Josh Omin - Vice President of Finance and Investor Relations Randall Garutti - President and Chief Executive Officer Tara Comonte - Executive Vice President and Chief Financial Officer.

Jake Bartlett - SunTrust Bank Andrew Charles - Cowen & Company Zackfia - William Blair John Glass - Morgan Stanley.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Shack Shack Third Quarter 2017 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. And the lines will be open for your questions following the presentation. Please note that this conference is being recorded today, November 1, 2017.

On the call today we have Randy Garutti, Chief Executive Officer; Tara Comonte, Chief Financial Officer; and Josh Omin, Vice President of Finance and Investor Relations. And now, I'd like to turn the conference over to Mr. Josh Omin..

Thank you, operator, and good evening to everyone. By now, you should all have access to our third quarter 2017 earnings release, which can be found at investor.Shackshack.com in the financial info section.

Additionally, this quarter we have posted supplemental third quarter earnings slides, which can be found in the events and presentation section on our site or has an exhibit to our 8-K for the quarter. 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 place 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 in the Risk Factors section of our Annual Report on Form 10-K, which was filed on March 13, 2017.

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 also 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 and the appendix of the aforementioned supplemental materials. Now I'd like to turn the call over to Randy..

Thank you, Josh, and good evening to everyone on the call today. During the third quarter, we delivered robust growth and profitability. The total revenue increasing 27% to 94.6 million and adjusted EBITDA growth of 20% to 18.2 million, compared to the third quarter of 2016.

As 2018 comes into view, our focus remains on executing against those key cores of our strategy that will continue to fuel global growth. The Shack Shack experience in today's world of convenience is a key component of the overall growth strategy.

I'm excited today to share with you some of the technology initiatives we launched to date and talk about those still to come. We're actively testing throughput enhancement initiatives with kitchen design in most new and existing Shacks. Our marketing team is working towards the future of ever increasing personalization and connection with our guests.

Our menu innovation team continues to experiment and innovate on the culinary side of our business driving excitement this year and beyond.

Our development and design team is delivering an accelerated pace of unit openings, while continuing to secure premium sites due to the strength of our brand, at the same time designing some of the most dynamic community gathering places we've ever built.

In this rapidly evolving consumer environment, I'm prouder than ever of our teams, as they remain nimble and innovative, delivering the best of the Shack experience to our guests and communities regardless of the challenge. In the third quarter, we opened four domestic company-operated Shacks and five licensed Shacks.

For the full year of 2017, we're now increasing our guidance and to expect to open a minimum of 24 Shacks. There is a possibility we could open up to 26 Shacks if construction permitting are favorable. If we do though, those Shacks will likely open just before the year end.

Due to strong performance from our international pipeline including three Shacks that was opened in the last week, we're raising our guidance now to 18 net licensed Shacks, an increase of from our previous guidance of 15 net.

These levels equate to expected full year total company-operated unit growth of approximately 38% to 41% and total licensed unit growth of 36% compared to last year.

Our opportunities to continue expanding both domestically and internationally remain compelling, fueling our confidence to continue a pace of high quality unit, revenue and profit growth. For the third quarter we reported same-Shack sales decline of 1.6%, an improvement from the first half of 2017.

As a remainder, our comp base includes only 39 or roughly half the total number of company-operated Shacks.

We're pleased with both our top and bottom line growth in the third quarter despite the negative impact of Shack closures caused by two major hurricanes, which mean hurricane Harvey which made landfall in late August, followed by hurricane Irma in early September, we temporarily closed nine Shacks, one in Texas, six in Florida and two in Georgia, for a total loss of 33 operating days.

We estimate approximately $300,000 in lost sales in the third quarter as a result of these correlatives. Taking care of our teams is always our priority and we decided to pay our team members for estimated hours that they would have otherwise worked during these correlatives. Most importantly, all of our team members are safe.

Thankfully, none of our Shacks sustained physical damage. During the time of crisis we're really proud of our teams in Houston and throughout Florida, who stepped up to feed their communities and move mountains to reopen as quickly as possible. Their leadership was exemplary and should be commended.

I'll get back to results and our overall strategy for growth, beginning with licensing. We continue to focus on key partnerships both domestically and abroad as a channel for robust revenue growth.

Partnering with premier companies globally to enhance that laid model is proving to be a highly effective roof for continued profitable expansion of our international business. In the third quarter, we opened our fifth Shack in Seoul with South Korea continuing to deliver strong performance.

We also added our fourth Shack in Japan in Shinjuku and subsequent to the quarter we added our fifth in Yokohama. Yokohama represents our first location outside of Tokyo that we build upon our success in the region and further leveraged the strength of the brand. We remain modest on the long term growth opportunity for Shack Shack in Asia.

During the third quarter we announced our plan to enter Hong Kong, Macau and now Shanghai, through a new partnership with Maxim's Caterers. Our development agreement plans were 14 Shacks in Hong Kong and Macau over the next 10 years and starting in 2019, we'll extend that to Shanghai to open an additional 25 Shacks through 2028.

Maxim is the partner responsible for bringing Starbucks enthusiastic back into the region. We're confident they'll be a tremendous partner for us in this significant expansion opportunity. On our domestic licensing front, during the quarter we opened our first football stadium Shack at M&T Park in Baltimore.

However, it's important to understand that this Shack is only open for a limited number of events during the year who really love the brand and the opportunity of football. We're also through the early roads of our Shack in the LAX Airport and we're proud to announce that we've also won a bid to operate in Atlanta in Terminal A.

We expect to open that Shack in 2018. During the third quarter we opened four new domestic company-operated Shacks, bringing our third quarter year-do-date openings to 15.

We entered the new market of San Antonio and further increased our footprint in Las Vegas in the suburb of Henderson, also opened in Livingston, New Jersey and New York City at Morningside Heights.

Following the quarter end, we opened in Preston Royal Village, in Dallas, furthering our penetration into Texas now with a total of eight Shacks in the state. We also opened our seventh Shack in Washington DC and expanded our Southern California footprint, opening in San Diego in UTC.

We also added our second Shack in Michigan in the suburb of Troy just last week. And finally we opened up in Astor Place in New York City, launching a number of exciting new initiatives I'll talk about in a little bit.

In the next week, we'll open up in El Segundo in the south bay of LA and another three to five Shacks for the balance of the year, firmly scheduled to open in December, including the new markets of Milwaukee and Danny Meyer's home town St. Louis.

Looking forward to 2018, we're stepping up our development plans for our biggest year of unit openings to date. We're currently targeting 32 to 35 new domestic company-operated Shacks in 2018, which will represent year-over-year unit growth of between 36% and 40%.

Our development strategy remains a balance between further penetration of existing markets and expansion into new markets, with approximately 20% of Shacks next year is expected in new markets.

In addition, in diversified locations our openings in 2018 will be multi format, roughly one third across urban locations, one third free standing pad type sites and the remainder in premier shopping and lifestyle centers around the country.

We're really excited about 2018 and will be launching in a number of great new market, Cleveland, Charlotte, Denver, Dan Island and Seattle to name just a few.

As premier real estate opportunities become available and our capacity scale continues to increase, we're confident in our ability to accelerate the number of new Shack openings year-after-year.

We talked to you previously about the importance of technology in our ongoing growth strategy, in terms of better connecting with our guests as well as meeting their expectation in an always on roll, where we bring more convenience than ever to the Shack Shack experience.

We continue to innovate and learn through our ever increasing use of technology, demonstrated well in one of our most recent openings in Astor Place, New York City. This Shack is a representation of our relentless focus on excellence, experience and hospitality through innovation.

Here we're going to introduce a number of new concepts through our test and learn as we consider broader rollouts in the future. Here we've launched kiosk-only order, a cashless environment and optimized split kitchen for greater throughput.

Each of these also lend themselves well to a future where we expect an increasing proportion of our business to be conducted by this Shack app as well as through delivery channels.

We also made a decision here to start our team members at $15 per hour at this location as we continue to take care of our teams first, while evolving our business model for the very real pressures of increased minimum wage that will set us into 2018 and beyond.

While doing that a few weeks, we're listening or learning and we're encouraged by the early positive guest response from the Shack. Continuing with digital evolution of Shack Shack, we're pleased with the increasing levels of guest engagement and traffic to our app. Additionally, our average check via the app remains higher than in Shack.

We're seeing encouraging return rates from our app users and while still early days for us, we believe the Shack app is a really important tool for us to deepen our connection with our guests with a strategic push towards more personalized marketing initiatives to drive greater frequency and spend.

Another evolving part of our business is delivery, as we've mentioned in prior calls, we've chosen the first test and learn. We continue to listen to those guests who prefer Shacks brought to them. And in September and October, we were proud to partner and run integrated pilots with our friends at both DoorDash and Caviar.

So at this point what do we know? We know there is great demand for Shack Shack to be delivered. And we know that when we choose to do delivery, we want to do it really well.

During these pilots we tested some new packaging's and additionally learned about our various Shacks ability to handle delivery at peak times as well as our partners and the importance of integration from a systems perspective.

In terms of where we ultimate go with delivery, anything we choose to build will be with long-term sustainable economics in order to create a strong and healthy business. For now, you'll continue to see us approach this area of our business thoughtfully and strategically and we'll keep you up to date as our plans evolve.

Another core strategic pillar for driving guest satisfaction in Shack sales in menu innovation, during the quarter we launched the Hot Chick'n LTO and are really pleased with the results as we continue to test chicken as an expanded menu category, also just beginning few days ago and available initially only via Shack app.

We're currently leading with chili, burgers, dogs and fries, a hardy option for our guests as the temperatures start to cool down. I really encourage all to go try some chili. As always, we got a lot of fun and creative product innovation and LTOs in the pipeline, look forward to sharing more when the time comes.

Finally, to support both our industry leading and innovation and our continued growth in the spring of '18, we're going to move our corporate office not too far from our current location in Manhattan.

One of the many benefits of our new office will be a dedicated innovation center for menu creation, kitchen design and leadership development and training, as we continue to invest in the strength of our teams and our menu offerings.

In addition, the new office would give us the much needed space for home office teams to support our ongoing growth plans next year and beyond. We'll start to feel the heat once we're in. With that, I'll turn it over to Tara, who'll take you through the numbers. Tara Comonte Thanks, Randy.

So before we get into the numbers, I would like to take the opportunity to follow up on something I touched on in our last quarter. We believe it's important to share whatever additional information will best help you assess and understand our performance both today and going forward.

As a result, in conjunction with today's earnings enhancement, we also released a supplemental earnings presentation, which as Josh mentioned can we found in the events and presentation section of the investor relations part of our website.

As I talk to some of our numbers, I'll refer to some of the data we provided and hope that it provides additional clarity to help you further understand our underlying results and the strength of the long-term Shack Shack opportunity. So the results of our 13 weeks third quarter ended the 27 September, 2017.

Total revenue which increased the first sales from company-operated Shacks as well as licensing revenue increased 27% to 94.6 million. Sales from our company-operated Shacks increased 27% to 91.1 million, largely due to addition of 21 new domestic company-operated shacks since the third quarter of 2015.

Same-Shack sales decreased 1.6% during the third quarter, less than 2.9% increase in the same quarter in the prior year and consisted of 3.8% decrease in traffic partially offset by 2.2% increase in price and mix. As a remainder, our comparable Shack base includes only 39 or roughly half the total number of company-operated Shacks.

Furthermore, through the third quarter and as illustrated on Slide 6, 42% of our year-to-date comparable Shack based sales resides in New York City and as such small clings in this market can have an outside influence on the overall comp base.

Average weekly sales for domestic company-operated Shacks were $91,000 for the third quarter of 2017; it's a decrease to the prior quarter resulting primarily from the addition of newer Shacks and various unit volumes to the system.

It's important to recognize the impact that these newer Shacks will have on the overall company operation now and overtime, while we continue to grow overall revenue in absolute terms.

Licensing revenue increased 30% to 3.5 million during the third quarter from 2.7 million a year ago, driven by a net increase of 17 Shacks since the third quarter of last year of which four were in South Korea. We remain cautious in our outlook in the Middle East due to ongoing macroeconomic and geopolitical volatility.

Meanwhile our business in Asia both in South Korea and Japan remains very strong. We're optimistic for the future in Asia, as we continue to expand deeper into the region, Hong Kong, Macau and Shanghai, coming into the system in 2018 and '19 respectively.

Moving on to expenses for the quarter, food and paper cost as a percentage of Shack sales decreased slightly to 28.3%, compared to 28.4% from the prior year.

Looking forward to the fourth quarter, our expectation is that food and paper cost will slightly deleverage sequentially from Q3 to Q4 and be relatively flat compared to prior year on a full-year basis. Labor and related expenses remain our most significant near-term headwinds and long-term challenge.

As a percentage of Shack sales, labor and related expenses increased 80 basis points in the quarter to 26.1% from 25.2% in the same quarter in the prior year. We reiterate that we'll continue to face headwinds going forward in the labor lines, driven primarily by three factors.

Firstly, the opening of more Shacks at varies unit volumes, some of which that will carry a higher percentage of labor costs in our current base. But it's important to note, these Shacks continue to represent industry leading performance.

Secondly, and consistent with the rest of our industry, we are experiencing more regulatory increases to hourly wages across many of the markets in which we already have a large presence such as New York City and Washington DC, as well as markets we intend to enter in 2018, such as Seattle.

This will be compounded by additional regulations such as the Fair Work Week legislation in New York City. Implementation of this legislation is expected later this month and will have some degree of impact on our future labor costs.

Thirdly, our labor line will continue to be impacted by our strategic investments in our management teams ahead of accelerated growth next year. For a business growing as quickly as Shack Shack, it is critical to make sure we have a growing bench of highly trained leaders and to ensure that we are developing people ahead of our expansion.

Other operating expenses as a percentage of Shack sales increased 90 basis points to 10.1%, compared to 9.2% in the prior year quarter, driven mainly by the impact of certain fixed operating expenses and the introduction of a broader range of unit volume Shacks into the system.

Occupancy and related expenses as a percentage of Shack sales decreased slightly to 8.3% from 8.4% in the prior year quarter. Shack level operating profit, a non-GAAP measure, grew 20% to $24.8 million from $20.7 million in the same quarter last year as a result of the strong year-on-year increase in Shack sales.

As a percentage of Shack sales, Shack level operating margins decreased approximately 160 basis points to 27.2%.

To help further understand our domestic company earned Shack sales and operating profit performance, on page 7 in the supplemental material, we've shown our third quarter 2017 trailing 12 months average unit volume and Shack level operating profit margins across our different regions.

Some regions are of course more mature such as New York City, while other newer regions such as the west maybe influenced by more Shacks in the early honeymoon sales. However, what is clear is the strength of our business, not just in New York City, but across the rest of the country.

As we've modeled in Shacks for many years, as more Shacks open around the country, AUVs and Shack level operating profit as a percentage of Shack sales will decline year-over-year, primarily driven by lower volume Shacks very year making up a gradually higher percentage of our base.

The business has started in New York with industry leading AUVs and Shack level profitability. As we continue to expand and open more Shacks, these metrics will come down, while our absolute top and bottom lines will grow.

In addition, the very related questions that we faced in labor will continue and will have a direct impact on our Shack level on the overall profitability going forward.

General and administrative expenses increased 1.3 million to 9.2 million during the third quarter from 7.9 million in the same quarter of 2016, primarily driven by increased headcounts to our home office to support our ongoing and accelerated unit growth plans and technology development cost related tour digital products.

Adjusted EBITDA in the third quarter grew 20%, from the same quarter in the prior year to 18.2 million and adjusted EBITDA margin was strong at 19.2%. Net income in the third quarter was $5 million or $0.19 per diluted share, compared to net income of $3.8 million or $0.15 per diluted share for the same period last year.

On an adjusted pro forma basis, which excludes non-recurring items and assumes all outstanding LLC Interests would exchange the Class A common stock whereby we would no longer present, a non-controlling interest, we earned $6.2 million or $0.17 per fully exchanged and diluted share, compared to $5.5 million or $0.15 per fully exchanged and diluted share in the third quarter of last year.

Included within these pro forma results is a minimal tax benefit, due to the new accounting standard we adopted at the beginning of the third quarter that changed the way we account for excess tax benefits associated with stock-based compensation.

On a non-GAAP basis, the new standard resulted in a tax benefit of $16,000 for the quarter, which does not impact our earnings per fully exchanged diluted share. Following our results for the third quarter, we're providing updated annual guidance for fiscal 2017 as follows.

Including the estimated impact from the hurricanes, we expect total revenue of $354 million and $355 million, at the higher end of our previously guided range and an increase of approximately 32% over last year.

Based on a third quarter results and trends to date, we're updating full year 2017 same-Shack sales to be down to between 1.5% and 2%, compared to down 2% to 3% previously.

Our total expected domestic company-operated openings are expected to be 24 and 26 Shacks in 2017, above our prior guidance of 23 to 24 Shacks and representing a company-operated unit growth rate of approximately 38% to 41% from prior year.

As you all know and are aware, there are many moving parts in the run up for a Shacks opening, many outside of our control and as such there may ultimately be a Shack or two, which will be in December and into January.

Due to favorable development timing, we're increasing our guidance for licensed opening to 18 net new licensed Shacks, up from 15 net previously. We're tightening our guided rang for expected Shack level operating profit margin to be between 26.5% and 27%, compared to our previous guidance of between 26.5% and 27.5%.

For 2017, guidance remains unchanged for G&A expenses of between 38 million and 40 million.

This implies an increase in the fourth quarter spend over the prior quarters, driven by a higher number of fourth quarter Shack openings, seasonal increases in professional fees as we close our current fiscal year, non-cash differed rents for our new corporate office and continuation of current quarterly initiative.

Additionally, we anticipate investments in the upgrade of certain of our financial and operational systems headed into next year and expect that some of the initial costs of these investments will occur towards the end of the fourth quarter.

Depreciation guidance of approximately $22 million remains unchanged and we expect interest expense of between $1.6 million and $1.8 million at the lower end of our previously guided range.

As for our tax rate, we expect to continue to experience volatility as a result of potential tax impact associated with the changes to the standard related to accounting and stock-based compensation. As such, our tax rate guidance excludes any potential future tax effects for the new standards.

We continue to expect our annual adjusted pro forma effective tax rate, excluding the new standards to be between 40% and 41%. As for full 2018 guidance, we will provide this in detail on our fourth quarter call in February. However, at this point in time, we would like to share some directional perspective.

We expect to open between 32 and 45 domestic company-operated Shacks, representing a company-operated unit growth rate of between 36% and 40%.We also expect 16 to 18 net new licensed Shacks for the year, implying a licensed unit growth rate of approximately 24% to 26%.

It's important to note that certain of our licensed tax come off a strong honeymoon period, combined with ongoing pressure in the Middle East. Sales growth is expected to lag unit growth in our licensed business next year. As it relates to pricing, we plan to expand our multi kid pricing model for 2018 based on our geographic footprints.

We estimate this kid pricing will have a net effect of 1% to 2% increase, which will be rolled out in mid December. Our current given traffic in 2018 is based on the trends we have experienced over the last few quarters. On that basis, our preliminary view is that any price increases will lightly be offset by traffic headwinds.

With sizeable scale of our ongoing growth expectations in 2018 and beyond, I am making sure that our infrastructure allows the food system are robust and scalable to deliver upon our significant expansion opportunity.

As I just mentioned we plan to upgrade a number of our financial and operational systems in 2018 in order to support this continued and accelerated global growth. We will give more color of Randy expected impact of this on our February call. You should expect to investment in our 2018 G&A line reflecting the past.

Our 2018 G&A will also include our advanced leadership retreat as well as an increase for our new corporate office, trading centre and test kitchen as Randy mentioned earlier.

We're excited about the opportunities this new space providers from a testing and innovation perspective and in addition it's a necessary transition for our business at this time having simply out growing our original space.

Next year you will see us continue to invest in our digital products whether that be app, the use of data and insight increasingly personalized connections with our guests or the design of our Shacks. Technology touches all aspects of our business.

We embrace that and certainly believe that continuing to innovate and invest too quickly to move on to guest needs and will continue to drive guest satisfaction and sales.

We have always managed discussions for the long term and we'll continue to do things making the necessary decisions and investments in short and mid-term to drive maximum sustainable growth for years to come. Depreciation expense will be materially higher in 2018 compared to 2017, primarily as a result of the full year impact from 2017 new Shacks.

The increased development is scheduled for 2018 and the previously mentioned investment in technology and on new training and menu innovation centre. With a strong cash pay-back and healthy ongoing returns from our Shack which we illustrate on page 9 of the supplementary materials, we will continue to open where we see clear opportunities to grow.

However, in any given period our results concludes the full impact of pre-opening cost of the new Shacks as well as cost for Shacks not yet opened, following the appraisal period the Shack sales and profits generated.

As we increased the pace of openings this effect is exacerbated and therefore focused on certain metrics and isolation does not fully represent the strength of the underlying performance of this business. Our focus, remains on the execution of the significant long term value creation opportunity for Shake Shack.

So to sum up, our third quarter results was slow and we feel bullish about the continued growth opportunities ahead. We are committed to an expansion plan that will see us continuing to open Shacks that generate industry leading AUVs, operating margins and strong cash and cash return.

2018 will represent our biggest year-to-date in many ways, yet will also be a year in which we shoot to invest to ensure that growth can continue its scale for many years to come.

We will invest in our infrastructure, our systems, our tools, our processes, to make sure we are ahead of the curve supporting our expansion and maximizing our ability to scale effectively and efficiently.

And we will continue to innovate even technologies and evolve the digital feature for the Shake Shack brand and overall guest experience, whoever that guest maybe. So with that I will turn it back over to Randy to conclude our prepared remarks..

Thanks, Tara. Shake Shack is a growing, loyal and connected community and we are relentlessly focused on excellence, experience and hospitality.

To continue to deliver on this promise next year and beyond we are committed to elevating our performance and accountability more deeply understanding our guests, executing the basics with brilliance every day, building our business infrastructure and driving smart and profitable growth.

We believe we are in an incredible strong position to continue to expand and grow. Leveraging the strength of the Shake Shack brand execute against the significant opportunity ahead. With that, I want to thank you all for joining today's call and operator you may go ahead and open the line for questions..

Thank you. [Operator Instructions] Thank you. We will take our first question from Jake Bartlett with SunTrust Bank. Please go ahead..

Great, thanks for taking the question. The first question was kind of a near term one in - you are trying to understand what the same store sales guidance for the year will implies for the fourth quarter.

I know sometimes is waiting difference, I will think that having Christmas Eve kind of move forward it gives you a Saturday and things like that could help it. Maybe just to help us understand it looks to me like the range could be at anywhere between negative 2% or flat, but if you can get us a little closer that will be helpful..

Yeah, thanks Jake. Yeah, I mean you saw we more cautiously guided the negative 2 to 3 last quarter. We brought that up now to 1.5 to 2. We are right around that 2 mark right now at the end of the third quarter. So we time that range based on the trends that we have been seeing a little bit, as you said.

Let's hope to get a little bit of benefit of a better timing of holidays this year that we know impact more negative this year, but that will see.

So we are not going to break out the cadence of that just yet, but again the trends improve from the first half of the year and we knowing that the other thing which is seen clearly is little bit better weather so far this Fall in the North East so that's important that trend to change the guidance..

Great and then when you think about the drags issue or the negative traffic that you are building in for '18, it has been little bit worse than what you guiding to '17.

Is some of that maybe less of a drag from cannibalization [ph] or in a way to kind of frame how much you think cannibalization has been herding what it's going to look like in '18 given with that you know where those are going to open in close approximately to comp stores or any hope on that front with you..

A couple of ways to think about that Jake, first of all it would be we appropriate full year guidance on our next call. This one will give you directions. It is too early to say what next year looks like obviously you sitting in November.

The trends from this year having traffic, we won't hope that we can turn that around, but at this point we are going to remain cautious.

And as we look everything with a bigger class I hope to get any potential cannibalization smooth out and continue to smooth out overtime as the comp dates get bigger for adding 4 more Shacks this quarter and in the year over 40, but it's still a small base and still very much impacted by regional swing.

So as we add those 32 to 35 more Shacks next year, our hope is that will be step up in each year in a larger class we continue to have a little bit less volatility, but we will give proper guidance in our coming up..

Great, and then lastly, I don't think I heard you update on what your expected AUVs are for the 17 class second class you had was 3.4. Maybe if you could update that if you have an - and yet and then maybe give us an idea of what you are expecting for 2018 overall..

Yeah, we not only chose to the due Jake, we got chance to see, but we added a lot of supplemental numbers this time. I encourage you look at that posted on our IR site and we did there as we give quite a bit more information than we've ever given regionally on AUVs and what we wanted to do instead of taking a moment in time snap shot of AUV.

That is reflected in our retail sales as we noted in the script here. If you look at it we did a trailing 12 months in that supplemental pack.

I think that will be more helpful to as you look at, but look as you've said for many years that we continued add Shacks at all kind of volumes especially with our larges class of Shacks yet both '17 and then here in '18 again. We expect that AUV number to decline.

So I think that is the best way for you to look at it for the '17 class in that supplement..

Great, thank you very much..

The queue will go next to Andrew Charles with Cowen & Company. Please go ahead..

Great, thanks.

I want just a follow up on that last question as well as just on the first year sales volumes and appreciate the detail on the presentation, but those mostly looks like they're existing Shacks that have been open for more than a period of years so is it wrong to think that 3.4 million isn't the right number I mean just the revenue range, it was raised to the high end of the range relative to the increase that you saw in the unit curves as well as the same store sales..

Well, we haven't changed it, but just to be clear when you look at that supplementary includes all Shacks, so the 79 Shacks that are opened at the end of Q3. So those are in there for the short time period that they have, so we haven't updated you on that number for the '17, so you should stay in that similar range.

Again and we've got - we just opened a few restaurants we've got between three and five to go. So there is so much of the class here is going to happen in the fourth quarter. So we will update when we can on how that - how those early openings go. We continue to be encouraged of other new Shacks.

If you look at - we just opened in San Diego, we got Astor Place, we got Morningside Heights, in New York and then were down south. There's all sort of Shacks across the spectrum of sales that have continued in '17, but we obviously like the class and like to look at '18..

Yeah, on the change in area of US you guys have seen a little bit of dip down there and so is this the right level.

You are this down 11.7 that we calculated, is that the right level do you think about going forward just based on for next year?.

I think that level will continue to come down. Right, we have said that for a long time. When you look at that around the high fours today when you had those numbers in today, but we absolutely expect that to come down and we will give you a class mix as you look at '18.

We are continuing to looking at hitting along those long term $3 million Shacks and we will update you better on that in the guidance, when you look at next year..

My next question is Randy how wide spreads do every pilot and which you cannot think about expanding is one of factors or what the every factors to digital order mix I mean can you talk more about where that trended, I think when you first launched as around 3% I think the launch the android platform and just curious with that running up into the quarter..

Yeah, so we haven't got the exact numbers what we can say is the Shack app mobile continues to grow as a percentage of sales. We are encouraged by that. In the delivery, too major delivery pilots we did with DoorDash and Caviar, it was certainly not all of our Shacks, and roughly about half the Shacks were impacted between the two.

So as I said in my remarks we - it's very clear people want to check delivery and we are working patiently to make sure we continue to test and learn and see who the best partner or partners maybe depending on the region. That's part of our discussion and all that..

Okay, great. Thank you..

Thank you we will go next to Sharon Zackfia with William Blair. Please go ahead..

Hi, good afternoon. I guess a few questions first on labor. It actually looks much better controlled and the September kind of a similar comp to the second quarter where much less to the leverage that just curious if there is anything new you doing there at all.

Now controls in that labor pressure that you are seeing and then looking at the regional information that you gave in the supplemental documents.

I guess I am just curious that the Mid West operating profit looks really good kind of what's going on in the Mid West?.

Well, Sharon, you live there, first of all, so that's the - it's a similar favor shops there. What's going on the Mid West, we've got a couple of things happening in there.

We have got very favorable supply chain in the Mid West right being in the center of the country, we have some of our best cost of goods happen in those Shacks, those are Shacks that are continuing to grow and it specifically we had some really good starts.

For our Chicago Shacks are strong, we got a really good start in Detroit this year and as we grow in Minnesota , which is kind of good region for us so - yeah there AUVs are very high.

On your comp question, a couple of things, when the company is better it always looks better so that was a negative of one fifth this quarter in improvement, we look over better. And we are getting better as we keep managing our Shacks better and that's an ongoing process.

We are just going to continue sort of find little ways here and there, there is no major revolution, but that said next year we got massive minimal wage increases coming, we've got different legislation coming and we will get back to you on guidance for that for next year, but we do expect labor to continue and increase next year and beyond.

So we are happy with the way the team managing this quarter not something we think is going to get any better in the near term..

Yes, Randy when you talk about kind of optimal labor within this horizon and not just from a car [ph] stand point,, but just an execution is that coming in your organization more from the top down or do you have kind of a more entrepreneurial band whether the managers are getting together in regions and sharing information..

Yeah, it's option B there. We have some incredible area directors, some regional directors of off suit [ph] looking together all time.

Today our team was in this office talking about this very question and how we are going to grapple with next year, how we are going to bonus our team, so how we are going to send [indiscernible] and not cut labor for the wrong reason. We are the kind of company as you have seen, we like to drive sales.

But we got very little labor pressure so we are going to keep finding different way to run our restaurants. Ultimately the learning we continue to have is that our volumes Shacks, righty we run Shacks on with a higher AUV in the 4 million range.

We know that would be running Shacks in the 3 million range as we open more and more and getting those Shacks which have a higher labor cost percentage. Getting those to be more optimal than they are today is the projects that we are working on. But again we will only going to do that to the goal we have in sales first..

Okay, thank you..

Thank you, we will go next to Alex [indiscernible] with JP Morgan. Please go ahead..

Hi, thanks for the question. The first one is upon the fair work that was been enacted end of this month.

Could you talk about what you are doing to prepare an event for this fall and final perhaps in your [indiscernible] so over the line influenced here that you could apply to the rest of your system?.

Yeah, okay fair work week you know we are at the win on the city on this. We don't know exactly all the rules. As we understand it best, the city is right now with city council trying to write those rules and figure how exactly how that should work.

We generally understand that it's heavily penalizing for schedule changes within two weeks of the schedule. So we have got a lot of work to do, look we've always taking care of our team. We post schedules, we really make changes, but these things are different.

This takes away without the flexibility of restaurant operators, opportunity to be more nimble with the payroll from time to time. So we have got a lot to think about. We are waiting on that. We expect it next month as the last communication we have heard, but there may or may not get pushed out.

So we will see and we hardly waiting to see how this is going to be handled, but it's significant. With somebody shops in New York, when this hits it will be new cost for us and it will be a new area we have to manage and we will just keep cheering when we move to Seattle, next year there is a similar legislation that exists there.

And we will grabble at that then. It's not going to stop us from going to high labor markets. We like high labor markets as they generally mean high sales that may impact our Op profit and we will keep you focused on that but we have got a lot of work to do as operators to optimize this opportunity..

Yeah, I appreciate the color. Thank you and then the second question is on your yester place opening. For that unit or even units similar to that in the future are you targeting the difference store AUV or margin for these units that might differ from your traditional economic model. Thanks..

It's too early to say. AUV really depends on the location. Obviously we hope with the some other step that we can improve some throughput, but overtime we remember we are starting people at $15 an hour. So our hope and our plan is to get the use AUVs in our profits in a similar range as they are today while payroll increase so up dramatically.

So it is one of our strategies to offset, but again we got one Shack, you know we will plan yet for a second Shack. We are going to look at it, it's a way too early to really understand how it is working just yet. What I could tell you is many times I stood there myself and watched it's happening and talked to guest as it happen. You will like it.

We are getting a lot of favorable feedback. Our operators like - this is allows our team, you spend their time on hospitality, it's that of the technical stuff and working in the kitchen. So it's working so far, we will keep diverse..

All right great that's a beautiful location. I appreciate the questions. Take care..

[Operator Instructions] We will take our next question from John Glass with Morgan Stanley..

Thanks very much, I would also like to thank you for all the detail both from the presentation as well as your outlook for '18.

I'm though trying to make sense of it just bit of high level understanding A1 to give guidance until next quarter, but directionally you see a Euro margins are definitively going down, maybe to a create magnitude, and at least cost like G&A which maybe was depended on sales and other things you can't necessarily predict.

Can you give us sort of what if magnitude have increased that you expect given all the things that are changing..

Hey, John, it's a bit too early to give you an outlook of magnitude. And as I said we will give you in our full guidance over in February this point when it comes to G&A and it comes to the system and operational support systems upgrades obviously talking about is really just in its early stage as it's kind of discovery and assessment.

As I mentioned in my prepared remarks yes, you shouldn't assume G&A will go up next year. It could go up quite significantly as we look to really scale these to make sure that they're habitually robust to take advantage of this great opportunity.

We also as I mentioned, we have the retreat for managers and for our leaders and we have one probably three years. We're leading into our new office that Randy touched on and so generally speaking across the board it is inherit investments.

And then sort of normal course of business within the Shacks and we just touched on it at relative length, labor will continue to go up. So I think, clearly there will be margin pressure next year as a result of these things, but sure that we'll give you more color - as much color in January and February..

And then on the economics that you provided for new stores, that's sort of hypothetical.

That is the same I believe that's what you sort of talked about two or three years ago for IPO process and I would have thought just given the success and maybe more refinement some of those numbers would have changed and maybe you can just talk about and maybe this is repeating old question asked earlier, but just is the class of '17 well above that range, is the '16 and '17 that we haven't been able to see the comp base still well above the $2.8 million to $3.2 million range?.

Yeah, John, great question. Yes, they are both in '16 and '17, obviously we're clearly proud that we have over the last few years, since the IPO, greatly outperformed these metrics. So what we're trying to do on that slide is illustrative work at how good the returns of this business are at those metrics at that $3 million Shack.

So clearly when you look back we've outperformed that in nearly way and we've had some tremendous from year one and long term cash and cash returns and free cash flow. So what we want to do here is say, as we look at these and we - look we will have a lot of $3 million Shacks, we have many now.

As we open more and more scale, we expect a lot more of them, only on that slide is to just say, they're really good business..

I think it's also important to note, I mean this slide is illustrated, it helps us to continue to tell the story of Ran has done. So as I say, this is a business started in New York with super high LED's to have enough profitability and that was super high cash and cash returns and you can see that.

This is only for 2016 fiscal results on the left hand side. As we talk about accelerating unit openings, the impact of that has - that impact are current year fiscal, right, in terms of creating an intensive partial year of Shacks sales of which the full income relates.

However, when you look at these cash and cash returns, clearly even if it's a break on your current fiscal, it makes a kind of sense to do because even in a projected unit metric model of 2.8 million to 3 million, you're still talking about 34% of illustrated cash and cash returns.

So there's also a lot between the left hand side and the right hand side of this chart, between a 5 and 2.8 to 3.2 and as Randy said, we've got every clustered as they have and this is in AUV. It's not suddenly going to adding 2.8 or 3.2, but that's a lot in between..

Okay, last one I promise. Your domestic company average as per region is very helpful as well. Your Midwest returns or cash in the door is so much higher than most other regions outside of New York; you would think that would skew your development to that region, right just as that -.

Well, we're doing more John. I think development is to be done. That's really good news, but last week we opened another one in Troy, just outside the Troy. We had a tremendous start earlier this year in Detroit, so we opened in Troy and that suburb in St. Louis and there are quite a few.

So it's a very small market today, only seven Shacks in that Midwest market. So we absolutely intend a growth..

Got it, thank you..

As there are no further questions at this time I'd like to turn the conference back over to management for any additional or closing comments at this time..

Thanks, I'll close. Just want to say, I just got back last night. I had a great opportunity to be with our team in the Middle East. We had a trip with our international partners to Kuwait, Abu Dhabi and Dubai and saw about 20 Shake Shacks in the last week.

It just reminded how hard our teams work around the globe, how great that region is even though it has struggled as a region, but we have a lot of confidence in our opportunity with our partners there and beyond.

And just wanted to note that how exciting and amazing it is to us and in 2011 we opened our first international Shack in Dubai, where we had under ten Shacks and today we have 33 just in Middle East alone, so pretty exciting time. I wanted to say thanks to our teams abroad and at home. And thanks everyone for taking the time to be with us on the call.

We appreciate it..

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now disconnect..