All right. I'm Sharon Zackfia with William Blair. That feels very loud. Thank you for joining us today. I'm really happy to have with us from Shake Shack, Rob Lynch, CEO, Michelle Hook, who just joined as CFO. Shake Shack is one of the most proven emerging growth concepts in the publicly traded restaurant space. We're excited to have them today. We think the real story here is the runway of expansion, which I'm sure we'll talk about. We do have to tell you, I'm sure you've already checked it out. There's a complete list of research disclosures and potential conflicts of interest at williamblair.com. This will be a fireside chat format. We're probably going to have to start out talking about some news the company had earlier this week. There was a pre-announcement on sales and profit earlier this week, and I guess the obvious question would be, since the time you gave that guidance, particularly for the second quarter, which was maybe about a month ago at this point, what did you see change in the business that gave you that updated outlook? Yeah. Thanks for the question. What I would say is we have a lot of confidence in this quarter. We have a lot of confidence in the year in delivering the annual guidance that we gave and the updated margin guidance that we shared yesterday. The thing that has changed is simply that we're going to see the highest beef prices that we've ever seen in June. We had a decision. We had a decision on whether or not we wanted to take pricing to mitigate that or take the margin implications. We are building our company for the long term. We do not see beef prices above $5.90 in perpetuity. For the last two years, as we mentioned in the release, we've been in a competitive environment that is very driven by value and price. We have done an amazing job of mitigating the beef inflation that we've been experiencing for the last 18 months. It's not just beef, but all the inflationary components of the P&L. Last year, we saw a lot of inflation. We delivered 120 basis points of margin expansion without taking as much pricing as we had taken in the past. This year, we have held on pricing. We've taken some pricing, but not as much as we have in the past. We saw this cost come into the P&L. We determined that we weren't going to take as much pricing, because once you take the pricing, you don't roll it back. When the costs come down, you're sitting out there exposed with high margin but high prices. We are very focused on delivering great value for the money for our guests. We have the highest quality ingredients. We have the best products in the industry. We decided we weren't going to take as much pricing as we needed to mitigate all that cost because we anticipate those costs coming down. We don't know exactly when. We thought that they would have abated a bit by now, but some of the dynamics that happened this year and the conflicts, the macroeconomic environment, I think have put pressure on that. We decided it was the right decision to hold, and when we flowed that through the P&L, we saw some margin degradation, and that's why we wanted to make sure that we were sharing that, fully disclosing that to our investment community. I want to make it really clear, we delivered 4.6% comp in Q1 with positive traffic. Our 21st straight quarter of same-store sales, our third straight quarter of traffic growth, which is consistent with our third straight quarter of paid media for the first time in the company's history. We are guiding this quarter to 2.5%-3.5% comp. It'll be another + 22 straight quarters of positive same-store sales growth. I also want to provide the context that we disclosed a month ago that our April comps were -0.6%. If we hit the midpoint of our guide at 3% on the comp side, you can see that that's an acceleration in business, right? Just math is math. We see a very strong business in front of us. We see a great year, another year of comp sales growth. We've guided to low single digits, which does imply some deceleration in the past, everybody knew that prior to yesterday when we reiterated that because we know that our comp situation in the back half of the year is very different than our comp situation was in the front half of the year. On the whole year, we're going to deliver positive comps. We took our margins down. We were guiding to 22.7%-23.2%. For the full year. For the quarter, we were guiding 24. Yeah. 24.5. For the full year, we were at 23-23.5. 23-23 and a half. Okay. 23-23 and a half. Okay. Taking that down a bit to 22 to 23. Yeah. To Rob's point, reflects the environment that we're in today. That's still, to Rob's point, extremely healthy margins. When you look at growing a business low single digits, you look at for the full year, we're going to open 60- 65 new Shacks and get a margin that's within that 22%-23% range. That's a healthy business. We're taking share in the marketplace. 60 units, use the bottom of the guide, 60 units on top of less than 400 units to start this year. Talk about 15% unit growth with cash on cash returns over 30%, with restaurant margins at the midpoint of our guide at 23% or 22.5%, positive comp, positive traffic. I don't know many brands out there doing that right now. One, two, three, maybe. Although we felt we wanted to make sure we fully disclose, fully transparent on the cost structure of the operating business right now, still feel great about both the delivery this year and moving forward. That's the gist of it. I think the other piece that happens is you get the headline of like, Shake Shack takes down its guidance. That's in part because we deliver so much guidance so often. It really puts pressure on us to make sure that we are updating that guidance because we're giving all this quarterly guidance. Michelle's come on. She has a different point of view on guidance. I don't know if you want to share that. Yeah. When we look at the restaurant industry as a whole, and my past practice has been annual guidance. The amount of annual guidance that we provide is pretty extensive. The rest of the industry, as I look at what's best in class restaurant companies provide annual guidance. Look, you can give quarterly updates and talk about things that go on in the quarter, but that's something, Sharon, that we're assessing. What that looks and feels like for us moving forward, we'll talk more about that likely on our August call. My past practice, and again, when I look at the industry, that's annual guidance. In Shake Shack, we are an anomaly by giving the amount of quarterly guidance that we give. As Rob and I and the rest of the team look at the business, we're growing this business for the long term. Delivering on that annual low single-digit comp when you're growing your new restaurants, call it low teens, that leads to revenue growth in the low to mid-teens, then you're growing your adjusted EBITDA in that mid-teens range. That's a really healthy business. Those are the things that we talk about that we're working towards. When you look at the other component to our business, when you look at the restaurants or the Shacks that we're opening, they're performing at our expectations. When you look at the return profile of the new Shacks that we're opening, we're getting the returns that we expect. How we rate and pace openings and new Shack openings into our portfolio, those are things we're going to continue to iterate on as we look at capital allocation in the business. We're getting the returns, which I think, for us, we're a growth story, right? Yes, we want to have low single-digit comps, but we also want to put out more Shake Shacks into the world, and that's what we're going to work towards. Yeah. I think the other element, so you talked about the cost structure, and I'm going to come back to you on beef inflation, Michelle. Yeah. Was the comp guidance for the quarter originally was 3%-5%, and you brought that to the low end? Yeah. There was a comment in the press release about competitive impact. It feels like it's been a very promotional environment for a while. I'm wondering if you saw something change since May, or if there was an element of maybe optimism towards the 5% that you just decided to take off the table. Yeah. The competitive impact has nothing to do with our comp revision. The competitive impact is simply in there to highlight why we're not taking pricing as much- Got you. To cover the margin. The whole decline in the comp, we communicated this yesterday. The whole revision on the comp is a function of us removing any impact from World Cup. We looked at it, we said, look, we're seeing some tourist numbers that have slowed down over the last three or four weeks, particularly in some of the big cities that we're in. We still believe that there is a big upside opportunity for us with World Cup. Shake Shack is a destinational restaurant. When you have people traveling in to pick a city, say Atlanta, to go to World Cup games. You have people from Chattanooga, you have people from Augusta, you have people from Savannah, you have people from Birmingham, you have people from everywhere, and a lot of those folks don't have Shake Shack. When they come to Atlanta, they're not looking to try the fast food restaurant. They're looking for Shake Shack. We believe that we are going to be a destinational restaurant opportunity for thousands and thousands of people that are coming into these cities domestically. We believe that the international tourism. For the size of our business domestically, we're disproportionately developed internationally in 23 countries. We believe that we're going to see some benefit, but we weren't able to forecast that accurately given the tourism, the lodging, all the numbers that we look at to understand the tourism component of our business, which is way more than some of the other brands. We felt like it was responsible to say, "Hey, look, this is the baseline." This is the baseline for if we don't see any benefit from World Cup, these are the comps we're going to see. Even if that came to fruition, I guess once again, my point being, even if that came to fruition with a -0.6 in April and 2.5%-3.5% guide, so take the midpoint at 3%. What comp does that say we're doing in May and June? Better than almost everybody else. That's where I'm like, okay, I know we took the guide down because Michelle has been here three weeks now. She came in, she looked at the business. She and I had a lot of discussions with the team, and we're like, "Okay, look. Here's the things that we know now that we didn't know four weeks ago. We didn't know the tourism trend over the last four weeks. We didn't know the beef prices were going to escalate. We didn't have that in our financial forecast. She's come in, we've done the diligence, we have what we believe is going to happen this quarter, and we felt like it was a responsible thing to disclose all of that for our investment community. Yeah. On beef, can you give us an update on where inflation is right now for your commodity basket? I think when I look at the seasonality of margins. Yeah. Typically, we're kind of like at the high point in the second quarter. Yeah. It tapers off a little bit. I think the implied guidance would, for the back half, be a little bit less tapering than is normal. If you could help us understand. Yeah. Definitely. What you're expecting. Yeah. If we roll the clock back right, four weeks ago, I think when you look at beef, we would probably be closer to mid-teens, Sharon. When we look today, beef's going to be high teens. Right. That's what's changed, to Rob's point, over the course of the last four weeks and why we're talking about the updated guides. What that means for our overall basket of goods, and beef is about 30%, right, of our commodity basket, is if we believe that this is the high watermark for beef, then Q2, obviously, from the standpoint of margin impact. That would be where we would see the basket being a little bit more pressured in Q2. Hence why we didn't want to take the pricing. Right. We didn't want to take the pricing. Look, we don't hedge or forward buy beef. The world could change like it did in four weeks, which is why we updated. The way we see the back half of the year is, yeah, we do see that tapering down a bit and, but still being elevated. How the rest of the commodities play into the basket is the guide that you saw us give for the full year and why we felt compelled to bring the margins down even for the full year. To your point of it tapering off in the back half of the year, we do see that pressure valve relieves a little bit on the beef in the back half of the year, which is what you're seeing and what we put and how we view when we gave the guide for the full year. Yeah. From a margin standpoint. You've certainly seen a lot of unit-level margin expansion over the past 18-24 months, even with beef going up. The expectation had been continued margin expansion going forward at the unit level that right now, it looks like it might be more flattish this year as you eat some of that inflation. Yep. Yeah. Pardon the pun. What are your thought processes just coming into the business, Michelle? Yeah. Looking at it on the opportunity for further margin expansion at the unit level and out years? Do you think there's more likelihood of reinvesting back into the business as beef normalizes at some point? Yeah, I think we're continuing to assess, right, the long-range outlook and what that means. Range algo says 50 basis points of margin expansion. That's something that Rob and I are assessing. To your point, we have to look at what are all those input costs, where do we want to put that reinvestment. The other thing we do have to consider is the rate and pace of growth, right? Just for avoidance of doubt, when we're opening our new Shacks, they are returning at expectations. However, right, how they mix into the portfolio, right, there could be, as we look at that, and then as we assess the growth in the core base, that's something that Rob and I will assess and will update on as we see where this is going over the next couple of years. For now, we understand the cost pressures, we have to also look at what the business is going to do over the long term. When Rob and I talk, it's, look, to have a 22%-23% margin for this business over the long term, and you're opening new Shacks that are returning at a 30%-33%, call it that low 30% cash-on-cash returns, that's a really healthy business, and you're growing your comp low single digits. How all that mixes in, again, whether it's a range of margin, right, that you're targeting in a given year, those are the things we're going to continue to assess. Yeah. We'll be better equipped. I mean, three weeks on the job. She's doing very well. Oh my gosh. It's transformational. She's come in and built credibility with every member of the executive team. She has come in and really built credibility with her finance team. We couldn't be happier to have her here. When she brought her perspective last week and was like, "Look, Rob, here's where I'm at, here's how I'm thinking about it. Here's the data that I have to substantiate some of these recommendations." Even after three weeks, there's enough credibility for me to say, "Okay, look, I know this isn't going to be the easiest thing for the investment community to digest, but it's the right thing to do. Yeah. That's one of our core tenets in everything we do. Always do the right thing. I just wish I was better at communicating that even with these guidance changes, this is one of the best performing concepts in the industry. The revenue growth, the comp growth, the traffic growth, the margin growth over the last few years, despite inflation and despite taking less pricing so we can remain competitive in the marketplace. The one place where I take accountability for our P&L and our EBITDA not showing up as much as I would hope and like for is the G&A. Yeah. That's 100% on me. That's my watch. I can justify it because we had to build a lot of capability at Shake Shack. Shake Shack is the best brand in the business, serving the best food in the business. The whole reason why they brought me to Shake Shack Was so that we could keep that best brand, keep that best food, and scale. Yeah. In order to scale, we needed to professionalize a lot of capabilities. We needed to improve our restaurant operations, which we have done in a dramatic fashion. We needed to build a supply chain and procurement capability. Our supply chain was amazing at getting the food to our Shacks. We didn't have any procurement resources, and so we were growing and scaling and not deriving any of the benefit of that scale. We had to build a tech platform to support our app, to support loyalty, to support AI, and the impact it's going to have on our business, which is unbelievable. We announced Project Catalyst last month. What Justin Mennen, our CIO, has done is going to transform our productivity, both in our restaurants and in our administrative functions. We had to build a development infrastructure to be able to go out and build 60-65 restaurants a year. That all took headcount. That all took people. At the same time, we increased our marketing investment, which falls into our G&A bucket. I fully recognize that our G&A, when you look at that line item, you're like, "Man," because G&A can tend to be kind of a judgment on management efficiency and decision making. Yeah, I don't take it lightly that I'm the CEO of a company with a 13% G&A line or 12.5% G&A line. I've already committed that we're going to start leveraging that next year. We already have work in place. To potentially get those processes in this year so that we get the full year of leverage benefit. If you look at our business model, if you look at our P&L, the only thing that I am not incredibly proud of is our G&A line, but I know why it is the way it is, and I know how to fix it, and we've committed to doing that next year. Maybe we'll move off the P&L, and I'll ask you some strategy questions. It's been a very interesting, to say the least, restaurant environment over the last 18 months, and you've taken a pretty unique approach, I think, to kind of bar-belling value and innovation. Can you talk about what you're finding works for Shake Shack's brand and maybe some things you've tried that just didn't resonate as much with the consumer? Yeah. We are a premium fast-casual brand, and we have the highest, most expensive ingredients in the business, right? Our prices are always going to be higher. What we need to assess is, from a revenue management standpoint, how do we allocate those prices across the total guest universe, right? Our core guests who come to us all the time, they know the quality of the food. They know the experience when you come to our Shacks is different than a lot of the other restaurant brands. A lot of them, excuse me, are the folks that buy our premium burgers, our premium LTOs. They've kind of almost graduated out of ShackBurger and fries, right? New guests, particularly younger guests, 15- 25, high school, college, that haven't tried Shake Shack, one of the things that is a barrier is they're just like, "Okay, I can go to fast food and get a cheeseburger for $3.50 or $4, and Shake Shack is $8." That's a barrier. Two things. One, they don't recognize, and I don't expect them to. It's our job to help them. They don't recognize that the cheeseburgers in fast food are not the cheeseburgers at Shake Shack. Every ShackBurger has a quarter pound of beef, has cheese, has lettuce, tomato, ShackSauce. Comparing our ShackBurger to a regular cheeseburger in fast food is apples to oranges. If you want to compare our ShackBurger on a price standpoint, compare it to a Quarter Pounder with cheese. Compare it to a Whopper with cheese. These are bigger sandwiches with more protein, more beef. That's work that we have to do. We have to make sure that we create that reference set. On the pricing standpoint, we need to make sure that we're breaking down the barriers for our new guests to come into Shake Shack because we fundamentally believe that we have the best food. Once they come in, they're going to recognize why we charge a premium. For that target audience, we launched this app and the app program 135, that is a purely digital program from start to finish. We market it only in our digital and social channels, we put it out there, we target people that haven't been to Shake Shack in the last year. When you see our media show up in your social feed, it has a button to click on that takes you right into our Download Our App. You download our app, you come in, you've got $1.35 CSD, $1 sodas, $3 fries, $5 shakes. Every one of those things are some of our highest margin items in our business. Even though we are discounting them in order to provide incentive and break down the barrier to trial, we're still making penny profit on those discounts. It is a profit-driving, margin-dilutive traffic driver. Do you. If you can kind of wrap your head around that. That part of our business, our app, is growing over 30% in traffic. Yes, there's check degradation in the teens, but I will take 30% traffic growth for teens check degradation all day long. I wish I could have confidence to do that across my entire business, which is effectively what Chili's has done. We don't have enough media to give us confidence that we can drive the amount of traffic to mitigate the check decline. We're working towards, but we want to surgically do that. We don't want to send 135 to the people that are buying our SmokeShacks and bacon avocado cheeseburgers. We're trying to make sure that we can drive traffic by bringing in new guests. The other big thing that's happened with 135, once these folks come in, they're our highest frequency guests. We have grown our frequency. It's not just bringing in new users. Once they're in, and even our current users that are in the app and recognize 135, our frequency is up dramatically. As you know, Shake Shack has always been a little bit of a special occasion brand. If we can drive new users that come in and order more frequently, that's like low-hanging fruit. That's hugely accretive to margin. That's the strategy on the value side. On the premium side, right now we have a Barbecue Rib Sandwich, first in the world hand de-boned baby back Barbecue Rib Sandwich. In our lowest price tier markets, it's selling at $12.99. Our highest price tier markets, it's selling at $14.99. There aren't a lot of other brands in fast casual, or definitely not in fast food, who are willing to stretch to price points like that. We know because of our guest profile, because of the quality that we're delivering, that there's going to be demand for that, and we're selling a lot of barbecue rib sandwiches. In fact, when we reported on May 7th, it was the first week of sales. We were up 8%. We thought we were going to run out. We thought we were going to run out of barbecue ribs. We almost did because a truckload of them got stolen in Mexico. You can't make this up. Literally, we are scrambling to get ribs from D.C. to this shack to make sure we're Because there's different demand in different shacks, and we have the supply chain all hands on deck to make sure we have this stuff because it's selling like crazy. I get a call, and they're like, "Rob, you're not going to believe this." I said, "What?" They said, "3,000 pounds or something, or 3,000 cases of barbecue ribs just got stolen in Mexico." I'm like, "That's kind of how this quarter's gone." Our innovation on our sandwiches, sides. We've got Mac & Cheese selling like Mac & Cheese. People love this stuff. It's selling like crazy. Our premium LTO innovation is, think about Dubai shake. First time we ever had a shake at $9.99. We should probably bring that back at some point. I think it was a crowd pleaser. Yeah. So. I think we should do that. We need to break down the value barrier on the trial, new user acquisition, frequency side, and then we're going to drive our check and affinity and differentiation with our LTOs and menu on the premium side. Last thing, and then I know we're running out of time. The other, I think, barrier to frequency historically had been maybe friction in the consumer experience related to operations. Can you just talk about, in two minutes? Yeah. What you've done to help ops since you've joined the company? Yeah. It's unbelievable. When I was at Taco Bell, we used to talk about every second off of service time was worth $1 million in profit to the system. In two years, we have taken over a minute off of our service times. That's while optimizing our labor deployment and deriving a huge amount of savings from our labor line. We've improved our service times, increased our team member retention, and increased our guest satisfaction. When you think about that is the holy grail of operations. Decreased service times, improved guest satisfaction, improved team tenure. That's what you're striving for every day. Major strides there. Stephanie Sentell, who's our COO, is responsible for all of that. She's unbelievable executive and leader. She's doing all of that in the supply chain right now. As much as we hated taking down the guide on margin because of this beef, unique situation, we are doing amazing work to mitigate all of that inflation. We have addressed every input cost. We have RFP'd almost every input into our business. Wow. Our ingredients as well as our packaging, as well as our distribution partners, the cleaning supplies, everything we do. That scrutiny, that operational excellence is permeating through operations and supply chain. Great. We're out of time. The breakout will be in the Mara Room, which is over the river and through the woods that way. Thank you. Thank you. Great. Thank you.