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Inside the (possibly) $1 billion Shake Shack IPO

Shake Shack is aiming for a $1 billion valuation for its IPO, which the burger restaurant filed last week. Here's a look at what the Shake Shack IPO offers potential investors. 

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    assersby walk in front of the Shake Shack restaurant in the Manhattan borough of New York, December 29, 2014. Burger chain Shake Shack Inc, which grew out of a hot dog stand in New York's Madison Square Park, has filed for an initial public offering at a time when stock offerings by casual restaurants have proven to be a big hit with investors. REUTERS/Keith Bedford
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Shake Shack Inc. filed for an initial public stock offering last week. That caps an amazing run for a concept that began in 2001 as a hot dog cart in New York City’s Madison Square Park. The prospectus filed with the Securities and Exchange Commission lists the proposed maximum aggregate offering price as $100 million; Bloomberg says the company aiming for a valuation of $1 billion. Shake Shack will trade on the NYSE under the symbol SHAK.

¤ The prospectus offers interesting data about and insights into the Shake Shack brand. Among them:

¤ Shake Shack defines itself as “a modern day “roadside” burger stand serving a classic American menu of premium burgers, hot dogs, crinkle-cut fries, shakes, frozen custard, beer and wine.

¤ There are 31 domestic company-operated Shacks, five domestic licensed Shacks and 27 international licensed Shacks.

¤ In fiscal 2014, the company opened 10 domestic company-operated Shacks. Shake Shack plans to open at least 10 new domestic company-operated Shacks each year, beginning in fiscal 2015, for the foreseeable future.

¤ It is its own category: “We believe Shake Shack has become a compelling lifestyle brand and has helped to pioneer the creation of a new fine casual category in restaurants. Fine casual couples the ease, value and convenience of fast casual concepts with the high standards of excellence in thoughtful ingredient sourcing, preparation, hospitality and quality grounded in fine dining. As a pioneer in this new category, we strive to maintain the culinary traditions of the classic American burger stand, while providing our guests a menu of chef inspired food and drinks.”

¤ During the three fiscal years ended December 25, 2013, Shake Shack grew from seven Shacks in two states to 40 Shacks across six states, Washington, D.C. and eight other countries, representing a 79% compound annual growth rate (“CAGR”).

¤ In fiscal 2013, the domestic company-operated Shacks had Average Unit Volumes (AUV) of approximately $5.0 million, of which the Manhattan Shacks had AUVs of approximately $7.4 million and the non-Manhattan Shacks had AUVs of approximately $3.8 million.

¤ International licensed Shacks had AUVs of approximately $6.1 million in fiscal 2013. Systemwide sales for the brand (which includes combined revenue from all domestic company-operated Shacks and domestic and international licensed Shacks) was $139.9 million for fiscal year 2013, compared with $81 million for the previous year.

¤ During the three fiscal years ended December 25, 2013, total revenue grew from $19.5 million to $82.5 million, a 62% CAGR. Net income grew from $0.2 million to $5.4 million.

¤ Domestic company-operated Shacks have delivered an average cash-on-cash return of 65% and payback period of 1.5 years. The Manhattan Shacks generated an average cash-on-cash return of 82% and payback period of 1.2 years while non-Manhattan Shacks generated an average cash-on-cash return of 31% and payback period of 3.2 years.

¤ Approximately 3% of revenues from domestic company-operated Shacks is attributable to the sale of alcoholic beverages (beer and wine).

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