Sorry we're a few minutes late, everyone. I'm Andrew Charles. I'm TD Cowen's restaurant analyst. Pleased to be hosting Shake Shack, ticker S-H-A-K. Shake Shack, I'm sure as you're all familiar with, is a premium hamburger-focused concept with three hundred and eleven company-owned U.S. restaurants and aspirations to grow to four hundred and fifty plus. Additionally, the company licenses two hundred and thirty-six locations concentrated internationally. We're joined today by CEO Rob Lynch, who's about four months into the role, and CFO Katie Fogertey, and PSA before we start, Black Truffle just came out last week, the newest LTO, which, I'm sure we'll dive into. Welcome to both of you. Thank you. Rob, I wanted to start off maybe just with some of the key drivers of same-store sales that you introduced last quarter on the conference call, and speed of service is definitely something. You know, you have an operations-driven background. Arby's is an operations powerhouse, and we'll talk about your new COO in a second. But can you talk about just help contextualize what's the size of the prize here? Over the long-term journey, if traffic were to improve by what you target to be, and you get the service times where you want, you know, where could that mean in terms of lift to same-store sales, to traffic, and, you know, do we start to see that, you know, next one-to-two quarters, or is this more of a longer-term process? So there's two components of speed of service we look at. One is our in-Shack, and the other is our drive-thru. And you have to really think about them differently. Since putting in the kiosks over the last, you know, year and a half, our speed of service challenge is really in the kitchen, not in the order zone. The kiosks have significantly improved our throughput and ease of ordering. It's also improved our check pretty significantly, so it's been a great investment in technology for us. But we still have a challenge in our kitchen, getting the food from the order to the delivery. And so, you know, that's less of a direct throughput impact and more of an impact on frequency. The three biggest challenges that our brand has had in terms of intent to repeat or frequency is really around the just proximity, because we don't have Shacks everywhere, right? It's a little harder to get to our Shacks. Two is historically, and I get asked about all the time, value, and I look forward to talking about that today. Then the last is speed of service. So in our dine-in business, we really need to improve our restaurant operations, our kitchen operations, to improve that speed of service, which will have a longer-term impact on frequency. In our drive-thrus, it should have an immediate impact because we do have a situation where we have drive-aways. We have people because of the time it takes to get the order in, and people drive by, and they see a long drive-thru line, and they don't stop. So, there is going to be a shorter term. Now, that's not gonna significantly impact 3Q or 4Q. We still only have about thirty drive-thrus in the system. But drive-thrus are making up a bigger part of our development program and a part of our business mix. So as that continues to unfold, the more throughput, the faster we can get people through the drive-thru, the more of a transactional impact it'll have. Very good. Yeah. On the call, you talked about the new, your new COO, who you worked with in the past, Stephanie Sentell. She's hit the ground running, you know, with ideas to help facilitate and improve that speed of service that you mentioned, you know, mostly in the kitchen. Can you help us understand what the most tangible opportunities are? And in particular, I'm thinking, are there investments in training or new equipment needed as part of the speed of service plan? Stephanie is looking at really all facets of our operations. Speed of service is one place where she can have an impact, but just also in our labor management, labor deployment. You know, we have a model that's very different from traditional QSR, and rightfully so. I mean, you know, our foundings and how we operate. I think there is a lot of opportunity from an equipment standpoint, from a process standpoint, for us to really improve that, the kitchen operations. So it's not just about speed, there's also some savings there in how we deploy our labor and manage it on an ongoing basis. Great. Sticking with the sales theme for a little bit, I definitely want to talk more about marketing, just given your background and, you know, what are the biggest changes we can expect, you know, with the marketing plan? And I'm curious, you know, probably your biggest objectives around building better brand awareness outside the Tri-State, you know, but with the marketing budget a fraction of the size what you're used to in some of your past roles. I mean, being a company-operated system, with no franchisee marketing funds, definitely a different model, but one that I feel we are really, doing well with. I mean, Shake Shack, traditionally, the marketing has been kind of the Shacks and a lot of word of mouth, a lot of kind of like, organic social. In the last year, the marketing team and the organization has really made a push on more digital marketing efforts and, and has really significantly increased the investment there. Still nowhere near where some of the larger national brands are, but I... I mean, we have all the data to suggest that that is part of what's driving, our outperformance on same-store sales. Despite some of the value challenges that, you know, the industry is seeing, you know, we have the marketing team has really taken advantage and just has a ton of potential because it's all new, right? I mean, in marketing, you're only as good as your comp, and the fact that we continue to get better at marketing in a space where we haven't really been before, provides us a lot of upside opportunity. Do you see opportunities? Like, I know, I believe in Seattle, you guys tested a TV commercial. Do you see the brand going that direction, more traditional marketing around radio and TV, or is it more that, you know, it's a younger brand, you've got really a blank canvas on the marketing side, you prefer to keep it digital? I think people you know. A lot of people label me a little bit as a, as a marketing guy, but I also have you know, worked for private equity for six years, so I know what our return on investment means. And so, you know, we will continue to invest in marketing as long as we see great returns, and we're gonna test and learn our way into some of these more traditional channels. It obviously doesn't make a lot of sense for us to go out and run national marketing campaign when our footprint and our coverage is less than 50% of the markets we would be running that in and paying for. So it will be a little bit more of a localized regional marketing campaign. Yes, absolutely, there's potential down the road for us to be running TV and digital advertising in the markets where we have significant penetration. Yep. And then, no need to get into numbers, we can keep this qualitative, but you know, you are spending more as a% of sales this year on marketing relative to last year. You know, are you comfortable with this level, or is there more of a, you know, can we see an opportunity for, you know, more of a marketing spend as a% of sales to get to a level where you feel like, you know, the brand's voice is really amplified? It literally all comes down to return. You know, as long as we feel like we're getting the return on that investment, we'll continue to invest. And yeah, I mean, right now, the results that we're seeing absolutely would indicate that we'll continue to increase our level of marketing. Great, okay. I mean, the one thing I will say is that despite that increased marketing, despite some of these increased investments in tech, which both are reflected in our, you know, our G&A investment, we continue to drive not just the top line, but margin and EBITDA, right? So that's a winning model. So, you know, I know there's been a lot of talk and a lot of concern that, you know, we're gonna continue to spend marketing dollars, and that's gonna be a negative impact on our G&A. I don't see an increase in G&A as a negative impact in and of itself, as long as you're driving the top line, the margin, and the bottom line. Well said. Okay, I wanna pivot to the loyalty platform, you know, something that you're focused on. It's been in the past, you know, in past brands you've worked with, some that you've pursued as well. What's your vision for a loyalty program? You know, what does that look like, and frankly, you know, how do you make it so. It just seems like in recent years with companies that have launched them, it feels like more of a cost of doing business rather than a true amplifier of sales and traffic. So, you know, how do you plan to accomplish that? You know, Shake Shack is Shake Shack's foundation is in what Danny calls Enlightened Hospitality. It's what we've always been about. It's about, you know, it's kind of that special sauce that makes Shake Shack different than going to a lot of other national burger chains. And as our business has continued to evolve, a big part of our business now is in the digital space. When you take into account third-party delivery, our kiosks, digital web app, it, it's a big part of our business. And so that's what I'm challenging the organization to do is, how do we deliver Enlightened Hospitality and keep Shake Shack special through our digital channels? And that's really about truly understanding our guests, understanding their wants and needs before they even know what they want and need, right? I mean, so, you know, when they come in and they're at the kiosk, and it's 8:00 P.M. on a Friday night, and they're ordering a Truffle Burger, we can offer them a beer, you know, or something along those lines. So, you know, there's the kind of more traditional points-based discounting model of loyalty, which I'm not saying we won't ever go there or leverage that capability, but for us, it's really about developing a one-to-one relationship with our guests so we can continue to do what has always made Shake Shack special. Yep. And are you testing any of that from a kiosk perspective around that kind of surprise and delight or? 100%. Part of our big, you know, kiosk programs this year are all about how we... You know, people talk, upsell sounds like a dirty word, but it's, it's actually making sure that we are offering things that we know our customers are gonna want, before they check out. Got it. That's part of what's driving that, that positive check mix and benefit. Yep, and relatedly, you know, recently you made a lot of people's Sundays much better by adding the chicken sandwich, especially New York Giants and New York Jets fans. Something to look forward to. Your users get a free chicken sandwich for digital orders with a $10 plus ticket. So, you know, this was something that was used in April. It was cheeky against a competitor that, you know, decided to move away from their ABF standards, where Shake Shack is full speed ahead on ABF. You know, what was the rationale, though, for repeating this promotion? I mean, the customers loved it, and frankly, a big part of it is that a lot of people don't even know we have chicken sandwiches, and you know, I don't wanna take a ton of time, but I didn't know we had chicken sandwiches when I got called about this job, and I went to my Shake Shack and sat down, and I'll never forget, it was 11:00 A.M. The door had just opened. I went in, I sat down, I had a Chicken Shack and a Dragon Fruit Iced Tea, and I was like: This is the best chicken sandwich I've ever had, and, you know, I didn't even know we had it. And so I think that there's a huge strategic opportunity for us to increase awareness, not just of, you know, the special things, but the everyday items that we have at Shake Shack. I mean, we have, you know, a lot of great food on our menu that frankly just doesn't, you know, we're known for our burgers and fries, rightfully so, but there's a lot of great upside opportunities on our menu. So when we go out and we strategically promote, yeah, there's a value component to it, buy one, get one free on Sunday, but there's also a trial marketing strategy behind it. So that's a big part of how we decide what promotions we're gonna run. Yeah. Yeah. Katie, you know, you've been such a big architect of the digital strategy at Shake Shack. When you guys ran this back in April, like, did you see the same stickiness behind this, that the customer would come in, get this, and then still kind of stay loyal to the digital channels afterwards as well? Yeah, I mean, we saw a... Is this on? I can repeat it, I guess, if not. No. Is my mic on? No. Yeah. Okay, hold on. We hear mic. ... on now, it's just not working. Hello? There you go. Okay. Oh, thank you. Ah. Hi. We share a lot here at Shake Shack. Certainly. Exactly. Just the best here. S o when we had the Chicken Shack offering that we started off in April, we were really pleased to how it just drove overall awareness for the fact that Shake Shack has a chicken sandwich. How we had a lot of net new guests come in. It's, again, not working. Mm-hmm. and how we were able to retain guests in that ecosystem. And, you know, echoing the prior point, you know, building on that strategy and trying to drive that habitual knowledge of this as a really great opportunity for guests to engage with our brand on a day when, you know, you can't get a chicken sandwich at other locations, I think is very smart. And we wanna continue to do things like that that drive, you know, greater awareness, greater frequency. And importantly, while we haven't talked about it, these are all margin and creative opportunities for us. Great. Sticking with the menu, I know unfortunately we're after lunch, but, try to make people hungry. You know, what do you believe, Rob, to be the most promising approach to menu innovations and LTOs? You know, if I think back historically, Shack had somewhere between three and five LTO windows per year. You know, is that still the right cadence, or is there anything you'd tweak? You know, I think it all depends on what the pipeline of innovation looks like. Like right now, with our truffle burger, it's one of our top performing of all time, most loved customer burgers, and so we may run that a little bit longer than something that we pulse in for a shorter amount of time. You know, the other thing in terms of product innovation that I'm a big you know advocate of is it can't be supply chain or operationally disruptive. And we need to make sure that we are staying you know both within our cost bounds in the supply chain, and you know I'm pushing really hard on the operators to get faster and streamline operations. I can't then turn around and launch a bunch of innovation that has 14 unique SKUs and creates a lot of complexity in the restaurant, so not only are we coming with innovation, we're also gonna streamline it. We're gonna make sure that the ingredients that we use are just as high quality and just as much, loved just as much by our guests, but we're gonna do it in a way that's actually gonna help our operations, as opposed to potentially be a barrier to achieving our speed objectives. Very good. I wanna touch on value. It's obviously the topic du jour in the industry, and I thought your July results of comps up 4%, very strong, you know, in the face of quick service really intensifying the focus on value. That being said, though, it feels like quick service is gonna continue this war of attrition, push even harder on value. What's in your arsenal to help kind of offset that? I mean, it's three things: It's the product innovation, right? We're gonna stay out in front, making sure that we're delivering items you can't get anywhere else, or that you can't get as good anywhere else. It's our marketing and promotion strategy, and our digital strategy that's driving a much stronger value perception than maybe we've had historically in creating a lot of demand. And then it's our hospitality and our service, right? We're getting faster every day. We've shone a light on the operations. We're gonna take better care of our customers. That's gonna drive higher repeat intent. Great. Just last question then, kind of on the value side. You know, talk about the pricing philosophy, you know, as you look at balancing rising wages, given your urban oriented footprint. You know, beef costs are certainly susceptible to some increases as well, you know, while balancing what's for the industry, a fragile consumer backdrop. You know, it's amazing. This brand has proven to have pricing power. I mean, there's been obviously a huge amount of inflation over the last four or five years, and Shake Shack. You can tell, call me out on this. This is my, you know, historical studying, but Shake Shack was a little slower to take pricing, and probably definitely had some margin dilution, and you know, over the last with Katie's leadership, over the last 12 to 18 months, Shake Shack has taken a fair amount of pricing and has been able to pass those costs along to the guests, while continuing to drive top-line sales growth, and you know, the last two quarters have been great indicators of our ability to do that moving into the future. I also wanna balance that out too, with all the work that the team has been doing to identify cost savings initiatives as well. Because, you know, we know that there is... You know, we wanna, you know, take as much price as we need to in order to protect our margins. But, you know, our work as well is finding efficiencies in supply chain. So as we scale, adding on more suppliers, optimizing our freight, and with Rob and Stephanie's leadership too, rethinking the way that we, you know, our suppliers and who can we add or be more strategic with. So all of that has been also very helpful to defending margins. I mean, I am a huge believer in maintaining margin with pricing. I don't feel like it's a long-term strategy to continue to take margin to hit your top-line sales or margin growth objectives. It puts you at a competitive disadvantage. So, you know, looking forward, we will leverage pricing when we see inflation, and we will do it in a strategic way, but that won't be how we deliver our growth. We're gonna deliver our growth through our investments in marketing, in tech, and product innovation. Great. Okay, super. I want to turn to drive-thrus. You know, Rob, I know in your past life, ton of experience with this. Your new COO, ton of experience with this. You know, you walked into a system with a portion of the stores that are drive-thru. I think it's around 10%, but you can correct me on the number. Pretty close. Okay. You know, just given the infrastructure that was there versus your vision, I guess I'm just curious, you know, how difficult of a lift is this, making the brand drive-thruable, just given that wasn't the ethos the brand was founded on? And I'm curious, you know, as part of that, what are the key initiatives to improve drive-thru service times without degrading the high quality standards you have? I mean, we're gonna continue to make our burgers to order. I mean, there's no question about that, but things like, you know, we make our fries to order, and so we don't have, like, a lot of hot holding opportunities in the Shacks, right? That's not always the best delivery of the guest experience. Having, you know, fries that you made to order, but sat in the window being ready to pick up, actually get you know, cold faster than if you had a hot holding container, keeping it hot, and then scooping it right when you deliver it at the window. And that's so there's so much there. I know I can totally geek out on QSR strategy here, but like, you know, the, the fries today are kind of in the middle of the line. If you put the fries at the end of the line and put a hot hold there, and people are scooping it right when it's going out the drive-thru window, you're gonna guarantee that those fries are hot and fresh, and we don't do that today. Like, those are. They're not simple things. They're, or they're simple things, they're not easy things, so there will be some reconfiguration of process. There'll be some reconfiguration of our lines to execute against that. The other big thing is our menus in our drive-thru. We don't have any combos. Like, combos are a staple of menu, drive-thru menus because the two things that matter the most in drive-thru are speed and accuracy, and the things that decrease speed and accuracy, number one thing is à la carte menu ordering, right? Because when people are customizing things and ordering all kinds of different things, it takes longer to order, but it also creates a risk of accuracy. And once you've got an inaccurate order through a drive-thru, in the Shack, it's not as big of a deal. It's accuracy is always a big deal, but in the Shack, if you get it wrong, you can walk up to the counter and say, "This is wrong. Please fix it." If they get home and they've got the wrong order, it's a huge problem. So when you look at things from an order, from an ordering and menu standpoint, we can look at combos. We can also look at, you know, prioritizing things that are faster to make. You know, the thing that takes the longest on our menu to make is our Veggie Shack. And so you can order a Veggie Shack, but we're not gonna put it in the bull's-eye zone and drive people to order it. So things like that that hasn't really been how the brand has thought about it in the past. Got it. You know, before both of your times at the company, there was a target at the time, the 2015 IPO, to get to 450-plus, you know, U.S. company-owned stores. You're well on your way. I don't know if we're gonna make it. You know, you're at three hundred and eleven today. You know, based on our math, you're gonna get there in mid-2027. Maybe it's- I'm more optimistic than you are, then. No. What I'm curious about is that, you know, we're in spitting distance of this, and what do you need to see before you'd formally update that target, just given that new store economics, based on our math, look like they're doing really well? We can get in the economics of drive-thru in a second, but more, what is the key to kind of, you know, saying the TAM is even bigger, just given that fast casual peers are targeting somewhere around a thousand plus? You know, is it, in fact, cracking the code on drive-thru? I mean, a couple things I'll share. Like, I, I didn't leave a great job that I had and a great company to come here and not grow this business, so I am very confident in our ability to grow. All the things that give me that confidence, I mean, even more so than before I came here, I mean, the last two quarters are great. Same-store sales growth in a tough macro environment, the great work that the team has done on restaurant margins. We've also done a great job reducing the cost of our build-outs. So there is a great mix of variables here that would imply that we are, you know, well set up to continue to grow this business, both domestically and internationally. So we're really bullish on the unit growth. Great. And Katie, can you touch on the economics of a drive-thru relative to a traditional U.S. restaurant? S o we, you know, have given targets historically that we are aiming to open up our drive-thrus to have at least about the same AUVs or more as a traditional Shack. We haven't given any updated details on that, though. Got it. Okay, very good. Maybe just a few others in the time we have remaining. You know, last month, there was a press release that came out, nine company-owned store closures. You know, can you talk a little bit more of the backstory there? I mean, was that simply you, Rob, coming in and deciding that these closures at these locations were frankly overdue? I mean, listen, when I got here, I challenged the entire organization to look at every facet of our business with scrutiny and make sure that we were set up for long-term success. Through that process, we identified nine Shacks that we didn't believe we were getting a good return on our resources from. I mean, when you have Shacks that are underperforming, you put resources, marketing resources, operating resources, up against those businesses to try to prop them up. We determined that we couldn't, so we made the decision to close. We made the decision to take care of every one of our team members. Every manager from those Shacks was offered a job in another Shack. All of our team members were encouraged to apply at local Shacks. So the great thing that everyone should take away from this closure process is nine Shacks we determined weren't set up for long-term future success, that means three hundred and eleven were. So, you know, really excited about... It's actually, to me, it's actually a representation of the strength of the system versus how maybe it was interpreted as a foreboding of something to come. Yeah. Yeah. Katie, maybe can you just touch on just the economics of those stores- Sure Just how different they were? I'm guessing lower AUV, lower margin, probably lower comping, if I had to guess as well, given your decision to close. Is there anything else you can expand on with that or correct me? W hat we talked about is that these restaurants were not meeting our profitability targets, and we did not see a path to kind of them being viable businesses going forward, and as Rob alluded to, you know, these, we, you know, we don't take a decision like this lightly. These are restaurants that we have, you know, put a lot of care into working with the management team on profitability improvement plans, but I think it's also important to note that some of these locations, you know, there was an area shift coming out of COVID, and there were areas where, you know, the delivery businesses have evolved, and, you know, just, you know, as things evolve, we too also have to. And so by, you know, going forward with these nine closures, we set up our entire system much better to focus on, you know, allowing us to grow the great 311-plus Shacks that we have and really, truly be exceptional businesses that they are. Okay, very good. In the last minute or two, maybe I'm gonna try to sneak two in here. Katie, just both on the margins, curious about the labor scheduling tool. You know, you guys are becoming a lot more sophisticated in rolling out a tool where you can staff really with a lot more inputs versus what you were historically staffing on, which is just on volumes of the restaurants. So I'm curious, what are the early learnings from this? And I recognize this is gonna allow you to invest in certain areas that are perhaps underinvested, but is the thought that this could result in kind of labor savings on a net-net basis? So just for context, you know, historically, the way that hourly labor was scheduled and deployed at Shake Shack was based on sales bands. And, you know, digging into the way that our restaurants run, you know, it's very clear that we have some Shacks that have a very high volume of items, which maybe require a lot more labor than other Shacks. So it's just as a simple, like, you know, example, you know, you might have a food court that does a very high fry and drink mix, relative to a drive-through that maybe has a high chicken and, you know, potentially also shake mix. So what this labor model does is really, we went through a time and motion study of all of the items that, you know, we have in our... All of the processes that our team members have to do within the Shacks. We also did an overlay on channel mix, as well, and built up really a bespoke labor deployment model for each of our restaurants. There are some restaurants which we will be removing labor from, that we believe that we had overscheduled labor, and then there's other restaurants where we believe that we're leaving sales on the table by not being optimally staffed. So, we've committed to putting that through the end of the year, and that's the guidance that we've given. And we'll update you, as we move along. But, you know, certainly the goals here are both on margin profitability side, but then also really most importantly, on sales capture and guest experience. Super. I think we're being told to leave it there. I wanna thank both Katie and Rob as well for your help today, and thanks for the insights, guys. Thank you. Thank you, Andrew. Thanks, everybody. Thank you. Thanks very much.