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

Good morning, everyone, and thank you for joining us. My name is Jeff Bernstein, and I'm the restaurant and food service distribution analyst here at Barclays. I'm also joined by my partner and colleague, Brandt Montour, who covers gaming, lodging and leisure. The 2 of us want to welcome you all to day 1 of our 9th Annual Eat, Sleep Play Conference. We've got a full 2 days for everybody. So hopefully, you get a good productive use of time. We hope to make small talk in the halls between meetings. But with that said, we're excited on my team to have 10 restaurants and food service distribution companies with us over the next 2 days, including fireside chats on day 1 with Shake Shack, BJ's and First Watch and day 2 with U.S. Food and Jack in the Box, Brinker, Kura Sushi, Dutch Brothers. We also have meetings only with Texas Roadhouse and Wingstop over the 2-day period. And we actually have a fireside chat today at 12:30 with somebody who heads up the National Restaurant Association. So look forward to talking about a lot of topical issues in the industry between minimum wage and unionization and a variety of other topics that are popular in D.C. right now. But with no further ado, I'd like to introduce our first presenting company which is Shake Shack. So with us this morning from right here in New York City, we have Randy Garutti, CEO, and Katie Fogertey, CFO. Katie, by the way, we're thrilled that you're able to join us in her 8 month of pregnancy, but she'll do anything for the team.

True. That is true by way of background.

Yes.

For anyone not familiar, Shake Shack is a fast casual primarily burgers, fries and shakes fast casual chain with 280 company-operated restaurants in the U.S. They actually also license 40 or so units in the U.S. and another 175 outside the U.S. And despite ramping up in size, they are still growing at a mid-teens annual unit growth rate. And management is confident in their long-term guidance for 450 U.S. company-operated units. And my guess is that it will ultimately improve conservative with a variety of new formats that were never envisioned before seeing some early success. So with that said, I want to introduce Shake Shack. And I've got a handful of questions, so I will kick it off, but then would love to have audience participation. So I know there's a mic running around, so in a little bit, if there's any questions, I will throw it out to the audience. But with that said, Shake Shack.

Morning, Jeff.

Good morning.

Good morning.

Happy holidays.

You as well, and everyone. Appreciate you waking up, getting back at it.

Yes.

I'm curious just to start with a couple of broader consumer-related questions just because it's very topical. Going into the summer and fall months, after seeing resilience from much of the industry, it seemed like there was a little bit of a slowdown. And I think there was a lot of investors concerned that the headwinds facing the consumer had finally taken hold. And then there were some restaurants that actually said, you know what, it did soften a little bit, but we've actually seen a reacceleration and you guys were one of the first to talk about that. So there was some thought of what maybe that easing was just a little bit of a return to seasonality, which was historically what we saw in the late summer before a rebound in October. So that really was invigorating for investors and a lot of companies that like to say, you know what, it might not be the consumer. It might just be the consumers actually holding on surprisingly well. So I'm just wondering how your take on the consumers. I guess if you didn't see other government data points you were just looking at your Shake Shack results, like how would you say the consumer is faring?

Well, thanks, and thanks, everybody for listening. And feel free to jump in here. Everything you said I think we would agree with on and talked about that on our last earnings call, especially seasonality and things kind of slowing into September, restrengthening into October. We're not going to talk about anything past that today. But I think we're all waiting to see, right? We're coming off of Black Friday weekend and Cyber Monday. I know I didn't go to a single place to go shopping myself, and I did a lot online. So I think it's still a mixed story. I think you saw a lot of value-based consumer purchasing be successful this weekend. I think we'll see how it all shakes out, generally pretty good. Generally, the consumer seems to be okay. And I think we're all watching very closely. I think what I would say more than anything is that, look, we look ahead into '24, there's going to be some uncertainty. There's going to be a little wobbliness on the part of the consumer and nobody's quite sure. But generally, people are employed. The consumer appears to be fairly strong. And I think they want value. And I think that's the goal of what Shake Shack has always brought and continued to bring. You're seeing more and more -- I can't actually remember a time personally in my restaurant career where I've seen as many promo discount heavy environment as you're seeing today. Every commercial you see is a BOGO for this or a deal for that. That's always the case, especially around this weekend, but I think it's been more pronounced. I've not studied the actual data on that, but my sense is that there's more of that. And we talked about this a little bit on our call in October. We're looking at more of that. We're not -- we're never going to be the compete on the lowest price. That's just not going to be Shake Shack. It's not who we are. It's not who we want to be. We are the premium brand and experience in the industry and we're going to continue to be that. But at the same time, we've got to continue to hit value for our guests. And we have been doing that both on our channels, on our digital channels, in-Shack, certain third-party deals, and looking at different ways we can reach our consumers in a way where they can say, "Hey, I love those guys. And I'm really seeing value there. We did a fun thing where we did something recently called the Chicken dance, and we did some work with some NFL players. And if someone did a chicken dance in the end zone after scoring a touchdown, we would give away free chicken Shacks for a week, turned out none of our players hit that, unfortunately, but we had a really big podcaster who did so we kind of did the deal, and those kind of things have been fun for us. And I think you'll see us continue to drive both our channels and our third-party channels and in-shack, really hitting more and more marketing. And as we head into next year, we think about where more of our focus and spend will be. We're going to be continue to increase our marketing spend. We are a company who is not big enough quite yet to see us on -- we're not ready for the Shake Shack goal game just yet. But we need to get there, right? We need to continue to ramp our marketing spend as we go out, get bigger. And if you look at your map, your good Bernstein's Burgers and Brews map, you'll see how fairly dispersed Shake Shack is, even as a small company. And we've got to continue to market in those areas so that brand awareness and consumers who are still getting to know us can continue to come up the curve.

Yes. Just to build on that a little bit too. The trends that we've been very consistently talking about have really held up into October. And that is that we've had strength at the high-income consumer. We over-indexed the high-income gas relative to traditional fast food. And we've seen kind of very consistent trends around the low-income consumer. And back to Randy's point about kind of value being a message that's resonating with a certain cohort of consumers right now. We've been working really hard to construct these offers in a way that conveys a value message, however, still is a good business opportunity for us as well. And I think what's been really encouraging, and this is what we shared on earnings last quarter, is that the checks on some of these offers are actually very high. And it goes to show that that's the hook that the consumer is looking for right now. That's the reason why that incremental consumer might be looking to make an additional visit, knowing that they've got something that, in their back pocket, they're getting something a little bit of value added in this moment. But still, the spend trends have been really good.

And I believe you mentioned in the month of October that you had flat traffic, which is a win for anyone in the restaurant industry. And I think you gave credit to digital and in-store marketing. Are there examples of things like that, that you found that really worked that we'll see more of? I know you're not yet ready for national television, but what was the biggest success that you saw that helped to really drive that?

Well, there's a few things. I think always we're going to go towards brand campaigns and how that hits, right? And this is not the answer to October, but to tell you, for instance, right now, we did a deal with the Trolls movie. If you go, if you have kids, maybe you've gone and seen the Trolls movie. Our shakes are Troll shakes. You look at, we've had a whole bunch of pop-ups. You look at our West Hollywood Shack right now. There's giant trolls with huge hair coming off the building. And it's been a really fun team up with Universal Studios. We'll try to do things like that from time to time that just are a brand and product coming together. And we're always going to do that. LTOs, We have our hot chicken and our hot burger now. We noticed -- and we said this in part of September and in October, we're lapping over a really successful LTO with Hot Ones last year, which was a bigger media campaign. And that's a tougher compare. So we have that going through. But as we look at next year, you'll see us doing more with strong LTOs that we think we can have grand campaigns around. But also, we continue to -- in order to simplify operations as much as possible, we're generally doing our LTOs for longer periods of time. A little bit better for ops to keep them going. We see that they generally stay strong depending on the LTO and for its run, and we'd like to see that. So shifting a little bit as we head into next year, and we talked about this on earnings really our #1 focus is consistency, standardization and our guest experience. Shake Shack traditionally has been this incredible guest experience, and we've just got to get better and better and better at delivering that more timely, looking at our guests' times, making sure that every burger is the same, no matter where we go. And that's really going to be our operational kind of core back-to-basics type of focus. And that gets into menu and LTO and all the things that we do to make sure we can keep driving sales through those fun initiatives, but making sure it supports the operator's ability to just be consistent every day.

And I think when you look at the guidance that we have out there and we're reiterating our guidance for fourth quarter and for full year today. What you want to see here is that the guidance we've given for G&A, that is leverage versus last year. And even still with producing leverage on that line, we're unlocking a lot of added funds for additional marketing opportunities. A couple of the ones that we've talked about recently have been some more performance-related, more brand-driven campaigns in select markets, which we're really excited by those results. And you'll see us continue to double down on that strategy, continuing to find efficiencies within our overall G&A spend to unlock opportunities to invest more in sales-driving initiatives.

Realizing that there's -- if I do the quick math, 34 days left in 2023, and we're really upon 2024. I'm just wondering -- or would you say you're most excited about for 2024 relative to '23?

Well, I'll start and please jump in. I think the progress we've made on all the fronts that we've committed to in our strategic plan, starting with our profitability. If you look at our profitability at the Shack-level, which is a key part of everything we do, we've made some tremendous strides, 400 bps expansion in the last quarter, so much continue to run out that curve and make our Shack-level operating profit stronger and stronger throughout the year. And honestly, like if you really look at our COVID curve, we were super hard hit worse than most because of our geographic distribution, and it's just been a straight line up since then. And on profitability, we've continued to get better and better. So I think as we look into next year, continuing that path continuing that work to be better at profit in our restaurants, continue to gain margin and do that -- continue to do that at scale. Additionally, we've committed into next year to take down costs in our build out. If you look at our development fees, we think this year is a high watermark. Now that's a lot of inflation. It's a lot of the type of formats. We've had a lot of drive-throughs that we've opened. These are more expensive. We're going to continue to do drive-throughs next year, less percentage of the class likely than this year. We really had a big hit this year. And we expect to take our build costs on average down about 10% and our preopening cost down on average about 10%. So if you look at all that together, that means unit economics is getting stronger, continue to drive our sales and looking at the model for Shake Shack is continuing to return to the strength that we've seen. It is strong now, and we believe it's going to keep getting better.

And anything that gives you pause looking into next year? I mean, it feels like we're coming through the...

I'll do the pause.

The worst of it, but there's something internal or external that you'd say is something we need to of walk out for?

Yes. I mean, I think the thing that keeps us in constant discussions all the time, the inflationary environment continues to remain uncertain, the East kind of being the biggest part of our basket overall. And probably the area with the largest amount of uncertainty and just an area that we don't hedge. So we've consistently called that out as one thing that we're watching. And then also labor wages are not going to go down. They're going to go up next year. We have strategies in place in order to help offset the higher price costs that we're going to be paying our employees next year. It's not just California with the FAST Act. There's other regions which will have mandatory increases as well. We're really excited by the massive improvement we've had in retention and in hiring overall. So that natural offset is going to help make that a little bit of an easier transition. We also have some labor programs in place as well that we're going to be starting to test shortly. But overall, it's just going to be an inflationary environment likely next year.

I think some investors believe that the worst is behind us, but clearly, there are things that are still inflationary by nature.

Yes. There's going to be -- there are thing. I think let's hope that, that's true, right? And we're aligned with that. But that doesn't mean that certain products aren't up. It also doesn't mean that certain products are going to go down, right? We've had extraordinary increases in things like fries, buns, the things that are major inputs to our costs, we don't expect those to go down might their inflation be a lot lesser. That's the hope. And I think that will be good and that's what we're looking at. And by the way, we're doing a lot of work ourselves on supply chain optimization, how can we get better? There -- I've always said, I really believe it's over the long-term trajectory of this company. We're still really small. So many of the companies you mentioned that will be here today or the big biggest that we are compared to have so much more scale than us. As we scale, we believe opportunities in our supply chain, economies of scale as we go deeper into certain markets will continue to grow. I'll give you one example. Portland, Oregon, we had one restaurant until this year, right? Now we opened a second and a third. So that's good, but it's only 3. And as we open more in that area in Seattle, in the Northwest, we can have stronger operations there. We can borrow a cup of sugar when we need to down the block from our friends at the Shack. We can borrow labor, and we can really help be better. But those things take time to scale into. To me, that's always been one of the most exciting things about the long-term trajectory for Shack.

And I think when you balance it all out, you have the concerns of obviously persistent inflationary pressures, but the optimism that we have with the strategies that we've been working on from our supply chain, the labor model, build cost, all of these things that we have in flight, that makes next year a very exciting year for us. So on the whole, we're excited.

And you mentioned Katie the FAST Act. And I think people have been very focused on that over the past quarter as it looms I think you mentioned you have roughly 15% of your store base. But just to clarify the facts 15% of the store base and you think it's how much inflation or how much price would you take -- what's your strategy as you address that?

We're going to be taking price to help offset inflationary pressures with wages in California. It's probably going to be a low single-digit type of increase, very low single-digit type increase across our entire system. There are certain areas in California, which are going to have to go up a lot. If you look at kind of just wages overall in an area like San Diego, those wages are much less than what is paid in L.A. So it will be very interesting to see how the industry ends up smoothing out that differentiating impact across the state, but we're going to be taking up prices and expect that a lot of our competitors will be as well.

Understood. The concern that Fast Act, California becomes Fast Act.

It's inevitable that other regions will increase price. And we've just seen -- or wages, and we've just seen this trend over the past couple of years where wages just continue to go up in various cities or metros or states overall. So nothing that surprising to us.

And listen, we've always had strong wages, competitive wages for our team. We're going to continue to put ourselves in that position so that we can have great team members. And as these things happen, we'll deal with them as they come. And as Katie said, in the event where we need to take price in a certain region differently than others to help offset some of that, we'll do that. And I think that has to be the goal. It has to be what we look at. One of the things that we are -- and we talked about this the last 2 earnings calls, that's been very encouraging. Obviously, the hardest part of COVID was staffing. Those challenges have absolutely smoothed out. Our team members are staying longer. We have more applications at management at higher levels. We have lower turnover continuing. So we really feel like we're well positioned right now. That's -- if you ask about what's some of the best things you can do on profitability is keep your team. And that, I feel like the team in this last 2 to 3 quarters has really seen some really nice updates. And I think part of that's what's been behind the continued strength of our profitability. We're going to be focused on that quite a bit next year. So let's find the right way for our team to make sure they're well compensated for the lives and the jobs -- the hard jobs that they do every day and keep on moving that forward.

And just because we touched on pricing, I know your comment on the past couple of quarters is you'll take it when needed. So when we think about that, like what's the objective of price in your mind? Do you take it because it's needed to hold the margin flat or some companies say, "I don't care if the margin takes a little bit of a hit if it's going to help the traffic. Like how do you think about when need? What's the objective of price?

I think that it depends on the moment. And if you look at the history of this company, we've been quite cautious in price because that's who we need to be. And we've taken generally CPI are lower. We've been in this kind of 2% range for decades. Obviously, that's increased over this last couple of years. We've now returned to -- we're running about a low single-digit right now. We just took about 1% in the fourth quarter. So let's see how next year goes, depending on what we need to take and where we can take it, right? You can look at it in various channels. You can think about this differently. There's obviously a higher willingness to pay in digital channels. We can look at that and be smart about pricing as well as regional tiers to make sure that we do that well. But we will take pricing to make sure that we have the company running for the long term the way it needs to run. That might mean some short-term takes. It might need some short-term caution. And I think we'll have to watch it. But right now, I feel comfortable about where we're at and our plans moving forward. And we've got to continue to offer great value for our guests. That's really the continued focus of our marketing and all the stuff we talked about earlier.

I feel like you mentioned earlier that there are some areas where you're excited to get larger because there are some benefits of scale. I'm sure some of those larger companies would say we'd love to be Shake Shack size because they're talking about 15%, 20% unit growth, which off of a smaller base. So I guess it goes both ways. Just wondering how you think about that? I know it used to be 20% unit growth now it's down to 15%. Is the tempering more of a permanent idea? Or is that -- could it reaccelerate from a percentage basis? Or are you comfortable being a little slower?

Well, look, I think that's probably industry-leading to be in the mid-teens unit growth. Don't forget that we have roughly 40 this year and roughly 40 -- company-owned and roughly 40 international and domestic license. That's a tremendous growth rate of 80 restaurants. We're looking at a similar number for next year. We feel good about that. So why wouldn't we accelerate it? Well, I think the work -- everything you just heard us talk about in our strategic plan, the work is to continue to improve our unit economic model today for our current restaurants and the ones that we build moving forward. As we look at development, we say how do we take costs out of that Shack, make sure it's optimized, make sure it can still do strong sales, cost a little bit less and keep that trajectory going. So that's just not a 1-year hit that we think we can take things down -- continue to take things down over time while continuing to expand our margins. All of that happening, let's do that from a strong base of a mid-teens unit growth and not rush it. We don't need to go doing more Shacks than we need to. Another 80 Shacks next year is quite an impressive feat and it's a lot for our teams, and it allows us to do the work we need to do to improve the long term.

You guys were victims of perhaps more divergent than others during COVID in terms of major metro versus other markets. When you see divergence now, would you say that it is shrinking because COVID was a primary driver? Or do you say that you've learned some things about major metro versus suburbs? Like how do you think about the drivers of the divergence these days between some of your stronger and weaker markets?

I think it's still shaking out, but generally getting more normalized, right? I think there's still travel patterns that are a little bit weird, and people are still figuring things out. There's still restaurant downstairs here in Midtown Manhattan that they have given up some of what they used to have on Monday and Friday, but are generally really similar in the few days. So we, maybe, call it, 3.5 days a week. There are some restaurants in major urban centers that are more neighborhood like that are -- continue to be up from 2019 levels. So I think that's still shaking out. But I think what we can now bank on as we build our restaurants and our pro formas for future restaurants, we've got a much stronger baseline of understanding where that's going to go. And I think we've done quite well on that. Our growth will generally be more suburban. That's just a law of numbers. It's generally going to happen that way as we go to the hundreds more Shacks in this country, and we open drive-thru and other type of models that we can do in core Shacks. But we're going to continue to do smart great Shacks in urban centers when that makes a lot of sense.

And the idea of removing 10% of your cost to build and 10% of the pre-open. I can't imagine that's easy in the environment that we're in right now is a lot of that because it was so outsized this past year because of directors? Or have you found ways where you don't need to make as big of a splash maybe it's not a new market anymore or...

All of the above. That's right. I think we can -- certain flagships will continue to be built. Those can be more expensive drive-throughs are more expensive. But we've also learned a lot about drive-thru as one example, but even core Shacks. It's most of what we will continue to build. We -- first of all, let's hope that inflation on that side of construction comes down. You're starting to see more contractors looking for work. It's not as crazy an environment. You're starting to see the real estate environment continue to be favorable for us as a great brand, but we can and will take costs out of restaurants. And we believe in certain Shacks, the size can come down. In certain Shacks, the way the guts of it, the interior can come down. We're continuing to refine our kitchen model so that we can lessen the little bit of equipment, move food more quickly and commit to all the things that we've been talking about on the strap plan. So all of it is taking a little tick here and there so that the brand remains stronger than ever. The experience of Shake Shack is stronger than ever, but we can take some of that cost out. So that's an ongoing project. There will be various models that come out of that. You'll start seeing some of that be built more in 2025 because a lot of the '24 are already baked as we were doing this. But even with the '24 Shacks, you'll see us make certain decisions where we can lessen cost. So we're really confident in that trajectory that the team is on and believe that there's going to be a lot of unlock there in the future as well.

I feel like a lot of the Shake Shack story has talked about domestically. But clearly, there is a huge international business. It is licensed. So it's less operational risk for you, perhaps less financial contribution, but gets your brand out there globally. Can you just maybe talk about the commonalities of the strongest or markets where you've had the most challenged...

I will add each international market is so exciting. I think there's very few brands ever who have achieved or could achieve what we did. And you could probably count them on 2 hands, when we go to a place like Thailand, this year, we open up and people sleep out overnight, and we have these incredible AUVs. We have a brand that transcends borders. We have a product that transcends cultures and we are super excited to continue that trajectory. I think if we look at what's cautionary for this year, obviously, war in the Middle East is not a good thing for business. We'll have to keep an eye on that. And I think China's economy is something we're going to have to keep an eye on. That's become our biggest, most important region from a sales perspective, and we'll be watching that very closely in the coming years, and I expect there'll be some ups and downs there. But we've got great partners in these places, and we're continuing to grow all of them. We'll see new launches in a number of places next year. Canada is coming. We're very excited about that. We've got our first Shack in Toronto lined up, so that will be next year. We have Kuala Lumpur, Malaysia and some others. So we're -- I think this is one of the most underappreciated undervalued parts of our business. And by the way, then shift to -- we often think of it as international, but don't forget, A big part of that business is here in this country. Our airports, and we're going to continue to do airports are really strong businesses, really strong, really strong AUVs. We love that part of our business going to continue to grow it. This year, we've also unlocked various deals on road side. So if you can go -- I had so many people texting me the Wednesday before Thanksgiving. I'm going down the Jersey Turnpike or the Parkway and I've stopped at a Shack. And I can't believe that they're taking over almost every rest stop. We love this part of this. This is going to be a fantastic way to achieve beating expectations. Every time you travel, you're disappointed when you got to pull over and get gas and [ not any ] food options. Now Shake Shack is going to be there, make it more exciting. So we are going to continue to do more of those up to New York freeway, New Jersey and beyond. So that part of the business is super exciting and one we want to keep building. And it's one of the most accretive asset-light, highly profitable pieces of our business, we're going to keep doing it.

I think you mentioned, in fact, as of a couple of weeks ago, you weren't supposed to be here with us today that you were traveling internationally, but it sounds like a store in Israel is on the come, but perhaps a little delayed?

Yes. So I was supposed to be in Israel today. Opening our restaurant for obvious reasons, that has been delayed. We are excited to open that restaurant and to work with and support our Israeli partners. They're an incredible company. And we look forward to growing a strong market there, and we will open that restaurant in 2024. It's a question of when, and we're really excited to get there and make that happen. We've got to do that at the right time.

[ We've gone upfront ] and we spend a lot of time talking about the restaurant level sales and expenses, but G&A has gotten a lot more focus more recently? I know in the early days, it was we have to invest in our infrastructure, but it feels like we're now at a point where this year, we're seeing leverage on G&A next year, we're going to see leverage. One of the biggest buckets I mean is it primarily just scale that allows that to happen, or are there certain buckets where you say we can manage the cost differently? How do you think about the G&A going forward?

It's all of the above, I'd say, first of all, on just finding efficiencies overall in our G&A budget, once kind of these big rocks are put into place, and the company is kind of scaled to a certain level, it's about kind of using more of what you have and then driving more efficiencies on that side. So whether it's on the finance side, accounting side, across the board. Also, as Randy talked about, too, our strategy of how we are building out new restaurants. Once you get a certain level of operations support in place, once you get a certain level of management in place, the incremental cost to open up a new restaurant is just less. So being able to be smart and leverage those investments while also still growing and then still unlocking more funds for sales-driving initiatives all the while. And that's been a big focus of ours, and you'll continue to see us do that next year as well.

I've got a slew of incremental questions, but we've got 5 minutes left. I'd love to open it up to the audience and see if there's any questions before I continue. If there's any questions, we have somebody with a microphone. Shy audience. There we go.

I just want to ask a clarification question on the pricing from California. When you say a very low single-digit impact, are you saying that system-wide pricing will be very low single-digit or that the California impact to system-wide will be very low single-digit?

Yes. So we're not giving guidance for pricing overall, but the impact from California itself is very low single-digits.

We often -- well, companies will often ask us to bring up the topic of what they think is most misunderstood about their own company. Obviously, you have your understanding of the company from the inside and you read what we write and what the press and others write. I'm just wondering what you think is the most misunderstood or underappreciated part of the Shake Shacks?

We love all your headlines. I think the international business, I did just say that. So I don't want to go too deep into that, but I do think that's -- it's not quite understood. If you haven't been to China, Shanghai and seen a Shake Shack or when you think about -- what I can tell you, when we open in Kuala Lumpur, I mean, I've stood in the site. This is one of the biggest malls you're ever going to see in your life. It's brand new to whole thing. We're on the roof next to the Apple Store and Shake Shack. And when you can talk about those 2 brands in the same sentence and you continue to see that. If anyone's ever been to the Singapore Airport, there's a giant amazing waterfall. We are at the base of it next to the Apple Store. I think people need to go see these things with their own eyes to truly understand the power of the Shake Shack brand. And then I think the misunderstood part, I think one of the great gifts and challenges that Shake Shack has had since day 1. Since day 1, our brand is so much bigger than our company. And that -- so therefore, we compare ourselves to the biggest companies in the industry that may have many thousands or tens of thousands more restaurants than we have. Yet we are building into those things. So our challenges are different at the scale that we're at. But our brand is up there. And our expectation, the guest expectation is that, well, this brand is going to be better. And doing that means we continue to punch above our weight. We continue to do things, do more with less. Our team is scrappy tough and constantly working. And I think that piece of the Shake Shack story is when we talked about this earlier, Jeff, about half of our restaurants, half in the whole company of over 500 open since COVID. I'm not sure there's another company that can say that. And so you just think about the opportunity, think about how far we've come just in a few short years, it's really exciting. And we think about a big white space moving forward and the challenges that come along with having such a big brand at a small size.

We would certainly produce a tremendous amount of gross margin improvement this year. It's been a lot about building the setting stage for what's to come. And I think that when you look at a company that's expanded our margins by over 400 basis points year-over-year, there's kind of a natural hesitation to think, well, that's probably as good as it's going to get. And from my perspective, the plans that we have in place, the strategies that the team is working on across supply chain, labor and various items of the 4-wall P&L. It's just a very exciting time to be here at Shake Shack.

I think you mentioned of those restaurant margin expansion opportunity, labor being the biggest opportunity, presumably going into the...

It is an important opportunity. Yes.

Right. And the kiosks that have come up a lot more recently, we haven't mentioned that at all, but it seems like it's full steam ahead with that rollout. Can you talk about the near-term cost versus the long-term benefits of those kiosks?

Yes. So it's part of the reason, not the largest reason, but it is a contributor to our higher CapEx spend this year versus last year. We have a really -- what I think is a very efficient way of rolling out kiosks overall across our system. And we're really pleased with the strong returns we've already seen from implementing them. So about all -- almost all of our Shacks right now have kiosks. We're seeing over half of our sales, well over half of our sales are going through that kiosk channel versus going to the traditional cashier and we're focused on driving even more of that mix to the kiosk. We see at least a high single-digit check lift on the back of task and kiosk is the highest margin channel. So you're going to see us continue to push on that strategy and also invest a little bit to improve what that upsell experience looks like, continue to peel back the onion as to what this really important order mode can do for our company.

Anything that can drive higher sales, higher check and lower cost. It seems like it's worth the rapid rollout.

I don't know, it's a good one.

Well, we have exhausted our time, but I did want to thank Randy and Katie for joining us from Shake Shack this morning, and thank you all for being here. Have a great day.

Thank you.