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Greetings, and welcome to Shake Shack Inc. Fourth Quarter 2025 Earnings Call. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Alison Sternberg. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Joining me for Shake Shack Inc.'s conference call is our CEO, Rob Lynch, and our Vice President of FP&A, Carrie Britton. During today's call, we will discuss non-GAAP financial measures and the financial details section of our shareholder letter, 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. Some of today's statements may be forward-looking, including those discussed in our Annual Report on Form 10-Ks, filed on 02/21/2025, and our other SEC filings. Any forward-looking statements represent our views only as of today. We assume no obligation to update any forward-looking statements if our views change. Reconciliations to comparable GAAP measures are available in our earnings release. By now, you should have access to our fourth quarter 2025 shareholder letter, which can be found at investor.shakeshack.com in the Quarterly Results section or as an exhibit to our 8-Ks for the quarter. I will now turn the call over to Rob.

Thank you, Alison, and good morning, everyone. Before I begin discussing our 2025 results and our 2026 plans, firstly, I am thankful for the team that we have in place. We have so many talented people on our team, some who have been here from the beginning. I'm also grateful and excited for the executive team that we have built. We've also added some remarkable new members to the team who bring a lot of external experience and best practice to bear on the foundation that we are building to support our lofty future aspirations. My gratitude starts with all of the amazing people in our restaurants who welcome our guests every day, with warm hospitality and amazing cooking that makes Shake Shack Inc. so special. Another reason I am so excited and thankful to be here is because at Shake Shack Inc., we truly believe that we have the best food in the industry. And we endeavor to give access to that food to an ever-growing number of communities throughout the world. In order to do that, we will need to continue to use the best ingredients in our freshly prepared food and conveniently deliver it with value to our guests in every community that we serve. Our company started as a hot dog stand in a park, a park that had fallen into disrepair and needed its community to bring it back to life. So what did our founders do? They raised money for that park by selling premium hot dogs made in one of the world's most acclaimed fine dining restaurants, to everyone who was willing to stand in line to order. They served everyone with the same principles of enlightened hospitality that they were known for delivering in their fine dining restaurants. We aspire to bring that founder story to life every day and through each new Shack that we build. We want to provide the entire world access to the quality of food and hospitality that historically has only been found in higher-priced fine dining establishments. In doing so, we will prove that the world's best food does not have to be exclusive. But in order to accomplish that goal, we have to continue to use the highest-quality ingredients, turn those ingredients into our culinary-forward recipes, prepare our sandwiches, shakes, and sides fresh when ordered, and then deliver our food in a convenient and timely manner, all at a great value. Certainly not a small task. But we are well on our way to proving that food that is prepared fast with approachable price points does not have to mean that you are settling for anything less than the best in the world. I believe this endeavor is something to truly be proud of. It is why I am here. 2025 was a year of strong execution and disciplined growth. 2025 was a year of strong execution and disciplined growth. 2025 was a year of strong execution and disciplined growth. Now on to our 2025 results. We are laser-focused on becoming a best-in-class restaurant operations company. What does that mean to us? It means that we will support our team members so that they can accurately and expediently serve our guests the highest quality, best-tasting food in the industry at a great value, with enlightened hospitality. I cannot emphasize enough the hard work of our restaurant teams and the effectiveness of our strategic initiatives and disciplined execution of a focused set of strategic priorities. These outcomes reflect the hard work of our teams and made important strides in improving our unit economics and guest value proposition, despite a macroeconomic environment that remained uncertain for much of the year. At the same time, we enhanced unit economics through margin expansion, laying the foundation for greater quality and cost discipline within our supply chain, and meaningful reductions in build costs, driving improvements in operational excellence, and, more importantly, delivering compelling culinary innovation and value. Our teams have made so much progress in 2025, and I cannot wait to celebrate all of their upcoming achievements in 2026. For the year, we grew total revenue by more than 15%, increased our presence domestically and internationally by opening 85 Shacks system-wide, and delivered same-Shack sales growth of 2.3% in our company-operated business, all while we expanded our restaurant-level profit margin by 120 basis points to 22.6%, and drove 20% year-over-year growth in adjusted EBITDA, reaching approximately $210 million. Our success this past year reflects an investment in operational excellence and consistency at launch, and, of course, hospitality. As stated earlier, operational excellence remains foundational to our strategy. Positioning the business for more durable and profitable growth, we strengthened the fundamentals of the business while continuing to elevate the team member and guest experience. In 2025, we completed the first full year under our new labor model. It is not about cutting labor. It is about the optimized deployment of our talent so that we can maximize the effectiveness of it. We want to make sure that our team members are well prepared to take care of our guests during our busiest times, and that they are able to do that in a well-orchestrated, results-oriented manner. We have implemented a performance scorecard across our company-operated Shacks, providing visibility and accountability by measuring key metrics across people, performance, and profits. We have seen attainment to the labor guide improve from approximately 50% of Shacks meeting targets in mid-2024 to consistently above 90% in 2025. It reduces stress, and less reactionary to their ever-evolving scheduling needs. It is like any other thing that we do in life. When you align on a plan, you are able to better deal with the unexpected challenges that inevitably come your way. In turn, that results from unforeseen circumstances and ultimately improves performance. This is not about driving out costs. Cost reduction is an outcome, not the overarching goal. Our priority is to help our managers become more strategic, to measure results, and continue to optimize in a disciplined and consistent manner. We are highly focused on execution through optimizing deployment, improving throughput, and ensuring our teams can deliver great service. We are seeing meaningful success from these efforts, evidenced by reduced wait times across all dayparts and higher team member retention. Specifically, our wait times improved from seven minutes in 2023 to under six minutes in 2025, and team member tenure has increased nearly 40% since 2023. Those results would not be achievable if we were simply cutting labor and increasing stress on our teams. Like many in the industry, we faced a challenging commodity environment in 2025, with beef inflation reaching the mid-teens in the second half of the year. As we navigated these pressures, we approached it with a long-term mindset, not by reducing portion sizes or negatively impacting quality, but by building a significantly improved network. To mitigate rising costs and protect margins, supply chain optimization was a critical focus, and we accelerated supply chain initiatives focused on diversification and logistics. We conducted the most comprehensive RFPs in our history across key categories and onboarded additional suppliers to foster competition, augment quality, reduce business risk, and improve purchasing leverage. These structural improvements enhanced our resilience, reduced the time and distance required to transport goods as our footprint expands, and helped mitigate inflationary pressure without taking outsized price increases. Importantly, the groundwork we laid in 2025 positions us to achieve additional cost savings and further expansion in 2026 and beyond. Our progress in operational excellence has unlocked a new level of confidence and capability within our culinary organization, allowing us to introduce more elevated menu items and to be highly responsive to evolving consumer preferences and trends. In 2025, we formalized and strengthened our culinary development process by implementing a disciplined stage-gate framework to ensure every item meets three critical criteria: it must deliver our gold standard of culinary innovation and quality, resonate with our guests, and be operationally friendly in our Shacks and our supply chain. This enhanced approach delivered tangible results in 2025, giving us greater visibility and time to optimize our go-to-market planning and training, which leads to operational excellence and consistency at launch. We launched one of our most successful LTO shakes, the Dubai Chocolate Shake, which drove meaningful traffic to our Shacks and generated exceptionally strong guest satisfaction scores. We also leaned into side innovation, introducing items like fried pickles and onion rings, both of which performed strongly. In fact, onion rings resonated so much with our guests that we added them to our core menu, a testament to our ability to test, learn, and scale effectively. But our improvements are not limited to our LTOs. We also improved the quality of our core items as we made meaningful investments in improving the quality of our core sandwiches, fries, and beverages. These wins are not short term in nature. They represent the foundation that we are building for the future. We also expanded our Crackable Shake program. We are extremely excited with the sales of this premium crackable shake platform and will continue to drive innovation there. Lastly, we introduced our Good Fit menu, featuring a new way to enjoy Shake Shack Inc. and start the New Year on a healthy note for differing dietary preferences, including high-protein serving sizes. We have always made these items. We simply packaged them up and merchandised them as a timely, relevant, additional sales layer for our business. A great example of our ability to drive sales growth without significant operational or supply chain disruption. In January, we reintroduced our Korean-inspired menu, building on its previous success while elevating it with the addition of Sauce Chicken Bites, which added another exciting limited-time option to delight our fans. Innovation like Sauce Chicken Bites will help us build new chicken occasions. We believe we have a lot of opportunity to increase our chicken sales. In late January, we launched our “We Really Cook” campaign. This campaign spotlights our recipes and the quality ingredients that go into preparing the cook-to-order food we deliver each and every day. We want to reinforce the fact that we freshly prepare fine dining quality recipes in our Shacks every day, and deliver them with enlightened hospitality. This marketing platform is an investment in creating awareness amongst current and prospective guests about what really makes Shake Shack Inc. special. Over time, this awareness will continue to build our value proposition and make us even more competitive across the restaurant industry. Importantly, this platform allows us to deliver targeted value through compelling price points within our digital channels, while maintaining pricing integrity across the broader menu. Our 1-3-5 in-app promotion platform has proven to be a powerful guest acquisition and engagement tool, driving app downloads up approximately 50% since launch. The combination of elevated innovation and channel-driven value resulted in strong traffic trends, improved brand engagement, and a more balanced positioning between premium quality and everyday accessibility. The new guests that we are bringing into our app are also the foundation for the launch of our loyalty platform later this year. On the development front, 2025 was a milestone year for Shake Shack Inc., as we expanded our global footprint and are generating stronger returns. In 2025, we made significant progress in optimizing our build model. By improving build costs, through disciplined design simplification, value engineering, and procurement strategies, we reduced the average net build cost for new Shacks to under $2 million in 2025, a reduction of approximately 20% compared to the prior year, while materially improving the economics of how we build and scale the brand, maintaining AUVs, and expanding margins, and creating more efficient, profitable growth as we scale. We opened 45 new company-operated Shacks during the year. We successfully entered new domestic markets like Buffalo and Oklahoma City. The viability of these markets for our brand may have been questioned in the past, but we are proving that Shake Shack Inc. has the potential to enter every market in the United States. Looking ahead, our pipeline for 2026 is even more robust, with plans to open 55 to 60 new company-operated Shacks, primarily in markets outside of our historical footprint of the Northeast and in major tourist cities. Our licensed business also delivered strong momentum, with 40 new licensed openings in 2025. We saw particularly strong performance in our new Shacks in markets that we have entered in the past two years such as Canada and Israel. We are also proud of our strong comp performance in the Middle East, Japan, the United Kingdom, and in U.S. airports. We announced several strategic growth partnerships, including expansion into Hawaii, a new partnership with Penn Entertainment to bring Shake Shack Inc. to casino destinations, and a new agreement to enter Panama. Most recently, in January, we partnered with the Australian Open to launch two pop-up Shacks at the tennis tournament. Together, these two licensed sites did approximately $1.6 million in sales in just three weeks over the course of the tournament. Attendees there were willing to stand in a very long line to get a ShackBurger and fries, despite having never been there before, indicating strong demand for our brand in this market. These partnerships expand our global reach, reinforce Shake Shack Inc. as a premium internationally recognized brand, and give us extreme confidence in our ongoing global growth potential. As we close out 2025, we are proud of the progress that we have made, from delivering strong financial performance and improving unit economics to accelerating development, strengthening our operations, and continuing to innovate in our culinary offerings. The year was truly transformative, laying a foundation that positioned Shake Shack Inc. for sustainable, profitable growth. We are entering 2026 with confidence, guided by a clear strategy centered on profitable revenue growth, margin expansion, and strategic investments in our brand and infrastructure. We hope to achieve this by focusing on six key priorities: building a culture of leaders, optimizing restaurant and supply chain operations, building and operating our Shacks with best-in-class returns, driving comp sales through culinary, marketing, and digital innovation, accelerating our licensed business, and investing in long-term strategic capabilities. By staying disciplined in these areas, we are confident that we will continue to drive strong operating results, enhanced guest experiences, and sustainable growth as Shake Shack Inc. scales both domestically and internationally. The investments we are making in the business in 2025 and into 2026 will position us to start leveraging the capital spend and our P&L in 2027 and beyond. As a result, we expect that by 2027, we will be growing G&A at a lower rate than sales. We plan to disclose our G&A long-range plan that will deliver this leverage in 2026 after our new CFO joins the team. Our start to the year grew 4.3% year over year. I will now hand the call over to Carrie Britton, who has been an invaluable leader and partner through our CFO transition, to discuss our quarterly results and guidance.

Thank you, Rob, and good morning, everyone. Building on the strong foundation Rob outlined, 2025 was a highly successful year for Shake Shack Inc. Through our continued focus on operational excellence, the effectiveness of our marketing and culinary initiatives, enhanced guest experience, and supply chain optimization, we delivered 150.4% revenue growth to $1,450,000,000, positive same-Shack sales of 2.3%, 120 basis points of restaurant-level margin expansion, and 19.5% adjusted EBITDA growth, all while facing significant commodity inflation and a challenging macro environment. We have added nearly $80,000,000 to adjusted EBITDA to approximately $210,000,000 in the last two years. These results demonstrate solid momentum and the effectiveness of our initiatives. We are very pleased with our fourth quarter results, supported by the opening of 15 new company-operated and 17 new licensed Shacks, and 23.4% year-over-year growth in system-wide sales. Fourth quarter total revenue was $400,500,000, up 21.9% year over year, which reflects strong execution across both our company-operated and licensed businesses. Our licensing revenue reached $15,200,000 in the fourth quarter, with licensing sales of $232,700,000, up 26.4% year over year. In our company-operated business, we grew Shack sales 21.7% year over year to $385,300,000. We generated $77,000 in average weekly sales. We delivered 2.1% same-Shack sales growth with 0.5% positive traffic and 1.6% price/mix. Same-Shack sales grew sequentially each month of the quarter, and we delivered positive same-Shack sales and positive traffic for the quarter. However, the last six weeks of the quarter did not meet our expectations due to inclement weather in some of our most heavily penetrated markets like the Northeast. In-check menu prices rose about 2%, while blended pricing across all channels increased approximately 4%. This compares to approximately 6% last year, with less dependence on price increases. We are off to a strong start in 2026. January same-Shack sales increased 4.3% year over year, despite weather-related headwinds that represented an approximate 400 basis point impact during the month. We saw strong year-over-year sales growth across our owned channels, led by our app channel and the success of our 1-3-5 promotion. January AWS was $68,000, down 7% year over year. The decline versus prior year was primarily attributable to the 53rd week in 2025. As a result, January 2026 did not include the benefit of the high-volume holiday period between Christmas and New Year's Eve that was captured in January 2025. Excluding this timing impact, we have shifted our same-Shack sales comparison by one week to better align operating weeks and holiday placement between periods. Additionally, to ensure a more comparable year-over-year analysis, this results in an approximate 250 basis point year-over-year headwind to total revenue in the first quarter, primarily driven by holiday timing. In the fourth quarter, food and paper costs were $110,600,000, or 28.7% of Shack sales. Blended food and paper inflation was up low-single digits, with beef costs up low-teens and paper and packaging costs flat year over year. Through proactive procurement and cost mitigation initiatives, our teams meaningfully offset industry-wide commodity pressures. Labor and related expenses totaled $97,900,000, or 25.4% of Shack sales, representing a 150 basis point improvement year over year, driven by more efficient scheduling and deployment through our labor management strategies. Other operating expenses were $59,900,000, or 15.5% of Shack sales, up 70 basis points versus last year, driven by higher delivery sales mix and repairs and maintenance expense as we continue to invest in our company assets. Occupancy and related expenses were $29,400,000, or 7.6% of Shack sales, flat year over year. G&A was $50,500,000, or 12.6% of total revenue. For the full year, G&A was $176,200,000, approximately 12.2% of total revenue, reflecting incremental investments in marketing and continued investments in our people to support growth and strategic initiatives. Excluding $1,700,000 in one-time adjustments, G&A totaled $174,500,000, approximately 12.1% of total revenue. Looking ahead, we plan to continue investing in marketing and digital capabilities to drive traffic and guest frequency, with marketing spend expected to remain in the 2% to 3% range of total revenue, above historical averages of 2% or less. Unlike last year, our marketing plan for 2026 is more evenly distributed across the quarters rather than back-end weighted. Additionally, we expect our total G&A expense to remain relatively steady each quarter of 2026. This will result in a higher year-over-year G&A step-up in the first half, tapering in the back half of the year. As Rob mentioned earlier, we expect to capture additional leverage in G&A following these incremental investments as the business continues to scale. Equity-based compensation was $5,300,000, up 21.8% year over year, with $4,800,000 in G&A. Preopening costs were $5,200,000, up 1.7% year over year, reflecting 15 new Shack openings and investments to support a strong opening schedule for the first quarter and throughout 2026. Notably, the lifetime preopening expense for the class of 2025 declined approximately 14% compared to the class of 2024. We grew adjusted EBITDA by over 20% year over year as we advance a robust 2026 development pipeline. Adjusted pro forma net income was $16,600,000, or $0.37 per fully exchanged and diluted share. Net income attributable to Shake Shack Inc. was $11,800,000, or $0.28 per diluted share. Depreciation was $26,400,000. Our GAAP tax rate was 39.6%, and our adjusted pro forma tax rate, excluding the tax impact of equity-based compensation, was 26.1%. Our balance sheet is strong, and we ended the year with $360,100,000 in cash and cash equivalents and generated $56,500,000 in free cash flow. We currently have approximately 34 Shacks under construction. Now on to our guidance for the first quarter and full year 2026. As a reminder, our guidance incorporates the year-over-year impact of the 53rd week in 2025 on this year's guidance. For the first quarter, we expect total revenue of $366,000,000 to $370,000,000, with same-Shack sales up 3% to 5%, licensing revenue of $12,800,000 to $13,200,000, restaurant-level profit margin of 21.5% to 22%, and approximately four licensed openings. In late February, we rolled off price we took on our delivery channels last year, an approximate 1% impact. We plan to exit the quarter with approximately 3.5% overall price. Our inflation outlook reflects our expectation for low single-digit inflation, with commodity pressure from beef up mid-teens, partially offset by supply chain savings initiatives. We expect labor inflation to be in the low single-digit range. For the full year, we are reiterating our guidance that we provided at the ICR conference in early January: total revenue growth in the low teens, system-wide unit growth in the low teens, restaurant-level profit margin expansion of at least 50 basis points per year, and adjusted EBITDA growth in the low- to high-teens range. We are planning for low single-digit year-over-year inflation in food and paper costs after accounting for our supply chain strategies. Excluding these savings initiatives, food and paper cost inflation would be up mid- to high-single digits, with pressure led by uncertainty in beef pricing that represents approximately 30% of our blended food and paper basket. Our outlook assumes no major changes to the macro or geopolitical environment. Thank you for your time. And with that, I will turn it back to Rob.

Building off of a strong 2025, we are excited about the opportunities ahead and look forward to making progress against our strategic priorities in 2026. Above all, I am so grateful to our dedicated teams for bringing their hearts, minds, and focus to their endeavors every single day. Thank you all for your time today. And with that, operator, please open up the call for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press the star key followed by the number one on your telephone keypad. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Brian Michael Vaccaro with Raymond James. Please proceed.

Hi, thanks, and good morning. I appreciate all those details. I was just gonna ask you about kitchen equipment. I believe you rolled the new fryers in in the last several months. And could you just give us an update on where you are in terms of testing as well? And are there any new ovens and grills and the shake machines planned rollouts of any of that equipment in 2026 we should be mindful of?

Yeah. Thanks for the question, Brian. We have actually implemented our fry hot holding equipment into all of our Shacks at this point. And I can tell you I have been out visiting Shacks really all quarter, and our fries have never been better. I will give you a data point. Fries cold or less than optimal fries used to represent over 30% of our guest complaints, and after implementing the new equipment, it may now represent less than 10% of our complaints. So, huge transformation in terms of improving the quality of our product through equipment innovation. We, as you know, we have our equipment innovation center that we have built here in Atlanta. We have been bringing all of our operators through that innovation center and our licensed partners through that innovation center for the last three or four months. And some of that innovation is already starting to show up, particularly in some of our licensed partner Shacks internationally where they can build faster. They have not quite as big of a pipe, so they can build faster. So, yeah, there is a lot of progress laying out the format of our kitchens, not just new equipment, but the way we are designing and architecture side of our kitchen. From the innovation both on the equipment side and the design and architecture side of our kitchen, so we are really hopeful that we will have an optimized kitchen standard that will last for years to come really starting in 2027. We have to get through our pipeline. We have the longest pipeline of permitted restaurants in the company's history. So once we start getting through that pipeline, we will move to that model, which we anticipate being really transformational for us.

Alright. Well, that is great to hear. And just to follow up on new unit development, if I could. Could you elaborate on the sales volumes you touched on in your prepared remarks, and are you able to elaborate on the sales volumes that you are seeing in the Class of 2025? And you talked about really optimizing those build costs. What kind of build cost inflation do you expect for the class of 2026?

Thanks very much. We are incredibly excited about the opportunity to continue that momentum and their hard work. I just cannot give our team enough credit. I mean, given the construction and materials industry and tariffs and everything else, like, the costs have not gone down. And our team, through their ingenuity, was able to take 20% of our build costs out. So, yeah, we have rate reduction. Now I will tell you the average build cost is a function of the mix of the restaurants that we build in any given year. And as we continue to increase the mix of drive-thrus, the average build cost will not see the same type of incremental decreases in cost simply because the drive-thrus cost more to build, and they are going to be a bigger part. But the reason why we are so excited about that is we are starting to see our drive-thrus in 2025 outperform our core designs from a revenue standpoint. So we are seeing great returns there. So we are going to continue to build those. It is going to help us scale even faster. So as we build that pipeline, we will be more adept at being able to break down the type of Shack based on the cost and not just report out on the average build cost as the mix evolves. So we will be, you know, there is a little bit of noise in kind of the aggregate. That is our intention as we move forward. Here probably in 2027.

Our next question is from Rahul Krotthapalli with JPMorgan. Please proceed.

Good morning, guys. Thanks for taking the question. Rob, I want to touch on the evolution of the loyalty program and how best you can communicate the value of the brand through this program as we move towards the year. Then the follow-up is on the New York City and the Northeast markets that continue to be a headwind today. Are there any in 2026 that could potentially turn this into a tailwind? Thank you.

Wow. Great questions, Rahul. I will go with the first one on loyalty. So one of the biggest bright spots in our business right now is our decision to launch a targeted, strategic value platform in our app. As I called out in my comments, our app downloads are up 50% as a result of that program. And we are seeing huge amounts of traffic growth each of these last three months. It gives us a huge amount of confidence for our loyalty program that we intend on launching by the end of this year. And the confidence in that loyalty program grows every day as we continue to see the engagement with our app that does not yet feature some of the added components and value that we will offer in the loyalty platform. So we are extremely excited about launching that and the ability for that to impact our business. Now I will tell you, our intention in launching loyalty is to launch it in an enlightened hospitality-driven way. So we are not going to rush in. We are going to launch it this year, but we are going to continue to optimize it as we scale it. We are going to continue to make sure that it is Shake Shack Inc.-specific and delivers the same premium enlightened hospitality experience that we try to deliver in our restaurants. So revenue, you know, sales or margin, as I have mentioned before, we have seen significant incremental sales and profit impact from that program. With minimal impact, it has an outsized impact on our ability to drive profitable growth. In regards to your second question surrounding the Northeast, there is no question that we have been impacted by weather in 2025. And, obviously, there have been two big weather situations, one in January and one essentially just wrapping up right now, where we have had some closed restaurants. And we do everything we can not to close our restaurants, but we have got to make sure we put our team members' safety first. So, yes, we mitigated some really significant weather impact. The numbers that we reported out in Q4 and then in P1 in January, we are extremely proud of, because those numbers reflect the impact we are seeing right now. As we move forward with our development, the majority of our development in 2026 is outside of the Northeast. I want to make it clear. That is not because we do not see growth opportunity in the Northeast, and that is not because we do not still love our New York roots. We are absolutely committed, and we will continue to diversify our footprint. And that is going to diversify our footprint and mitigate some of our disproportionate exposure to particularly the Northeastern and Mid-Atlantic weather situations that we are dealing with right now. We are also extremely excited about the impact that is going to have. There is just so much white space for us to go into a lot of these other markets. And, frankly, the results we are seeing in some of these other markets that we may have thought and others may have thought we could not be as successful in are really surprising us with how strong the demand is. And we are starting to remodel a lot of our Shacks in New York City, but we are going to build out markets across the United States. Thank you.

Our next question is from Sharon

Hi. Thanks for taking the question. I think I looked back in my model, your labor is the lowest as a percent of sales since I think 2013 or 2016, so a long time. I guess I am curious, Rob, how low can you drive labor? And as we look at the future restaurant-level margin expansion, particularly for this year, is labor a key component of that, or is it really coming more from supply chain and cost of sales? And then on that six-minute wait time, is there any way to dimensionalize that between walk-in and drive-thru? And is that a happy place for you, six minutes, or are you trying to further improve that? Thanks.

Great question. So what I will tell you is we feel really good about where our labor is. And moving forward, the primary drivers of our improvement on the labor line will primarily be the benefit there that has been a decrease in a lot of overtime. As our operations have improved, and our leadership across our operating footprint has continued to focus on all the KPIs that we put on the scorecard every day and holding people accountable but supporting them, and our tech has improved to help us manage labor in a much more sophisticated way, we now have a lot less overtime. And we have more people in the Shacks at lunch and at dinner and less people in the shoulder hours because we are more capable. We can run those hours, and that is really been the significant driver. We can open faster and better. We can close faster and better, so we do not need as many people during those lower volume hours. And lastly, we are really doubling down on hospitality. I hope it came through in the comments, but we have added a couple KPIs onto the scorecard that are specific to hospitality around whether guests were greeted, whether guests received a table touch. So some of the things that, you know, from an ops metric standpoint in the past, we are going to keep focusing on those, but we are adding hospitality metrics to make sure that we are delivering the best hospitality in the industry. And that is going to further drive sales. I want to make it clear. We always want to get better. We are laser-focused on being best-in-class operators, which means labor management is a big part of that. But we have now really built the model that I think is going to be consistent with where we want to be moving forward. On the overtime point, you know, that really is a key leading indicator. When you see a lot of overtime in your cost structure, it is not just a function of scheduling. It is a function of team member retention issues, because you have people calling off or getting terminated, all that stuff. We now have a lot less overtime. On the six-minute wait time, we are absolutely working to further improve that. We have gotten better across every component of our business. We are definitely not satisfied with just under six minutes. We continue to strive to get more efficient. And some of that is going to come through process improvement, but a lot of that is going to come through, as I talked about on Brian’s question, kitchen design. We have a significant improvement standardized that we will be rolling out at the end of this year heading into 2027 in our standard kitchen design, as well as we will be launching our optimized long-term kitchen design. We would roll it out tomorrow, but we have permits in place for a lot of Shacks. Do not get me wrong. Those are going to be great Shacks. And there are optimizations that we can make. But really towards the tail end of this year heading into 2027, we are really excited about both the speed impact and just overall team member satisfaction, other operating KPIs, including accuracy, and deliver the food in a much more efficient way. There has been a bigger positive impact on wait times through the drive-thru as we have optimized a lot of our drive-thru, back-of-house design and just the way we operate drive-thrus.

Our next question is from Jeffrey Andrew Bernstein with Barclays. Please proceed.

Hi. This is Anisha Dat on for Jeff Bernstein. Wanted to ask a question on promotions. Given the stronger January comp, can you break down what portion was driven by promotional activity, including value initiatives, versus baseline demand, and whether those customers are incremental visits or primarily trade up/trade down within existing guests? Thanks.

Yeah. So we do not necessarily disclose to that level of detail, but what I will tell you is that we are focused on driving all channels of revenue, whether it is in-Shack, in-app, or delivery. Our in-Shack business has been really healthy. We have seen a lot of traffic and check benefit in our Shacks. I think it is a testament to the focus on hospitality that we are delivering in Shack. We have done a lot of work. Our tech team has done a lot of work on our kiosk to make sure that we are delivering a great kiosk experience. We sell the same Coca-Cola as everyone else. So we still make money on the things that we discount inside of our app, but we are very strategic. The incentives that we offer are part of our base business, and those things are the most comparable from a price point standpoint to our peer group. And those things are incentives on our highest margin products, particularly beverages and fries. So, you know, we consider our app the most incremental channel. Yeah, I mean, what I would tell you is these guests are incremental traffic that we are deriving benefit from. But right now, the app is definitely the highest driver of incremental traffic.

Our next question is from Peter Saleh with BTIG. Please proceed.

Great, thanks, and congrats on a strong start to the year. Rob, I want to go back to the 1-3-5 menu that you guys rolled out again. I think you mentioned a powerful menu bringing in new guests. Can you talk a little bit about the profile of this guest that you are seeing with this 1-3-5? And are you able to retain this guest once the promo ends? And then on the marketing push for 2026, can you just talk a little bit about how it may be different than 2025? Are you targeting any different channels? Or I know that cadence is going to be a little bit more evenly distributed, but any other details you can provide would be helpful.

They look a lot like our normal guests, and our normal guests are taking advantage of the 1-3-5 program as well. So it is not significantly changing the profile relative to, like, household income and those types of things. It really is something that I think just affords everyone the opportunity to come in and improve the value that they are perceiving from our brand. We want to continue to launch premium, high-end, differentiating culinary LTOs. We are continuing to work on improving our core menu. We want to make sure that we are continuing to improve our value. We have invested in our fries this year. We have invested in our beverages this year. We have invested in our sandwiches this year. We want to make sure that we are competitive. In this environment, what I will tell you is that we spend a lot less discounting than the fast food industry. We are not out there giving away our food, trying to bring in customers from profiles that we may not be able to retain as things evolve. We are out there being strategic and targeted, and the only way you get 1-3-5 is in our app. And the acquisition cost of getting an app user used to be significantly higher than it is today with this promotion. So if you think about the holistic value creation, lifetime value of an app user, the decreased cost of acquisition in addition to the incrementality of the revenue at a slightly lower margin than our core items, but not significantly lower, all in all, it is a home run for us. And so we are going to continue to drive that program. We see this as a continued driver of incremental traffic in our model. This is not something that we see as a temporary model. And it is only going to accelerate and expand once we launch an even more premium loyalty experience that offers these types of value-driving programs. On marketing, we launched our Today’s Special and “We Really Cook” campaign here in Q1. We are going to continue to leverage that platform to launch our LTOs moving forward. And a lot of that is top-funnel media. I think in the past, what Shake Shack Inc. has done is we have invested a lot in the bottom of the funnel, a lot in conversion. Right? So a lot of paid search, email, and other campaigns offering BOGOs and other types of discounts to get that conversion. There is a big opportunity to create awareness of what makes Shake Shack Inc. so special. We have an opportunity to expand our aperture top of funnel. So we are striking a bit more of a balance between top-funnel and lower-funnel marketing. And the top funnel is going to just increase the population size. And then if we are still as adept at conversion as we have been with 1-3-5 and our other programs, then a lot more of that top funnel should flow through to the bottom line. So that is really how we are thinking about marketing moving forward. It is not necessarily a demographic push or a household income push or anything like that. We truly believe that our brand can meet the needs of every stratification of guests in the industry from the teens with the least amount of discretionary income all the way up to the high household income. We want to make sure that we are offering solutions for all of them.

Our next question is from Sarah with Bank of America. Please proceed.

Thank you so much. I wanted to sort of understand what clearly looks like incrementality of total transactions. And I wanted to know if that was from the sort of app and the in-app traffic as a traffic driver. Last quarter, you said that in-app traffic was up like 500 basis points. So am I right in thinking that as it stands now, app traffic had been at the time maybe 5%? And I wanted to know if that was from the sort of app and the in-app traffic as a traffic driver? And I wanted to sort of understand what clearly looks like negative mix in the fourth quarter—maybe about 2%—and I wanted to know if that was from the app, because it sounded like more transactions. And I think total traffic was up maybe 400 basis points. So, you know, there is a lot in there, but just sort of quantifying the lift or the contribution and how I should think about perhaps mix in the future? Thanks.

Great question, Sarah. So one of the biggest drivers of the mix impact, particularly in P12, was our decision to price our Big Shack at $10. So, you know, there was intentionality around cannibalizing some of our higher-priced double burger buyers, trading guests from single ShackBurgers up to the Big Shack at $10, and from doubles to the Big Shack at $10. The double price points range anywhere from $10 up to $14 depending on whether you are buying an Avocarth Bacon Burger or just a plain Double ShackBurger. And what we found—and, you know, it is not rocket science, and we learned this lesson for the last time—is that we sold Big Shack to a lot of doubles. So the negative mix impact that we saw in P12 was less about any type of app traffic shift and much more about our LTO volume. Moving forward, we will take that trade-off all day long. And as we move forward and plan our LTOs, we are making sure that we have a very clear understanding of where the volume is going to be sourced from, whether it is coming from guests that were purchasing either singles or doubles, so that we can mitigate any type of mix impact moving forward from that. Like I said, it is not as significant as you might think given the $1 drinks and $3 fries in the app. And that is because when they come in, everybody is buying a sandwich. Sometimes you have multiple party size. So the checks are not as negative mix as you might think. And the incremental traffic that we are seeing from that program is tenfold any of the mix benefits.

Our next question is from Andrew Barish with Jefferies. Please proceed.

Hey, guys. Just wondering on an example or two maybe on the supply chain saves for this year. I mean, the implied benefits are quite significant and impressive. Just maybe an example for us. And then is it first-half weighted, or do those saves kind of more evenly show up as we move through the year?

I mean, on the supply chain, there is definitely significant savings yet to be to unfold. I mean, I think we talked about it in Q4 as we were just scratching the surface. Well, I would say we are kind of into the surface right now and really excited about the work that the team has done. And, you know, when we talk about supply chain, I think I have reinforced it a couple times. It is not just about cost. Our ingredients are not always the same as the rest of the industry. Like, we buy different ingredients. We are 100% Angus, no antibiotic, no hormone beef. We put 20% brisket into our grind. We have got to be always thinking about the brisket supply. So by going out and qualifying and diversifying our supplier base, not only has it improved our cost structure, it has also secured our supply. So, you know, moving forward, we should benefit from that really significantly here in 2026. But there is still a lot of work to do on our distribution and some of the logistics of our business. So we are going to continue to derive some pretty substantive benefit moving forward. And I will just close by saying, if we had normalized beef costs last year, we would have expanded restaurant margins astronomically. We grew restaurant-level margin 120 basis points last year with unprecedented beef costs and beef inflation. When we do see a return to normalized beef pricing, the work that this team has done in operations and supply chain is going to flow through at a dramatically improved rate. I just cannot reinforce enough how amazing the work this team has done, particularly in the restaurant operations and the supply chain. As we look, I know that beef markets right now are very unpredictable, and there are some unknowns. Lots of things going into what we think the beef is going to look like over the next year. But this team is very competent and hardworking.

Our next question is from Samantha on for Christine Cho with Goldman Sachs. Please proceed.

Hi, this is Samantha on for Christine Cho. Thanks for taking my question. You highlighted a development pipeline tilted away from the Northeast with same-Shack sales growth in the Southwest and Midwest outpacing New York City and the Northeast during the quarter. How does the margin and cash-on-cash return profile of these growth regions compare to the legacy coastal core? And how should that regional mix shift influence system-wide margins over the next three to five years?

Well, that is a great question. It is an interesting question. What I would tell you is the revenues that we forecast for some of these markets are less than the revenues than when we open up a Shack in New York City. They are just going to be smaller populations, and there are smaller tourists. So, tourists compression. And we are doing everything we can to mitigate that compression by opening drive-thrus, which tend to have higher revenues. So the balance in geography should be, to a certain extent, mitigated by the format. In terms of the flow-through in the margins, I have got to tell you, there are not a lot of franchise systems who are opening restaurants in New York City and Los Angeles because there are a lot of challenging business dynamics there. We do really well there. That is where we grew up, so we know how to operate in those markets. But the reason why people develop in places like Oklahoma City and Florida and Tennessee is because the real estate is less, and the labor costs are less. So, you know, if we can hold on to our AUVs through an improvement in the mix of our formats and have lower real estate cost and lower labor cost, supply chain optimization, and the diversification that we get from our footprint, we should see continued margin expansion. We continue to believe that we can expand margins through continued operating excellence year in and year out. We have guided to 50 basis points a year. We have not pulled that despite a lot of our peers coming in with margin dilution last year, and looking forward, we are not being concerned about margins from a margin standpoint.

Our final question is from Nick Sinton with Mizuho Securities. Please proceed.

Thank you. The January comp of over 4%, obviously, I think you guys said that includes a 400 basis point headwind. Did we lose the call, or did we just lose Nick?

Yeah. I lost to Nick, but yes, it does include the 400 basis points of headwind.

We just lost Nick. And we will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

You are welcome. You are welcome.

Thank you.