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

Welcome back. My name is John Glass, for those of you who were not here last session, restaurant analyst at Morgan Stanley. Before introducing Shake Shack, let me once again remind you that for important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. Thank you to Randy Garutti and to Katie Fogertey for joining us from Shake Shack. And he's been the CEO since the IPO. Katie joined the company 2 years ago now, perhaps, as its Chief Financial Officer. Actually was...

She was like 20.

Yes. Was one of us at one point on the sell-side. So always exciting to see that kind of change in career.

Let's do this, if I could. I think we want to spend time talking about development and some -- the opportunities in the business. But just given we're still in this moment of time, and we were just even talking about this recovery, where are we, Randy and Katie, on this trajectory of recovery? It seems it's been uneven. We've gotten some sales bumps and then we get sort of -- we go back and forth. Where are we on this trajectory of recovery? And then maybe we can spend a little time talking about the underneath of it, urban, suburban by cohorts, et cetera.

Sure. So kind of in COVID, the company kind of broke out its business into suburban and urban. Suburban overall has been pretty resilient throughout COVID. There's been some pockets that have outperformed; and then some pockets, especially on the mall-based locations, which saw some greater impact. And we've kind of talked about the factors that are driving those same-store sales now that is mobility in those areas, people returning to kind of more normal habits and then also the general demand for Shake Shack and our products through both our digital and our in-Shack channels. In urban, we've had a little bit more of disparate performance, I would say. There's some urban locations where the trends have recovered quite nicely. Mobility has definitely been at play. But we also have some areas which we've called out, such as Midtown New York, some deeply impacted places that just have not yet gotten back to their pre-COVID levels. We've talked about weekday lunch and dinner at those more impacted locations still being down about 40% versus 2019.

Interesting. And you've talked about it on sort of an access of demographics as well, right? Because you've got these different dynamics, whether it's COVID, and now you've got this impact from a consumer standpoint. Can you just flesh that out for us, just so we understand, right? Everyone has some low-end consumers in their base, there are some high-end consumers. What yours is? What's the dynamic? And has it changed in the last quarter or so?

So we have a wide range of guests, which is exciting. We tend to over-index to higher income relative to traditional fast food. But what we talked about 2 quarters ago was we started to see a little bit of weakness from the low-end consumer. That has held pretty stable, and we discussed last quarter. We've seen more resilience from the higher-income guests. But when we look overall, what are we seeing? We're seeing more attach rates for our cold beverage, for more premium options. We're seeing our guests trade up into our premium LTOs, which is always really exciting. It kind of goes to show what we think is our competitive advantage out there, kind of what we do better than traditional fast food. It's a great guest experience, but it's also elevated, high-quality ingredients and providing that unique culinary option that you can't find with traditional fast food.

Can I ask you about pricing? Can I ask it maybe in a different way than we talk about. What -- one of the -- I am interested in, Randy, how you have gotten more sophisticated, or Katie, about pricing. But there's a broader sort of debate right now, which is some companies, maybe the minority, have taken full pricing to take -- to offset inflation during 2022. Others have -- and most others have delayed it or taken some but not fully covered inflation. The downside of that is, in 2023, you'll have to eventually take more pricing than inflation to catch up for the pricing or the inflation that you didn't cover in 2022. Is that a better place to be or worse place to be? I mean I can imagine there's challenges to taking more pricing than inflation at a time when the consumer is weaker. How do you think about that dynamic in when you price?

Well, okay. I've been working in this company for 23 years. The way I think about it is I want to have the right price 23 years from now also. And I think you've got to be careful. And you could certainly accuse us as a company of being cautious in pricing for the last 15 years of this company. And we've probably taken less than CPI around this low 2% range for 15 years. This year, that wasn't possible. But I've always been cautious. I want Shake Shack to deliver a better experience, better product, better all around everything at a lower price than people who we compete with. Generally, I believe we've done that and we've offered that. We're not going to compete on price with fast food. We're not going to compete on 10 for $1 or 4 for $5, whatever. We're not -- there was a great Saturday Night Live skit this weekend. If you haven't seen it, it was amazing about exactly this. You should go watch it. But -- so we're cautious. However, this year, we've had massive inflationary pressures on every line item in our business. So we've taken more price than we ever have. We just took another price raise at the end of October in the 5% to 7% range. That puts us around high single digits, about -- around 10% running right now after 2 price raises through the year. And we're going to continue to look at it. And we're going to be as cautious as we possibly can. So we have not taken enough price to offset all the inflationary pressures. We've had some of our cost of goods go up 20%, 30%, 40% on us. Some leveling out. So I think we've got to wait and see. And we're probably more cautious than others. We -- that has had a margin impact. We -- obviously, our margins today are lower, and we've guided lower in this next quarter. But we believe we'll continue to build that back. And that's our goal. One of the tools we have is pricing. And when we look about it, most of the country, you can get a Shack burger, fries and shake -- excuse me, Shack burger, fries and soda for under $14. In places like New York, that's going to be higher. We have -- and to part of your question, how are we thinking about this? We've gotten smarter and smarter. Katie has really led a great data and business intelligence team that's thinking much more deeply about where we can price, where our opportunities are with multivariable factors to think about how best to capture that. So for instance, we raised most of our New York City pricing around 10% in this last raise. We believe we have opportunity there. We may even have more there. But we're going to be more cautious in areas where we've just opened a Shack for the first time and people are new to the brand, and we've got to be careful there. So it's about balance, it's about very long-term thinking of -- started this whole thing with and making sure that we can protect our margins as best as possible with a long-term mindset. And we feel like we're doing that. Everybody is reacting. I mean we all are. Every time you go now to get anything, you're kind of like, oh, my God, is that what it costs now? Every one of us. And you have to be careful how many times you do that to a consumer right now. And we're going to do that, too, but we'll ramp it up as we need.

How do you think about the long-term restaurant margin? Last quarter, you talked about -- you hadn't been maybe as consistent as you would like in the past. The restaurant margins aren't as high as. Now understanding in this context, a lot of folks have struggled with this. But I think other brands have focused more on what besides pricing can we do to improve our margins. What are those things specifically that you're thinking about? And has there been a shift, a philosophical shift that said, listen, maybe pricing doesn't fix this. So what are the things that Shake Shack can do to offset some of this inflation without...

There's a lot we're working on as part of our strategic plan. And I think it begins with sales, sales, sales, sales and sales. And we're going to focus on that 100% of the time. That -- the #1 challenge to that today is actually staffing and retention. And we've had -- and we talked about this quite a bit on the last call. It's been harder to staff our restaurants and retain them. I feel like in many -- not in all, but in enough restaurants that it's so much work to be done, we haven't optimized our sales either through total hours, through the throughput that we need to have. You take little things like some of the -- even the restaurants that you could walk to from here, that will continue to recover, right? Our urban Shacks continue to recover, but continue to be behind some of their 2019 numbers. Why? Well, some of it's demand. Some of it's Mondays and Fridays are really weird and different in New York City. Some of it's tourism isn't all the way back and events and conferences like this are not all the way back. But some of it is that our team just doesn't have the reps. And we need to be fully staffed and retain our people longer. And that has just been a new headwind in this last couple of years. And is it better, that's the question everybody wants to know. Yes, a little bit, certainly better than this time last year. Let's all remember, by the way, what was happening at this time last year. Everybody you knew got COVID at this time last year, and that's what we were up against. So we had some of the biggest staffing and supply chain challenges anyone has ever had. Hopefully, we're in for a better Q1, we'll see. And we've got to strategize on getting our teams there. Once we do that, we've got a ton of work happening on our supply chain to bring down our cost of goods, on our OpEx lines, on the things that are impacting us. We've got to make sure we can maintain our restaurants beautifully and do it at a lower cost. We've got to scale more. You've got to remember, too, we have -- when I think about the long-term opportunity, and this is where a long-term investor, you want to know how we're thinking on this. The long-term opportunity, we have barely scaled any economies in this company, when you think about only having 250-ish restaurants in this country. Think about it. Anyone you have up here today, John, you're talking about thousands and thousands of restaurants for the most part. So yes, when we [ opened ] out one restaurant into Portland, Oregon and it's by itself, that's hard to scale profitability as we add more, and that's our strategy. We've got to add more in clusters around the Shacks that we have. And you'll see us do that this year. You'll see us do that into next year. We're only going to do 2 or 3 kind of new markets next year. Everything else of the roughly 40 domestic company-operated Shacks will be clustering around other Shacks. And a lot of that is that so that we can start to scale some of our profitability around those restaurants. It is just so much easier. When we opened a restaurant in Boston yesterday at the Prudential Center, it's really easy for us to do that. We have a bunch of restaurants in Boston. When we opened one in Birmingham, it's hard or -- and a couple of weeks ago in Baton Rouge, Louisiana, that's hard. We should only do so many Baton Rouges right now, and we should fill in around. So there's a lot happening around in the core, in the fringes of our restaurants. And our commitment is to continue to recover and restore the Shack-level operating profit that we've traditionally had as a company, and we've got work to do.

Can we talk about that a little bit in detail in a couple of areas? What is -- do you think you've got the right -- at the managerial level, the right talent in the business now? Or is this a moment in time when you need to have a Chief Operating Officer or a -- one that has a different role and capabilities, comes from a bigger company that says, listen, here are the things you maybe didn't look at?

Well, I mean, we have a Chief Operating Officer who's been with us since the third Shack. We have an incredibly talented executive and leadership team beneath that's constantly being added to with various team members. As we focus on drive-thru, for instance, we brought people from inside who are drive-thru experts. As we focused on construction cost elimination, we have stood up a team -- excuse me, not elimination -- construction costs declining. We've set up the team that's working on that as we look at new Shack designs from a long term. So our job -- my job is to constantly reevaluate the talent on our team, make sure we're all aces in places in the right place doing our job. And I'll always be doing that no matter when you ask me that question. And I'm really proud of the team we have. And I'm proud of the strategic plan we have. Now we need to execute. And now we need a couple of winds at our back, which we have had the opposite for the last few years. And we need a couple of things to go away. Who knows when that happens in a potential recessionary environment we're headed into. But we feel good about how we're set up and how we're strategized for the work ahead.

Yes. Can you talk about throughput and if there have been breakthroughs in -- whether it's in equipment or process engineering, have you thought through -- I understand throughput isn't the only piece of this, but there is some knock-on effects of maybe you need less staffing if you've got better throughput...

All of the above.

What drives that?

A lot of it starts with the order process, right? When you think about how our business has shifted in the last few years to being 35%, 40% digital, that doesn't even count the kiosks in the restaurants. So we've committed that -- about half of our restaurants didn't have kiosks mid this year. By the end of next year, we expect nearly all of our restaurants to have kiosks. What does that mean? Well, we can optimize that labor that used to be used for 1, 2, 3 cashiers and optimize that to work in more food production areas, more guest, hospitality areas. That's one place you were automating. And then I think the other areas are really thinking about kitchen design, kitchen flow. And some of the work that's driven that has been our drive-thru initiatives. And -- I mean we talk all day about drive-thru. We're super excited about it. We got 10 of them open. We expect another 10 to 15 between now and the end of next year. We have so much learning to be had. But within that, we designed 3 different kitchen flows so that we could kind of let them battle it out and figure out which one is going to win. And we're still figuring it out. There's a couple that are really good, and they move food a little bit differently. That's taught us some things about how to move food at our core Shacks, existing Shacks. Some of that takes major remodels. Some of it you can kind of work with. So working within that is a huge way that we're thinking about our labor models, how we schedule and how we optimize the way we move food. But we're not going to start changing the way we cook things. We're not going to start spinning shakes by hand. We are -- excuse me, we're not going to stop any of that. Like we are going to continue to have the premium product and charge for it that Shake Shack has been built of.

Just before leaving those operations, you talked about tipping and you talked about these labor constraints, not optimizing staffing. One of the ways to do that, right, is to make sure that you recognize financially your employees. How has tipping worked?

Sure. So there -- right now, we are tipping -- allowing our guests to tip in all of our channels. And this has really kind of stemmed out of, guests for many years have asked us, we'd really like to tip your team. We had a great experience. We really want to give your team members a thank-you. And so the work on tipping actually began a couple of years ago. It's a pretty big lift to stand up. And it's exciting to see. We're seeing our team members more and more talk about the tips that they're getting. There's locations where our team members are making more than $20 an hour when you put on the tip there. So we think it is meaningful. We're still learning what that means for our team members. But the early indications have been pretty exciting.

What percentage gets tipped?

We haven't broken that out, but a solid amount. And we have always felt like -- look, we're in the hospitality business, right? If you want to tip, awesome. If you don't, awesome. Like there's never going to be a pressure about it. Okay. Now let's also -- if that's not your jam, you don't feel like it, that's totally cool. I went to a coffee shop this morning and gave a tip. Tomorrow, maybe I will, maybe I won't. I don't know. We all experience this moment of, oh, g******, I can tip right now, how does it feel? And you're sorry to see it more and more because so many more companies doing it, a lot of companies are talking about it. There's articles this week about it. I think it's going to be more and more prevalent, and it should be a consumer choice to say, that's either something I value or not. What we love about is not just that it's going to make our teams make more money, which is critical to their lives and our ability to retain people. But it's about being able to talk to our team and say, hey, we are in the hospitality business, like go get that tip. Go take care of John when he's walking in. Recognize that he likes Double SmokeShacks. Well, I don't know what do you order when you go to Shake Shack. Whatever it is. And like let's use that to drive greater hospitality and understanding. That's the business we're in. We're not -- the other thing I will say, I don't want to get too much on my soapbox because I'll go off on this. But like our team is a critical valuable workforce in the world and is often not treated that way and especially in the burger and fast food business. And it gives added value. It gives the moments for you to say, like, I want to value that person. And that should be. Our path is a real career path for people.

Amen. I mean I think that's fantastic. And I also think the normalization of tipping, even through the third-party aggregators, as one piece, now it is normal. It is an expected thing. And I don't think that historically was, right? And so I think you're leading edge in trying to get -- bring that back to the -- behind the counter. I want to talk about development. So it's a challenging environment. Maybe we'll start with '22 and where you are. You have a lot more stores later in the year than you thought, and we kind of all know the reasons. I don't know if there's an update in kind of where you are in terms of progressing toward the goal for the end of this year in a few weeks. And then I want to sort of flip and talk about '23.

Yes. So we -- look, we started out with more ambitious goals than we have executed, and we've been frustrated by the environment of permitting, all the way from the beginning of design and permitting in locales where you just cannot get it -- get locales call you back, landlords delivering their own construction work and then our own ability to execute on the time lines that we expect. There's equipment availability issues that have been incredibly tough. So where are we going to land? We think we'll be -- we've reiterated our guidance in the 35% to 40%. It looks like we're going to be just trying to get to the low end of that guide. We do not expect to be above that. That's a race. Yesterday, we opened our 28th restaurant of the 35, company-operated. We also, this week, opened our 30th licensed restaurant. So we hit the top end of our guidance there yesterday -- a couple of days ago. And oddly enough in Qatar during the World Cup, we opened our 30th licensed Shack. Having a great week there, I imagine. And that's been a lot of fun. So it's been tough. And we've never missed on development in the history of this company. Like -- and it's like in one of our greatest frustration. And it has been the single biggest reason for not hitting the ultimate sales goals that we had at the beginning of the year. And as we look ahead to next year, it's why we feel good about setting a mark for about 40 Shacks. That will be our biggest number that we've done, and it's the right number. It's a number that allows us, we believe, to execute on 40 great restaurants, not push it further or faster than we can. As we talked a lot about in the last call, John, our costs are up. We're spending more to build restaurants. There's a particular factor where we're actually spending more in drive-thrus, and we're investing in that early learning investment where they will cost more at this stage to build. But then we also have inflationary environment on everything. And our profits have been lower than their historical highs at the moment. So because of that, we're not going to employ additional capital beyond that in a year where we know it's going to be tough. So let's do a really good number, and let's focus on the restaurants that we have in our company and work on same-Shack sales and driving the business as we have it. We think that's a great development story. We're going to be focused quite a bit on drive-thru with 10 open -- excuse me, 10 to 15 next year. And that's going to be big. And I would say we're probably 6 to 12 months away from a solid understanding of that first group of drive-thrus. We need to -- they need -- we just opened 4 of them in the last 3 weeks, most in cold weather climates. And we've got to figure out what they are. We did a lot of things that we're thrilled about. There's a lot of things that we got right, some that we got wrong. And we've got to pivot, learn and say, okay, for that next group of 10, what are we going to do differently.

Can you just maybe -- I wanted to get to drive-thrus, but you introduced the topic. Why -- so you've got a lot to learn, right? It's an old format, but it's new for you, there's throughputs, et cetera. Is there a rationale to slowing that down, learning from what you have? It may be a year from now, so you know what, actually, we would have done something differently. But now you'll have 10 more in the ground by the time you realize that. Why not sit on them and learn from them?

Well, I think you've got to learn quick in this world, and you've got to continue to put capital to work for what we believe will be great returns long term. I don't think it's a mystery. I don't think there's some mystery about is -- does drive-thru work, like can we make it work? It works. Where are the right sites? We've got to learn for Shake Shack what that means. We have to teach guests that Shake Shack has a drive-thru. No one's ever known that about us. They don't think of us that way. About half of our sales continue to come in the restaurant.

I'm sorry, how much?

Half. So there's about half drive-thru, half -- some more than others. We feel good about that. We want the full experience. But we've got to build restaurants to learn that. And I think we've got to learn on the fly. We've got to pivot, and we got to go. I think it's got to be a critical part of this. I think we know that our best guest is an omnichannel guest, whether that is in-person, digital, delivery and now drive-thru. Our hope is that, that added convenience of drive-thru can make him even more frequent, even more omnichannel than ever. And we think it's a great investment. And we'll learn. We'll mess some things up. I'm sure we've got some sites that are good. We've got some sites that are great. And we're going to keep doing it, I think, at a solid pace.

Yes. And can you just help us understand -- a couple of quarters ago, you did talk about the volumes, the average weekly sales versus standard. Can you just help us understand what do you target? What do you need to do in order to get a fair return out of this vehicle...

Well, we haven't -- we're not going to keep updating because there's so much -- the new, you get these big highs and you get these -- it's not -- I don't think it's appropriate to continually update those numbers right now. We'll do that as we go with a longer-term perspective. They're going to cost more to build initially. Our goal is to have higher AUVs than traditional Shacks in the same area, right? So we believe we can drive -- a drive-thru can drive some level of incrementality of sales and we believe Shack-level op profit over time at a similar site than if we went down the block in a non-drive-thru. That today is going to cost more to build, and we've got to prove it. And we think AUV and long-term op profit is the target above and beyond our current suburban type models.

Okay. But you would expect that. I guess my point is, do you need a 50% higher volume, given the higher investment? How do you think of this framework, like how is it...

I think it's too early to -- well, I think it's not, not knowing. I think we've got targets of higher AUVs to some extent. I think over time, we're going to continue to bring down the cost. That's the goal of building them. The costs today are expensive. We will kind of, I'm sure, shrink that box a little bit, optimize how it works. Is it 2 lanes? Is it 1 lane, all of the tech involved in it. What we're going for right now is an amazing experience, like we've done every -- since every single Shake Shack. And if you look at our best decisions in real estate since the history of this company was built, there are some of the ones that most people would look at and go, man, that's going to be expensive, you sure you want to do that? The answer has been yes, and that has been a winning strategy for us. We'll miss sometimes. We'll kill it sometimes. And I think on balance, we believe this drive-thru strategy is going to be a really good one. But what are we after? Forget about this single unit. After an increase of our total addressable market opportunity, as we add drive-thru, that opens up so many new ways we can think about the unit potential -- and no, we're not going to change our target today -- and the places we can go. When we look at a market, we can go -- we just did a tour in Nashville with our team a couple of weeks ago, and we were saying, "All right. So we've got this core Shack. We've got an airport Shack here. We've got kind of a downtown Shack. We're going to do an outlet mall shack. Okay, cool. Where can we put some drive-thru Shacks in Nashville now?" Boom, boom, boom. And you start to be able to envision markets and addressable market opportunity in a bigger way. That's what we're after. That's the opportunity that Shake Shack has.

And do -- about the addressable market, right? So you've had an IPO target for many years. I think investors expect over time an update. Maybe it's not that important to you as it is important to us, right? I don't know if that's true or not. But what is the process that you go through? I mean is it a useful exercise, first of all, for us to -- for you to spend your time doing? And what does that process involve?

Yes. So constantly on development, what we're doing is we have our own internal models about what makes a good Shack, what have we done well historically, what are the factors that we want to lean into. We also leverage some external models as well to build up a view of where we see a great site. So what has made our Shacks really well -- perform very well in certain locations, how can we duplicate that and replicate that in other areas. And so it's constantly looking at what's in the pipeline and then also evaluating, knowing what's in the pipeline and what's going to come, what do we have to think about as we already talked about different formats, how do we fill in each of the markets. Maybe there's a particular market where it says we can have x many. We have this many formats today. We know we can add some more over time. So it's constantly kind of evaluating and measuring through a variety of factors about what our sales potential is. And it's also a helpful exercise to look at when you apply that to our existing base. Like where are we outperforming where we should be? That's great. What are we doing well there? Where are we underperforming? What are the things that we should be leaning in and working with our team members in those Shacks and working with marketing and operations to help kind of corral everybody around what that opportunity is there.

And I think -- like there's a massive science-based approach to it that just gets smarter and smarter every. Katie and team, just -- we just keep getting better and better and better at that. And you need time, data and you need Shacks to inform that intelligence. That gets smarter and smarter. I feel really good about where it's going. On the side of that, then there's a whole bunch of us who are really good at this, including our real estate team and their third-party teams market-by-market that take a market, sit there and map out the next 3 to 5 years as to where we're going to go in the total market opportunity format-by-format. And that's how we think about it. So it's incredibly important to us.

When do you get the answer, I guess, is the question? Or...

We constantly have the answer.

So you in your mind have an answer, it's just when do you want to be...

I think the answer is constantly evolving, growing and informing. And when we choose to share any more of that publicly, we'll keep you posted. In the meantime, what we're telling you is we feel really good about 40 Shacks next year, and that's what we want our team focused on, going -- getting 40 amazing Shacks next year, which by the way we have. And like I'm pretty sure almost all those leases are signed at this stage. So we feel solid about pipeline in the '23, '24 and starting to look into '25 right now.

And are we at a point in the company's history where that accelerated growth, at least on a percentage basis, starts to moderate, and you really are thinking more about this trade-off between operations and just getting stores opened, right? In other words, are we sort of shifting from a percentage growth rate to a more moderate? And this 40 is probably the new normal, if you will, 40 might become 45? Or do you look at '23 as just kind of an exceptional year, just given your experience?

I think we'll see long term, John -- we haven't guided that. But I think you've got to get the class open and feel good about it. It shouldn't have been this hard this year to open 35 restaurants. Against any bit of normal -- take half of the world's problems out, it would have been a no-brainer to get 40 opened this year. And so I feel really good about the pipeline, the team and our ability to execute. The work now is getting some things solidified. We have 3 restaurants that are ready to open that don't have an electrical switch box right now as we sit here on this stage. And I don't know if it will open this year or not. And that stuff never existed. And we've got to get past that. The world will get past that. So I expect it's going to get past it quickly in the next year, but that stuff is still a little bit of a lag that keeps us cautious, I think, on what the right number is.

We have 5 minutes. I want to hit on 2 important topics. So hopefully, we'll get through them, but they're big. One is on digital. Look, here's a broad question that hopefully you can -- there's a somewhat simple answer. What do you think is most distinctive about your digital offering that's -- in other words, digital, order pickup, kiosks, I think a lot of brands have those. And furthermore, utilizing customer information, I think, is fairly common. Is there something you think that is truly different about how Shake Shack goes to market from a digital perspective? And maybe the answer is no. You just have a great offering. It just happens to be somewhat similar to others.

Yes. That's a great question. I don't see us being particularly more unique than others. I think what always amazes me is how far above our weight we punch. So if you look at our total sales relative to other digital companies that you might compare us to, I would say our digital experience pound for pound is as good as those companies who are spending 10, 20, 50x budgets we are on digital. And I think our team deserves a huge credit for that and everything executing reliably. It's cool, it's fun. You pick up the Shack app, it looks beautiful and it is on-brand. And I think that's what matters most right now as we start to level off. If you look at our gains right now, they're in [ Jack ], they're in the restaurants, right? Digital is in this leveling moment, that's really good. Feel great about that. It's -- we want -- the trend Shake Shack likes is let's get people back in restaurants. That's generally a good trend for us. And we're going to keep building on those tools. What you'll see from us digitally will be more personalized marketing, more ability to connect with you for the things you like on the time line that you like, more ability to execute with a better user experience. You're not going to notice these things, but every day, there's a little bit better, one less click, one less annoying thing about our digital experience that we can improve upon. That's the work. And kiosks for this year. And we're not trying to reinvent the world. You're not going see us add some major thing. This year is about executing in our restaurants and executing the basics really well in our digital environment.

I think that you made the point, which is relative to your size, you do a really good job, and that's special, that's different. Katie, just thinking about 2023, I know you're not prepared to roll out the full outlook, but can you just -- how should we be thinking about, in your mind, inflation, some of the elevated costs around T&E around some of these new openings, G&A? What are sort of the headlines you might get investors starting to think about in '23 without giving away, say, everything?

Absolutely. So I think, first of all, let's talk about top line, okay? This is a company that's never been through a real consumer cycle at scale before. So what I'm constantly doing is running scenarios and just trying to figure out where are [ my bands ]. So we talk about scenario planning all the time. So having a very scenario-based approach to 2023 is kind of what we're doing right now. And then as far as inflation is concerned, look, we had a big step-up in inflation in a number of line items we talked about in the middle of this year. We will be anniversarying those in the first half of 2023. So we haven't given any guidance yet on 2023, but we have talked about -- we expect to have at least some level of inflationary pressure in 2023 on our COGS line. On labor, we're going to continue to invest in our teams. We want to get staffed and fully opened. And part of that is going to be from mandated wage increases, but then other markets where we might choose to pay a little bit more to get more of that talent in our Shacks. And then we've talked about some pressures that hit us in the third quarter, some of which we expect to persist into the fourth quarter. That's around T&E as we support just a large number of openings in the staffing moment, we're having to fly around managers for some select Shacks in order to open them strong. And after that Shack opens, instead of that just sitting in pre-open expense hitting our [ slot ] line. And then R&M. R&M is elevated right now. I think it is for a lot of companies. All of the issues that have hurt us in opening up restaurants on time as far as availability of griddles, the custard machines, of all of these things. We're also not able to replace broken items in our Shacks at the way that we would have historically. So we're servicing them more, it's resulting in higher R&M costs. And then also utilities is the third one that I would mention. Anybody who pays their electric bill right now knows that. That is pretty expensive, and it's also expensive for our restaurants. So I expect that to persist as well.

That's so many bad things. Hopefully, there's a good thing out there, which is maybe some offsets -- the margins expand next year despite all that? Is that a...

Randy talked about it, sales, sales, sales. And as we sit here and whether it's continued return to office trends and maybe that Tuesday through Thursday becomes a Monday through Thursday in the office, those types of trends are all good for us. And then we'll see. We want to be that upbeat that people want to trade down -- I guess instead of going to their local restaurant, maybe they'll come hang out in the Shack. And that's kind of what we are investing in to really build loyalty among our guests, among our fans in various economic cycles. So yes.

Thank you. Randy, Katie, thank you very much. Thank you all for attending. And have a great rest of the day.

All right. Cheers.

Thank you.

All right.