning. And there's going to be places where drive-thrus, we believe, will be a critical part of shape Shack's future, but we've got to prove that. And we've got to figure out how to build that. So a lot ahead, a lot of optimism on that. and quite a few Shacks that are coming our way soon. So look forward to a drive-thru near you.

Our next question comes from the line of Jared Garber with Goldman Sachs.

I want to circle back on the commentary on pricing. Obviously, encouraging to hear you guys kind of set out and increase price there to help out the margin profile. But wondering what your studies would show on pricing elasticity. I think one of the things that we hear investors talk about a lot is the price of a Shake Shack burger. So just curious how you view that pricing power that you talked about, Katie or Randy. And maybe what kind of research you've done to suggest that you have sort of 6% to possibly more than 8% price to take?

We do keep a careful eye on where we are relative to what we think our competitors are, and we still feel very good about what that price gap is. And that's probably all that I'll kind of go into today. We do take a tiered approach to our pricing, and so we're very we take into account our guests kind of willingness to pay in various markets. And that's kind of what we look at when we see pricing. The results of our -- we raised price in October, and we saw pretty good reception to that price increase, and that gives us more confidence here, but it is a risk and something that we're very mindful of.

And Jared, I think, look, none of us have seen this kind of inflationary environment in a generation. Certainly, no 1 alive has ever seen it following a pandemic. So I think there's just going to be a lot to watch and learn. But we have, as we said, like really feel good about where we sit, when you kind of look at your typical Shack meal, you kind of Shack burger fries and a drink, does that sit comfortably against other options that you might have for lunch or dinner, and we sure think it does. And we feel like that gives us a strong platform to grow from.

That's great. And then just 1 sort of quick follow-up on the delivery pricing. You're taking that incrementally higher on the third-party channels. Does that drive sort of a channel agnostic scenario in terms of margins? Or are those margins still lower than your direct channels?

I would say with that, this is an important step to improve our profitability in our delivery channels.

Our next question comes from the line of Sharon Zackfia with William Blair.

I guess a question on the pricing, sorry. I remember, Randy, we were sitting together in New York the week before the pandemic really started in the U.S., and you were doing pricing elasticity analysis at that point. And I recognize you don't want to get overly into where you can take price and where you can, but have you seen any noticeable consumer resistance over the past years, you've taken a bit more price? And then secondarily, Katie, the margin range for the quarter is a bit wider than normal. Is that just reflecting the uncertainty with sales given the pandemic volatility?

Okay. So on the pricing, look, we've got we just took 3.5 in October, right, towards the end of October, that is all new, and we've had a wild consumer environment since then. So really hard to say. We continue to believe, Sharon, that we've got some really strong pricing power. That's what more than 2 years ago, as what you're referring to, we continue to believe, and we also have got -- just gotten smarter about how we price, how we price for a fair value exchange and things like our delivery channels and market-by-market pure pricing. So we feel really good about getting smarter about price and still keeping it within a range that we think is reasonable. And yet -- this company has a history of a roughly 2% price take every year for us to be at 7 is indicative of the time we're living in. And I think we're probably on the conservative end of that if you look at us against the industry, us against at-home cost of food. And I think that would tell you that we're probably in a pretty strong pricing position as we enter this next phase of things getting more expensive around us, which is why we'll keep an eye on things for the future.

And then, Sharon, on your question on the wide range of margins, I mean, it's something that we talked about in our prepared remarks. There is kind of growing uncertainty here about our ability to really nail down the true cost landscape here and the impact from Omicron, and so we've done our best to reflect that in the guidance today.

And also I want to make sure you catch that. Like we're very clear that Q4 really started to see those drivers for Shake Shack that we know can drive our business results happen, and we celebrate what that looked like in in January was really tough. And yet the last 3 weeks in February have been consistently better every week. So you can kind of see that wave and as we've talked about for 2 years, Shake Shack is generally more impacted by these waves given our unique real estate proposition. And we look forward to more of a return of normal traffic patterns. We're hopeful, but we're going to be cautious in that in our op profit in our sales guidance for this quarter and beyond.

Our next question comes from the line of Nick Setyan with Wedbush Securities.

Q4, the average weekly sales were above the average weekly sales in Q4 '19 and even the best of times, pretty cover year-over-year, your average weekly sell tended to decline because of the new unit volumes. Can you maybe just take a step back and explain to us what was so favorable about Q4 '21 versus Q4 '19 average weekly sales. And as we go forward and sales do normalize post Omicron what we should expect there?

Yes. Nick, a couple of things on that. We booked the seasonal trend in Q4. And I think that's the optimism of what we're talking about here, right? You start to see that -- you saw a little bit of that towards the end where we had some price, but most of that was that urban recovery to start to see what the Shack we all know and love looks like and will look like. And some of that was some pretty strong openings that we had through 2021, as I noted, some above-average continued average weekly sales and AUVs for that class that kicked off, and that gives us confidence. And that's why nobody is excited about being slower than we expected AWS for January. But as we look ahead and we know and we can see the kind of things that Shake Shack has always been, it gives -- it's why we're confident and optimistic for where this thing is headed. But we're not going to quote an average weekly sales number but all of the strategies we just talked about, specifically to our people, our digital and our Shacks is what we're building towards to get that back and growing.

And just to tail on there. New York City, the recovery that New York City saw in the fourth quarter, while still many of our Shacks were below 2019 levels. that improvement was a very significant driver of our total same-Shack sales. in the quarter. And so we really were very encouraged by what we started to see as movement trends started to get not -- we're nowhere near fully returned to pre-COVID levels but you started to see more international tourism. You started to see more return to office. All those things are just such great benefits for us, and left us encouraged for what the recovery could look like once we move past Omicron.

Okay. And Katie, I think Q2 recovers to pre-Omicron levels of sales, what the incremental price increase assuming, again, pre-Omicron sort of levels of sales, what could the margin look like in Q2?

Yes. We're not going to go into that at this point. There's a lot of uncertainties too as we go throughout the quarter into 2Q so.

Next question comes from the line of Lauren Silberman with Credit Suisse.

So I just wanted to ask about your longer-term outlook on restaurant margin, a little bit similar to the last question. But near term, a lot of volatility across the P&L transitory headwinds, creating noise, high-volume Shacks pressuring margins in outside degree. As we move towards a more normalized environment, which I guess means if for return to pre-COVID AUVs across the base and no further acceleration in costs. What do you see as the right margin for the system? Is it 20%? Is that how we should be still thinking about it?

Yes, Lauren, we haven't given that long-term official guidance yet. We know we have work to do to rebuild -- you start to see that rebuild in Q4 and kind of finishing out the year. So we've got work to do. A lot of that is going to be watching this inflationary environment, how much things continue to increase, where our digital channels end up landing and the cost of delivery and some of the other things that impact that. But look, we fully believe in the long-term strength of the margins of this brand. We've proved that for every year prior to COVID and COVID an impact for the last 2 years. And I think given how volatile it's been, given how many of our restaurants still have some ups and downs, the team has done a great job getting basically 3/4 of that profitability back. And we've got a road and a lot of work to do to get that back, and that's our work ahead. That's every strategic pillar that you heard me say is what that is all based upon. And that will start and always begin and end with driving sales. And that's the next part of the work we had.

Got it. Okay. Then I can transition to -- and I'll try it for a near-term question. Are you willing to give what January and February same-store sales were versus I guess, month-to-date versus 2020, which was normalized at the time or I guess where average weekly sales are trending through February relative to 63,000 in January, just as we try to look at the one?

Yes, no, we are always going to be comparing to our 1-year stack at this point. And we're doing this for a very specific reason. We are growing so fast. Our comp base is so different today than it is versus 2019 or 2020. And so we are reverting to kind of more of a normalized reporting pattern here.

Our next question comes from the line of Andrew Charles with Cowen.

Yes. Just my first question, maybe just a follow-up on that last one. The formal long-term guidance before for margins of 18% to 22%. And look, of course, there's a lot of things in the industry is facing right now, it's going to make it very challenging for that number. The industry is going to have challenges with margins for the foreseeable future. But I just want to make sure I mean is that still the number you guys are thinking about longer term? And if so, do you view that kind of as some of the confidence or so that's a bit more of a stretch from where we are today?

Well, I'm not sure anything different than I could say to that question, Andrew, than I just said. So I think -- we are not changing our long-term guidance that we've given about the long-term opportunities for Shake Shack. We've got work to do to rebuild that beyond the last 16% plus in Q4. So certainly got work to do. We believe in the strength of the op profit of this brand and the AUV is being strong moving forward. So we'll keep you posted and we're going to rebuild.

Got it. And then my other question is just on marketing for this year. I would love to know the brand historically has done some fun collaborations, things that have been a little bit outside the box, like with Game of Thrones, with Clay Thompson, looking beyond menu innovation, I mean, are there plans to create some buzz for the brand in 2022 that we should be thinking about in terms of new marketing ideas?

Definitely. Well, you can see recently, we've been running with our Buffalo Chicken, and you'll see that in new digital channels. And we've also -- we ended Q4 with some different out-of-home advertising and various localized things for our Black Truffle. And the team is just having a ton of fun creating some super fun. We've got -- we'll have some great chef and brand to labs this year. We'll have some great that will have a wider brand collab attachment to it, and you'll see us doing more digital marketing specific even on channels right now, like we're testing some work with YouTube TV and Hulu and some things that you may see our Buffalo Chicken pop up from time to time. So definitely starting to dabble more and more into a greater marketing spend as part of our G&A guide for this year.

Our next question comes from the line of Brian Mullan with Deutsche Bank.

Just a question on delivery, specifically around consumer demand. Just curious what you've seen over the last few months, is that a channel that has transactions growing year-over-year across your system. And I'm asking because I imagine there are some tough compares from the year ago period. So any color on what consumer demand for delivery looks like right now would be helpful.

Yes, so delivery, the business did a lot of delivery clearly in 2021. If you think about where the market was there versus now, the rise in Omicron cases, we did see an increase in our delivery mix. However, we are comparing against a pretty severe time the year before.

I think it's going to be interesting to just watch. I think it's -- look, it just -- it's unknown. We have a strong continued demand for delivery. That's the punchline. We like to do that in our own channels, and we have great relationships with our third-party delivery partners. So we'll see that. I think it's proven to be a little more seasonal, right? When it's cold, when COVID, we generally tend to do more delivery when people are out and about, and you really saw this even in the fourth quarter, our in-Shack sales really rose. So to me, that just starts to show you too when, how our return to more normalized traffic patterns happens, we expect that to lean more towards in-Shack sales.

Okay. And then just a question on the labor environment, high level. Maybe you could talk about what has gotten objectively better or easier of late, but what still remains really challenging. And then labor is always important, will always be important, but any thoughts on when the industry gets to a point where this is no longer what is being labeled as a crisis or at least such an acute challenge. Can that happen over the course of this year?

I wish I knew. I wish I knew. And the reality is I don't think anyone knows there's labor challenges across every industry at every pay level. Look, that was really hardest, I would say, in December and January when Omicron really hit because on top of a challenged environment, you just had a lot of COVID cases, and that just made it even harder to work in a restaurant. I'm a believer that people will continue to return to work in restaurants as a great career choice. That's what Shake Shack aims to do. And we're going to work to keep building that back 1 great team member at a time. And I just want to note, operator, we have a limited time and a lot of questions. I'm going to ask each person to maybe limit to 1 question from here so that we can try to get to as many people as possible.

And our next question comes from the line of Jeffrey Bernstein with Barclays.

Randy, just 1 question. You've got an outsized U.S. company-operated pipeline in 2022, that 45 to 50 units, which equates to a low 20% unit growth. I think your long-term guide is for 20% plus obviously, your base is many multiples of the size that it was at the IPO. I'm just wondering if you still believe that, that 20% is appropriate, not necessarily changing it today, but whether or not it's just increasingly difficult either to find the right sites or the right people. Obviously, you want quality of a quantity when I think you noted the building costs are up double digits. So kind of how do you think about that as you get to a larger and larger base at some point presumably having to temper that unit growth algorithm?

Yes. Jeff, thanks. We haven't -- we've obviously performed well above those percentages for the history of the company. We haven't really guided anything like long-term 20%. So just to be clear, the only guy we have is this year’s 45 to 50. We think that's a great number. We have a lot of good growth in front of us, Jeff. We've got more opportunity, I would say, than ever, a stronger, better team than ever and more formats that can find more places for strong Shacks than ever. And we are not at all dismayed by a higher cost to build environment. That is why we have $400 million roughly in our balance sheet. We're going to use it to grow restaurants. We're going to do that at appropriate pace. We're not going to go -- you are going to see us build 100 restaurants next year, but we're working on that now, and we'll keep it posted for this year, 45 to 50 is the right one. We'll keep a cost on what that looks like in the coming years. But I think the opportunity for strong growth to add for Shake Shack remains 1 of the most exciting parts of our story, and we still feel like we've barely gotten started.

Our next question comes from the line of John Glass with Morgan Stanley.

Randy, or Katie, I'm wondering how do you measure new store returns in this environment, right, just because you've got good sales, but margins are uncertainty. Costs are going up. So how does the mechanics of it work? Is it a discounted cash flow and do you have to plug some margin assumption in there? So how do you do that? And related to the increased building costs, are you thinking about ways to make Shacks cheaper, so you can start to offset some of that inflation? Or is that not part of how you think about building new stores right now.

Yes. John, it's a great question, and the math is really easy. When cost to build is up and profits are down, payback takes a little longer. We look at it in lots of different ways. Obviously, we have a pretty good cost of capital given our situation here with our balance sheet. But we're going to keep building with confidence. And we're also going to keep building restaurants to optimize for learning, specifically with drive-thrus that will cost us more for a while as we build those. So we're not trying to cut anything out of that learning. We're trying to spend money to learn to open up the addressable market. As we look at core Shacks, we're constantly doing smarter things with our building materials, with the ways that we build our designs and teams internal and our third-party design and construction teams to do that better, do that more efficiently. But yes, there's going to be some period of time here in this different environment where we expect to keep building. And the returns may not be what they've historically been while margins are depressed. But we believe we're going to get a lot of that back as we've said on this call today. We've got work to do to do that. And in the meantime, we're taking this opportunity to continue to grow because Shake Shack is so small compared to our opportunity, and we've got a long way to go.

Our next question comes from the line of Chris O'Cull with Stifel.

This is actually Alec Estrada on for Chris. I know kiosks were slated to be a big part of the digital initiatives this year. So I was hoping to get a little more color on that. How many of those do you have in place today? And then with 75% of sales of those kiosk restaurants being digital, which obviously have lower labor requirements, how much of a benefit is that kiosk model for the labor line from here?

Yes. Yes, kiosk, we're really excited about kiosk. And about half of our Shacks today have kiosks. In some instances, we've taken out on cash register and in other instances, we've taken out more, but we don't really view kiosks at this point in time as being really just a cost savings initiative. For us, it's more about the sales lift that we see on the back of it and the opportunity to drive deeper our digital strategy and really bring kiosk into that full digital ecosystem. We see higher attach rates with our LTOs through this channel. We can see that guests really understand the menu items and really kind of engage with us in a really exciting way. And we're investing this year to increase the number of checks that have kiosk. It's going to be really a very exciting learning opportunity as we do that, as we have digital menu boards and drive-thru. There's a lot of very exciting point-of-sale type technology that we're investing in today.

Our next question comes from the line of David Tarantino with Baird.

I have a clarification question on the sales that you're running today. And I just wanted to get a better sense of how much Omicron has taken out of the business. So could you give us some sense of what the typical seasonality would do to your sales from Q4 to Q1? And then I guess, as you look at your February trend, how far off of that are you in percentage terms?

Yes. So as you probably appreciate, our business is growing incredibly fast, and it makes compares to prior years very challenging. But we do have typically tend to see sales or at least AWS trends decline from fourth quarter from December into January. And we are pleased with where our same check sales are trending in February relative to typical seasonality. But it's hard to really talk about typical seasonality when our comp base has basically doubled over the past 3 years.

Understood. But I guess maybe said differently, I guess, is February still under the run rate you were in Q4, I guess, if you adjust it however you adjust it internally?

I think February is still, as we said, improving every week from January, but still impacted by Omicron still impacted by the number of Shacks in our base that rely on the kind of traditional Shack traffic. So yes, I mean there's going to be some impact of February remaining down. That's all part of our guide for Q1 and I think it's going to take some time to rebuild that through the year, as we've said today.

Our next question comes from the line of Peter Saleh with BTIG.

Just taking into consideration, you guys you raised prices in October and again, planning for in March. Can you just give us a sense of how much of that pricing, how much of the inflation do you think that will offset based on your current forecast for both commodities and labor for the year?

Yes. We're not going to give that for the full year. This is a very dynamic environment. We've given you our expectations though for how we expect certain parts of our basket to play out over the year. But there's going to be volatility potential in beef and other parts of our protein basket, we are subject to that as well.

Our next question comes from the line of Brett Levy with MKM Partners.

Just with respect to labor, what are you seeing in terms of not just applications, but your ability to hire people with experience, people that really fit the mold for what you're looking for at Shake Shack? We've heard some others talking about applications are up, but they're not -- they weren't necessarily getting that same flow through? And what are you seeing in terms of just their level of experience?

Yes. We're coming off some pretty low lows given the Amoco environment in January, but we've certainly seen that tick back up. So I think the answer to all of those parts of that question is slight improvement continuing, a little more encouraging every day. It's still going to be a region-by-region conversation. There's going to be cities where it's just not that hard to hire, and we have strong teams fully staffed rate of role. And in the cities where it's really hard to hire. And those things existed before COVID. They're exacerbated by COVID. And I think what we would say is we're optimistic about trend but it's a long way from any normalized staffing environment, and we're going to have to see how this goes through this year. And for us, part of -- we're looking for great human beings. We're not so worried about if you know to spin a milk shake. Our job is to teach you that and drive your opportunity of leadership development from there. So we feel real good about our training, but we do a lot of training right now. There's a lot of new people. There's a cost to that. There's an impact to that, and we'll keep investing there.

Just on that last point. Could you give any guidepost in terms of what you're seeing in terms of overtime and training costs?

We haven't broken that out, but it's inherent in the current results, right? It's inherent in even the last year's results of that more challenging environment and certainly in the Q1 guide. There is a labor cost impact to all that newness to getting people up to speed and to everything that we've gone through in this first couple -- the initial tough period of Q1.

Next question comes from the line of James Sanderson with Northcoast Research.

Just following up on the labor issue. I'm wondering if you're satisfied currently with the layer of supervisory management and the number of actual or employees you have in stores on average? Or if your experience of covered and the disruptions have made you rethink the need to bolster your team to start rethinking maybe increasing the number of employees per store or supervisory management to make sure that you can handle throughput, assuming that business does improve in the next couple of quarters?

Yes. Jim, it's a really good question. We've always felt really strong about having significant management teams and paying them well, especially our general managers, which are critical to our success. So we have always felt like we've never been trying to be efficient and tight on that. We're trying to run great restaurants. And you hit on it. I think it's more about seasonality and return. So this is a staffing uptime, right? You've seen the seasonality of our business. We generally grow quite a bit in average weekly sales as we go through Q2 to Q3. And now is the time to begin to bulk up those teams a little bit as sales hopefully begin to return. So that's the work I don't think we have any change other than -- we just want to be better at it. We want to be better at running our businesses. We want to be better at hiring great people that want to be with us, stay with us and develop for the long term. And I don't know if you caught my comments earlier, but of our promotions came from within in 2021, 70% of those people's color and half of those women, we feel incredibly good about that opportunity. We've got to do more of that. That's just a starting point, but that tells you the kind of culture that we are continuing to build.

Next question comes from the line of John Ivankoe with JPMorgan.

One question. How are we thinking about your different self-help things to kind of think about what you can do on the margin side, whether it's kind of shorter-term tactical changes or more medium term actually changes to your business, whether to the stores that are already in existence, the stores of 22 or maybe the store of the future that simply will allow you to run a more efficient business model even in this high commodity environment in difficult labor environment?

Yes. There's a lot in there, John. And the way we're thinking about first is driving sales. First, let's drive sales. Let's get back, and then let's build new formats that allow us to drive strong AUVs for the future. That's what drive-thru is about. That's what all these other additional formats. The second part of that is digital. And again, don't expect Shake Shack to have robotics anytime soon here, right? But in what ways can we automate processes. And really, when we think about that today, that work is happening in the ordering and pickup process. We're getting -- having more and more tech in our digital, our kiosks, our app and then then the pickup experience where you can -- more and more, we're testing guest pickup screens that tell you when and how your stuff is ready. We're making our communications with our guests more direct and more real-time engaged. So all that's the stuff. But yes, we've got a lot of substitutes, that's why we keep thinking about the menu. That's why we've held off on returning even some of our classic items that we've kept off the menu for a while. And some of our LTOs now you may notice are running for longer periods of time. So instead of kind of a 3 month, we may do 4. Again, that depends on the LTO and the time line and the goals of it, but trying to ease that operation, it's just one of our top goals in the company is to reduce the admin, reduce the operational steps that our teams have to go through every day. And that's a lot of work over many years, and we've got a lot to do. So we're committed to that as part of our margin recovery, continued work and plan. But first, we're always going to focus on the sales side.

And for our final question, we had the line of Brian Vaccaro with Raymond James.

Just a quick one on labor, if I could. What level of wage inflation did you see in the fourth quarter? And are you expecting in '22? And is there a way to ballpark the level of investment and what form or forms some of those investments could take that you alluded to earlier in the call?

The 1 number we gave that is clear is just our starting wage from the end of 2020 until roughly now, we are 13% higher in wage inflation on just our starting hourly wages. That doesn't include the continued raises we've given our ship managers, our exempt managers, general managers and the other support functions around here. So that gives you a little idea of what's running through the system now, and there'll be continued investments there, right? There'll be some Shacks in regions where we need to keep increasing. We'll do -- we're doing various things on that to keep learning and find the right competitive wages, and that will be a journey this year I'm sure.

And we have reached the end of the question-and-answer session. I'll now turn the call back over to CEO, Randy Garutti for closing remarks.

Thanks, everybody, for being with us tonight. We look forward to grabbing a Buffalo Chicken Sandwich with you soon. Take care.

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