Shake Shack Inc. (SHAK) Earnings Call Transcript & Summary

Good afternoon, and welcome to -- or welcome back to Morgan Stanley's Global Consumer Conference. And our next fireside chat with Shake Shack. I'm John Glass. I'm the restaurant analyst at Morgan Stanley. A brand like Shake Shack needs little introduction to this crowd either as investors or as customers. But in the off chance, someone out there is less familiar, Shake Shack is a modern roadside burger stand famous for its burgers. Its crinkle cut fries, its famous shakes and much more. And despite the brand's outsized recognition, it is still small, and its early innings of growth with about 220 units domestically all in as well as over 100 international licensed locations. I'm joined today from their corporate headquarters in Manhattan, the company's Chief Executive Officer, Randy Garutti and its Chief Financial Officer, Katie Fogertey. So welcome to both of you.

All right. It's great to be here.

Well, thank you. Before jumping in, I do have to make 1 important disclaimer, which is for important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/research disclosures. And if you have any questions, please reach out to Morgan Stanley sales representative. Well, with that out of the way, I thought, Randy and Katie, we would talk about a couple of things. I think first, just to ground us. I want to talk about the important things around development, around technology and some international, but where we are in this recovery, right? I think Shake Shack has had a unique format exposures, both to urban markets and certain geographic markets. And so just to understand where we are at Shake Shack is today in that recovery. Randy or Katie, can you just sort of remind us where we are in the recovery in the urban markets versus the suburban markets, and I think there has been some improvement in both, particularly in some of the suburban markets recently. But where are we in that journey? And how far do we still have to go?

Well, we're still in that journey. I think as we shared Q3 was the highest sales quarter in the history of the company. October continued to rebound, and we really just continue to see that straight trajectory and momentum recovery. Obviously, it's been well told our story of the urban impact. Here we are today on Zoom rather than in Midtown Manhattan for this conference as we normally would be. And that tells you a lot about how our shacks continue to be impacted in truly deeply urban places. But I think some of the great news that you saw and the green shoots continuing and the October numbers we shared were suburban, being significantly up in the [ count base ] versus '19 and urban really there, getting to down about 8 after having been down at teens, at 20s, 30s in the past, specifically in Manhattan and some of the other places just continuing to see strength recover. So that's good. I don't think we just spent a lot of time with the question of the week of what the new variant could mean. But that's just yet another uncertainty that lends itself to a question mark for those urban recoveries. What we need just to complete the recovery and to continue to move forward is that continued return of office to resume events, workers, games, those kind of a things that were the hallmark of some of the real estate choices we made for a very long time. And we expect that will happen. None of us know when. But in the meantime, John, we are very clear focused on how we're going to move forward. And that's going to be focusing on our people. We'll talk a lot about that, I'm sure, today, our digital transformation, which is well happening and lots of investment to come. Our formats, I'm not quite accidentally wearing, our drive-thru order taker jacket right now because we expect next week to open our first ever drive-thru for Shake Shack in Minnesota. So it's going to be cold out there. So we got some nice Carhartt jackets for our team that to be outside taking care of people to launch our first ever drive-thru and that's just one of the stories in the format and keep on working on the guest experience. So with all of that together, that's really our focus, our strategic plan and we're going to have a lot of opportunity ahead -- about to head into our biggest class of shacks ever.

Yes. So I want to touch on development in a moment, Randy, but you did bring up the variant and yes, we don't know what's going to happen, but in terms of a management team how would you approach it, right? You must have huddled earlier this week or over the weekend and said, "Listen, here we go again." What is the plan? I understand taking care of team members is first and foremost. But from an operations standpoint, is there anything different, anything you've learned that you think now prepares you better for whatever comes next?

It's a great question, John. I think waiting -- be patient, #1, let's wait and see and see how this impact, my comment, especially for a company like ours that has significant exposure overseas, and that has been up and down through our global business when countries like Japan closed their borders like they did today, that has impact on our Japanese business, right? Those are smaller impacts than we expect to the materiality of our overall domestic company. But when we think about it, we say, "Look, we've gotten good at this. We're prepared for anything, and we're going to keep on moving forward." Continuous operations really is what we're focused on and hopefully continuing to move forward. And it's impossible to say where this will go, we don't expect hopefully a material impact more than has already happened, and we'll see. But I guess we're holding our breath a little bit and hopeful that the trends that we've been seeing as a return to normalcy continue somehow through this.

Got it.

To speak in this moment to, it's important just to go through our digital mix. And even with the recovery that we're seeing in urban markets, we've still been able to retain 42%. Our sales are now in digital, and we've been able to retain 80% of the digital sales that we had at kind of the peak of the pandemic. So who's to say how this will all unfold. But it's encouraging sitting here and looking at the digital investments that we've made and that we'll continue to make next year that this is the company that is now able to offer more convenience to guests and offer Shake Shack in more channels than prior to the pandemic.

That's great to know. And I'm going to come back to digital in a moment if you wouldn't mind, because I think that's an important area. But I want to talk about development first. So I want to talk about the class of '22, right? There's probably more formats, in different formats in '22 than there ever has before. So Randy, you said a high level, what is the class of '22 look like from a geographic and from a format perspective to make sure we're all on the same page. And then you talked about drive-thru, so I definitely want to get the drive-thrus in terms of how you see them. But just class of '22, what does it look like as it compared to prior classes?

We're really excited about it. Number one, it's our by far largest class we've ever had, from 45 to 50 domestic company operated and then 20 to 25 international license so by far a largest class, really well mixed. And that is by design. We have a strategic portfolio mix, John, of all the new formats. Let me break that down a little bit. We believe between now and the end of next year we will open up to 10 drive-thru locations. We have 0 today and we will do roughly 20% of the class next year as drive-thrus, super excited about that. We've got a handful of drive-up locations. Those are locations that instead of a traditional drive-thru, you use your app, preorder and come around the back and pick it up. We've just opened one yesterday in the Columbus, Ohio suburbs. We'll be doing a number of those again next year as well as walk-up Shake Shack windows, really leading in on convenience and the rest would be a good mix of what we would call a core shack experience, what you know of, both urban and suburban. So a couple other deeper breakdowns for you. It will be majority suburban. That said, we're still doing a bunch of urban. So where are they? We've got a few in Manhattan. We're really excited about it. We just announced we're going to have a site at the base of the high line in the Meatpacking District, an incredible site. This is a typical, we wouldn't have gotten this if it wasn't for COVID type of moment, right? This is an existing restaurant site that would not have become available and we've bounced on it. We've got another site on the upper east side of Manhattan happening. We've got others coming. Super excited about that and other urban shacks that will do. And generally, John, we will do very few new markets. We want to start to gain more economies of scale in the markets we're already in, California, Texas, the Midwest, the Northeast, kind of a little bit of everything, some in Florida and throughout all those formats to really mix it up. We're -- here is the -- after all that, what are we doing right now? We're still in early days, as you said, still just over 200 restaurants. Company operating to add another 25% to that class is a significant leap for any company, and we are optimized right now for learning. That's the language I want to keep saying. We are optimized for learning. We are doing lots of formats, lots of deep investment in drive-thru, various types of drive-thru so that we optimize that learning quickly and can look towards what drive-thru could be in our future. And it's early days. We're really excited about we got a lot to do.

Yes, I want to pick up on one thread you had mentioned last call on the composition, the suburban locations before we talk about drive-thrus. I think there is new ones, maybe I didn't appreciate. Suburban units maybe historically were more attached to malls. There is, I think, since 2019, they've been freestanding. It's an important distinction, right? And maybe if you can speak to how those 2 cohorts have performed differently, particularly during COVID. We just talked about a better recovery in suburban markets. Was that led by these freestanding units? Do you -- are you now less incented to be a mall-based or attached to a regional mall and -- because of the learnings from these freestanding suburban units?

I think there's multiple crosscurrents in that whole theme. But definitely, our suburban, look, driven recovery has been led by those traditional freestanding, outdoor shopping area type locations. And our mall-based shacks have been more impacted by secular trends there, but that does not mean that we do not like mall-based shacks. In fact, they've very little build cost. Sometimes they're easier to stack because it's a location that employees are already going to, and the rent can be cheaper. And so even without a full sales recovery, some of these shacks are putting up some pretty good margin. So it's not that we need a full sales recovery in the mall-based shacks in order to be happy with those in that business and we will continue to build shacks that are in Tier A premium malls. It's just that when we look at the sales momentum, especially relative to 2019, most of that has been led by the more freestanding locations. And it will be really interesting to see what happens with drive-thru. It's just a format that we haven't had before and certainly we are seeing lots of other data points in the industry that suggest that consumers are gravitating towards that at this moment in time.

Okay. Can we talk about drive-thrus. And I guess it's a philosophical question in one respect. Why open 10 this year when you don't yet have 1. Sometimes you open 1, you wait 6 months, you understand, you learn to your point and experiment from that. So what gives you the confidence to build multiple drive-thrus before you have 1 open versus the thought of just opening a drive-thru, understanding it and no doubt tweaking designs are along the way to make sure that it works the way you think it should work?

Yes. John, it's a great question. I think it's -- great companies make big bets, and it's a big bet. And it's also, I would say, a really good bet. Why Well, we did invent the idea that people like drive-thrus, and we certainly did invent that they really liked them over the last couple of years. We've had to rethink about it and how that means for the Shake Shack experience. And we're really excited about what we could add to the dialogue on design, experience and flow of a drive-thru plus and this is where we're going all in is every one of those 10 drive-thrus has the full Shake Shack experience inside with a great patio outside. So we've given these restaurants, a great chance to succeed, giving them all, all things. From there, we will start to pair back, right? We might build some drive-thrus that don't have a big interior, right? We might build some drive-thrus where, geez, it turns out that's how people want to use it is more for gathering or for delivery or other things. And that mix is going to teach us a lot. So they are also great sites. They're great sites with busy traffic, great opportunity to drive strong AUVs and shack-level op profit over time, but we have a lot to learn. We have a lot to prove. We've never done it. We'll see how it goes next week, and I'm certain we will get a lot along. And we'll tweak and pivot and add that to the next generation. But I don't expect it to be some kind of big surprise where we have to question whether drive-thru can work for Shake Shack. It's going to work. We just have a lot of work to do to figure out how.

And on that point, too, of the 45 to 50 new opens for next year, we're targeting that at least 10 of them by the end of next year will be drive-thrus. So that's about 1/5 of the class. We have a very mixed class within that of different formats. And as Randy said, we're optimizing for learning. So while we're planning on building and opening up 10 through the end of next year, they're all going to have different formats. They're going to have different kitchen combinations, and it all is towards kind of building towards a more optimal drive-thru format so that we can -- we feel very good about it. We can accelerate that development going forward.

Yes. Just 1 more on drive-thrus. Understanding that there's different operational complexities that come with drive-thrus. Is it a different expectation from a customer standpoint about speed of service. What have you done so far, right, to recognize that's different, right, in terms of making sure you get the speed of service, whether it's cooking or digital, whatever it is, that maybe expedites that the line, if you will?

Well, we've begun with acknowledging and planning that we don't intend to set the record of the fastest drive-thru in America. That is not the KPI we want or at building tools. Of course, we know we've got to move people through that. But if you look at some of the best guest experience scores across the drive-thru industry, they generally tend to happen around the slowest ticket times of drive-thrus. And that is a correlation for a reason. And our reason will be making sure we continue to [ cook ] amazing, great food, fresh for you. So what have we done, John, we've really thought about our kitchens, designing them. So there's a section that goes to drive-thru and a section that goes to the in-shack or other experiences that will happen there. So we've really got 2 sets of kitchen teams rocking and rolling in that direction as well as how we move the food, how we move it through that type of kitchen design. But we're not changing the way that we're going to still spin our shakes by hand, right? We're not changing the way we're going to cook our birds. And we'll have some learnings there, too. I guarantee we'll have some things that we bump into on day 1, where we've got to learn and tweak. But the premium ingredients and freshness of our food will always be the first thing we lean on. And we'll figure it out. We'll figure out how to get that through. We design these drive-thrus also for the most part in the early days to have a double lane so that the order can be taken, those lanes converge and that gives a little bit of extra time for the food to be cooked rather than that single lane experience where you have this kind of 2-minute impossible expectation that we don't want to be. And that again, that's -- it's all on paper at this point, but we're also not the first to figure these things out. We'll learn from others. We've got a great team in Minnesota ready to go.

Got you. Yes. pay for no snow, early snow. The other formats, you talked about walk-up windows, Shack Tracks. Remind us how many you have, what the kind of incremental sales you're seeing from those just so we appreciate maybe how those additional access points have improved the economics of the business?

Yes. We haven't shared that breakout yet, John, because I just think it's too early, given the noise in our numbers to begin with and the fact that most of them are brand-new restaurants. So we've got a handful today of the drive-up types. We've shared some numbers between 10% and 20% of the sales coming through that window and the drive-up and just a couple of those, and that was very early numbers that we shared. That's the only data point we've given. On the pickup windows at shacks, it's really a site-dependent thing. We've learned that certain sites, it's brilliant. You take the Upper West side of Manhattan, where we had -- we have these 2 separate areas that we've moved all of the delivery pickup to the back of the restaurant. We can keep those delivery couriers in a separate section. They don't come in and get involved with the very busy pickup areas that Shake Shack has. That's been a great success. We've seen that in Seattle. We see that in West Hollywood and in South Lake Union, it's Seattle restaurant thinking of, but also the new 1 at the University Village. Those 2 have different versions of that window that people are really using. So ultimately, it's a guest experience, when -- and I think our biggest work right now, when I talked about guest experience earlier as 1 of our 4 major strategic pillars, it's about how do we help you know where to go and know where to flow? How do we give you digital hospitality in a way that improves the Shake Shack experience and doesn't lessen it. And when we can give you an idea of how long your food is going to be or where you sit in the queue, that destresser is so much better than kind of the old days of Shake Shack. And we've got a lot of work to do to do that well, but that's where a lot of the investment will come.

I want to pick up on that, Randy, in a moment. Digital hospitality is a piece of digital and sort of the core ethos at shack around hospitality. But Katie, just before leaving that, how do we think about the Class of '22 from overall construction cost, right? As we think about unit economics is still an important part of this business. I think you've talked about a 10% to 15% increase in cost, but I'm not sure if that's a like-for-like. In other words, similar more units and the overall budget is higher. So maybe what do you think about that?

Yes. So we're -- there's 2 kind of crosscurrents underway here. So one, just the overall inflation that we're seeing across our entire business. We're also seeing under construction sites. So it's raw materials, it's kitchen equipment, it's across the board. And then also, we have a drive-thru, which is just a more expensive format than our core in smaller urban locations. So those 2 things together are driving the 10% to 15% higher build costs next year. We have no change to our long-term guidance. But at this moment in time, it's just more expensive to build our 2022 class for a variety of reasons.

And John, that's balanced out, as Katie said, with that portfolio mix of shacks, some of which are smaller, some of which are a few food courts thrown in there, which are less cost to build, right? So that balance is out ultimately in that 10 to 15 range. And we'll see. We're going to have to watch it very closely. We don't expect that this year had that, right? This year, it is more of a traditional similar year in investment cost to previous, a little bit picked up for certain reasons, more so delayed than expensive this year at '21, but '22 has got all that stuff in the soup making it there. And the other thing is, look, we, for a reason, went out and raised the largest capital that we've ever had in the company. And that is to invest it in these new formats, specifically with additional investment in drive-thru and see what those restaurants can become.

Got it. That's helpful. Randy, I wanted to pick back up on digital for a moment. You talked about hospitality. So I am curious how you think about digital hospitality in the Shake Shack world, right? Digital is often hard to express in -- traditional hospitality in, but you mentioned there's a few stress points, maybe people need to understand where they are on the line. How do you broadly express hospitality in a digital environment? Maybe you could talk a little bit more about your specific strategies?

Yes. I think it begins with how we define hospitality for 35 years since Union Square Cafe opened and that is we are on your side. The tools we build have to happen for you, not to you. What does that mean? Well, however, I want to get my shack, let me get it that way. So for me, I, Randy, love to order on the app. To me, the greatest pressure point of Shake Shack is always the ordering and pickup experience. I want to order and just pick up. And that's how I want it. So that hospitality is giving me that. When I do that, how do we make our tools really provide that? Well, we give you the right amount of time of how long it might take. In many shacks now, we're testing screens kind of like when you're looking to get bumped up at the airport. And it will say, John Glass, order is ready. Now that's in a test. We've got a lot to learn on that. But that to me is a huge part of digital hospitality. Just let me know where I stand. On our app and web channels, brand-new build website, huge. And then still when you're in the shack, the tools that we provide, we've talked a lot about our investment in kiosks. Today, we're a believer and continuing to invest deeply in our kiosk system. They represent a huge amount of our sales. And what we find is people want to use them when they walk in. If you watch human behavior, people go right to the kiosks. They're comfortable with it. Those that aren't, go to a cashier and we got you there, too. That's hospitality. And that means that we've got to make a lot of investment because we're investing across all these channels. Why? Ultimately, we want the omnichannel guest experience to rule for Shake Shack. We know that when we get you as an omnichannel guest using multiple of these different ways, you spend more and you're better lifetime value. That's where we're headed for. That's what we're building. We've had millions of more guests come into the shack ecosystem over this last couple of years to COVID and through these tools that you will see significant CapEx investments in us making these tools better and better everyday. and we've a long way to go. We're a small company. We don't have the budget so CapEx and OpEx that many of our digital peers have because we're so much smaller. So we've got to do a little scrappier or one thing at a time, one feature at a time and give you more and more reasons to love using shack app.

And to actually tie that into to see overall Shack Track experience and how we have gone in and kind of touch the physical experience to help enable the digital transaction, just ever so powerful. if you're using us through a digital means through the app, through web, and you have a very seamless pickup experience, you more like to do that than if -- you get there and you don't know where you're supposed to go and everything is very confusing. So it's just ever important.

And Randy, you picked up -- you talked about kiosks and so maybe just where are we in this kiosk roll out. I think last quarter you said 75% of sales at those stores with kiosks are digital, that includes kiosks and other. So is it fair to say that if digital was 40% in the system ex kiosks, it's about 1/3 of the business. Is that the right way to think about it?

In the shack that have kiosk today, right?

Yes, that's right.

About 100 -- roughly, about 100 of our shacks, legacy, who do not yet have kiosk, some of those will continue to invest and add kiosks over time. But the major point is we really like it, number one, because the guest experience for all the reasons I said, behind that is it's our most profitable channel. When you come into the restaurant and you use a kiosk, you generally spend a little bit more per person. And we have all the in-shack digital cost structure, which is our most profitable channel. In addition to that, over time, and it's not an easy thing today with staffing being challenging still. But over time, it's a help on staffing. It allows us to redistribute our team from cashiers into the kitchen to take care of food and get it out. And yes, they take some help with kiosk. But it's like all of us every day, you're more and more comfortable with the kiosk type atmosphere, whether you're going to the grocery store or a pharmacy and bringing your own stuff through, we're getting there. We're getting there quickly in digital adoption, and people really like using them.

And it's a great way to avoid long lines at our cash registers. And oftentimes, we'll have 3, 4, 5 different kiosks there, whereas we might only have 1 or 2 cash registers. And I think there's something so powerful about the guest journey with the way that our kiosks are designed, the way that it takes you through all the items on the menu, the very great visuals. I think it just helps provide a richer explanation of what are many ways. And as Randy said, we just see higher attach rates of multiple items there.

One more thing, Katie, just remind me of not just that, but an opportunity to sell things we want to sell. So we have a Black Truffle burger right now. It's an incredible LTO. When you walk up to a kiosk, you are looking at that thing, no question. We can -- that is digital hospitality and helps people find the thing they want and us to lead people to things that we're testing or learning about or featuring that day.

That's great. And since, Randy, you sort of mentioned the Truffle burger, I want to move on to maybe the next topic, which is around the menu and the evolution of the menu. So one aspect of it is you have taken some menu pricing, you haven't taken historically as much menu pricing as maybe peers kept the value proposition strong. Now you've got this opportunity with a premium product, Truffle burger is one example. Has that changed how you think about using maybe premium LTOs for pricing relative to taking the base menu up? Or do we still need to take everything up and this LTO is really just about the halo of the brand, maybe less so about an opportunity for pricing?

I don't think it changes the right word as much as affirmed our strategy that people come to Shake Shack and are willing to pay for premium ingredients made with real food. And that's what the Truffle burger is. So again, it has shown us that people will pay for those great products. It allows us to test at a higher point, gives us more comfort in the future with various price points for LTOs, while allowing us to keep our core menu at a really incredible value point because you touched on pricing, we'll take it. But we're in that sort of 3%, 3.5% range. Obviously, we're watching inflation cost very closely. Everything is up. As we've talked about, we're not alone. You can see today, it just continues to be a lot of pressures on the margin. And we're going to be patient about that. We've always been patient on pricing. We've always taken a little bit out of time. We'll keep looking at it. If inflationary pressures increase or continue to persist at the highest levels that we've seen, we have an opportunity maybe next year to take price again earlier, but that is not in our plan today, and we're going to see how things go. And that will have an impact on margins in the near term and the foreseeable future, as we've talked about in the last call.

Yes. Why not -- I think the traditional fast food players are now taking mid-single -- strong mid-single-digit pricing. So you've got a better product. You've got lower price increases. What -- I guess, I understand your caution, but at the same time, there's ample evidence such as lot more pricing out there in the market, right? And is there tools that you're using that can at least predict better that when you -- to avoid the overreach of pricing? I would presume you have that information today that you probably didn't have a year or 2 ago.

Well, we've never done a lot of research over the years on all of that. But at the end of the day, you want to sit in a comfortable total price for what someone else might spend at a similar product. We'll never compete with fast food on price. We don't want to. It's never been who we are. But we may is the answer, John. We may take more price. We are watching it very closely. We've always been the patient company since day 1. We don't overreact. And we want restaurants to stand for decades, not for quarters. And because of that, we'll watch it very closely and take price where we feel like it's really there. And it's good. Let's let some of this price get absorbed for a little bit and see how things go. It's only been a month. And additionally, we think we're pretty smart about how we're doing it, and we're taking a little bit more on delivery, right? We've got a 10% upcharge on delivery, helping that channel get more profitable. We are thinking about the premiumization of items. So thinking about next year, how can you add on a little bit more. So if you choose to add to the core, that's your choice, add bacon, add avocado, add other things that we can have a slight up charge on, but still have people feel the great value that is Shake Shack on premium food. So we're not in a rush. We'll get there. In the meantime, there's impact and margin pressure, and that's across, not just us.

Got it. One more question on the menu before I move on. Where does better-for-you stand in the Shake Shack menu? I would assert that I think frequency could be improved if there were certain items that people could consume more frequently or that there were certain items that customers who currently don't use the brand would use. Do you agree or disagree? And what's the opportunity there?

Well, we're always going to lead with what we've always felt better for you, our definition, that begins with premium ingredients, no hormones, no antibiotics, took fresh, the best ingredients, no corn syrup, all the things that Shake Shack does that already puts us to stand apart. Nobody should eat a burger every single day. When you have one, we want you to say, I'm going to get that shacker. And that's where we start. Beyond that, we have an amazing mushroom burger that we've sold since day 1 that is a veggie burger that just continues to sell itself. So in addition, we're testing various other veggie burgers at different levels. We're kind of on version 3.0 of continuing to iterate, continue to try that. We've got 30 shacks with the current veg burger now. We're learning from that. We're also learning what people want when it comes to different sides, things like our fries right now, which we are doing with the Parmesan Black Truffle sauce. That's a whole different way to think about what people want from another premium ingredient. So we don't want to continue to add a whole bunch of categories, John. But there's no question, we will continue to meet and test things specifically towards plant-based options over time.

Got it. I want to use our remaining time, talk a little bit about the financials. Katie, just first, you were on our side of the wall, if you will, for a long time, and now you're inside the business. How would you -- what would you tell investors that you -- we don't understand about the business that you now understand, particularly as it relates to the business itself. I understand there's culture, but -- maybe that's the answer, but what do you see that you didn't see from the outside?

Yes. I mean, it's a very interesting question. I spent so much of my career, looking at strategic opportunities, ways to unlock shareholder value, working with company management teams and really, really thoughtful investors in looking at companies and kind of a lot of that and a different vein still is happening here. So when I peel the onion and I look at all the opportunities ahead, I'm just ever confident of what's here. And you know I was very bullish on Shake Shack before, and I saw a great opportunity ahead for the company. And really sitting here. I mean, look, there's some very material pressures that are facing the entire industry right now. And I think that living and breathing them rather than just looking at them on the other side of the table in your Excel model, it's just a different dynamic. But we're also committed to navigating through these very, very challenging waters. I'm ever confident of the opportunities that lie ahead as we work through these challenges. It's very different to sit there on one side of the table and modeling higher commodity costs, but then actually like sit in meetings with suppliers and work through this. It's very different to sit here and look at labor costs and staffing levels on one side of the table versus actually coming up with ways and opportunities to help better staff our restaurants. So it's super exciting, very interesting, and I couldn't have picked a better team to work with, so...

And finally, Katie, and Randy, you sat on this side of the world, understanding that we have to think about long-term profitability of our businesses, long-term targets, even if they're not for a specific year, and even if they take into account growth, is it not appropriate to start talking about longer-term profitability targets, even if there's not a specific date attached to it? Or is that still not a direction you want to lead investors saying that you're growing and that there's no, therefore, guardrails against what G&A should be or what restaurant-level margin should be. How should investors think about that currently in your terms?

The investors should think that we have had one of the best business models into our industry since inception, okay? And over this last couple of years, we've had a unique impact to us given our footprint, our challenges and some of the things that we do. And I would encourage investors to look at how we've dealt with that impact, investing in our people, which costs money, investing in our digital, shifting our formats to those that we believe over time can get the best possible AUVs and profits and working on the guest experience. And we think that score takes care of itself in the end. I'm actually incredibly proud of our team that we've recouped, call it, 3 quarters of our shack-level profitability roughly, given the challenges we're up against, given how many of our restaurants continue to be impacted. And as those things sort themselves out over time, which they will. And as we build new and better shack models, we believe we'll regain so much of the profitability and long-term returns that we've had. But that doesn't mean it's going to end tomorrow. It doesn't mean we have line of sight into when supply chain issues lock themselves up or labor issues ease. These things are not transitory. They're challenging. We hope they end sooner rather than later. And we've got a lot of work to do and a strategic plan address every bit of it over time.

Thank you for that. We're out of time, unfortunately. I went fast, but I thank you, Randy and Katie, for your time today. I thank everyone for listening. Wish everyone a happy holidays and be well, and we'll look forward to hearing from Shack early in the new year.

Great. Happy holiday. Thanks, John.

Thank you.

Bye.