All right, thanks. Good morning, everyone. I'm Brian Vaccaro, the Senior Restaurant Analyst here at Raymond James, and we're happy to have you here today for day two of our conference. So we're excited to have the team from Shake Shack with us today. It's been one of our top long ideas for the last couple of years. They've generated some very strong compound performance, margin expansion, and accelerating high ROI unit growth. Today with us from the company, we have CEO Rob Lynch. So Rob, thanks so much for your time today.
Thanks, Brian.
So for those that might be new to the story, if there's anyone in the room, maybe kick us off with just a high-level overview of the company and maybe some quick highlights on your 2025 performance.
Yeah, great, thanks. So over the last couple of weeks, we've had some changes in our company, and I've had the opportunity to connect with a lot of our investors and really garner kind of where everyone's heads at and make sure that we're addressing and talking about all the great things that are going on at Shake Shack and maybe clearing up a couple of things as well. So first, I just want to make it abundantly clear. We are in growth mode, and we are investing for growth. And that's part of the great story that is Shake Shack, both from a comp standpoint, a traffic standpoint, a development standpoint, right? So we're making strategic investments in our marketing and our revenue-producing strategies on our comp sales and comp stores. And then we're also investing a fairly significant amount of capital into opening new restaurants.
This year, we'll open somewhere between 45 and 50 new restaurants. It's always interesting and exciting to come to the end of the calendar year and see which restaurants open and which ones have to bounce into the first week of the new year. But it's the most restaurants we've ever opened in one year. Next year, we've already guided to opening 60 restaurants. The reason why we have confidence in doing that is because we have really shored up our core business. We have spent 18 months. I've been here 18 months now, 18 months really optimizing our restaurant operations. We are in the early stages but building strong momentum on building a supply chain that is best in class and efficient and can support our initiatives moving forward.
And so when you have a strong operating base, you have great supply chain that's delivering competitive cost structure, and you're seeing strong returns on your development efforts, you gain a lot of confidence in making investments in driving top-line revenue. And it's really important that that has happened this quickly because we are in a very hyper-competitive restaurant environment right now. Obviously, the traffic trends across the industry are not where we would all hope for them to be. And so we're out there competing with the likes of McDonald's and Chipotle and all these bigger companies to make sure that we keep gaining customers, keep driving traffic. And I can assure you that we are taking share right now. We had a great Q3, and we've continued that momentum into Q4, and we're really excited about heading into 2026.
So one thing I'd like all of our investors and prospective investors to understand, though, is that investment that we're making in marketing to drive revenue, that lands in our G&A. A lot of our competitors fund marketing at the restaurant level. It hits their restaurant-level margins, right? We actually don't account for it that way. It shows up in our G&A. So a lot of investors look at G&A as a proxy of productivity, a proxy of fiscal discipline. I can assure you, I come from a private equity background. I'm a great steward of our P&L. The growth in our G&A is not S&B-driven. It's not a bunch of new heads walking around trying to figure out where the bathroom is. It is the fuel that's driving the traffic to our restaurants. And we're really excited about the returns we've seen.
We're really excited about the progress we've made. We're not all the way to bright. We still only invest between 2.5% and 2.7% of our revenue in marketing, which is significantly less than a lot of our peer group, but we're making a lot of progress, and we're learning along the way. We're figuring out what the right model is for Shake Shack, given our footprint and given the assets that we have at our disposal. So I just want to make sure that that is abundantly clear because I know there's some confusion out there, and we did take our guidance up on our G&A, and I've answered a lot of questions about it. So I just want to make sure that I'm transparent about that.
Yeah, that's great. That's great. Thanks, Rob. So we're going to talk about some of the levers you've been pulling and drill down into a couple of those. But I wanted to ask a question about how you view Shake Shack's just relative value proposition and thinking about it in a world where a lot of QSRs have taken 40% plus pricing versus 19%, or maybe there's been other concepts that have pulled labor back or redeployed labor, and it's changed just the vibe and the experience, even in the limited- service world. And I know service is an important point of the Shake Shack story, the experience, the in-store experience. So maybe just talk about those two dynamics, whether it be price or experience or other dynamics you think that are key differentiators for Shake Shack.
Yeah, so great question. So we delivered $173 million in EBITDA last year, and this year we guided to $213 million. So that's $40 million of EBITDA growth. And while doing that, we persevered through unprecedented beef prices. And we've also taken significantly less price than we have over the last five years. Shake Shack was not immune to that behavior of significant prices coming out of the pandemic. And so when I showed up, my number one mandate for our team is we have to make sure if we're going to achieve the growth that we need to achieve and we're going to open all these restaurants and these new markets, we have to deliver a great value proposition. And so we have been very disciplined about our pricing. So while we've persevered through the beef costs and haven't taken as much pricing, we've increased our operating margins dramatically.
How have we done that? Productivity. We're better operators today than we were six months ago, twelve months ago, six years ago. We haven't cut labor. I want to make that very clear. We've redeployed our labor and made it more efficient. I'll give you an example. We used to have, when we open a restaurant, we open at 10:30 A.M. We used to have the whole crew come in and open the restaurant. It's unnecessary. We don't have business until 11:30 A.M., 12 o'clock. So we have taken the shoulder hours, both at the opening and the closing, and taken the unneeded labor from those periods and redeployed it into the high-volume periods throughout the day, namely lunch and dinner, and in doing that, we've taken over a minute off of our service times.
So when I was at Taco Bell, if we could take a second off our average service time, it was a big deal. We've taken a minute off in the last year. So you don't deliver better times and better speed by just cutting labor to drive margin. The other thing I want to reinforce is we've also been able to do that while increasing our team member satisfaction. Our retention rates on our team members are up dramatically. Our tenure, we used to have average 90-day turnover for our hourly employees. That was only six months ago. Today, we have 180 days. So the team member experience is improving while we're getting more efficient in labor and delivering better guest satisfaction. So operations is at the heart of everything we do.
We've been able to really dramatically improve our operations while holding on price, persevering through beef costs, and drive margin as a result of that.
Yeah, yeah. And if we maybe drill down a couple of the levers you've pulled across menu innovation, want to talk a little bit about marketing. And within menu innovation, there's also this value, obviously, in this environment. It's been an intense environment, maybe looking back for two years now. But so we'll hit on each of those, maybe in no specific order. Maybe just on menu innovation, you've hired some new talent to the company in the last 12 months. They've been working towards this strategic LTO pipeline that you've talked about and started to see some of that in the second half of this year. Maybe just talk about how important that is to the brand, same-store sales, the differentiation of the brand, and kind of what you see moving into 2026, this push and pull between menu innovation and premium versus value given the environment we're in.
Yeah, I mean, the reason for Shake Shack to exist is high-quality food. All of our ingredients are the best we can possibly source, and we turn those ingredients into recipes and deliver the best burgers and fries and shakes and LTOs in the industry, and that is the lifeblood of this company, and we are going to continue to double down on that. We're going to continue to push the envelope on new culinary experiences while also focusing on making our core menu better every day, and that is what we sell. That's what we're investing the marketing behind, the culinary, and so that is going to be a key driver for us, but it has to be executed in a way that doesn't negatively impact our operations or our supply chain, so we have to stay efficient and productive in both of those.
So we won't allow our culinary to supersede our operations. But the great thing about our model, there's some challenges with our model. Everything made to order, right? So our service times, even though I talked about we've taken a minute off them, they're still higher than the industry average. They're always going to be because we make everything fresh to order. But in making things fresh to order, it gives us the flexibility to execute things that an assembly line, assembled food restaurant can't do, right? So we are going to leverage that. We're going to bring things to the marketplace that create excitement that have never been seen before in our industry while also making sure that we're delivering our core menu and our core value prop with excellence.
Increasing marketing spend is another piece of your strategy. I understand it's the early days, still kind of early days of that journey. Maybe share a few examples of where you're seeing the most traction, whether it be paid search, engaging influencers, Connected TV, any metrics you can share that might frame that, or just maybe also touching on the digital database and the customer acquisition that you've seen the last 12, 18 months.
Yeah, you know our footprint doesn't afford us the opportunity to really leverage national marketing. We can't go out and buy national football games and such because we're still 400 restaurants. We still have markets where we wouldn't get the returns on making those types of investments. So our marketing investment is very surgical. It's very strategic. And we go and invest marketing in the markets where we have the appropriate amount of penetration to derive the returns from that marketing investment. So we are investing in our top 20 markets. We're going in. We're buying media, whether it's social, Connected TV, or otherwise, within a five-mile radius of where we have a Shack. It's all digital. It's all delivered digitally. So that allows us to go in and make sure that the messaging that we're sending, and it's addressable media. So media has changed a lot.
I came up through the marketing ranks. I was a CMO for a long time. We used to go out and buy ESPN and buy these things. Now you buy people, right? So we go out and we find the people that fit our target profile within a five-mile radius of our Shacks, and we send them messages. And if they engage in those messages, we send them another one. If they don't, we move on to the next person because we don't want to waste our precious marketing resources. So we are going in and finding the right people in the right spot at the right time with the right message. And so that's why we believe that we're getting good returns and we're able to, we've been able to drive traffic. I mean, Q3, we had positive traffic when a lot of folks didn't.
Like I said, we love our momentum in Q4. That is kind of the core model that we're going to continue to execute as we move into 2026.
All right. Maybe to wrap up on some levers, just thinking about value tactics, and I like to talk about them in terms of value hooks. It seems really going back maybe two years now, maybe late 2023, early 2024, we started to see the company move into new value tactics. But that's obviously evolved since you've been there as well. But maybe talk about how important have those value hooks been to the brand's outperformance in recent years? Anything on attracting new guests versus driving frequency of existing? And then the other question is, how do you ensure that you're not training your customer to expect a deal over time?
Yeah, you know the industry that we compete in is driven a lot by price-pointed promotions. Almost every TV ad you see for QSR has a price point at the end of it, and I think the numbers about over 40% of sales in QSR is discounted, right, and so we're well below that. We're still in the single digits. So although it feels like Shake Shack has stepped into the value game and is promoting, we're still way below where a lot of the competition is, so I feel great about our ability to leverage promotions to get our food into people's mouths. We fundamentally believe we have the best food, so we know when people try it, they love it. That's not always the case in some of our competitors where it's more of a utilitarian eating occasion. I'm hungry. What's around me? What's cheap?
I'll go get it. Shake Shack's a destination. Once you've had our food, it's something that you plan to come to. It's more of a planned eating occasion. So we want to make sure that we are reaching not just the top 5% income bracket. We want to make sure that we're delivering value props that can really permeate through the customer base throughout the industry. And that's how we're going to grow. And as we move into these new markets, we're seeing incredible success in markets like Rochester, New York, and Oklahoma City, and Pittsburgh, Pennsylvania. These are places that have lower household income. And there was a concern that we couldn't go into those markets because of our price point. That hasn't been the case. We've been very successful going into these secondary markets. And the other thing I'll tell you, we don't have a loyalty platform.
I don't know if any of you have any kids or teenagers. I have three teenagers. Teenagers will not even go to a restaurant where they don't get points. They just don't. I have to get my kids like, "Hey, Dad, I don't get any points, but for you, I'll do it." They want points. And we don't have that. So that is a barrier to our value perception. We're fixing that. We're building a loyalty platform. And in preparation for that loyalty platform, we've really invested heavily in driving traffic to our app. I communicated in Q3 earnings that our app traffic is up 50%, right? Our app downloads are up 100% this year. And every one of those new app users will automatically transfer right into our loyalty platform.
So when we launch this loyalty platform, we'll have a built-in user base that can leverage that platform in a way that hasn't been accessible to them in the past. And I think that's going to be a big improvement in our value perception. And so we're making these strategic investments. We're not going out and saying, "Hey, you can get a meal for $5 or even $10." We're not cannibalizing our core business. We have an app that makes up less than 10% of our business today. That's where we're offering the biggest value. And it's driving the traffic in there. And the lifetime value of those app users is much higher than the occasional tourist or whoever comes in infrequently.
So we're making strategic investments and leveraging deals and promotions to create lifetime value, not just come in and have to buy them over and over again. It's really a strategic platform for us to leverage long-term.
You touched on it in your response there earlier, just talking about the strength you're seeing in certain pockets of the country and new markets. So that's something that has struck us over this year, looking at some of your regional comps that you disclose, just very strong one- and two-year comps in the South, the Midwest, and Western regions. Maybe just spend a minute on sort of the key drivers of the outperformance in some of those markets, whether it be awareness, more flags in the ground, et cetera.
Yeah, I mean, the majority of our investor base is here in New York. So I would ask if any of you can just maybe throw me a bone and get New Yorkers to come to Shake Shack a little bit more. We've got great high-volume restaurants in New York, very profitable, but not growing as rapidly as the rest of the country. And some of that's macro and some of that's micro. And we have some things to fix here. But when you go to places like Florida and Texas and Arizona and the Midwest, we're growing well above our reported sales growth because we are so highly penetrated in New York and the New York Metro and DC and Philadelphia that it kind of drags down the great performance that we're seeing in places like Dallas and Houston and Miami and Tampa and Orlando.
So that's where our new restaurants are going. I mean, our mix of our development is evolving to go where the growth is. It doesn't mean we're not going to continue to support New York. It doesn't mean we don't love being here. Our headquarters is here. But we are evolving the model to go out and get all of these new customers that we haven't been able to reach in the past. And they're responding incredibly well. I mean, Texas in the last six months since we turned on the marketing has completely turned the business around. So we are really excited about the investments we're making in both marketing and development, building this footprint out beyond kind of our historically highly penetrated markets.
All right, we'll shift here with the time remaining, maybe a little bit to operations and margins. Your team has obviously driven some meaningful improvements. You talked about the speed and consistency of the execution, while also driving meaningful margin improvement, especially in labor. But what are some areas that you still see the biggest opportunity for improvement as you think about that target of 50 basis points of margin expansion over the next couple of years?
Yeah, I mean, we're just scratching the surface on supply chain. And the difference between us, once again, a company-operated concept, there's some disadvantages, right? We have to invest our own capital to get sales. There's some things why there's more volatility with commodity inflation. So there's some things why people favor a franchise business. But one of the advantages we have is that all of the productivity that we create in operations in our restaurants and in our supply chain, every penny flows through to our bottom line. In the franchise business, it goes to the franchisees. And you're kind of betting on the come that they're going to turn around and use that cash flow to build more restaurants and generate more revenue. But a lot of times that goes into jet skis. With us, that's not the model.
We have huge initiatives underway to. You've already mentioned the operational improvements, but we're just scratching the surface on supply chain. 2026 is going to be transformational for us from a supply chain standpoint. But it's not just a cost thing. When I got here, a lot of our ingredients were single-source supply. That's a business risk. That's a business continuity risk. If that supplier gets hit by a hurricane or if they just decide to go out of business, it disrupts our business. So over the last six months, we've conducted RFPs across really almost every facet of our business and brought in multiple people to come in and compete for our business. And that has afforded us price improvements, but it's also de-risked our business. And it's also created a situation where we are getting even better quality from some of our new suppliers, right?
There's a narrative out there or concern out there that we're bringing in suppliers that are diminishing quality. We had a question on the earnings call about, are you now using frozen buns? And that's killing the quality. We've been using frozen buns for 10 years. So that's just somebody who didn't do their homework. But when you bring in new suppliers, I mean, my philosophy is competition creates strength, right? And so when you bring in new suppliers and people are competing for the business, it's not just a cost thing. It's a quality thing and a business continuity opportunity for us.
That's great. One other topic on the operations front, we've been seeing and spent some time with you as well in the past, looking at some new kitchen equipment that you're testing, and for anyone that might be new to the story or missed that note, et cetera, maybe talk about some of the new pieces of equipment, maybe at a high level, because I know we can't get, this is not a two-hour fireside. This is a 25-minute fireside, but maybe with the time that we have, can you just talk about the kitchen equipment and kind of the multi-year potential opportunity if that goes well?
Yeah, I mean, this may be boring to a lot of people, but I love it. I geek out on it. But what we're doing is not rocket science. We're just catching up, right? I mean, we don't have hot holding space for our fries, right? So that means we have to drop fries every time we get an order, which means ice-cold fries are going into the grease. It decreases the temperature. It creates inconsistency in how the fries cook, simple stuff like that. We were cooking our bacon on our flat tops. Well, why is that a problem? Because when you run out of bacon in the middle of a shift, in the middle of a rush, and your flat top is filled with burgers and you need bacon, you have to go cook bacon on the flat top.
And it takes up space and it decreases the number of burgers and the throughput of the burgers. And then you have to go, and then you're increasing your service times. So we did this genius thing. We bought an oven. So now we cook our bacon in an oven. And it doesn't take up any flat top space. And it delivers the same quality, even better, because it doesn't sit in its own grease. It drips the grease. So once again, these are not anything that Elon Musk is going to be investing in, but it's definitely something that's transformative for our business. So operations is blocking and tackling. Operations is discipline. Besides the equipment, another crazy thing, we developed a standard scorecard. So all of our operators know exactly what they're being measured on.
We can review their performance on a weekly basis and let them know how they're doing and then coach them and train them on how they can get better. Once again, this isn't new to the world stuff, but Shake Shack didn't have any of that. It's like every restaurant was operating as its own beautiful flower. You can't scale that. Our job is to make sure that we still deliver all the unique, special, differentiating things that Shake Shack brings to the marketplace and that our people still feel passionate about cooking food. We cook food. We don't assemble food. Everything's not pre-cooked and then you assemble it. We're cooking food. Our people take pride in that. We have to do it in a scalable way that's efficient and productive.
All right, maybe we have one more minute. We have to talk about unit growth, obviously. And I'm going to ask you about international, a piece of the story that sometimes people aren't fully aware of. But you've got 235 units generating over $800 million in system sales, a $55 million royalty stream, a pretty significant contributor to EBITDA. And you've been busy signing up new deals in 2025. Maybe just talk about how the international business is contributing to growth today and how you see it over the next several years.
So we have amazing partners. We've been very choiceful in going into the geographies that we're in. And some of my previous concepts, anybody who wanted to hang a shingle on a window and sell what we were selling, we were, "Okay, you're in." That's not how this works at Shake Shack. We have amazing, sophisticated, multinational partners. A lot of our partners at Shake Shack internationally originally brought Starbucks to their market in China and Japan and the Middle East. So we have great partners. But we've limited how quickly they can grow because we have been very restrictive on what they can do and how they can do it. Now, obviously, we want Shake Shack to show up in the world the way that makes us proud and is representative of the brand. But there's got to be some customization.
There's got to be some tailored approach to these geographies. And so we have worked with them to afford them the opportunity to do that, both in the construction of their restaurants and their innovation in menu items. So we launched a fish sandwich in China and Hong Kong. It doesn't sound crazy, right? But we would never have let them do that even two years ago because we don't have a fish sandwich in the U.S. So those types of things are game-changing. And so they start to believe that they can tailor their food and their menu in a way that's conducive to their customer base, but also representative of the best of Shake Shack. The other big thing about the international business that we've changed is we have standardized kitchens, which make them easier to build, and we have smaller formats, right?
When you go into some of these, the original Shake Shack was like, "Hey, everything's going to be a flagship. And everything's going to be 4,000 square feet. And it's going to have this big dining room and this big kitchen and all this stuff." That's not going to allow us to achieve our scale objectives. So we have developed smaller format units here in the U.S. to allow us to access different real estate where the economics make sense. And frankly, just from a real estate availability standpoint, it opens up the aperture of where we can put a Shake Shack. That is a game changer internationally because a lot of our international markets have very different real estate than we have here in the suburbs of America. If you go to the U.K., if you're going into London, I mean, the real estate market is hyper-restrictive.
China, Japan, hyper-restrictive. So they haven't been able to get the real estate that they may have wanted because the footprint was too big. So we fixed that. We created a smaller footprint. And we're working with them to customize that. And that's going to help our current licensed partners grow. But it's also going to allow us to go find new partners who are excited about markets that we haven't penetrated before because of some of those barriers. And last but not least, all of the supply chain savings that we're driving, the operational improvements. There's a lot more collaboration now between the U.S. and international. Before, it was run as two completely separate businesses with very little integration.
We brought our whole international team into our headquarters last month, walked them through our equipment innovation center to show them all these great things that we're working on so they can take those insights back to our licensed partners and help them become more profitable so that they'll reinvest their capital in our brand.
Well, that's great. Well, unfortunately, we are out of time, but we will continue the conversation in the group session right after. So thanks so much, Rob.
Thanks, Brian.
Thank you.