Greetings and welcome to the Shake Shack Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Senior Vice President of Finance and Investor Relations, Rik Powell. Thank you, Rik. You may begin..

Thank you, Paul, and good evening, everybody. Joining me for Shake Shack's conference call is our CEO, Randy Garutti; and CFO, Katie Fogertey. 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 and the appendix to our supplemental materials.

Some of today's statements may be forward-looking, and actual results may differ materially due to a number of risks and uncertainties. A including those discussed in our annual report on Form 10-K filed on February 26, 2021.

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. By now, you should have access to our second quarter 2021 earnings release, which can be found at investor.shakeshack.com in the News section.

Additionally, we posted our second quarter 2021 supplemental earnings materials which can be found in the Events and Presentations section on our site or as an exhibit to our 8-K for the quarter. With that, I'll turn the call over to Randy..

Thank you, Rik, and good evening, everyone. I want to begin today's call as I often do, by thanking our teams who’ve worked tirelessly to lead our continued recovery. More than ever, we're committed to taking care of each other. We're focused on our team's growth, development and the opportunity for advancement that Shake Shack offers.

This month, we made a commitment to invest an additional $10 million in our Shack teams over the next year for wage increases, sign on retention bonuses and the funding of programs to promote leadership development, diversity, equity inclusion at all levels of the Shack family. Our national average hourly wage is already above $15 per hour.

And most importantly, we're providing an opportunity to grow well beyond those rates into training and manager roles in what we call the stepping up model. In addition, we have a particular focus on our Shack general managers, adding sign-on equity grants and creating opportunities for our GMs to make over $100,000 a year.

We're not immune to the challenges this moment has presented for staffing across our industry, but we're committed to building teams that will drive growth for the long term.

We'll keep working to attract and retain the best restaurant talent, recognizing the importance of our team, the heartbeat of Shake Shack by ensuring current and future employees feel cared for and have opportunities for sustainable career growth. Now, on to our business performance.

Through the first half of the year, our financial performance continues on an upward trend. Total revenue in the second quarter was $187.5 million, up 104% versus last year, which represents our highest revenue quarter ever.

Same Shack sales in Q2 were up more than 52%, and now down just 9% when comparing fiscal July '21 to July 2019, driven by continued suburban strength and ongoing improving results in our urban markets.

We're encouraged by the double-digit year-on-year growth of our digital sales, even as our in-Shack sales improved over 300% year-on-year in the second quarter. While in-Shack sales have started to come back, our digital retention stayed strong at approximately 80% in fiscal June versus fiscal January '21 when digital had hit its peak.

We launched delivery on our own app in the first quarter, and we continue to invest in our app, web and in-Shack digital capabilities. Digital is and will remain a critical part of our business as we move forward, creating a new level of access, convenience and connection for our guests.

And while our outlook remains tempered, given today's ongoing volatile COVID situation, we are really pleased with our momentum. In terms of profitability, Shack level margin improved significantly, along with sales, hitting 19.2% for the second quarter.

However, we do expect margins to moderate in the coming quarters as we rebuild sales and make significant investments in our team, coupled with continued inflationary pressures in other parts of our business. Focus continues to be the recovery of both, sales and profitability across our Shack base and growth over the long term.

Our strategic plan centers on the evolution of our Shack formats through physical and digital transformation with the objective of delivering a seamless elevated guest experience. We've already opened 20 domestic company-operated Shacks so far this year.

And we expect to open between 15 and 18 more through the remainder of the year, heavily weighted towards the fourth quarter. We are narrowing our full year '21 guidance to between 35 to 38 Shacks, absent any new COVID-related disruptions.

We are thrilled by the strong reception of our new Shacks and how they're being received in both new and existing markets, with average weekly sales for our 21 class at $81,000 year-to-date as of fiscal July, nearly 20% higher than the rest of our company-operated Shacks.

Meanwhile, we're excited to open our first-ever Shack drive-thru location later this year. And we're making an even bigger commitment to open about 10 more drive-thrus in 2022. About 20% of that class of '22 will have a Shack Track walk-up window, and about 10% will have a Shack Track drive-up window.

And we still expect an accelerated development plan of 45 to 50 Shacks in 2022. On cost-to-build expectations, we're experiencing increased material and labor costs as we look into Shack build-outs over the next 18 months. Additionally, we're committing extra investment into the learning of our drive-thru and drive-up models.

With drive-thru expected to be a large portion of the class of '22, we're anticipating historical build-out cost to increase about 10% to 15% on average for the class. It's an exciting and critical investment as we build out new formats, which we believe can deliver strong sales and returns over the long term.

We've got a lot to learn, and we're committed to investing in new ways to experience Shake Shack. Turning to our licensed business, we saw a strong uptick in sales during the second quarter. Our expansion has been filled with dynamic openings, including our first Shack in Shenzhen in China, our third in Beijing and our first in the Istanbul Airport.

We've opened 15 new licensed Shacks so far this year. And due to better-than-expected development conditions in Asia, we're increasing our full year expected license openings guidance to be between 20 and 25 new licensed Shacks and maintaining between 20 and 25 in 2022. We continue to be encouraged by the global recovery.

And we saw improvement in licensed weekly sales performance throughout the second quarter, increasing from $6.6 million in fiscal April to $8.6 million in fiscal June and $8.7 million in fiscal July.

The recent increases have been driven by both, our international and domestic licensed Shacks, especially in domestic airport locations, which are experiencing increases in passenger volume as well as reopened stadium Shacks and in regions where COVID restrictions have been eased.

As we look to the future of our international business, we have a strong focus on the Asia Pacific region.

Following successful openings in Shenzhen, Macau, Beijing, Shanghai and Hong Kong, our partner in the region plans to continue the momentum in China with an expanded partnership to open more Shacks across the country over the next 10 years with new development agreements now signed across Central and South China, including the cities of Chengdu and Guangzhou.

And while we remain very cautious on both sales and development expectations in the near term, given the ever-changing and volatile COVID situation across the globe, we are excited about the long-term future of this important part of our business. And all the while, we're moving forward with culinary innovation.

This summer, we've been leading with our Hot Honey Chicken Sandwich as well as Hot Honey Chicken, Bites and Fries with the side of habanero, mayo, dipping sauce. Our hot honey sandwiches had a 10% attach rate since launching. And we saw a strong response for the promotion in all channels, particularly in digital.

Following the response of our avocado bacon sandwich offering, which was on 1 in 5 of every transactions, we've temporarily extended the availability of freshly sliced avocado as an add-on to our core menu sandwiches. Our summer menu wouldn't be complete without beverage.

We launched 2 shakes this summer, the Triple Chocolate Chip and our unique spin on Cherry Pop Shake complete with popping candy. We continue to innovate in cold beverage with a trio of cocktail-inspired summerades. This nonalcoholic lineup features a Lim Agave Margarita, Summer Piña Punch and Watermelon Mint Mojito.

We've seen a steady uptick in average in-Shack checks this year, and cold beverage purchases were the leading contributor to the lift in the second quarter versus the first. As we move to the next section of the call, I'm thrilled to welcome Katie Fogertey to her first earnings call as Chief Financial Officer here at Shake Shack.

Katie brings more than 15 years of finance and investment experience, including equity research, financial modeling and forecasting and a deep understanding and focus on the restaurant industry.

Katy is a natural fit in our Shake Shack culture, and I look forward to partnering with her as she continues the great work of our team and lays the groundwork for the extraordinary growth we have ahead. With that, I'd like to hand the call to Katie to walk you through the financials..

Great. Thank you so much, Randy. Good afternoon, everyone, and thank you to the team for such a warm welcome to Shake Shack. I am so excited to be here and contribute to this important growth stage for the Company. I have long admired Shake Shack's deep culinary roots, the willingness to push the limits and elevate flavors.

But, I am most impressed by the Company's commitment to investing and training team members and focusing on standing for something good. Randy's comments earlier on the $10 million investment in team members is just a small part of the narrative here.

I spent my first week working in the Shacks, spinning shakes, flipping burgers and learning from the team members. I have so much appreciation for the team's inter Shacks and in the home office supporting our Shacks.

Our teams are at the core of all that we do, and I am humbled to have the opportunity to work with everyone to continue to pave the way forward. I will now highlight the details of the second quarter and share some color around how the business is performing quarter-to-date.

Our results in the second quarter showed a steady and continued improvement of our business with total revenue of $187.5 million, representing a year-over-year growth rate of 104.2%. Shack sales were $181.5 million, a year-over-year growth of 102.7%.

Second quarter average weekly sales were $72,000, exiting the quarter in fiscal June at $74,000, marking the highest level since the pandemic started and up from $64,000 in the first quarter. We show this monthly progression on page 7 of the supplemental materials. Average weekly sales were flat month-on-month at $74,000 in fiscal July.

This outperformed our typical seasonality expectations. And the growth here is really twofold. First, our guests began to come back to eat in-Shack that were the hardest hit by the pandemic. While full recovery at certain Shacks will take some time, especially with new uncertainty of rising COVID cases, we view these current dynamics as encouraging.

And second, importantly, even as our in-Shack dining sales showed early signs of recovery, we were able to retain a substantial portion of our digital business. I'll go into more detail around digital in a moment. And you can see page 10 of the supplemental materials for more details. Same-Shack sales rose 52.7% year-on-year in the second quarter.

They were up 38% in fiscal July compared to up 5.7% in the first quarter. Second quarter traffic grew 61.5% year-on-year, offset by a negative 8.8% price mix. Note that 2020 had a 53rd week, and to normalize for that, our comparable periods for both 2020 and 2019 have been shifted forward one week from the fiscal calendar.

This is to show a more like-for-like comparison. We've included an example calendar on page 19 of the supplemental materials. Now, into price mix. Just a reminder here, that is driven by average Shack that has been historically higher in digital channels than in-Shack. So, last year's surge in our digital sales drove a double-digit rise in price mix.

Now, with our intact traffic showing signs of a strong recovery and our digital business stabilizing, expect average Shack and consequently, our price mix to return to a more normal level. The offset here the ticket pressure arising from channel shift is higher traffic.

Notably though, and as Randy just mentioned, the in-Shack average Shack has also increased in recent periods, with continued strength across all of our channels this year, thanks in part to contributions from menu innovation, cold beverage, in particular.

And while our sales continue to recover, we are cognizant that the near-term COVID environment remains uncertain. Using pre-pandemic 2019 sales as one recovery sales level benchmark, our same-Shack sales were about 12% below 2Q '19 levels.

While we started the quarter with April sales 15% below 2019 levels, we built on a broad-based recovery each month of the quarter and continue to make headway, ending fiscal June with sales just 11% below 2019 levels, and we are encouraged that we closed fiscal July down 9% from 2019 levels.

Recovery in our urban Shacks still presents a greatest opportunity to recapture sales.

As we show on page 8 of the supplemental materials, our urban markets in particular were boosted by foot traffic, events, the beginning of some office workers returning and a gradual reemergence of domestic tourism, while limited international tourism remains an overhang.

We are pleased to announce that we recently reopened two Shacks that have been closed since last year. So, that Union Station in Washington D.C. and Grand Central Terminal in New York, these two Shacks depend on urban transit.

We expect that they're going to take some time to recover, they'll probably weigh on results in the interim, but it was important to get them reopened and operating as we head into the fall and winter.

In addition, I think it's important to note some regions that are performing exceptionally well across many formats and channels as it should help you to understand the evolving geographic concentration of Shake Shack and how that impacts the recovery. Our regional details can be found on page 9 of the supplemental materials.

In the Southeast region, and in particular, Texas, same-Shack sales are now above 2019 levels. We see our momentum here as an example of our potential when we build density and awareness in newer markets and provides us with a more balanced geographic footprint. These markets represent growth opportunities for Shake Shack across a variety of formats.

The other key highlight of the quarter has been our digital sales retention, even as in-Shack dining showed signs of recovery. Digital sales made up 47% of our Shack sales in the second quarter.

And as Randy mentioned, we are pleased to have retained approximately 80% of our digital channel sales in fiscal June compared to fiscal January 2021 when our digital sales peaked. When we study our digital guests, we find they continue to show higher loyalty and frequency as well as a greater average Shack than our traditional in-Shack guests.

Therefore, we are focused on acquiring more first-time guests in our digital ecosystem. In the quarter, we grew our first-time digital guest base by 16.7% to 2.8 million acquired since mid-March 2020. We look forward to building on a strong foundation by focusing on innovative ways to elevate the digital guest experience.

It's important to note that we are still in the early days of this digital evolution of our business, but we are encouraged by consumers' growing demand for our products to order ahead and delivery. At the end of Q2, we took some important steps to improve the profitability on third-party delivery by charging a 10% premium to in-Shack pricing.

This is a step up from the 5% premium we started charging in February. We did maintain in-Shack price parity on our owned app and web channels. Now, on to sales guidance, which we outlined in more details on page 16 of the supplemental materials.

Based on its current operating environment, we are guiding to total revenue in the third quarter to be $194 million to $200 million with Shack sales of $188 million to $193 million.

This assumes a positive continuation of the trends that I just discussed in both, urban and suburban markets, plus the benefit from new Shacks openings and also the reopening of Grand Central and Union Station. We expect our same-Shack sales to increase in the mid- to high-20s range for the same period versus 2020.

We expect licensed revenue to be between $6 million and $7 million based on the recent recovery in some regions, balanced with continued uncertainty in the global rate of recovery and regional COVID restrictions. Within this guidance is the assumption of no new material sales impacting COVID pressures and a general positive business environment.

But, if we were to see a slower return to office and travel, these numbers could be impacted. Moving on to profitability. Shack level operating margin was 19.2% in the second quarter. This is our highest margin since COVID began and is a 420 basis-point increase versus the first quarter.

Our second quarter margin was largely driven by sharper-than-expected recovery of in-Shack traffic as well as strong Shack app and web digital retention. As a reminder, our average Shacks are highest in this channel.

Food and paper costs in the second quarter were 30.3% of Shack sales, an increase of 70 basis points from the first quarter, driven primarily by beef inflation. We expect to realize the impact of chicken inflation in the second half of the year as we roll out a beneficial locked-in pricing achieved in the first half.

These costs are expected to remain somewhat elevated from the levels we achieved at the outset of the year. The net effect here is that we expect 3Q COGS to remain at a similarly elevated range that we saw in Q2. Labor costs in the second quarter were 29% of Shack sales, a decrease of 180 basis points versus the first quarter due to sales leverage.

However, given industry-wide staffing challenges and our significant growth goals, we are making meaningful investments in our teams, and we expect wage inflation in the second half of 2021 to be in the high single-digit range. In line with our prior guidance, we still expect wage inflation for the full year to be in the mid-single-digit range.

As we mentioned, these investments are critical to maintaining the strong culture and developing the future leaders we need as we lay the groundwork for all the Shacks that are to come.

To counter some of the inflationary pressures I've just mentioned, during the fourth quarter, we are planning on raising our menu prices by between 3% and 3.5% through a combination of various price tiers and digital pricing initiatives.

This is higher than the approximately 2% menu price we have historically taken at the end of most calendar years, and we'll be evaluating the need for further price increases that might go into effect in 2022, depending on how the cost landscape evolves through the rest of the year.

Other operating expenses were 13.4% of Shack sales in the second quarter, a 200 basis-point decrease from the first quarter due to leverage across fixed expenses and decreased delivery commissions as overall delivery as a percentage of sales moderated.

However, we expect in-Shack sales to continue to recover, and we will bring back certain related expenses that were cut in the last year. Therefore, we expect other operating expenses to slightly increase sequentially in the third quarter.

Occupancy costs in the second quarter were 8.2% of Shack sales, a 100-point decrease from the first quarter due to sales leverage. We expect occupancy costs in the third quarter to be in a similar range as the second quarter levels.

Bigger picture, our margin recovery is dependent on several things, including the level of commodity and wage pressures as well as the sales recovery in our highest volume Shacks. As we look to the rest of the year, we expect the recent investment in our teams to weigh on the very strong flow-through that we realized in the second quarter.

That being said, we believe these investments are strategic and place the Company on a stronger path forward as sales fully recover. With Shack sales of $188 million to $193 million in the third quarter, we expect Shack level operating margin to be between 15% and 17%. We outlined this in more detail on pages 16 and 17 of our supplemental materials.

G&A expense in the second quarter was $20.4 million, including $2 million of equity-based compensation and other noncash items. We firmly believe that we must continue to invest in people, technology and marketing to support our recovery and open our robust pipeline of new Shacks.

As such, we are slightly raising our 2021 G&A guidance to be between $86 million and $88 million as we continue to invest in the infrastructure needed to accelerate our long-term growth. Within G&A, our equity-based compensation is expected to be about $8 million.

Preopening expense in the second quarter was $2.3 million, a decrease from $3.6 million in the first quarter. At this point in the year, we -- and as we execute on our development pipeline plan, we expect full year 2021 preopening expense to be between $13 million and $14 million. This is below prior guidance.

On an adjusted pro forma basis, we reported a net gain of $2.4 million or $0.05 per fully exchanged and diluted share. Excluding the tax impact of stock-based compensation, our adjusted pro forma tax rate during the second quarter was 27%. A full reconciliation of our tax rate can be found in the appendix of our supplemental materials.

Similar to previous quarters, we will not issue specific 2021 tax guidance at this time, given the continued uncertainty for the rest of the year and timing of recovery.

However, in normal operating environment, our adjusted pro forma tax rate, excluding the impact of stock-based compensation, is expected to be between 26% and 28%, in line with 2020 levels.

The balance sheet remains in a very strong position to support the growth opportunity ahead of us, and we ended the quarter with $420.2 million in cash and marketable securities. As we continue to grow, we remain cautious and aware of the challenges ahead, both globally and domestically.

But despite this, we are confident that our continued investment in people and innovation across our business model places us in a stronger position as the business recovers. And with that, I'll turn it back to Randy..

Thanks, Katie. We realize the situation where the global pandemic is not yet in our rearview mirror. Given our unique positioning with premier real estate throughout the country, our recovery will still take time. And what we've learned from the past year is that situations can change unexpectedly.

However, we remain confident that we can achieve our future growth initiatives. Our continued investment in people will ensure that we're retaining and developing the best talent that is available across our industry and offering our employees multiple avenues from which to grow with the Company.

Our research and development in new formats such as Shack Track and drive-thru will ensure we're meeting the needs of an ever-changing consumer, while we double down on creating a Shack guest experience that is better than ever. We're incredibly excited for what the future holds for us here at Shake Shack.

As always, we hope that you and your families stay safe and healthy. With that, operator, go ahead and open up the call for questions..

[Operator Instructions] Thank you. Our first question comes from Michael Tamas with Oppenheimer & Company..

Hi. Thanks very much. And Katie, congratulations on the new role. The question is really on the new Shacks that are outperforming your base by about 20%.

And just wondering how important is it to you to maintain that positive gap, now that you've gotten there? Obviously, in years past, you guys were opening units at sales volumes below your footprint, but that was kind of unique because of your footprint.

So, as it's expanded and gotten further along, are these new store designs that are accretive and you have this gap, is that something that you're actually targeting internally to continue?.

Well, thanks. It's a mix, right? We've all seen the history of Shake Shack outperformed, and we've long talked for many years about some of the honeymoon periods that some big Shacks often have. What we really like about this class has been the mix of suburban and urban, the mix of formats and the geographic mix.

So, within those, that outperformance of that 20% up and over $81,000 average weekly sales, we've got some really fun new markets. We opened outside of Portland, Oregon in the suburbs of Portland. We opened in Indianapolis in the suburbs, a tremendous start in a Shack Track drive-up scenario. We also expanded in our hometown.

And we're doing fantastically well at Shacks in Hoboken, New Jersey and in the Bronx in New York City. Those are really good signs. And then, within that of the roughly 20 Shacks that have opened, we've got them across the country. So, look, as we look forward, our strategy is this. We've learned a lot during COVID.

That will work its way through the Shack Track digital ecosystem and some of the physical formats that you will see. That is drive-thru, it is Shack Track windows, and it's just really interesting new types of real estate that we can go after because of this across the country.

We will do predominantly suburban Shacks in the coming year, but we also are going to continue to dive deep on our urban footprint. While we know that's been a lag in our recovery compared to some others that are much bigger than us, we believe in the urban areas. And we think they're going to come back.

We've got some great real estate on tap and going to continue to learn as we go. We're really pleased with the new Shack performance..

Thanks. Makes a ton of sense. Just on the $10 million of investments that you're making over the next year or so. I'm trying to ballpark it from the presentation slide, but correct me if I'm wrong here, but it looks like about few hundred basis points, maybe is impacting specifically into this quarter, which would be about $4 million.

So first, can you just confirm that's in the ballpark? If it's not, feel free to correct it. And then, what's the cadence like in that $10 million? Is that more loaded into the front half here over the next 12 months? Thanks..

Yes. It's a good question. There's a lot of it in some of the retention and spot bonuses that we're doing right now that will be loaded in the back half of the year. In addition, the vast majority of it, as you see, is new and higher wages for our teams. And again, we raised about two-thirds of the Shacks right now in the last couple of months.

And that was on top of raises for roughly two-thirds of the Shacks again in January. So, it's really to take care of our teams and get some wages that we can really rebuild with. In terms of breaking it down, we haven't broken it down in that. There are other pressures, as Katie noted, with reopening the business.

COGS remains elevated with some increased costs right now with delivery still being a strong part of our business. That impacts our OpEx. And some of those kind of dining room reopening expenses that we haven't had for a while.

But you got to remember, too, in this next quarter, we won't have price to offset it, right? We intend in the fourth quarter to take about 3.5% price, and that will help offset some of that as we go. And hopefully, as evidenced in the second quarter, the sales really was the flow-through that made it happen.

So now, we've got to continue to rebuild those sales, get back, and we'll get there and rebuild the op profit as well..

Our next question comes from Joshua Long with Piper Sandler..

Randy, I wanted to circle back to some of your comments and really just kind of level set and balance the conversation in terms of new unit volumes doing great, new store performance doing great, seeing a little bit of inflation in build-out costs, obviously.

So, just curious on how you and the team manage that and obviously, wouldn't expect and you've been very vocal about doing things that are right for the brand.

But just curious how you manage that on a near-term basis and/or if you -- how you think about it if maybe some of these construction costs stay elevated over time? Do we expect to be able to maybe offset some of that with some of these new tools and Shack Tracks in digital, or is it just going to be one of those things that when we look back and add it in a couple of years, we'll say, oh, yes, do you remember all the inflation in the building cost then? Any sort of commentary there in terms of how you and the team think about setting these up knowing it for the long term would be helpful?.

Yes. Well, so we build Shacks for decades to come, not for the next quarter. And we are looking for amazing real estate that will stand the test of time, and we're going to build and do things that others are unwilling or unable to do.

If you look at the supplementals that we noted there, there's some really great renderings of the expectation of what our drive-thru might look like. It's really important that we invest right now in this learning.

The unlock potential that could open up for Shake Shack as we commit to this investment and drive-thru and other models is really exciting. And that's where we're focused. So, we want to spend and do that right.

We are not going to cut back, and we are not going to optimize spend when we are trying to optimize learning, average unit volume and a big white space opportunity. We will balance that over time with obviously getting smarter in our construction. We're obviously living in an elevated price time. We'll see where that goes.

Hopefully, that can come down over time. But, we're also going to balance it with some of the formats, right? We've got some fantastic food court, a little simpler build-outs. We've got some core Shacks that we've really gotten good at building. And we will balance that over time. But again, this is why we fortressed our balance sheet.

This is why we have set ourselves up with a cash opportunity to build ahead confidently. And that's how we're going to spend the money with investments in our formats that we believe will open up opportunity down the road..

Very much appreciate the context there. And then, leading into that, your people pipeline and your people culture has been a huge part and will continue to be a huge part of the story.

You touched on it a little bit on the call, but just curious if you could provide some context on how that pipeline is building? Obviously, labor is tight around the industry right now, but you have a phenomenal culture. And I imagine you can very easily continue your track record of being an employer of choice.

But just curious if you could talk about the people pipeline and kind of how that sets up for the next several quarter, years? and maybe you can also touch on how your license partners are kind of addressing this as well..

Yes. Look, our people from day one, are where -- how we lead. We take care of each other. We stand for something good. We have to invest in that. We're obviously living in a particularly challenging time for many reasons. And at the end of the day, what we need to do is build a bench of strong leaders that are leaders, training future leaders.

Now, if you look at some of the development we're doing, we have a program today called Shift Up where we are training our shift managers in financial literacy, in business acumen, in the development that they need to become leaders in our Company down the road.

Those investments are going to pay off, with diversity and equity inclusion goals and exciting programs to educate our teams. We've got all of that in play in addition to just paying people more. And that's what we got to do. That's why we're going to invest.

That's why you'll see it as part of our guidance in this near-term margin impact, which is going to be the expectation that we're going to be training up a lot of people. We're going to be opening more Shacks next year than we've ever opened. That's really exciting. On the license front, it's such -- it's kind of hard to distill it down.

Each market has its own challenges, some very different than others.

There are many markets where it is challenging to find and develop people and others where, gosh, we're building the most incredible pipeline, look at our partners in China, so many of our Asian team members throughout those markets that have just built incredible pipelines for growth that are training and capturing. And you're seeing that.

You're seeing that in the comeback. If you look at our license sales, there was an incredible comeback this quarter, not just quarter-over-quarter and year-over-year, but just every day. So, that's exciting. We hope that COVID cooperates. And in the meantime, we'll be developing people and taking them along the way. That's what we do..

And on that point, I would just add here that we've already -- in the last quarter, we saw a very strong flow through. Our urban sales improved -- we went from down 25% versus 2019 levels to now down 18% from 2019 levels. So, there is still a lot of room to recover here. And having strong and well-staffed restaurants is definitely key to that.

And we expect to see the flow-through as restaurants continue to recover, even adjusting for the recent investments..

Our next question comes from Michael Roskin [ph] with Goldman Sachs..

This is Michael on for Jared. And congratulations, Katie. Good luck In the new role. I had a quick question about your suburban Shack recovery in the quarter. So it seems versus 2019, you guys have kind of alternated from down 1% on same-store sales to plus 1% and kind of back and forth.

Could you go into a little bit about maybe why you haven't seen that accelerate as you may have wanted to? And then, I had a quick follow-up. Thank you..

Well, you got to look at where it's been. It's been basically around that flat level for four months, I want to say, and that, as urban has continued to recover. So, we feel really good about that, right? You look at the suburban holding.

And again, I think sometimes because so many of the companies that people on the call might follow, it might be tempting to compare us to them, you have to realize we have just 200 domestic company-operated Shacks, just 200.

Everyone you might compare us to when you talk about suburbs is a totally different geographical footprint and probably more rated towards those regions that we showed in our regional that have -- that are up, that are coming back pretty strong. So, we actually feel really good because it makes sense.

And even in the suburbs, we have traffic-generating event-based special place locations. That COVID weighs on in a different way. And that's been the Shake Shack brand. And then you see it in the urban recovery and you see it how we expect to come back. But look, we still got a long way to go. COVID is still a real thing, and it has impacted us.

But, if you look at the basically straight line continued momentum that we've had since 15 months ago, that's the encouraging thing that we keep pushing for..

And then, on that point, suburban sales went from down 4% versus 2019 levels in the first quarter to now we exited fiscal July to up 1% versus 2019 levels.

And I think that that is a pretty amazing number to think about when you look at the very strong recovery that we saw in our urban markets that went from down 25% versus 2019 levels in first quarter ‘21 to now just down 18%. Still a lot of recovery there to come.

But, the fact that suburban was able to hold on while we saw a pretty decent recovery in our urban business is encouraging..

Just a quick follow-up. You guys -- I know this is a little bit granular, but are you seeing any sort of difference in the recovery within say Manhattan or versus the Bronx or maybe more residential urban environments versus -- I know you kind of mentioned that tourism still ways.

But what is that trade-off maybe between more of the business districts and tourism versus residential urban? Thank you..

It's a great question. And we haven't broken it out, but we’re happy to say that there's absolutely differences, right? If you were to look at -- and this is why we've broken out not just -- we've broken out Manhattan, and you've seen the upward trend on all of them.

But, there's no question, our hardest hit Shacks are midtown, are downtown Chicago, are some of the places, not just New York, it is those places that are driven by office, event, tourism, Broadway, some of our busiest Shacks in the world continue to be down significant numbers. And so, why are we not worried about that? I'll tell you why.

Because those cracks are going to come back. Like, I don't worry for one second, whether those Shacks will eventually come back. And to have the recovery we've had with that as an overhang is really the story that we've been trying to tell and I think has been well understood.

So, yes, if you go to the Theater District, 44th and 8th, one of the biggest Shake Shacks in the world, prior to the pandemic, it is not one of our busiest right now. But you bet, it's going to come back, and we're hopeful for Broadway to open, and other things like it will impact that.

And by the way, the other thing we don't talk a lot about is there are certain Shacks.

Again, it's not that many, but because of our small comp base, it does have impact that are obviously tourist-related and specifically international tourism, right? We don't break that out, but there is virtually no international tourism, right? And we have a lot of Shacks in places where international and domestic tourists hang out, and that's an overhang.

So, that's part of what -- why our numbers are where they are..

Our next question comes from Lauren Silberman with Credit Suisse..

Thanks for the question. And Katie, congrats again on the role. Randy, a follow-up on the commentary on the new unit classes. Pre-pandemic, you've talked about units opening at a honeymoon and then in the second year coming down a bit.

As you look at the new unit class that was opened in 2019, so the last pre-pandemic class that's starting to enter the comp base, how does the recovery rate of those units compare to older classes? And then, any commentary that you can provide on how your 2020 class of new units is performing?.

Yes. So, we haven't broken those out yet. It's a really good question, Lauren. And I'll say this. I think it's just too hard to answer just yet. Because of the impacts of COVID, it's not a number I think that is reliable.

So going back to history for everyone listening, we generally have said that because Shacks often open so hot, we have a, on average, roughly 5% decline in the soft more year. Some of them are down much more because they're big flagship openings and some are up quite a bit in year two, right? And it balances out to about negative 5%.

That's been part of our story and a part of why we have a 24-month comp base. We certainly have some Shacks that have opened this year and in 2020 that were really big starts.

But, when you think about 2020 openings, we only had 20 and they were all impacted by COVID, in some way, right? So, we are hopeful that as they turn the year on month 13, turn into their soft -- and as they get into their multiple years, that there's growth.

And we'll -- I'm sure we'll see that in all categories, right? I'm sure we'll see some that what we call COVID winners, right, in locations that did better and what we call the opposite, which was struggled. So, look, we have 130 Shacks in our comp base, just 130. I think over time, as we've said, that will balance out.

It will be more -- less flagship. It will be more balanced. It will be more mature. But, it's a funky number for a while. There's no question about it..

Okay. And I can just do a quick clarification on the price.

The 3.5% that you expect to take in 4Q, is that all in Shack price, or is there any contribution from just digital channel price increase?.

So, the 3% to 3.5%, that's a mix of a couple of things. So first of all, it is pricing that we're taking strategically across various tiers of Shacks. And then, on top of it, it is the 10% price that we are passing through with our third-party digital partners..

Our next question comes from David Tarantino with Meraki. (sic) [Baird]..

Good afternoon. It’s actually with Baird. But my question is, on the long-term margin framework. I think you've historically talked about 18% to 22% for restaurant margin or Shack level contribution margin, historically, and there's been a lot of change over the last year and with all the investments you're making.

So, just wondering if that's a range that you still think is viable longer term and -- if so, what are the main building blocks to get there from here? Is it just a matter of recovering the sales, or is there something else that's needed?.

Thanks, David. Yes. Look, we haven't changed that long-term guidance. When you look at us being able to put up 19 -- over 19% in 2Q with a massive part of our company still significantly down, you see the opportunity to build back to where we think we can be.

But, what are the inputs? Sales, sales, sales and sales will be the things I'll tell you it's going to get there. This is part of our format strategy. When you look at next year that roughly a quarter of our Shacks are going to be drive-thru, that's a big new model. We're going to have a lot to learn. We have a lot to drive.

And we are hopeful that, that will continue to drive strong sales, profits over time. So, we believe in our business model, we know we have recovery still yet to be had. But, we also have evidence that those Shacks that continue to come back, continue -- and sales continue to come back in their op profits.

There's new parts of the business, right? There's significant investments in team. There's digital costs that didn't exist before but there's also offsets. We feel good about the price we're taking. We feel good about the sales we can recapture. And we still got a long road to go, but we believe we can rebuild margins over time..

Great. And then, one follow-up on the pricing. Randy, I think given all the cost pressures the industry is seeing and you're seeing in the investments you're making, I'm wondering why you arrived at 3% to 3.5% is the right level and not something higher? I guess....

Yes. I get it. We could easily -- and trust me. We sit around a lot and think about pricing and optimizing that. And if you know this company, since 16 years of selling burgers in a park in New York, we have roughly taken 2% a year, and we have been right around CPI for the entire history of this Company.

We are very conservative, and we are very long-term thinkers. I've seen every burger ever made at this restaurant Company in all these years. And we do not go too far too fast. We take our time and we do the right thing.

We do not know yet whether inflationary pressures will be transitory, how long they will last, and there is just no reason to take too much at a time when there's a lot of uncertainty in the world. And that's why we got there. So, we feel really good about the 3.5%, as Katie said, that is based in some digital moves and some straight in-Shack pricing.

Our In-Shack and app channels will continue to be the best priced, best value, and we feel great about that. And that leaves us the opportunity, David, to do more next year in the future years if we want. And we'll keep an eye on that.

But, we feel good that towards that -- somewhere around the middle of the fourth quarter, we’ll take the 3.5% and it's the right move for right now..

And David, just to add on there. Pricing is one way that you can address margin concerns. Really, where our focus is, is providing that guest with the experience, the delightful experience that they crave and giving them compelling LTOs that they want to pay up for that are margin accretive.

So, Randy did a lot of talking about the LTO, our summer menu, the hot honey chicken, the bites and the fries and also cold beverage. And all of these drive a higher ticket. It's a consumer wanting to add on the avocado, wanting to add on the bacon.

Those are ways to more organically grow the check rather than just arbitrarily throwing 5% or 6% price across the board..

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

Can you talk a little bit about how digital mix between the channels is shifting as we reopen? Are we seeing more of your in-app white label your own app growth versus, say, third party? And I think you said 17% increase in new purchasers.

So, do you know who those people are, are those first-time Shack users, or are they just folks that are first-time digital users? What do you know about them and maybe how they behave maybe differently than your legacy digital users?.

John, thanks. Couple of things. We haven't broken that out. I think, I would just high level, say the trends are similar to how they've been. Obviously, as you've seen the comments today about in-Shack returning. That obviously has an impact on the total digital, which includes delivery.

I think we'll see more delivery when cold weather comes back, right, you'll see that shift. But we're really pleased with how our channels are continuing to lead the way.

But, when you say who's that guest? I think what we're most encouraged by is the new learning we can finally start to see here in terms of how many people are omnichannel users of Shake Shack, right? We are seeing more and more guests who use all channels.

And by the way, we don't even know -- all right, we don't have the data on third-party delivery. So, it's even more than we know, right? But we are seeing a lot of guests who are using our app and web channels and coming into Shack.

Don't forget, and we don't talk about this enough with curbside as all part of the Shack Track digital and other ways to pick up on digital, that just gets more and more fulfilling over time. So more digital guests, both acquisition and retention and frequency. That's what we're driving for.

That's what we're learning, and we really think it's going to be accretive over time. But again, we've got to keep investing in these digital tools. We are a young digital ecosystem. We've got a lot to do, and we're really proud of the team and their work and where we're at today, and we know we've got a long way to go..

On development, so you tightened your range a little bit. And are these -- I think you're higher end used to be, I think it was 40 -- whatever the higher end was.

Is that slippage just pipeline and that happens, or is there something that's changing in the real estate market? And can you talk a little bit about, I think you said there's cost inflation next year. Part of it has to do with the drive-thrus.

But are you -- what is the underlying like inflation and development running in your business right now?.

Yes. So On the slippage, we -- look, we're still in the range we thought we would be. There's a couple of those that are going to kind of peak out. What you're seeing is just some longer lead times on often landlord delivery of spaces, often permitting and licensing.

There's still cities and municipalities that are just taking longer to issue permits and get things done. So, we feel great about getting that class, a real strong class open. We don't think that's really a material change that we're going to see in the ability of real estate. Now, look, if COVID changes things, that can often slow down projects.

We don't expect that at the moment, but we're keeping a close eye on that. Sorry, the second part of your question….

Inflation….

Yes. So, look, most of -- It's a little bit of both. We said about 10% to 15% for the next class. A lot of that will be format-driven with bigger investments in some of our large drive-thrus. You've seen that in those beautiful pictures that we've shared. But some of it’s in materials.

You've seen a whipsaw obviously, in materials in the last quarter of lumber, steel. Certain things are still hard to get, still have long lead times, and labor and contractors are up. And you're seeing this across the country. It doesn't matter what market. So, it's a mix, John. It's a mix of both of those things.

So, hopefully, some of that will be transitory and not super long term. And some of it is going to be our investment in this learning. And this is, as I said earlier, why we built the balance sheet we did because these investments are critical to the learning of the future and the transformation of our Company.

And when you think about Shake Shack has never had a drive-thru ever. We're really excited to see what that means..

Our next question comes from Brian Mullan with Deutsche Bank..

Just a question around the theme of digital and acquiring and retaining customers. In the past, it sounds like a transaction-based or a points-based loyalty program is not really a part of the plans at Shake Shack, although they are in place and other successful digital concept.

So, I'm just wondering if your thoughts there have evolved at all in any way?.

Yes. Look, we can think about loyalty a lot. Loyalty, what does it ultimately mean? You want people to come to our restaurant. There's lots of ways to do that. We have not developed, announced or decided on any kind of points base or other type of loyalty program.

At the moment, what we're really honing in on is personalization is connecting with guests, finding ways to reward, initiate and retain, get people back in different ways. We're doing that as we build out our toolbox. And we've still got a lot of building to do there.

So no, no new expectation that you're going to see any kind of traditional loyalty program at Shake Shack anytime soon. We never say never. Lots of ways we're going to keep testing and learning, and we'll keep you posted..

On to -- just following here on the digital side. We are completely focused on getting consumers on our app and getting our guests on our app, We're providing a more economical way for them to get delivery through our app and through third party. And that's basically where we are looking to build our digital footprint at this time..

And then, just as a follow-up on the drive-thru plans, it's up to 10 now by the end of next year.

Could you just speak to how you arrive at 10? And is it because you want to test the Shack drive-thru in a bunch of different geographies, or is it maybe up to 10 because there's actually several different types of drive-thru formats you have in mind, or maybe in the….

Yes and yes. There's a little bit of both. We want to do a lot of geographies. We expect the first few to be in the Midwest, one in Florida. And we really want to test it in what you may call kind of traditional drive-thru areas.

Look, we know if we do this in like our home market in the New York metropolitan area, like we're pretty confident it's going to work, right? We're going to work anywhere, but I think we have a lot more to learn when we put it in markets where we have a smaller footprint. And that's part of our investment there. There's great real estate.

The team is out there looking for it. We have tremendous opportunity. We want to make a real learning moment, right? We don't want to do that with one or two. And that's why we're investing in up to 10 next year, where we want to go really all in on this learning we will do a couple of different kitchen designs for our own learning.

We will be having various tech solutions for our own learning because we're -- look, there's one thing we know for sure, we won't get everything right on the first try. There's companies that have taken 50, 60 years to figure this out. We're going to take our time. We're going to learn things. We're going to mess things up. I can't wait to see it.

I can't wait to learn from it. And we'll see the first couple of drive-thrus as we're testing a learn..

Thank you. Our next question comes from Brett Levy with MKM Partners..

Katei, congratulations. Look forward to interacting.

I guess, since you had such a longer term view of things and you're willing to take -- absorb some near-term pain, how are you thinking right now about staffing levels and the commodities and the supply chain? Are you thinking about it in terms of not just taking care of keeping your current staffers, but also really trying to build out and maybe over-index in how you're looking at the in-stores, maybe have a delevering effect, less productivity just to make sure that you have the people in case there is that buildup, even if we see some slippage or some pullback on the sales front?.

Well, yes, you've got to build teams that can endure anything up and down, right? We've been through a lot of this last year. We've certainly learned how to do that and how to flex at various levels of sales, no matter where you are.

If you're obviously growing momentum or if you're flat or if you're declining, wherever you are, you want to have a strong team and that costs money. And it certainly costs money right now in retraining, and rehiring. And by the way just think about it. We've got 200 restaurants.

We're about to open 45 to 50 next year, right? You're talking about significant increases. We got to build teams we've got to strengthen and we've got to build training teams that can go around. And that costs money on current P&L.

The run rate business, if you were to look at it for Shake Shack is an interesting difference of how you might consider the numbers, right, whereas we're still in the building phase. We're still in the deep investment phase. We are a growth company. And we believe there's a lot of Shacks to be at ahead. That's going to take great people..

Our next question comes from Chris O'Cull with Stifel..

This is actually Alec Estrada on for Chris. Your urban locations saw steady improvement from April to June. But kind of remained flat from June to July, even though mobility is up.

Was there anything in particular in that July period that may have slowed the rate of recovery in those urban markets? Is it just average weekly sales seasonality, or is there something more there?.

Actually, we are encouraged by our July results. Typical seasonality in July is a little bit of reversal there, and we outperformed normal seasonality. Nothing really new to call out there, just a continuation of the very strong trends that we saw throughout the rest of the quarter..

Just one more from me. I think I heard you mentioned in the prepared remarks that traffic for the quarter was up 62% and Shack is down 9% year-over-year.

I'm curious, how does that compare to 2019? And then more broadly, how have you seen that trend in recent months? And does it vary between urban and suburban locations?.

Well, you got to look at Shack through the lens of COVID for of COVID for a second, okay. Generally, 2019 was a different universe in digital, which we know carries a higher average check in all channels, right? Generally, not as a rule, but often our suburban Shacks actually have a higher average check because there are more people in the party.

So an average transaction. And often, some of our urban Shacks have a small average check because it's more of a quick lunch, one person in and out type of deal. So all of that is wrapped up in that question as to how it compares to last year and how it might compare next year. But in every way, our check continues to grow.

And that has been a lot of the comments we made about some of the items for check and some of the premiumization that we've been able to add through cold beverage innovation and other LTOs..

I mean, I think that's really one of the more remarkable things when I look across the menu mix here and how check has evolved over the past couple of quarters, the amount of attach that we're seeing in cold beverage across all channels.

Even as In-Check has come back and digital has moderated a little bit, we still have been able to retain it is really encouraging. And I think that that speaks to the strength of the menu, the strength of the LTO profile and to the kind of endorses this strategy of really going all in on coal beverage..

Our next question comes from Jim Sanderson with Northcoast Research..

I just wanted to dig into a little bit more detail on store margins.

Just wondering how you're looking at the Manhattan marketplace and whether there are some locations that are actually achieving much stronger store margins with less of a recovery in sales, maybe they're getting to 90% of pre-COVID and actually finding that they're a little bit more efficient, maybe sales mix from digital is really helping them improve their efficiency and profitability.

Any learnings you're seeing from the variation in performance in Manhattan locations..

Our urban markets, our Manhattan market still have a lot of room for recovery there. And really the margin flow-through that you saw this quarter. One of the early return of urban and Manhattan traffic kind of shows you of that immense leverage and the power in that model. So nothing really to call out on that front.

There have been a lot of learnings during COVID, for sure. But as we start to reopen -- or not reopen, but as guests are to come back to the dining room and we kind of staff for that, there's going to. There's puts and takes on that side. But as we look ahead here, there's still a lot of great recovery available in urban markets..

And Jim, you got to remember, it's also some of our highest rents, right, for the obvious reasons. That just is tough when you have lower sales in some of these markets. but Again, another reason why I think the overall average for the company is so strong given how hard hit some of those bigger heavy hitters are..

Just a quick follow-up. Any thoughts -- and again, some of these urban markets of considering relocations, maybe there's just a handful of stores that just may not work based on what might be a much lower commuter traffic potential that type of things, Urban Chicago.

Yes. It's a good question. We talk about it from time to time, and I've yet to make the Shack, I didn't like. So that doesn't mean we won't make a smart business decision when the time comes. But generally, there really isn't any Shacks that we look at and say there's not a reason as we return that this should work.

And again, also because we're so young, right? There's so few Shacks that have ever even resigned a lease, like in the history of the company, there's so few right? So we're still in that very early phase where that's probably not the best use of money. But we'd rather open another one, and that's the intention probably..

Our next question comes from Matt Curtis with William Blair..

Thanks for squeezing me in. I just had a question on the upcoming vaccine requirement for indoor dining in New York City. Just curious as to how for indoor dining in New York City.

Just curious as to how you're preparing what kind of guidance you might be getting from the city at this point? And basically, what you think the impact might be?.

Yes. It's early days on understanding that. I think we are -- Looking for more clarity, we expect we'll get that in the coming days and weeks. And we're going to follow mandates that our local governments give us. That is what we will do. We certainly probably expect that we'll see more cities take this tack.

So as that happens, we will listen, we'll follow, and we'll let you know. I think it's going to be an interesting impact. And not sure is the answer, but what we know is that we will follow what we're told to do..

Okay. Fair enough. And then just one more. And Randy, you may have touched on this before. but I wasn't quite clear on it.

But basically, where is Shack right now relative to what you believe to be your desired staffing levels, either today or say, compared to 2019 or something?.

Yes. There's some Shacks. Many Shacks are fantastic. Here's the theme the way we say it, right? There's always been places where it's harder to hire and places where it's easier to hire. Today, where it's hard to hire it's hard to hire and where it's easy to hire, it's pretty much easy to hire.

And I know that's oversimplifying it, but there really is a wide swath. And it's also -- we do think that's transitory too. There's just been pockets of moments where you might have a different staffing level. So I think we still need to optimize. We still need to grow.

You're seeing that in our investments that we're going to make to get back to full staffing levels everywhere and that will also come along as sales recover..

Our next question comes from Jeff Bernstein with Barclays..

This is Parekh [ph] on for Jeff. And Katie, congrats to you on the new role. My question was on beef.

With your strict sourcing requirements, what's the outlook for the specialty beef market for the balance of '21 and into '22 -- Are the supply chain issues and labor shortages that you're seeing at the major processors also spilling into the specialty market, or are your suppliers kind of independent of that? And then lastly, if you were to experience a disruption in supply, are there enough alternative sources out there that you can pursue?.

Great. Thank you. So, as we're thinking about beef here and what we're seeing, last quarter, we -- as I talked about in my earlier remarks, we did see elevated price in beef. It's moderating here, but it's still up on a year-over-year basis. And Randy, I'll let you discuss that..

Yes. Look, when it comes to like the supply, we feel really good about how we work with ranchers and our purveyors we don't expect any disruptions there. Obviously, we've seen some of those. Those disruptions happened the real peak of COVID last year, where prices went up, and there was a lot of outbreaks at various places. That we have not seen.

But it's not easy for them either, right? You're seeing that in chicken inflation, you're seeing it across the protein industry. So we're watching it carefully. We don't expect it to come down anytime soon, but we feel good about our ability to supply our restaurants..

Our next question comes from Rahul Kro [ph] with JP Morgan..

Just can you just give us a sense of what happened at some of your near and relevant competition and urban and suburban markets? Is there a percentage of like competition that came off that you can talk around and how this could impact some of your near-term trends in these locations?.

Rahul, we lost you there for a moment. I'm so sorry. I think we just -- you cut out for a second there.

Can you just repeat the suburban clarification?.

I'm just looking for some sense of what happened to some of your near and relevant competition in the urban and suburban markets. if you can talk around -- yes, thank you..

Yes, it's a really good question. I think in the suburbs, there's more restaurants than ever, right? And as you've seen from traditional fast food or casual dining as people have returned. There's quite a bit of excitement in the suburban markets, which is why we feel really good about the 2019 compares that we've been able to do.

Yes, I think in suburban, I don't know. I think the death of the restaurant has been much overexaggerated. I think if you actually look at it, you walk around New York City or urban centers. There may be some that -- there's certainly some that struggle through the last year, but many of those restaurants made it, and many new restaurants are opening.

You're seeing it. You're seeing it around New York. I can walk down the block and there's like, really cool, great restaurants opening up all over the place. So I don't think there's any shortage of competition. is what I would say. So we have to do what we do. And when we do that, we generally do pretty well. We've always had that mindset.

We don't worry so much about what's happening around us. We concern ourselves with how we operate and execute. And if we do that, we feel pretty special about the package of Shake Shack that we've put together.

So yes, I think I think it's an interesting question, and I don't think it's played out to be as many like closures as people may have predicted..

And when I look here at where consumers where diners are preferring, they're clearly looking more and more towards more convenient options towards digital options. And that's where I think that we're meeting them where they want to be, where we have Shack Track and then also we're going to be going into drive-thru.

So those are two very exciting things that I think will continue to help us address a pretty competitive landscape..

Just a small follow-up on the labor side.

Like for your existing stores that are fully opened up, especially in like the urban markets, is this other staffing levels back to pre-COVID levels? Are you seeing any changes to your store operating hours on day-to-day operations?.

It really depends on the store. It depends on how that Shack has evolved digitally, right? Some do more delivery and pickup than others. Some are very in-Shack related. So it's a little bit of a mix. Generally, we are similar to 2019 staffing levels when we are optimized. But again, we've learned a lot through last year.

We've learned how to schedule better. We've learned how to continue to drive our kitchens better. But at the same time, we're always about driving as much sales as we can. So, we're continuing to make sure we have the right people on the shift to optimize. And it's not perfect every day.

It's not perfect at every Shack, but -- and we've got work to do, but we'll keep plugging away and get there..

Thank you. There are no further questions at this time. I would like to turn the floor back over to Randy Garutti for any closing comments..

Thanks, everyone. Really appreciate the time everyone took today, and stay safe. We'll see you soon. Take care..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day..