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

Good afternoon. I'm Dennis Geiger, restaurants analyst at UBS, and we're pleased to be joined this afternoon by Randy Garutti, CEO of Shake Shack; and Katie Fogertey, CFO. Shake Shack is a modern-day roadside burger stand with over 240 domestic locations and over 125 international locations. Shake Shack maintains one of the industry's largest growth opportunities behind accelerating global unit development, a focus on digital and strategic investments, including the brand's most recent venture into drive-thru. Before we start, though, as a quick legal disclaimer, as a research analyst, I'm required to provide certain disclosures relating to the nature of my own relationship and that of UBS with any company on which I express a view at this event today. These disclosures are available at www.ubs.com/disclosures, or I can provide them to you after the event. With that, welcome, Randy and Katie. Thanks so much for joining us this afternoon.

Hi, Dennis. How are you?

Good. How are you?

Good.

Terrific. Well, we appreciate it. I'm very excited to spend some time with you folks. Maybe if we could start, Randy and Katie, sort of bigger picture, just where we are right now in the recovery, where the brand is. Perhaps maybe we could touch on both the urban and the suburban markets. And then recognizing there are a lot of variables, how you kind of think about the recovery, the continued recovery playing out from here, if we could start there.

Sure. Maybe I'll start, and you can launch in our urban-suburban dynamics. Thanks, everybody. Sorry, we couldn't be with you in person today. Thanks for logging in wherever you are. Look, it's been quite a journey for Shake Shack. I appreciate, Dennis, how you started this with how much opportunity we see ahead. We've got just over 100 company-operated restaurants in this country with massive whitespace ahead. We've got restaurants in 16 countries around the world. And Shake Shack's business is -- and our brand, we believe, is stronger than ever. That said, it's been a tough couple of years for us, right? The dynamics of our business are, I think, very well understood by our investors right now. We have been more deeply impacted with the deepest impacts of COVID due to our urban footprint. The kind of Shacks that we build, we are kind of not your average restaurant company with thousands of restaurants in a more geographically spread area. We're much more concentrated, and those restaurants that have been hardest hit today are the ones that are coming back the strongest, right? We talked about that and the strength of our fourth quarter, especially the urban dynamics there. January, very, very hard hit by Omicron. First couple of weeks of February, we've shared. We're not going to go into anything past that today, we'll do that in our next earnings cycle. But generally, when you see dynamics like offices returning and people commuting, nicer weather seasonally anyway, those are the things, events, tourism, travel, baseball games, which we hope happen this year, are the things that are better for our business. It's just how we've been built. That said, we're spreading out quite a bit, and most of our development will be suburban, but we're going to do a lot of urban Shacks, too. This company has so much opportunity. And our real strategic plan, which we can talk about any piece today is really elevating our people, number one, the hardest hiring environment none of us ever lived; transform the business digitally, which has happened, accelerated through COVID, obviously, in ways we're really pleased with and need to keep investing in; building a better Shack, we call it really, that's the format transformation of this company, you led with drive-thru and other Shack Track opportunities; and then just working on our guest experience. Those are the 4 things we're committed to. I'll let Katie speak to some of the urban and suburban dynamics and everything else happened in the business.

Yes. So as we shared in the fourth quarter, we had a particularly strong recovery in our urban, New York City, in particular, business. At the same time, we've had incredible strength in our suburban business. Our comps in suburban were up 9% versus 2019 as we really started to close the gap on New York and urban in general. I would say that Omicron came very swiftly at the very end of the fourth quarter, and we shared those pressures in January and early February. It hit our urban business and our suburban business. We had 87 days of closures in January alone. And actually, a lot of that was in our suburban side. But we were pretty excited to start to see green shoots of a recovery taking place in February, and comps for both urban and suburban were positive. We really do believe, and as Randy talked about the strategic plan of the company here, the digital transformation, the investments we're making here to drive long-term traffic growth beyond just a recovery.

That's great. Great overview and great sense for sort of where you folks are headed. Just one specifically, I think you've got a unique situation given all the growth and the new store development we've seen over the last few years. Randy and Katie, I don't know if you concern yourself much with this, but how do you tell investors to kind of think about the recovery with sales or sort of further gains from here, understanding maybe that that same-store sales on a multiyear basis may not be the best way to kind of size up where you folks are at. Is there a way that you kind of tell investors, "Look, this is the best way to think about where our recovery is and where the game -- how we -- where we stand right now?"

There's a few. I mean, obviously, taking aside same-store sales and those kind of things, let's just look at growth. We -- let's start with, we're accelerating development. We've got 45 to 50 Shacks, we believe, we'll open here in this country that we’ll own; 20 to 25 internationally. That will be our biggest class of restaurants ever coming off of our biggest class of restaurants ever last year, and we're super excited about that. There's so much opportunity down the road. As we look at our existing base, we look a lot at average weekly sales, AUVs. We've obviously been a very strong player in that over the years. We continue to be impacted in that. It's lower than our historical norms. And with so many more restaurants coming in and so many new formats, there's a lot to learn. That's what we look at. Of course, we're looking at margins. We're hurting on margins more than we normally would be with the inflationary pressures. We've got a lot happening there with price and other things we can talk about, but that's really where the health of our business is. And then what matters to us is, do our fans still love it? When we open new restaurants in new places, do people come out? The answer to that is yes. And we feel so good about that each time, each and every time. We just opened a restaurant in Alpharetta, Georgia last week, an amazing start. We already have restaurants in Atlanta. There's nothing kind of new about it, but there's still something about Shake Shack that is special in pops and hits when we do things. Those are the things we keep looking at to measure the health of the company long term.

That's great. And then just as you touch on that, as you touch on the customer and really the affinity with the brand, I think everyone in this room would probably agree, phenomenal product, phenomenal service. But just touching on that customer, as we kind of think about for maybe those less familiar with your customer base exactly, how would you kind of describe your average customer? How they use the brand, frequency, other behaviors? And maybe how that's changed if it has over time?

Yes, yes. So how we view our customer? It's kind of an evolving vision here, I would say. And as we enter new markets, new formats, that's likely going to grow and expand. But typically, it's kind of the 18- to, call it, like 35-year-oldish type band. People who are digitally native tend to really like our brand because we have a great app. We also have a very strong Instagram presence as well, which has really kind of looked in that ecosystem there. We tend to skew a little bit more female than male, which we were just discussing today, but these are not big things one way or the other. It's going to be really interesting to see though how we evolve, especially with something like drive-thru. So just thinking about myself, I have 2 kids, Shake Shack drive-thru, I feel like we really need to bring one to Connecticut really soon. There's just nothing better than being able to get everybody in their car seats and then go through the drive-thru. And I'm sure that what we're already learning as far as frequency and kind of what that order looks like in a drive-thru location is already starting to inform some of our thoughts down the line, but we'll just continue to evolve and check. And look, our guests are going to evolve and check, too. This is a company that started out, what, 15 years ago?

Basically. The second one was now almost 15 -- 14 years ago. And those kids have grown up with us, which is kind of an important thing to say, right? Like my kids, who are my son, my first son was born the year of the second Shake Shack when we really started to grow in 2008, those kids have grown up with Shake Shack being their burger joint, and I think that's now what's cool, as people graduate, who were in a lot of college towns. We just re-signed our leases, by the way, of some of our earliest Shacks in New Haven, Connecticut, near Yale, in Cambridge near Harvard. It happens to be 2 schools, but another one near Coral Gables University of Miami. These are some of the Shacks that are getting mature now. And those [ group of ] people is growing into the next cohort for us. So it's pretty cool. I think Shake Shack generally warmly welcomes everybody. But we've got really, I think, a sweet spot of that key demographic that loves us.

That's great. And if you folks could take the Roosevelt Field location and convert that to a drive-thru that would be easier for my wife and our 3 kids as well. So…

We've talked about it. That's another one that's [indiscernible] involve.

I want to shift to really one of the most important or exciting aspects of the story. Randy and Katie, you guys just touched on it some, but the unit development story, Randy, you just touched on sort of biggest year ever, path to 20% plus development, long-term target of at least 450 domestic company-owned stores. Can you talk about the development opportunity and potential for the brand in the U.S.? You could probably talk for a while about that guys, but if you could just give us some thoughts on that and kind of where we're headed.

Well, we're super excited about it. I always have been. With each passing year, we get more excited about the different ways that we believe we can grow. If you go back in time, nobody thought a baseball stadium or an airport or a roadside in New Jersey would be places that Shake Shack might be, and we just continue to do the -- or an outlet mall, food court, flagship, all those things open our mind up to the greater potential addressable market that we have. We believe that's super exciting and really big in front of us. Specifically, we're targeting drive-thru as a big growth opportunity. As you know, we expect to have about 10 of those open by the end of this year. Massive impact of learning there. We're going to be investing deeply in that knowledge and that learning. A couple of different formats within that, a few different designs, different ways you're going to get it and a lot to learn. We've got 3 open just for a few weeks, really. So there, the learning is super new. We know nothing about drive-thru, and I'm sure we got a lot right and a whole lot wrong, and we'll work on it. We'll figure it out. But we also have Shack Track digital ecosystem, and that really refers to all the ways you can preorder and get your Shack. Some of that might be third party or our own delivery. Some of that might be a drive-up window. Not a drive-thru but a preorder on your phone. Go through the window or pick-up at an exterior window. A lot of that is for kind of the traffic control. We all know Shake Shacks are busy at peak times. It's confusing. It's harried. It's a little bit crazy. And we're trying to do better with that for the guest experience to my earlier comments. So with all of that, we can look at markets, look at growth and think about it. And I'd just take a minute on international because I don't think this story is understood or told enough. Roughly 40% of our Shacks are through a license arrangement, either an airport, stadiums here in the U.S. or internationally. We have an amazing, growing and exciting business in Korea, Japan, China, the Middle East, the U.K. and on and on. And that is an asset-light, really cash-accretive part of our business, where our global brand can just continue to inspire and grow in ways that very few companies of our scale can have that kind of impact and have that kind of feeling when they go anywhere, and Shake Shack continues to do it year-after-year country-after-country. Now I think that opportunity provides a whitespace that's really unlimited and exciting for us. We're going to keep doing that, lots of new countries and lots of depth within the current countries we're in.

That's great, and I want to come back to the international story because I agree with you. I think it's sort of underappreciated for what ultimately it will become. I want to just stick with the U.S. for a moment and just on that kind of 450-store long-term target. You've not changed that obviously in many years. Can you just walk us through the process briefly, perhaps of how you assess the longer-term potential there? Maybe it's not rocket science, maybe it is, but how do you kind of think through that potential?

We continue to study that, but that 450 was a number we named at our IPO. A lot's happened since then. We think about it all the time, and we continue to learn. But I think we're not -- what's important to us is that when our real estate team is on the ground today, they're around Atlanta looking at a couple of sites that we're thinking about, that they're thinking about the next one, not the next 100. And if we keep doing that, we've got a pretty good track record of understanding how to do that. That is a hearts and minds approach. There's a lot of gut and feel and understanding of our brand and a ton of data to back up where we can place our best bets. And getting a great long-term return on capital has always been our job. As we learn more and we look at these new formats and we consider long-term addressable market, we will keep coming back to that. But at this point, there's still so much ahead, and we're going to focus one at a time.

Yes. I want to shift over to the drive-thru, which obviously has the potential to be yet another gamechanger for the brand and the business. Although as you mentioned, still very early innings, very early days, are there learnings that are relevant that you are able to share thus far in that -- very early in that journey on those locations so far? How employees are sort of managing the operational complexities while maintaining the Shake Shack experience for the customer, which is obviously paramount?

We have very little that we can share at this stage. It is so early, but we can share this. It works. You can go through the drive-thru and get a Shack Burger. So let's just name that, and that sounds funny, but like that's a real thing. We had to figure out how to do that while continuing to cook to order and do all the things that Shake Shack does well. That's a big deal. And our -- again, we definitely got some things right, we definitely got some things wrong. But we love it, and it feels so good to be in 1 of the 3 when you roll up to that. Either if you come in, and you have the full Shake Shack experience, like you -- this is not cutting that, so that drive-thru works. This is a full -- you can have the high school dance team in one corner and the basketball team in another and a date in another and my mom in the other. It's like it's all there. And then there's people who want to drive around the back at their Shack and leave. And our whole ethos has always been -- hospitality, as we define it, happens when you feel like we're on your side. That's the definition of hospitality. And some days, you might want that drive-thru at Roosevelt Field area, and some days, you might want to come in and hang out and have a beer and do your thing. We want to provide that. So what we -- the early learning is, it feels great. Now we've got to continue to refine it, decide on the kitchen design, work on the best timing, how we move food through the kitchen. That's going to evolve. That's going to be big investments. Where do we put them? How many cars stacks do you need? Some days, we've had 40 cars lined up. How do we deal with that in real estate, right? Those are the learnings we got to keep pushing. And then how do people use it? There's been some interesting things. We're not ready to really talk about them yet, but in terms of what people order. There's been a little bit of shift in certain things, which who knows, we got almost 400 Shacks worth of menu mix that's pretty consistent. Might drive-thru evolve that? It might. So we'll see. Super fun.

One that you may not be able to answer yet, but how do you think about how long it will take or maybe the number of drive-thru locations before you get a sense for, okay, this is what works or what doesn't and this is what the average may look like kind of signposts? Just things that you may be thinking about. You may not be ready to share that yet or know that yet.

No. I think forever, that's going to change. I'll bet you if you ask that question to people who've been doing drive-thru for 60 years, they'd say, "Well, we're still learning." And I'm sure that that will be the case for us. I think we're probably 6 months to a year away from kind of understanding anything really and truly, and I would say that about any Shack to begin with. But certainly, in this model, I don't think we know how people want to use this. The other thing is, you got to see the seasons change. We opened in Maple Grove, Minnesota on day 1. I was standing there, it was negative 10 degrees. That's different than what May in Maple Grove is going to look like, and it is different when our people can be outside taking your order and doing line busting in that way versus them being inside. All that stuff, we got to see season change. So it's going take some time. I think we're just so excited for what each new day brings in terms of that learning.

Yes. Makes sense. It's great. Definitely excited to see how that plays out. I want to shift to kind of the current environment. And obviously, you folks have spent a good amount of time on this on the most recent earnings call. But just kind of staffing, inflation, pricing, maybe I'll do one at a time. Maybe just first on staffing, how difficult it's been? Where are you at now relative to where you want to be? And I think most importantly, just some of the benefits that you are seeing because of the culture of the brand throughout the organization, the focus you have on your team and the investments that you've made, how that differentiates you from other brands, particularly in this environment perhaps?

Yes, sure. So I would say, overall, it's been a challenging staffing environment for everybody, and we are not immune to it. We're starting to see a little bit of improvement potentially at the manager level, but it's really too early to call any kind of victory lap on kind of the moment we're in. You're going to continue to see us stand here and invest in our people. It is a core strategic pillar of ours. And we really do believe that having people who feel like we're behind them, they perform the best, and it provides the best guest service, and so you're not going to see us back down from that. And as you look at kind of our G&A guidance that we've provided for this year, a big part of that step-up is as we look to hire at the management level to support -- at the [ AD ] level to support all the new Shack openings that we have to come. So we're going to continue to invest in our people. We're really proud of the teams that we have here, and you can probably give some more color on some recent promotions here. But it's really exciting to watch the team members who come in potentially at the hourly level, and they go through the whole system and graduate up and have some pretty exciting clear trajectories.

Yes, it's everything on the people side. We've got to keep making those investments. We're constantly innovating leadership development programs. We don't want this to be your entry-level job and end there. We want to be a path to growth. It's what we've done countless times over this last 15 years and really 20 years of Shake Shacks truly existing since the hot dog cart we started. And there's just so many people in this office today in our Shacks around the world who have changed their lives from that. So that takes investment and as Katie started with, and it's harder than it's ever been. And there's a cost to that. It's a part of our margin guides for right now, and it's going to continue to be somewhere where we got to invest certainly in this time frame as we continue to rebuild sales.

Makes sense. Maybe just on pricing, I know you gave some comments on the earnings call recently on that. But just where you're out there with pricing, what kind of resistance for those that maybe weren't on that call, what kind of resistance you've seen to the pricing? And I guess most importantly, how you think about pricing power and pricing through the year, particularly given the relationship you have with the customer, the brand affinity that the customer has for Shake Shack?

Sure. So we, as a company, have basically taken kind of, call it, 1% to 2% pricing historically. Pretty conservative on pricing, kind of just really to match the overall inflationary backdrop. And last year, with inflation picking up, we did a couple of things. We increased the price premium that we're charging through our third-party delivery channels, and we also implemented a higher menu price of about 3.5% in October. We then -- as the inflationary environment persisted and, in many cases, has gotten more intense, in early March, we took an additional about 3.5% price. So -- and we've lifted the price premium that we charged through third-party delivery to 15%. So overall, as a system, kind of, call it, like a 6.5- to 7-type inflation, kind of tracking in line with where broader inflationary pressures are. But it's something that we're watching. We -- it's hard to really -- we took price in October, we had a very strong fourth quarter. Omicron hit traffic, obviously, was impacted, we believe, largely due to Omicron, and we had a little bit of weather in there. And so we're not going to comment on what we're seeing now. So it's really hard to give kind of a readout of where all of this is shaking out, but we are encouraged by what we're seeing. And we've talked about it's possible that we have to take more price this year as the inflationary backdrop unfolds. And I look at the company and I look at all of the ways that we have really invested on our digital transformation to help make our experience more convenient, better understood by our guests, and that gives me optimism in addition to how we study, where we place ourselves relative to the competitive landscape. And just frankly, like we haven't backed away from our commitment to premium ingredients. We are the non-hormone, the no-antibiotic, cage-free products out there that we believe our guests still want. This is pretty much what I have to tell.

Makes sense. And I know Katie you said there's a lot of moving pieces out there, and so it's a little hard to get a read. I think you were implying on pricing and response from the customer there. On the delivery side, is there anything to share there given where the pricing is that you just spoke to? Or again, just a lot of moving pieces right now with Omicron, et cetera? And so these last several months, similar for delivery, don't really provide a great read on how the customer is responding and maybe behaviors are changing a little bit.

I think that's exactly right. I mean this is something we're watching very closely. There's a lot of moving pieces here, so we're not going to come out here and give a definitive read one way or the other. But we are encouraged by what we've seen so far.

Makes sense. Terrific. I want to shift over to innovation, certainly, a core pillar and a hallmark of the brand. And as we think about innovation and both new sort of add-on items, new core entree items, can you just talk about over time, how that's contributed to the average check, how that's helped to drive buzz and frequency? And just kind of going forward, how we think about that and how you think about LTOs versus permanent as it relates to innovation?

Yes, I'll start with that. We've kept our core menu, pretty solid for many, many years. Actually, there's a couple of things that we've consolidated through COVID, taken off a couple of things at the core menu. But we do believe and we really like the rhythm of LTOs that we've done, various -- really leading with chicken, burgers, fries and then on the side, shakes and lemonades, which has been a great add to our beverage attach and our items per check and all of those things that we're driving towards. We think they're an important part of frequency, just the overall guest experience and changing it up. And by the way, for our staff, right, when you've got a team who loves the products and sees new stuff and wants to eat it themselves, they're going to talk about it, sell it and make it fun. And that stuff we're going to keep doing. Right now, we're running a really fun Buffalo Chicken and Buffalo Fries LTO. We've got a few more different ones coming. I think what we're experimenting with is, what's the right number and the length of time for LTOs. We've generally done some that are kind of 3 months. We're going to test some that might be a little bit longer. Some of that even might be shorter. See how those go. We had a great success in the fourth quarter with our Black Truffle Burger and fries. So those kind of things we're going to keep tinkering with always towards -- you got to remember, we were -- started as a fine dining company at Union Square Hospitality in New York. We're not short on ideas. We're constantly innovating. Our Innovation Kitchen is below us, downstairs here. We're always eating some fun things, and it makes it a fun part of Shake Shack that we believe continues to differentiate us. But then we'd like to take those things away and bring on the next one, sticking with the core menu, making sure that operational execution is at the heart of the decision making.

I'll just add on there, too. What we're finding? It's still early days, but our digital guests are really engaged around LTOs. And we started to launch a couple of them through our app first, and we're seeing a really great reception from those guests. So if you look at our broader strategy, which is to drive more and more guests into our digital ecosystem, this is actually turning out to be a pretty interesting side benefit of doing it that way. We're also seeing guest who go through our kiosk. They tend to also really gravitate towards the LTOs, and so I think that there's more to come. But certainly, food news is always good news in my mind.

Well said.

Makes sense. And I'll tell you, Randy, trying to have your 7-year-old decide between a lemonade or a shake because we can't have both is -- it was like the end of the world last week trying to make your...

Dennis, if you [indiscernible] he can only have one...

I think both is just fine.

Both is fine.

I don't know, what kind of parenting you're doing there. But...

I'll tell her that. I want to shift over to the operational side of things, and it has felt like Shake Shack is sort of always learning and kind of adapting, maybe even more than the other brands. So kind of the biggest opportunities on the operational side, obviously, drive-thru is a whole another animal, I think. But within the core prototype, biggest opportunities, and I guess how you're leveraging digital tools ultimately within that construct of operations?

Yes, the biggest opportunity is digital and how the guests may choose to experience Shake Shack. And for the most part, and you've seen this not just in our percentage of digital sales through COVID, but kind of now, but also retention of that sales, even as in-Shack has come back stronger, we've still got a ways to go, as we know. But the goal is to take out the most annoying parts of any restaurant experience. So what are those most annoying parts? Generally, ordering, picking up, right, and paying. Like those are the stuff that like it doesn't need to be hard. And that's obvious to us in the digital age, we've all continued to accelerate and so quickly through COVID. I think that's the biggest part of the transformation Shack. So to me, there's -- I haven't ordered at cashier at Shake Shack in probably 3 or 4 years myself. If you like to order that way, we'll have a cashier for you. If you don't, you might as well cut the line, order and pick up. What we've got to keep working on though, as in-Shack returns is all those channels coming together. And any restaurant you've entered in the last couple of years that's in the same moment is trying to figure this out. It's -- there's the pickup guys, there's the delivery guys with their bags knocking into you. You need a football helmet to get through most restaurant experiences these days. That's hard. That's a real challenge, especially for busy restaurants like ours. We've got to keep working on that flow. The way that we connect directly with you as a guest, how we inform you that your food is ready, and how we make it easy for you to pick up and either stay or take it away. Drive-thru is a whole other part of that, as you said. But to me, it's about -- let's put it this way. Shake Shack has always been since day 1 focused on the guest experience. What as -- what we've never necessarily been known for has been being terribly convenient. And over the last couple of years, that has been the ad, and that is the future ad, is keeping that experience while giving you ways to just be more and more and more convenient for however you, the guest, want to use it. Just think about, I always use this as a visual. Like our whole lives, we grew up with a barrier, a physical barrier, in between me and the person taking my order, right? That put the onus on the restaurant had all the power. Today, that has completely changed. The guest has all the power to do it however they want, whenever they want, however make it easy. And the more tools we can build that give the guests the power that they deserve, that's hospitality. That's the future of the guest experience at Shack.

That's great. To that point, on digital as it relates to customer-facing, significant digital contribution already, I'm curious where you think digital can go from here and how you drive -- given the benefits to the brand, how you drive digital engagement among guests. And maybe you don't have to do a lot because the guest recognizes the benefit to them, but curious how you think about where it goes and how you drive that behavior from here?

Yes. I mean if you actually just take a look back and even in your models and you go back to kind of what this company looks like in 2018, very limited digital presence. And all COVID did was really accelerate a giant digital transformation of this company. And if you look at kind of where we're building today and look at kind of what we have relative to where we think we can go, it's -- really we're just scratching the surface here of what digital can do to Shake Shack. We have about 3.5 million guests that we've acquired through our digital channels. I'm pretty excited about what's to come on that side, and then we're investing to give them more reasons to come. So one of the things that I just talked about was around having our LTOs offered through our digital channels first. That certainly has proven to be a reason to get our digital guests to come back more frequently and engage with us. But we're also building towards more targeted [Audio Gap] which we expect will drive not just a greater funnel of digital guests but also higher frequency.

And one of the main things we're learning within all of that, when a guest becomes an omnichannel guest, and we know you're using 1, 2, 3, 4 of our channels. You're more valuable. You tend to have a lot higher lifetime value, tend to spend more each time, and you generally come more often. I mean these are the guests that we want to continue to get to know, do a better job of connecting personally. We have a ton of work towards that goal. But really, the goal of it is omnichannel opportunity so that our guests can use us in their channel on the day they need it. And that should be multiple channels, multiple different ways that you use us.

It's great. And I don't want to get ahead of myself here given all of the opportunity with digital. But on the loyalty side, I think there we've seen some recent announcements, which seem very interesting. What insights can you kind of share there? I think you're in pilot, I might be wrong there, so maybe not much to share at all. But loyalty, maybe where you're at and how you're thinking about it looking ahead longer term.

Well, you can go.

We talk about this a lot. Loyalty is an interesting an word because it lends most people to an idea of points programs and all that stuff. That's not our intention today. What we want to get to know is how do we develop closer relationships directly in a personalized way with our guests. There's lots of ways to do that, that don't involve a, of course, loyalty program. Who knows? That may be something we do down the road. That's not we're working on today. What we're working on today is that direct connection, more different offers, better targeted, more different digital opportunities, better targeted, better understood, higher click rates, easier way to acquire and keep and drive new guests. Katie mentioned app exclusives. Little things like that do a couple of things. We acquire a ton of new guests when we launch an LTO in the app. But not just that, that's -- you might say obvious, but we inspire the current guests to come back sooner than they might have when that happens through our digital channels. So all that stuff is just hugely accretive. And that's the stuff we were -- when you think of loyalty, you want to think of us in terms of just getting better at personalized marketing in the guests that we have and the new guests we can create. Down the road, we'll keep looking at the very many avenues that that could take off.

And Randy, just to that point on one-to-one marketing and that relationship with the customer, would argue that the brand is further ahead than many others out there. Would you kind of consider you folks kind of early innings still on that one-to-one direct marketing journey?

Yes. I think we haven't even started the game. We haven't even started the first inning because this takes so much investment. We're also very humble enough to know. We're still a pretty small company, and we don't have the resources that massive companies have to build out that kind of marketing machines. We're getting better at it. We're investing deeply in it, and we will get better every year, but it takes time to build these tools, it takes time for each feature that you see in a digital ecosystem to be possible. And within that, connecting those omnichannel guests across all our channels, that takes work. When you see our G&A investments and the commitments we've made there, a big part of it is that continued work. So I think we're really early. I think we're starting, and we're humble enough to know, we barely, barely scratched the surface on what we think is possible and the investments we need to make to do that.

Got it. That's great. I want to shift the conversation over to margins. And you -- Katie, you recently gave some color -- some commentary on margins and implications, considering labor and commodity inflation. So maybe just touching on those considerations and your kind of approach to pricing, which we touched on earlier, and then other levers that you have to kind of build back margins, perhaps this year if we want to just be thinking high level looking ahead, but just those considerations and the levers that you have.

Yes. I mean, certainly, the inflation that we've been facing as a business is relatively unprecedented, and we are watching just as everybody else is watching as to how the landscape unfolds. Just to remind everybody, we -- the large part of our basket is beef, and we do not hedge on that. We don't use kind of commodity. We have our own proprietary blend. But nonetheless, we tend to kind of track somewhat within that range. So it is something that we're watching. And we are also looking at opportunities to be as cost efficient as we can in a way that does not sacrifice our food quality, the hospitality, any of that experience. Then as you go down to labor, we talked about labor inflation. Look, we're going to continue to invest in our teams. It's the core of who we are. It's a lot of unknown as to how this year plays out. But certainly, high turnover can be costly for any business, and so I'd like to see that start to come down here, which I'm sure everybody else would, but that remains a little bit of an unknown. And then there's a couple of other levers that are also a little bit unclear throughout the rest of the year, in particular, what our delivery mix ends up looking like and whatnot. So I'm not going to give any guidance here on margins for the year, but those are some puts and takes on that side. And as I talked about, we are evaluating additional potential price this year, to be determined where or when we take it or what extent we take it. But this environment that we're in right now is certainly unprecedented.

Makes sense. And look, I think this year is obviously hard enough to have a sense for where margins go. So to talk about longer term, obviously, that's a whole another level. We get this question a lot. Obviously, you folks do as well. But thinking about long-term margins, where they could go. And again, I know there's probably not too much to add right now, but just maybe some of the considerations or even the signposts that you folks will look for perhaps when you're kind of better able to inform us on some of the moving pieces on what profitability and margins could look like long term, is there much that, Katie, you can add right now on kind of some of those considerations even at a high level?

I mean, certainly, we are below the profitability that we had kind of our long-term expectations around profitability. It's also very hard to really pinpoint what that time is, which you were discussing, because we are in the midst of extreme commodity inflation. And also we are facing, as you saw in January, COVID has not gone away. So really, until we hit a run rate here, I think it will be hard to give kind of a clear read on that side.

And all that's going to start with sales recovery, right? And that's what we're most focused on, and we're most focused on that for the long term really. And we'll get there with that, that will help rebuild and various other things. That's what all this digital and Shack transformation goals is really about, attacking that, so that we can continue to grow back to the strong long-term margins that we expect from the company.

Yes. And you folks have spoken to sort of increased G&A investment as a key driver of the brand's long-term growth. And so kind of what are some of the key components of that investment, and let's call it investment even more so than spend to some extent, that can have the biggest impact on the brand's growth potential as far as what you're able to share today?

I mean, I'm going to start off, first of all, with hiring to build out the largest class of new openings on record, and that comes at an expense. You have to get ahead of hiring in new markets. And when you're in at a rapid growth phase like we are, we're probably one of the fastest-growing restaurant companies out there, you have to get people in the door in advance of opening and really think through what your opening schedule is going to look like for the next couple of years, and that comes at a cost. I think that's a great investment, though, as far as you look at the long-term potential of the brand and the company. And when people ask me about uses of cash, I still think that investing in our Shack growth is one of the most attractive opportunities out there. And then if you look at kind of where else we're investing, it's very in line with our strategic plan, but the digital transformation of this company is really kind of top of mind on that side. And we are building towards a digital business, which we hope will be a more frequent -- continue to be a more frequent guests than our traditional guests and spend more than our traditional guests do.

That's great. I want to shift over to international maybe to kind of close here with a few questions. Randy, you touched on international and the opportunity quite a bit. Maybe just first and thinking about the -- where international is right now, different markets, I'm sure, obviously, we're in a different place in thinking about the recoveries and the recovery opportunity. Can you speak a little bit to that, a little bit more about where Asia is, maybe where some of your more mature markets like Dubai are right now? We'll kind of start there, maybe with the international.

Yes. We love this part of our business. It has been as up and down as anything else that you've seen, as you might imagine, and that follows the COVID trend. I mean as you could take your top headline right now, Hong Kong, COVID cases raging, not good for our business, as you might imagine. That said, for the last 2 years, Hong Kong has been generally fairly stable, hard hit like all of us, but kind of stable. Now it's not, but it will come back. We think we see great opportunity in Mainland China. We've continued to grow quite a bit in Korea. That's our -- actually our largest single country per -- of the number of units today that we have, which is pretty exciting. Our Middle East business is really mature. We opened our first restaurant in Dubai in 2011. We had less than 10 Shacks we opened in Dubai, and we just have such a great business there in the Middle East. We love it. Our guests love us. It's a decade old now, more than. And we're going to keep growing. And what's cool now, when you take a look at a mature country like that, we can look at things like drive-thru. And we can say maybe the Middle East might be the first international market we can do drive-thru, pretty cool. Shack Track windows, we've opened some and tested some over there. And in each market there, we've seen different delivery impacts everyone. So we just think there's so much opportunity in each of those markets to continue to grow. We have great partnerships. We generally choose larger, really established multiunit strategic partners who we can learn from, too. They can learn from us, we can learn from them. And together, we have the resources to build something really special. So international can be fun, the domestic licensing part, adding some of the roadside opportunities that we've talked about, some of the airports continue to make their come back. We think those are going to be fun places to watch Shake Shack grow in the future.

That's great. We are basically out of time. So Randy and Katie, I want to thank you both very much for sharing your time and insights on the exciting growth ahead for the brand. Thank you so much. We appreciate it.

Great. Thank you. Bye.

Thanks, Dennis. Take care.

Good to see you guys. Thank you.