Randy Garutti - CEO Jeff Uttz - CFO.

Sharon Zackfia - William Blair John Ivanhoe - JPMorgan Jeffrey Bernstein - Barclays Capital Andy Barish - Jefferies John Glass - Morgan Stanley Jake Bartlett - SunTrust Robinson Humphrey Paul Westra - Stifel Nicolaus Andrew Charles - Cowen Karen Holthouse - Goldman Sachs Brittany Whitman - Longbow Research.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Shake Shack Fourth Quarter 2015 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the lines will be opened for your questions following the presentation.

Please note that this conference is being recorded today, March 07, 2016. On the call today, we have Randy Garutti, Chief Executive Officer of Shake Shack; and Jeff Uttz, Chief Financial Officer. And now, I’d like to turn the conference over to Jeff Uttz..

Thank you, operator. Good evening, everyone. By now you should all have access to our fourth quarter 2015 earnings release. If not, it can be found at shakeshack.com in the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements.

These forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them.

Actual results may differ materially from those indicated by these forward-looking statements due to a number of risks and uncertainties, including those discussed in the Risk Factor section of our various securities filings including our Annual Report on Form 10-K for fiscal 2014, our subsequent quarterly reports on Form 10-Q, and our final perspectives on Form S1.

Additionally, any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change. During today’s call we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance.

The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in our earnings release. Now, I’d like to now turn the call over to Randy..

Thank you, Jeff, and good evening to everyone on the call today. I am thrilled to share the fourth quarter results that rounded out an extraordinary year for us. Now one year in our life as a public company and with record-setting results in nearly all metrics, we're looking far ahead in reiterating the story we've been sharing with you.

We have just barely gotten started.

We're also going to spend a lot of our focus today looking forward at the exciting strategic developments we have in store for 2016 and beyond, just around the world our engagement with Shake Shack in record numbers and with a deeper connection than ever, Shake Shack has never been in a stronger position to capitalize on the opportunity ahead.

We hit the ground running in 2016 with a strategic focus on driving long term value creation, continuing to build the community gathering places our guests love, while innovating around our core menu and further investing in the unique and special culture that differentiates and drives our company forward.

Now a few notable highlights from the fourth quarter; for the fourth quarter, total revenue grew 47% to $51.1 million. Same-Shake sales increased 11%. Shack level operating profit, a non-GAAP measurement, increased 88% to $13.9 million, representing a 28.2 Shack level operating profit margin.

Adjusted EBITDA, a non-GAAP measure increased 104% to $9.9 million. On an adjusted pro forma basis, net income increased to $2.9 million or $0.08 per fully exchanged and diluted share for the quarter.

Moving on to development, we opened three new domestic company-operated Shacks in the fourth quarter bringing our 2015 total to 13, including one Shack originally included in our 2016 guidance.

We continue to execute on our increased growth strategy, opening approximately one-third of our Shacks in new markets and the remaining two-thirds in existing markets, capitalizing on our brand strength while driving operational efficiencies as we cluster our Shacks in existing markets.

In October we opened our second Shack in Las Vegas market in Downtown Summerlin. Next we headed Upstate to New York to Woodbury Commons for our first ever outlet centered Shack and entered the last day of our fiscal year with our first street-side Shack in Queen’s New York at the Queen Center Mall.

We hit our development strategy on all cylinders, showing broad strength geographically as well as through various real estate formats.

The class of 2015 highlighted our multi-format development capabilities and included Shacks in flagship, urban, suburban, outlet mall, path side and inline locations both new and existing markets, exactly the type of growth we're thrilled to continue into 2016 and beyond.

Every time we open a Shack in a new format in a new city or in a new size, it opens new doors for us further proving the versatility of our model and demonstrating the tremendous wide space we have in front of us. Internationally the fourth quarter was busy for us.

We opened six international license Shacks bringing the total openings for 2015 to eight. Now as a result of some favorable construction timelines two of the Shacks that were originally included as part of our 2016 guidance of eight Shacks opened in the last two weeks of 2015.

During the quarter, we deepened our footprint in the Middle East with our seventh Shack in Kuwait, our second Shack in Qatar, and our second Shack in Saudi Arabia in Riyadh. In the U.K., we launched two more Shacks including our third London based Shack on New Oxford Street and our first Shack in Wales in the City of Cardiff.

Heading to Asia, as we announced in our last call, we opened our first Shack in Tokyo, Japan, on November 13, located in a renowned Meiji-Jingu Park, drawing inspiration from our very first Shack in New York City’s Madison Square Park.

This opening reminded us again of the strength of the Shake Shack brand globally as guests were camped out overnight with 400 people waiting online by 9 AM surrounded by TV cameras and media document in the event.

This strong start in Tokyo has continued through the winter as we build on our partnership with The Sazaby League and now plan to open our second location in Ebisu in Central Tokyo, Spring 2016. Looking forward into 2016, we are really excited to highlight the menu innovation taking place at Shake Shack.

On January 14, we launched the Chicken Shack at all domestic company operating shacks and since July this item has been only offered in our three Brooklyn Shacks.

The guest feedback was extraordinary during that six month test giving us the confidence and time to plan a wider roll out, which we now believe to become a permanent menu item for Shake Shack.

As a reminder, the Chicken Shack is an all natural hormone antibiotic free trust chicken breast slow cooked in buttermilk and herbs, hand breaded, battered and crisp fried to order and it’s currently selling for $6.29 in all markets and is likely the most important menu in addition we’ve made since Shake Shack began.

We’ve received incredibly positive feedback in our Shacks on all of our social media channel and then was a top five selling menu item in all three different Shacks during the test and it has continued that trend in the early days since its launch nationally.

While it's still too early to know exactly what chicken will mean for us system-wide, we're hopeful that it will prove accretive to sales, traffic, average check and food cost. It's important to note that the Chicken Shack requires little more labor. So we do expect to see an uptick in labor due to this item.

Internationally, the Chicken Shack has now launched in Turkey and all our Shacks in the UAE. We believe as we look towards growth internationally, especially in Asia over the long term, this will be an important addition to our strategy. We're really excited about chicken and the new opportunity to create to further build our fan base.

Staying on menu innovation to make room for the Chicken Shack, we've temporarily removed the burger LTO. The last one we did was the roadside Shack where we finally introduced a new burger LTO to the menu for the second half of the year.

As we continue to grow our Shack footprint, we have never been more excited about the class of restaurants as we are looking at 2016 and the pipeline for 2017. As a reminder, schedule openings this year is slightly more weighted towards the back half of 2016, which will limit the sales impact of these new Shacks on total revenue for the year.

That being said, our real estate opportunities are stronger than ever and we remain confident in our ability to execute on our growth plans for 2016 and beyond. This year we're launching in four new major markets, Los Angeles, Phoenix and Scottsdale, Dallas and Minneapolis, while deepening our roots in our existing markets.

On February 26, we welcomed our first Shack in Arizona with a flagship at Scottsdale Fashion Square to be followed by a second Shack in Uptown Phoenix opening later this week. Next week, if you're in LA, we'll be opening our first Shack in California in the heart of West Hollywood.

If anyone is driven by the area, you may have noticed the public RPs we commissioned by Danish artist Thomas Dambo, which we name the Happy Wall. Passersby can interact with the Wall and create inspiring messages for the neighborhood. It has been so fun to watch our new community come to life and experience the Shack even before we open.

And in two Shacks formed in January, we tuned up with some of our soon to be neighbors for a series of pop-up events to launch the brand and get the city excited on arrival.

We've very high hopes for our growth in California and have already announced our second LA area Shack in Glendale, the Americana at Brand as well as a third sight in Downtown LA slated for 2017.

Towards the end of the year, we'll expand deeper into Texas, with the addition of our first Shack in Dallas' thriving Uptown neighborhood with a freestanding glass box design in the center of a park at The Crescent.

And finally for new markets, we'll be opening in the Twin Cities' Mall of America deepening our roots in the Midwest following our successful launches in the Chicago area over the last 18 months.

We'll also be growing our presence in existing markets with exciting new Shacks in our own backyard in New York and Harold Square and Downtown and the Fulton Center Shack in Manhattan as well as in Queens, Long Island and other East Coast markets from Boston to DC.

We've got a great line of our Shacks coming this year and we're working towards a strong pipeline for 2017 to build at least 14 company operated shacks per year moving forward.

Internationally, we opened our first shack in Oman in February and intend to open at least six more international licensed shacks this year with great sights coming online in the Middle East, London, Japan and now South Korea.

We now also plan to open a new domestic licensed shack in Las Vegas' T-Mobile Arena, the fact that we're increasing our previously stated guidance on licensed shacks by one.

In December, announced plans to enter South Korea with a new license partner, the SPC Group, the same group that has successfully partnered with brands such as Duncan Donuts, Jamba Juice, Baskin Robbins and many others and also operates over 3,000 Paris baguette bakeries in South Korea.

We're aiming to open our first Shack in Seoul in late 2016 and our development agreements spans 25 total Shacks in Korea over the next 10 years. And before I hand the call back over to Jeff, I want to focus some attention on the way we're taking care of our team in the midst of rising minimum wage legislation affecting our industry.

Kicking off the New Year, we made a decision to increase the starting wage of all hourly team members in our company. The team members now start between $10.15 and $12 an hour and our team leaders and trainers now make between $12 and $15 an hour.

As a result, we fully expect to hire labor cost moving forward, which Jeff will discuss in more detail later.

We believe that paying our team well will drive more sales, help us attract and retain the best people, reduce turnover and provide the opportunity to advance our leaders to even stronger places in their carriers and we'll continue to take care of the talent and will lead our future, the people who work the hardest every day to take care of our guests, our suppliers, our communities and ultimately our shareholders.

With that update, I'll turn it back over to Jeff who will walk you through the numbers..

Thanks, Randy. I’m excited to share with all of you the results of our 13-week fourth quarter ended December 30, 2015. Total revenue, which includes Shack sales as well as licensing revenue, increased 46.8% to $51.1 million during the fourth quarter from $34.8 million in the fourth quarter last year.

Shack sales increased 49.2% to $49.3 million during the quarter versus $33.1 million in the year-ago period. This increase was driven by the addition of new domestic company operated shacks, robust sales of our mature shacks as well as our stronger than expected same-Shack sales growth.

For fiscal 2015, total revenue increased 60.8% to $190.6 million, compared to $118.5 million in the prior year. If you recall, in November we raised our total revenue guidance for the year to $189 million to $190 million and are pleased to have exceeded that range.

Same-Shack sales increased 11% on a calendar basis during the fourth quarter versus a 7.2% increase in the same quarter last year. This consisted of a 6.2% increase in traffic combined with a 4.8% increase in pricing mix.

Our strong growth in the fourth quarter was positively impacted by several factors, including heightened brand awareness, which has fueled our extraordinary growth this year as well as the strength of the brand geographically across new markets, our LTOs that ramped throughout the year continue to drive traffic, mix and price.

The roadside Shack was a success to the fourth quarter and roll-off of menus on January 14. Additionally, for mid November through the end of the year for the first time, we introduced a new LTO of three holiday shades, Gingerbread, Christmas Cookie and Chocolate Peppermint available at all domestic company-operated shacks.

This trio of shades added an exciting new offering and gave our guests just another reason to love Shade Shack during the holidays. Throughout Q4 we continue to benefit from an approximately 3% menu price increase that was taken in January of 2015.

While we lost that increase at the beginning of fiscal 2016, on December 26 we took an additional 1.5% menu price increase.

I want to remind everyone that while we do expect traffic to continue to be positive during 2016, we don't believe that the current numbers are sustainable in the long term and our anticipating same-Shack sales to be 2.5% to 3% for the full year fiscal 2016. Our comparable Shack base includes only those Shacks that are open for 24 months or longer.

The comparable Shack base in the fourth quarter of 2015 grew to include 21 Shacks compared to 13 Shacks in the fourth quarter of 2014. The 21 Shacks in the base for 2015, include Madison Square Park, which was only included in the comp base for the first week of Q4 that came out of the base in October and will come back until May of 2016.

As we continue to add shacks to the comp base, the impact of Manhattan locations continues to be diluted as well. In the fourth quarter, only six of the 21 shacks in the comp base were located in Manhattan, further demonstrating the strength of the brand outside of our home market.

Average weekly sales for domestic company operated Shacks increased 4.7% to $89,000 for the fourth quarter of 2015, from $85,000 in the same quarter last year, primarily driven by robust traffic trends, menu price increases, positive shifts in mix from menu innovation and solid performance across the Shack base.

As we step further into our existing markets and open more target volume shacks in the $2.8 million to $3.2 million range, we naturally continue to expect our average weekly sales over the long term to decline and while that is the long-term forecast for 2017 and beyond, for those Shacks that we're trying to open in 2016, we expect the first year AUVs to be at least $3.3 million.

Licensing revenue increased slightly to $1.7 million during the fourth quarter. Since the fourth quarter of last year, we opened eight internationally licensed Shacks of which six were opened during the fourth quarter.

Licensing revenue from these new shacks, was partially offset by lower revenue from Shacks in the Middle East and the negative impact of foreign exchange rate fluctuations. Now I would like to give some detail on our expenses for the quarter.

Food and paper costs, as a percentage of Shack sales was 29.3% in the fourth quarter, down 300 basis points in the prior year fourth quarter. Throughout 2015, we experienced tailwinds in our supply chain that have benefitted us on the cost of goods sold line.

This improvement was driven primarily by the previously mentioned menu price increases that we took in early 2015 that helped to offset higher beef cost, while lower dairy and other costs as well as certain supply chain enhancement led to better than expected margins during the quarter.

In the fourth quarter of 2015, we did see a decrease in the price of beef from the fourth quarter of 2014, but all in all we expect our food and paper cost to be flat for 2016 compared to 2015. We will continue to stand for something good by investing in high quality ingredients and making further supply chain improvements.

Labor and related expenses as a percentage of Shack sales were 25%, a reduction of 130 basis points compared to the prior year. It was primarily the result of leveraging better than expected Shack sales. While we’ve been able to leverage labor and related expenses in 2015, we don’t expect that to continue into 2016 for a couple of reasons.

First as we opened more target volume Shack, labor as a percentage of sales will naturally increase where it's historically been. Second and more importantly, we expect labor to increase due to the company wide increase in starting wages that Randy discussed earlier, which was implemented at the beginning of fiscal 2016.

We believe that these investments in the team will impact for labor line by 100 to 150 basis points compared to the prior year that will ultimately translate into higher revenue. Occupancy and related expenses as a percentage of Shack sales decreased 100 basis points to 8% versus the prior year driven by better than expected sales.

Shack level operating profit, a non-GAAP measure grew 88.1% to $13.9 million from $7.4 million last year, mostly due to the flow through of this capture on the higher Shack sales. As a percentage of Shack sales, Shack level operating margins increased approximately 590 basis points to 28.2% as we saw healthy flow through from the increased sales.

We're extremely proud of the robust results for our current base of Shack. I’m excited to reiterate our view on long term targets. Now with a year under our belt as a public company, we continue to outline to you the significant unit growth opportunities that Shake Shack has in front of us.

We maintained our long term outlook and our belief that target volume Shacks will be in the $2.8 million to $3.2 million range and Shack level operating profit margins will be in the 18% to 22% range. Our performances in 2015 clearly exceeded those metrics, which is also why we provided an update on how to think about 2016.

As we stated previously on the last quarter call, given the visibility in the pipeline for 2016 and the balance of growth in both new and existing markets, we believe that the Shacks we opened in 2016 are likely to produce average sales volumes and Shack level operating margins at the high end of our long-term ranges.

Therefore you can expect that our 2016 opens will average at least $3.3 million in annual revenue and achieve at least 22% Shack level operating profit margins.

Although 2016 is expected to be a strong class of Shacks, the majority of our pipeline for 2016 is weighted towards the back half of the year and as a result, we will not receive the full benefit from the increased sales volumes and operating margins for 2016 Shacks.

General and administrative expenses increased $1.7 million to $7.7 million during the fourth quarter from $6 million in the same quarter of 2014.

As a percentage of total revenue, G&A expenses decreased to 15% for the fourth quarter of 2015 from 17.2% in the fourth quarter of last year, which include the higher cost related to the preparation for our IPO. For 2016, we expect stock-based compensation expense to increase and remain high.

It is our intention to continue to use equity-based compensation to incentivize our team members to grow the business, which we believe will ultimately lead to increased profitability and this will lead to incremental expense for fiscal 2016.

Adjusted EBITDA, a non-GAAP measure, more than doubled to $9.9 million in the fourth quarter, compared to $4.8 million in the prior year period and as a percentage of total revenues, our adjusted EBITDA margins increased roughly 540 basis points to 19.3% for the fourth quarter.

We reported net income of $1.2 million or $0.07 per diluted share for the fourth quarter of 2015, compared to a net loss of $1.4 million or $0.05 per diluted unit for the same period last year.

On an adjusted pro-forma basis, which excludes non-recurring items, we also assume that all of the outstanding LLC interests have been exchanged for Class A common stock whereby we would no longer present a non-controlling interest, we earned $2.9 million or $0.08 per fully exchanged and diluted share, compared to a net loss of $300,000 or $0.01 per fully exchanged and diluted share in the fourth quarter last year.

Now let's move on to guidance. For fiscal 2016, we expect that total revenue will be between $237 million and $242 million. Of the 14 domestic company operated Shacks that we previously guided to, we were able to open… …the 14 domestic company-operating Shacks that we previously guided to, we were able to open one early on the last day of fiscal 2015.

We're on target to open the remaining 13 Shacks in 2016 with the majority of those schedules to open for to the back half of the year. Similar to the domestic front, we were able to pull forward two of the eight international licensed Shacks we previously reported. The remaining six internationally licensed Shacks are all on track to open in 2016.

Additionally, we now expect to open a new domestic licensed Shack in Las Vegas' T-mobile arena effectively increasing our previously reported guidance by one Shack.

Because of the number of flagship 2016 openings in new markets, we expect the average sales volume toward the class of 2016 to be at least $3.3 million and Shack level operating profit margins for those Shacks to be at least 22%. Our long-term guidance remains at $2.8 million to $3.2 million and 18% to 22%.

We will be comping against double-digit same-Shack sales increases and therefore we expect 2016 same-Shack sales growth of 2.5% to 3%, which consist of a 1.5% menu price increase that was taken the last week of December and nominal traffic and mix increases. Additionally, we're providing the following supplemental guidance for fiscal 2016.

As a percentage of Shack sales, we expect deleveraging labor and related expenses of approximately 100 to 150 basis points on a year-over-year basis and lastly we expect our adjusted pro forma effective income tax rate to between 43% and 44%.

Hopefully, this has given you greater insight into our performance and what lies ahead for us at Shake Shack and with that, I would like to turn it back over to Randy to make some final comments..

Thanks Jeff. Before we open the call to questions, I want to take a moment and reflect on how far we’ve gone in our first year as a public company. We head in fiscal 2014 with 63 Shack system-wide. At the end of '15 we had 84, a 33% increase. Same-Shack sales increased 13.3% in 2015.

2014, our total revenue was $118.5 million and we closed 2015 at $190.6 million, a 61% increase. Shack level operating profit, a non-GAAP measure increased 97% to $52.9 million. Adjusted EBITDA for fiscal '14 was $18.9 million and we ended 2015 at $41.1 million, a 118% increase.

Adjusted pro forma net income increased to $12 million or $0.32 per fully exchanged and diluted share. At the end of 2014, we imported over 1,600 team members and today we lead more than 2,300.

We had 141,000 followers on Instagram at the end of '14 and today we have over 250,000 a number rarely seen by companies our size, which just further demonstrates the level of engagement we have with our guests.

Jeff and I want to sincerely thank and applaud our team for making our first year as a public company a remarkable one, a one that has set expectation high for us going forward. I want to thank all of our guests who continue to visit us in record numbers and support what we do every day stand for something good.

This is what thoughtful, crafted, considered growth looks like and it’s what you can count on from us moving forward. And with that I want to thank all of you for taking the time to join the call and operator you can go ahead and open the line for questions..

Thank you. [Operator Instructions] And our first question comes from Sharon Zackfia with William Blair..

Hey good afternoon. Jeff or Randy, just a few questions, I guess it sounds like in the guidance you’re not assuming any mix uplift from the Chicken Shack. You mentioned nominal mix or traffic. I just wanted to confirm that.

And then the 2.5% to 3% comp guidance for the year, have you seen comps come down that much already in the first quarter?.

So we're not getting into mid quarter guidance. We're talking about our own next earnings call Sharon, but we have had a great start to the first quarter. It’s hard to say what Chicken will mean right. It's only been six, seven weeks. So what we don’t want to do is give guidance too early on that item.

We’re excited again it’s been tremendously well received. It’s been a top five selling item nearly all Shacks that have launched it.

So we have high hopes for it and in our roughly 2% comp guidance for the year that's just some very strong comp guidance and we only have 1.5% price running through the system and on a two-year basis, based on the four quarters of double-digit comp growth and some in the mid teens that we saw last year.

We want to be conservative as we always have been since this began. We've been conservative on our guidance with comp and we're looking at whole year comp year.

so we're going to remain conservative at this stage and we'll certainly let you know as we see more into the system with what chicken means for mix once the excitement of it being a new item sort of turns itself into a normal operating time..

Great. Thank you..

Thank you. Our next question comes from John Ivanhoe with JPMorgan..

Hi great. Thank you. Obviously you guys report 24-month comps and Jeff you mentioned a few times that the 2016 openings wouldn't influence your 2016 revenues very much based on the timing.

So the question is how the 2014 and 2015 classes come in because it does look like in our model, but it's well in excess of that 2.8 to 3.2 or 3.3 kind of number that you're talking about with '16 that you really have a pretty big tailwind from your '14 to '15 class if you could comment on that..

Yes John, the '14 to '15 are both very good classes and '15 in particular really outperformed where we thought it would reach, which is why we increased our guidance for the 2016 opening. And we've just continued to see the leverage with same-Shack sales and seeing that operating profit come up.

So -- and we know exactly where the shacks are going to be in 2016 as well as John exactly where it was three quarters and beyond where the ultimate revenues we put in which is really why we expect that to be a little bit higher, I think high into the range from what we earlier stated..

And John, just to be clear, the 10 Shacks that will come in the base this year all right. so there was 10 that opened in 2014 and majority of those are more towards the end of the year, so you don't have a couple coming in, in Q2 and then you have eight out of those 10 come in, in Q3 and Q4.

So the impact of that will be more towards the end of the year, but that was a good class of restaurants. Obviously as we've said that 2015 class, no question the existing restaurant base of 45 shacks that the company operated in this company is stronger than the $2.8 million to $3.2 million.

We've said that quite a bit and we expect 2016 to be stronger, but as we look at long-term, we're going to continue to guide towards.

There is a lot of good shacks out there that when we look at our $1,000 square foot model over the long term and our $3 million average 20% off profit towards the long term and future, we're really excited about that future..

Understood. And if I may just looking at the '16 openings, I think you used the word flagship to describe Scottsdale, Mall of America, the unit in Crescent Court in Dallas, obviously Herald Square, the West Hollywood you can just go down the list. It seems like a lot of these units are going to be significantly above your targeted range.

So do you really have confidence, it's a weird way to ask the question, do you really have confidence that some of your openings are going to be significantly below the average..

Although it will probably stronger or below, we'll see how it shapes out. It's hard to say. Remember our base is so small John that we will continue to guide you conservative until we know more. Yes, we have a fantastic class for '16. There are some fantastic throughout the country flagships that should be well above the average.

And we know that somewhere below we'll have some that are probably right at the average as about two thirds of that class of '15 falls in existing markets like DC, like Boston and that is a really solid plan for 2015 and beyond..

Okay. Understood. Thank you..

Thank you. Our next question comes from Jeffrey Bernstein with Barclays..

Great. Thank you very much. Couple of questions. Just one following up on the comp conversation with still only I guess 20 years or so units in that base.

Just wondering whether you can give any color in terms of the divergence of the comp among those whether there is any common threat among the best or the worst or whether there is any geographic divergence or weather maybe came into play or Chipotle's weakness and any kind of color on any of those metrics specifically to the fourth quarter..

Well, if you look at the fourth quarter, we had 11% comp. That's a pretty strong comp for any company. So we're really proud of that. It was very balanced -- very balanced across the nation. We continue to share with everybody of the 21 shacks in the base, six for Manhattan.

So the narrative of this being a New York based story or comp story is just completely inaccurate at this stage. So this is a well balanced comp base though it is very small. So hard to say whether we had an uptick to your question about your [indiscernible].

Really hard to say, but we had strength and I think the weather has been pretty balanced for all the great weather we've had. We've had some blizzard in Q1 and that took out some days, but that's in balance by some great weather days too. So we don't generally talk to weather too much. I think it’s just been normal on balance for that comp base.

But short answer, the comp base is performing strong across regions..

Got it. And then just in terms of restaurant margin outlook for '16, I think you now mentioned food basket flat. So that seems like it’s come in a little bit from what you previously mentioned, so maybe we get some leverage there. But then obviously you’ve quantified now the labor deleverage and I think we’ve turned up at a point we have of price.

So I’m just wondering directionally what you think of your outlook on margin in '16, again I guess that’s assuming the comps and the guidance range of 2.5% to 3% or I just want to look at it in a different way kind of what comp would you need to lead the flat restaurant margin in the current environment?.

Yeah, Jeff so I haven’t given total Shack level operating profit guidance in terms of what it means for the total company. We're really talking more about the cost of the restaurants and what we're going to hope in this year and then we expect those to be little bit higher than what our average is.

We talked about on these calls that we expect Shack level operating profit over time to deleverage a little bit and specifically talking about cost of goods sold too, we are coming out now and saying we thought it would be flat, I think in last call we thought flat or slightly up.

The reason even though we have some wins in a lot of other places, we're going into 40 markets. We're continuing to buy high quality ingredients stand for something good and that’s really going to offset some of what we gained in feed.

So, what it's going to do for the overall consolidated restaurant margin? If you look at it where it is today, probably going to take a little bit of a hit and we've said that, just because of those target volume Shacks that are coming into the base..

And Jeff if you look at it, we're up almost 600 basis points year-over-year on Shack level out profit. We've had an extraordinary year and extraordinary fourth quarter and we expect that to be extraordinary.

But we would rather focus on driving sales, driving long-term future by making that commitment to our team, our culture and the strength of the people that we hire then focusing on only a percentage of sales when it comes to labor. We want to have amazing people taking care of our guests day in and day out. That will drive the long-term.

That will drive our culture and that's what separates Shake Shack from what else is happening in our industry..

Understood. And then just lastly to clarify, I think you mentioned that U.S. unit openings, we're talking about at least 13. I know you mentioned more backend weighted.

Any color in terms of openings by quarter or should we sounds like we’re talking about 8%, 9%, 10% or 8, 9 or 10 units in the back half of the year?.

Yes, it’s going to be about just slight majority of the '14. It will probably right around there. Hard to say, but yes, we’re probably right about 8 of the 14, we in the first quarter as we said, we got Scottsdale opened, we -- Queens Center opened in the last day of last year.

So if we count that, we’re going to open in Phoenix this week, later this week, and LA will open next week. So that should give us the full third quarter tubular lighter and then it will ramp up in three and four..

Understood. Thank you..

Thanks. Your next question comes from Andy Barish with Jefferies..

Hey guys.

I wanted to actually dive in on the cost side a little bit more in terms of the four new markets and where that shows up primarily? Is it restaurant level margin inefficiencies as well as G&A or are we already seeing kind of the infrastructure already reflected in your G&A numbers?.

Well talking about restaurant margins for a second, generally when we open in a new market like California right, we’re going to have increased cost on the COGS line and what happened this year with our change in payroll, take a market like California, we start everybody at $12 an hour right.

So we expect that restaurant to do a bit higher on the payroll line as well. So generally new restaurants open that way. This is why our development strategy is one third in new markets, two thirds because as we fill in we start to strengthen our supply chain.

We start to strengthen everything and towards the G&A, yes we got a lot of money committed in marketing and G&A level ops oversight to a new market like Phoenix, like LA.

So we don’t want to see some short term pressure on that, which is why we’re guided here for this year and then as we've seen results that -- the tremendous results we had all for 2015 as we start to cluster those results generally improve. And as our basic figure, the impact on new markets, higher COGS will be muted a bit..

And Andy just to elaborate on that as we have adding directors too, geographically depends on where we are. We might be in a situation where maybe an area director going, can only have two restaurants because that's just the way it works out geographically.

So you might see a little bit of a spike in G&A because of that, but then as we continue to fill in those markets and we're able to geographically just as very directors in a better position then you'll see that start to tick down a little bit.

But there is pressure on G&A a little bit as we open in new markets as well as the restaurant operating margin line [indiscernible]..

And the development team has done just fantastic work on this. If you look at Scottsdale Phoenix area, we're going to open three restaurants this year, whereas in years past, it's typically longer to get -- hit the market right. So we're going to recruit some of those efficiencies sooner now.

In Los Angeles what should be a real big market for us, we've already announced three restaurants and we've got our eyes on quite a bit more. So we're really excited about how quickly we can grow into that, but in '16 we're cautious on what it takes to get that market open the right way..

Okay.

That's helpful and then just on international travel with the dollar strength, have you seen any pockets in New York or other regions where maybe tourism is down? I know some other higher end restaurants have sighted some of that, but wondering if you're seeing any of that?.

We've not even in our home market, even with the dollar where it is, New York City is a super strong tourist market continue setting record, setting numbers here. So we've not seen a lot of that, but as we did say in international, where obviously it's slightly down because of the strength of the dollar.

So it affects us in different ways overseas, but generally no. We've not seen any pressure here at home. Very few of our Shake Shacks are tourist related. There are a few certainly, but the reality is really that counts neighborhood gathering price short of a few particular locations that are more tourist centered..

Thank you..

Thank you. Our next question comes from John Glass with Morgan Stanley..

Thank you very much.

Can you Jeff maybe just help on the labor quantify that in dollars given that you're making a comp assumption so that the basis points may change or comps come out or maybe talk about what portion of the labor line is influenced by the change in the hourly wages that have two thirds of that line that's actually getting the raise?.

Its most of it John. The 100 Bps to 150 Bps that we talked about is mostly in the hourly labor line.

Now if you kind of look at it and you say can a restaurant $10.50 to $12 and you do the math and you might say, our work type is more than that, we've offset in other areas that with certain bonuses that were used to pay out related to attendance and some other things that we are no longer doing.

So when you net the higher hourly pay against some of the other bonuses and some of the other programs we had in place at the Shack level, that's where we get the 100 Bps to 150 Bps of the increase over prior year..

And John it's so important to think about it for us exact dollars or couldn’t answer that exactly right now, but generally the average employee move between starting in pay depending on where you work in Shake Shack starting at $9.50 or $11 an hour depending on the market.

That team now makes $10.50 to $12 and throughout the organization, that goes up. We have seen that the early progress is very hard to say what does it mean over the long term, but we've seen early progress on retention and turnover and Jeff even stronger people.

So that's where we're committed to, that's where we think drives the kind of results that we've posted in this company in the last year and that to us is the commitment we want to make to our team, to our culture that we have no question that will pay off in the long term..

And we get into Q1 and Q2, we might update that John. So we have no problem updating in our guidance. Remember we're only six weeks into that and during the time when there is coverage, so it really slows them up for our fast casual restaurants in January and February.

So as we started in some of the amount of sales volumes, we're going to have more insight into exactly what it means. Right now we believe 100 Bps to 150 Bps is a really good range to put out there for you all, but as we get further into the year, I will update that for you..

And just other line items G&A, is there any way you can help us think about G&A, and as a component of that, I guess you said stock-based comp was going to go up a lot.

I think was it $4 million this past year? What's the order of magnitude you think that will increase by in '16?.

Stock-based comp annually is about $5 million related to the IPO grant.

Now as we get into 2016 with our intention to operate more equity incentive opportunities for our employees whether stock options or some other equity vehicle, that's something we want to do and that’s going to put a little bit more pressure on G&A as well on top of the $5 million annual charge that we have from the IPO grant.

I haven’t quantified that yet. Certainly will not be another $5 million a year, but it will put added pressure on G&A line. So there is a percentage of sales. We expect a little bit small amount of leverage on outlines as we move forward.

Nothing significant or major on G&A, but I do expect that as we add 14 Shacks that, that will leverage slightly as a percentage of sales..

Last one.

You opened one in an outlet mall, you talked about was very common, is that the kind of -- is that -- did you experience the above -- the $2.8 to $3.2 million in that kind of location as well, that could inspire you to think about other location? How did that perform related to your expectations may be versus that range?.

Well, saying off the exact sales, it's been little surprise for us, and as I said in my notes it’s the kind of thing that just when we wake up every day Shake Shack never seems to surprise us when we opened in an outlet mall, we weren’t sure what the volume would be, what the take would be, how it would fit.

It has been incredible and we're really, really excited about what that unit looks like for Shake Shack and what it means for the potential of opening up a whole series of that type of real estate that we hadn’t imagined before. So, very pleased in the early going here at the one outlet that we have..

Thank you..

Thank you. We move next Jake Bartlett with SunTrust..

Great. Thanks for taking the questions.

I have some detail on the comp guidance, first off was the Madison Square Park not being in the comp guidance or in the comp for until make, can you remind us what the implications are what impact that has on comp?.

So the Madison Square Park came out in the base up until the first week of October. So it was there for just one week, very short period of timing in Q4. And we made out until middle of May. It was just before Memorial Day when that restaurant reopened in 2015. So that’s when it will come back in the base. So late in Q2..

Right.

I believe when it came back into the comp base it was help, do you expect it to be a drag not having that location in the comp base for the first five months?.

Quite honestly Jake, now there is 21 Shacks in the base and I don’t expect that one restaurant coming in or out is really going to move the needle materially on our comp. When we first started happening and it will only have like 13 restaurants in the Bay. So it was a much bigger piece of the comp. So that’s what we talked about a lot.

But the further we get in time the less that that's where we're going to have an impact. So I wouldn’t really consider that that's going to have a material impact on our comp when it comes back in..

And Jake in Q4 with 11% comp that's a great number and it was only in for one of the 13 weeks of that quarter. So you can see where that is on..

Got it. Got it. And then I did look back in the last first quarter call, you did talk about some adverse weather, any benefit from rolling over that? I think it was you mentioned it was offset by just the interest around from the IPO, but any comment on whether maybe going a little more detail on the fourth quarter but also in the first quarter here..

Yes we generally don’t use weather one way or another. I will say we had quite a few closes during the blizzard that range all the way from DC to Boston, but that's -- again that's been balanced as I said with some really good weather as of late.

So I think as we look at Q4 and into the Northeast anybody who has tried to ski the season in Northeast, it's been pretty long and there has been lot of snow. So that's has been generally pretty balanced. I think you should not imagine that that's going to be a factor for us for Q1..

Great. And then perhaps the last question the Chicken Shack, what was your experience in terms of Shack? It is a higher priced item.

I would thinking it was some Shack, but what was your experience in the three Brooklyn locations where you tested it?.

Without getting into details of those three because I think those three act differently for different reasons. So let us get back to you on that when we have more data. It's just so young yet across the system. It’s only been six, seven weeks and it’s just hard to say.

Again as I said in my notes, we generally believe Chicken Shacks to be accretive to everything that we do in terms of sales, traffic, average Shack and hopefully over the long term food cost should be a good thing for us there. Most importantly people love it. It spreads out our protein risk that previously was really just beef and it’s selling.

So we're excited about the reaction that we’ve gotten thus far..

Great. Thank you very much..

Thank you. Your next question comes from Paul Westra with Stifel..

Great. Thank you. Good afternoon. Just a couple more questions for me.

How should we think about, your comp guidance for the year? Should that change dramatically as we go through the year and obviously commentary on how you see or visualize the -- how hard the laps should be as you get in the second half of this year given at least the one year comparisons they're a lot difficult.

I know it's a lot more closer with difficult lapse on a two-year stack base?.

Well the reason for the 2.5% to 3% comp was as we get into Q2 where comp against 12.9% as we get into Q3 were comp again 17.1% and those are really big numbers and again that’s the number we'll update.

As we get into May we're two month into the year and as Randy said, we're pleased where sales have been for those first two months, but with only one sixth a year done, it’s too early for us to update that guidance and we will when we feel that it's prudent to do so Paul, but right now its 2.5% to 3%.

And it’s going to be really interesting to see what happens as we go into Q2 and go against that 12.9%. Even if we have a 3.5%, I am sorry, 2.5% comp like we talked about 15.5 % two year stack which is pretty good..

And Paul, I know we'll say this every time and I know we’ll keep talking about comps, but we had at our young stage in our small base I’m just going to continue to remind people of the Shake Shacks story because if you look at our AV, if you look at our average weekly sales, you look at the kind of sites we choose and the way that we enter a market, it’s just different and its special and there aren’t a whole lot of people selling $5 hamburgers that are doing, what we are doing.

And I think we’ve got to remember to focus on that, rather than only the comp conversation. That said we'll be happy to keep talking about comp and as you guys asked..

Great. Thanks and then one more on -- you mentioned this new store margin in the first year to be over 22% which is obviously great number. Is the year ago and the first year stores significant change in that guidance.

I know you're going to get a reasonably good boost on the overall margin number because of the year-over-year improvement in the first year margin performance?.

We've seen about 5% -- obviously about a 5% decline in year two from year one sales. Some Shacks are higher than that and some Shacks are lower than that, but our numbers indicate that a good average is about a 5% decline in year two. So, I wouldn’t necessarily say that the margin significantly improves in year two. We normalize pretty quickly.

Shake Shack, when you look at some brands that take some several months to normalize their numbers, but at Shake Shack we normalize pretty quickly within the second to third operating month is really where we see the margins where we think they're going to end up long term.

So we don’t see any significant drop necessarily in year two and a significant increase in year two. It remains pretty steady..

Great. Thanks..

Thank you. Your next question comes from Andrew Charles with Cowen..

Great. Thank you. Appreciate all the detail around the labor outlook.

What's the expected wage inflation for next year versus what it was versus the fourth quarter and 2015 as a whole?.

Well, the whole as a percentage of sales as we've said is between 100 to 150 points of pressure. So the general average wage that we're paying out hourly employees has gone up roughly 15%, but that doesn’t make up every bit of our payroll. So that's just one piece of it..

And I think we're Andrew say ahead of wage inflation by $10 to $12 an hour over minimum wages and staying ahead of that benchmark I believe..

Okay. And just another question just from the other operating expenses in that quarter is a little bit heavier than the expected. You didn’t get much leverage as expected just given the 11% comp that you did.

So just curious you brought sales leverage helping that a little bit, were there any anyone items that will go get it?.

That’s not at the top of my head Andrew. It comes to me naturally I just show that for the quarter, our other operating expenses were 9.6% this year compared to 10.1% last year..

Right. I understand that you've levered it, but just a degree of the 11.4% comp I guess that would have thought would have reporting net of this..

We’re pretty happy with the leverage that we did give. There's nothing again that sticks out in my head. What happens with our leverage that is I don’t have anything specific to report on that..

Fair enough. Thank you..

Thank you. Our next question comes from Karen Holthouse with Goldman Sachs..

Hi thanks for taking the question.

Just a question on '15 unit growth, just curious was the talk more let’s hope for almost on traditional occasions during like an outlet mall, what was the range of square footage for stores opened in 2015? Just curious how small -- how small have you been able to engineer it now?.

Yes, Karen actually we -- generally the lowest we’ve gone is in high 2.000. So call it that 2,800 square feet and then we’ve gone as large as probably about 4,500. Some of those overseas shacks are sometimes even bigger in the Middle East where they really ramp up to big sizes.

But generally -- generally the Shake Shack is about 3,000 square feet plus some outdoor seating. That's what we shoot for. So I think what you're getting at, we're seeing some really good success in our small amount of shacks.

Uniquely in JFK where we have a dining room in one of our two Shacks, in Grand Central Terminal, where we have a very small footprint under 3,000 square feet. And even in Baltimore, Maryland, we've seen a smaller unit as well as pricing this corner.

So that’s why we get so excited when it works so well at these smaller footprints that just further opens up the window of opportunities and when it works so well in these different formats wide outlet, wide train station, like mall or pads sight near mall, we've really been hitting on all cylinders and we’re going to keep doing that, right.

We’re so early where we’re at. We want to diversify the way that we bring Shake Shack to market and again as we see them working in everyone we try. So we’re going to keep mixing it up..

Thank you..

Thank you. We have our next question from Alton Stump with Longbow Research..

Hey guys, it’s actually Brittany Whitman on for Alton this afternoon. I wanted to ask about the comp performance and I’m not sure if you guys broke this out already. I might have missed it.

But did you break that up between transaction or guest count and ticket and if there is any pricing built into that ticket number?.

We booked -- 11% was 6.2% traffic and 4.8% price and mix and there is a 3% price in that fourth quarter number that rolled out at the end of the year..

Okay. Great. Helpful. And then just lastly on the competitive environment, I know some of these major QSRs have been doing some pretty heavy promotions over the last couple of months.

Have you guys had any impact from that or any color you can provide, any commentary?.

We’ve not seen an impact at all. Look when Shake Shack was created, it was created for people who say, I don’t really eat food anymore, but I still love a great hamburger and I want to do it in a cool environment with ingredients that I can count on.

That's what Shake Shack was born to do and we firmly believe people are more than willing to pay just a little bit more to come to the experience that is Shake Shack and we’re not seeing any impact from that deep discounting. I think it’s been part of the fast food culture forever in various forms and we have no intentions to enter that, that way..

Yes, absolutely. Okay. That's great. Thanks guys..

Thank you..

Thank you. And that concludes today's question-and-answer session. Mr. Garutti, at this time, I will turn the conference back to you for any additional or closing remarks..

Thanks everyone for taking the time with us. We’re really proud of our team in this incredible first year and we've never been more excited about what we’re looking at for 2016 and beyond. So stick with us and we look forward to updating you on our next call. Take care..

This does conclude today’s presentation. We thank you for your participation..