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

Hi, everyone. Brian Harbour, my third time in this room, but I'm Morgan Stanley's restaurants and food service distributor analyst. Real quickly, for important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. And now we have Shake Shack. Rob Lynch is the CEO, new to this conference, of course; Katie Fogertey, CFO, not new to this conference. Thank you guys for joining us. We appreciate it.

Maybe just to start, Rob, you joined the company earlier this year. What are you looking forward to most in the next couple of years for the company? How do you think your past experience can really move the needle with Shake Shack?

Yes. It's an interesting experience for me, given my last 2 experiences have been turnarounds and come and fix this. Shake Shack isn't a turnaround. It's got a great foundation with a lot of momentum on the business, but there's definitely a lot of upside opportunity, and that's where we're focused. We're focused on driving profitable growth. And the good news is, is that we've got grade 4-wall margins to continue to get better. We're driving top line sales and comp store growth pretty consistently. And we're building a lot of new Shacks at low to mid-teens growth rate for new units. So there's a lot of great foundational and structural good things going on at Shake Shack. The upside is really around doing all those things a little bit better. We don't have to change the model. I think there's a big opportunity to leverage our culinary innovation in a more strategic way to drive accelerated comp sales growth. I think that there's an opportunity for us to continue to invest in marketing, both top of funnel, bottom of funnel, that's kind of a new thing for Shake Shack. And we're obviously under invested there, but we're seeing great returns, and we'll continue to invest -- increase that investment until that return changes. And then lastly, we've got huge white space. We only have 330 company units domestically. And a lot of our markets that we're in are underpenetrated, and there's a lot of markets that we have yet to go into. So all of that equates to a really great growth story and a lot of fun, and we're really excited about 2025.

Great. And you also brought in a new COO, how has she been spending her time recently? We can certainly talk about some of the specific initiatives, but I guess just in general.

Yes. Stephanie Sentell came to us from Inspire Brands. She actually worked for me while I was there. And it has come in. And Shake Shack, for 20 years, had amazing people that took it from hot dog stand in the park to 300 units and did a lot of great things to do that. There's still a huge amount of opportunity on the operations front for us to manage our Shacks in a little bit of an optimized way, hold people accountable for delivering the KPIs and the metrics and really drive productivity. And so we're bullish on our ability to be even more productive and continue to leverage our fixed costs and grow those margins. So she's really focused. She spent almost all of her time in the Shacks out in the field with the operators and is building the strategy and the structure and getting the right people in the right jobs to continue to leverage that.

Maybe just focusing on some of your sales drivers. You've seen some improvement through this year. You noted that into early 4Q. We've seen, I think, generally worsening QSR trends generally. So talk about what's been driving that? It seems part of it is regions that are not California or New York. So you talked about some new stores, I think, maybe talk about awareness. What else do you think has been driving that?

We're seeing growth in every region. Obviously, there's -- we've got higher penetration in California and New York, but we're growing really rapidly in the Southeast and in the [ Sunbelt ], but we're growing everywhere. Since I got here back in May, I think the narrative has been, this race to value is going to really negatively impact Shake Shack. And we've actually seen our relative value scores improve this year relative to traditional QSRs. And that's really a function of us continuing to deliver the highest quality food. We have not compromised that despite the inflation over the last couple of years because this brand has been able to deliver pricing and been able to sustain momentum in top line sales growth while protecting our margins. So we don't need to go into the supply chain and make changes that are going to compromise our long-term point of differentiation. So we're still delivering the highest quality food. We've got great innovation. Korean barbecue was on the menu when I got there. We had a summer barbecue platform. And now we've got truffle burgers. I mean these are $25 burgers that we're selling for $10. And I think that holistic real value versus just pure price pointed value is what has allowed us to continue to grow despite a challenging macro. And the other piece is we've gotten really good at doing surgical, digital incentive marketing. So we are going out and delivering incentives through the digital channels to the customers and the guests that need incentives to come. But we're not doing blanket incentives that are having margin implications across our business. So that's been -- I think over the last year, the team has gotten really good at that. That's going to continue into 2025 as we continue in this kind of macro environment.

I'll also just build on that point, too, about value, not just always equaling the lowest price, especially with premium ingredients and a differentiated offering. Rob mentioned black truffle and it's been hugely successful. It's the most expensive that we've ever run black truffle at, and yet we're selling the most we ever have.

And to that point, it does seem like you have a bit of a different view of -- LTOs have been important at Shake Shack. It seems like you have a bit of a different view of how to do that. Could you just discuss what that is? And I mean, what is the typical LTO uptake? Do you have customers that sort of only come for those sorts of things, and that's a very reliable customer for you?

I would say that because of -- some people might think we have a lot of things on our menu. Relative to the places where I've come from, it's a pretty streamlined menu. So we do have a higher mix on our LTOs. As Katie stated, truffle is actually even higher and doing really well. But I cut my teeth and learned kind of the restaurant model at Taco Bell. And at Taco Bell, they're launching a new LTO every month. And every month, they know exactly what the check contribution and the trans contribution is going to be from that LTO because they've modeled it, they tested it, they've modeled it, and they are able to forecast it. I took that model to Arby's and built an innovation pipeline that was grounded in that same model, not quite as rapid and as many LTOs, but that same model where we started testing and really building a calendar that had building blocks check and trans and we knew what they were going to do. Shake Shack has never had any of that. Shake Shack, to their credit, has been all about like the culinary experience. And so if the leadership really like a burger or a sandwich or something like that showed up on the LTO calendar, and it was, "Hey, whatever it sells, it sells." And there's challenges with that from a supply chain standpoint, from an operations standpoint. We're trying to actually make the LTOs and the culinary schedule much more planful and much more strategic. So we know what we should launch with that complement each other. So if we're doing a certain burger, we might have different fry or a different side item or a different shake mixture so that we can maximize and optimize the relationship and drive the most comp sales possible. So that thinking in that model that just was kind of second nature at Taco Bell and Yum! Brands really hasn't existed at Shake Shack, and that's what we're bringing.

Yes, makes sense. Do you think your channel mix is going to be somewhat similar? Or do you, I mean, have a desire to lean into any ordering channel specifically going forward?

Yes. I mean we launched -- we now have kiosks in all of our Shacks, and it's been an amazing contributor to our business. I think when the brand originally launched them, they thought it would be like a big labor savings. It's not so much labor savings, but it's definitely delivering a check benefit, it's definitely delivering a margin benefit because of the upselling that happens. But it's also impacting accuracy, right? I mean, there's a lot of benefits that are coming from the kiosks, but we haven't yet maximized that. Right now, we're investing heavily in our guest recognition capability. And long run, it will lead to a loyalty program. But in the short run, it will allow us to recognize a guest whether they come in through our app, through the web or kiosks and be able to cater to their needs and their historic ordering preferences to be able to upsell them and offer them things that they may have not added to that particular order. And I think the kiosk, which is now the largest channel for our business, is a great tool to allow us to do that.

In the mix component of same-store sales that gets reported to us, I mean, you have promotional impact, but then, I guess, you'd also have the check benefit from kiosk. I mean do you see that moving back to neutral as we go forward or...

Yes. I think we have a mix opportunity from the innovation pipeline that we're building. As we optimize how we launch LTOs and how they all complement each other, we'll be able to allow customers to self-select into more premium items, and that's going to give us some mix benefit. I think there's some mix benefit, particularly from our side item innovation. Today, we have a great high attach rate on french fries. But over the summer, we launched fried pickles, and everyone loved them. And so we have fryers, there's opportunities for us to innovate there. We haven't create even higher attachment rates. So I think some of our product innovation is going to allow us to drive some mix benefit. But yes, I mean, the more we can lean into our digital channels, the more we can get people to order through the kiosk, the more upselling we're going to be able to do and the better we're going to be able to drive mix.

Okay. That being said, right, I mean, you do make use of some promotions, whether it's for chicken or shakes. What should we expect from that going forward? I mean it's fair to say that the environment is still going to be fairly value-oriented into next year or do you see it sort of just a continuation of what you've done this year?

Yes. I mean our volumes sold on promotion is still in the single digits. That's a lot less than a lot of the peer group. So I think we've been able to be really surgical with our promotions, and that's allowed us -- and despite this mix impact, we're still seeing margin accretion. And so that's our goal. Our goal is to drive trial and drive frequency with our product innovation and our promotion but do it in a way that continues to be margin accretive. And you mentioned the Chicken Sundays, like, yes, I mean the Chicken Sundays is definitely, we're giving away a free chicken sandwich on Sunday, but that's a very strategic promotion in the sense that we have the best chicken sandwich in the business. We're hand-breading chicken on the line, back of house and a lot of people don't even know we have a chicken sandwich. So creating -- yes, we may be taking some margin impact when we're giving away a free chicken sandwich, but the lifetime value of getting a larger population of prospective guests to try our chicken definitely exceeds the cost of doing it.

I'll also just add on that, too. When we think about a buy one, get one or some kind of promotional strategy like that, I think, in this moment, most consumers are looking for some kind of hook, some kind of reason to transact. And they're getting kind of accustomed to these messages out there in the industry. And what we're actually seeing is that the check size from these transactions is quite big. So it's not what you would expect that somebody is just coming in for a free chicken sandwich and -- I mean these are large orders. And to Rob's point, building that awareness and that repeat guest, we're already starting to see those brand metrics -- brand awareness metrics move.

Okay. And just on pricing, I mean, I think you said [ they're down ] about 4.5% in the first quarter, low single digit next year. I assume that's sort of still consistent at this point. And I guess there's more broadly, I mean, how do you sort of benchmark price points, check size? Obviously, you have a number of good competitors, and that may vary quite a bit by market. So how do you sort of think about the right absolute price point and price architecture in the category in which you're playing?

I mean the quality of our ingredients are always going to warrant a premium price point. So there's not a day where I come in and say we have to be price competitive with McDonald's or Burger King, it's just different products. So we're always going to have that premium, but the right amount of premium is very important, right? And the gap relative to a lot of those super value players has actually closed over the pandemic as they've taken more pricing. So we have kind of our benchmarks, we kind of have our targets on what we want to sell our products relative to their products. But it's always going to be at a premium. I think we have an opportunity to get more strategic in our pricing, not necessarily just on like burger versus burger, but on how we price our beverages and how we price our side items, the sizes that we offer. So there's a lot of opportunities within our menu to optimize our offerings and the price points of those offerings that we haven't yet taken advantage of.

Okay. Maybe let's talk about marketing a little bit, which you mentioned. Is -- what's been effective in '24? Where are you going to kind of focus in '25 from a marketing standpoint? Should this be generally, do you benchmark it against other QSR brands? Is that kind of the right level of marketing over time or...

I mean I think that's an aspiration. Once again, as long as we're seeing the returns on that investment. 2024 marketing was mostly bottom of the funnel. I mean, as we discussed, a lot of targeted surgical promotions to continue to drive that value perception and drive traffic in a traffic-challenged category. As we move forward, we're going to have to strike a better balance of bottom and top of funnel. We launched this Worth It campaign, tested it, I should say, in a couple of markets in 2024. I think, in New York City, there's obviously an awareness of Shake Shack and an awareness of the why Shake Shack is different and special with Danny Meyer and the Madison Square Park, like that same level of awareness doesn't exist in Omaha, Nebraska or Tucson, Arizona. And so I think there's a big opportunity for us to continue to invest in marketing and drive that premium differentiation story in markets as we continue to expand across the country. So I think there will be a better balance moving forward as we continue to -- we have to make sure that we're getting the returns. Obviously, as a company-owned, we don't have franchisees marketing in budgets to go out and spend. We're making sure that we get a return on that investment every day.

And have you been able to see the extent to which that's brought new guests in? And I guess, sort of like to ask the flip side of that, who do you think you're not reaching? Or what exactly is the awareness gap perhaps in some of those younger markets?

Yes. We don't have a huge brand awareness gap. We actually have relatively high brand awareness, given our [ smaller ] footprint. It's really about driving conversion and then repeat. And I think once again, like continuing to tell our story and help people understand why our product is different, we'll drive a lot of that conversion and people recognize, "Hey, it is a little bit different. Yes, there's a premium price point, but it's worth it," and that's the whole idea behind the Worth It campaign. And then from a repeat standpoint, that's why we're investing so heavily in guest recognition and loyalty, so we can continue to bring customers back. But most of our advertising right now is digital. And so we are able to track really closely kind of what the effectiveness is of that. As we continue to scale that marketing investment and maybe move a little bit of that into terrestrial TV or what have you, that may evolve. But right now, we have a pretty good idea. And there really aren't a lot of segments that we're not reaching, but we obviously appeal more to kind of the higher income customer. And frankly, our footprint caters to that. That's another piece that insulates us from kind of this value battle that's going on. Most of our Shacks are at the corner of Main and Main in almost every market we compete in, like that's how we go in. We buy really impactful real estate. We don't have franchisees looking for like the cheapest pads out there. And so most of the customers that are going past our units have higher disposable income. So we're less exposed to kind of that lower income segment that's really struggling right now.

Yes, makes sense. What are the investments that you're kind of making in guest recognition this year? And I mean, it sounds like loyalty is coming. I don't know if you have a time frame that you expect that or it's like "Look, we'll kind of see how it goes."

Yes. I mean that capability is -- our plan is to build that out in 2025 and start to test it towards the end of 2025 and into 2026. Now that being said, we're right now not planning on kind of like a traditional points-based pure discount play for loyalty, like our routes are grounded in enlightened hospitality. So our goal is really to kind of surprise and delight our customers and create a relationship with them by offering them. It's more about giving them early access to our culinary innovation and more about doing things that make Shake Shack special versus just kind of reducing the price.

Okay. Makes sense. Let's talk about the margin side and operations as part of that. So this year, you'll see store margins expand likely over 100 basis points. Throughput is certainly one of your focus. I mean what are we most important in? I don't know what the momentum will be. You'll eventually guide us for next year, but what are at least the pieces that will drive that most significantly as you have continuing what you've done this year?

Yes. It's in an industry that's named quick service. Shake Shack didn't measure service times up until about a year ago. There just was no focus on how fast we are delivering the food. I mean, part of it was a source of pride. Like the longer the lines, the more people want our stuff, like the more special we are. And there's some truth in that. I mean, we come from fine dining. The key indicator of a great fine dining restaurant is you can't get a reservation. So that's kind of the mindset. As we move outside of New York and we move into these other markets and we build drive-throughs and we build other formats, people -- the benefit of speed and accuracy becomes much more important. So we focused on that a lot. And we have significantly reduced our time to serve over -- in 2024, really in the last 6 months. And Stephanie and her operators that are running our restaurants have done an amazing job driving that mantra. We still have a long way to go. We still have a big opportunity. In the short term, it's going to be around process improvement, how we can do things faster while still delivering the same quality and customer service. Over the long term, it's going to be about kitchen design. And right now, most of our Shacks that have drive-throughs don't have the food ending up at the drive-through window. It ends up somewhere else and someone has to walk it out there. And we don't always have 2 beverage service areas, one at the drive-through and one to serve the dining room. So you have people walking from the window over to make a beverage and walk back. Like those are just things that are kind of drive-through 101 in QSR that haven't existed at Shake Shack. So a lot of low-hanging fruit, a lot of upside opportunity there. And the biggest thing we can do in Manhattan and New York and the surrounding area is increased throughput because we have the longest lines here, we have the longest peak windows here. And so just getting people through the line will absolutely be a comp sales driver.

Right. I think you said it was the lowest wait times in 5 years. And so was that really kind of training and staffing that's driven that so far, largely because it sounds like that is still ahead, right?

Well, we don't know if it's the lowest wait time in 5 years, because we didn't measure it up until a year ago. Yes. I think we're probably about at the lowest wait times ever. I mean that's going all the way back to store #1 in Madison Square Park. It was -- I mean our mission is to stand for something good. And that's actually a play on people having to stand in line waiting for something good. So it's just a little bit of an evolution of kind of the mindset and how we approach the business moving forward.

Great. Can you tell us just about the labor scheduling tool that's been rolled out and how that sort of provides further benefits?

So I'll let Katie talk specifically to that because she and her team kind of helped operations develop it. But what I would just macro say is that we are not going to cut labor to drive margin that negatively impacts the experience at our Shacks. So any labor optimization that we have will come from a process improvement or some form of new thinking that allows us to optimize our labor versus just coming in and saying, we're going to cut hours that will risk the experience that we deliver. So I just want to make sure we're all on the same page there.

Yes, 100%. I'll just give you an overview of how labor was formally allocated for Shack and the changes that we've made, which I think will reinforce Rob's view here. So before, it was just based on sales bands. And you could have a restaurant that was a drive-through, big dining room, multiple points of order, and that had the same labor as a, let's just say, a food court with no dining room and a very low labor mix of menu items, right? And so there was just an inherent inefficiency in that, where the drive-through locations or the very big dinning rooms were probably not getting enough labor to execute their sales. And at the same time, we had mall locations or locations with different heuristics that we're just getting way too many hours. And so what this labor model did was looked and did a time-and-motion study and really gave a bespoke staffing model based on menu mix. We have some menu items that are very labor intensive. As Rob said, we hand bread and fry all of our chicken to order. We make all of our custard in-house. We hand-spin our shakes, that takes time versus fries and maybe a cold beverage, which might require a little bit less labor. We also looked at the order mode. So if it's a Shack that has a heavy dine-in mix where we want to have people greeting our guests and being in there and keeping the dining rooms nice and clean and running food to the table, that's going to require different labor than if you have a Shack that's largely delivery and to go, right? And so all of these things together created a more bespoke labor model, which is really aimed at helping our operators better staff locations and providing the best guest experience that we can. The output of that is less labor overall, but there are a number of Shacks especially in different peak times that are getting more labor as well to execute our -- with the best hospitality.

Makes sense. Okay. And I mean a lot of this, I think is -- we've obviously talked about kind of labor and processes. But I mean, maybe just talk generally about sort of occupancy, OpEx sort of supply chain initiatives, other things that might kind of affect margins as we look forward. Either of you can provide comments on...

I can go. Okay. Yes. So our supply chain team, we're constantly working on ways to get more efficient and leverage our scale. And so a big focus of ours next year as we open up 45 new Shacks on the company-operated side is really building density in core markets and getting scale. That helps us from a sales-driving initiative, brand awareness, from how we're able to hire and train up managers, but it also helps us from a supply chain perspective as well. We are expanding the number of suppliers we have, we're optimizing our freight, and that's kind of the work that we do every single day. As Rob said, we're not going to compromise the quality of the ingredients that we're using. We're just starting to leverage our size and be more efficient with how we're purchasing the ingredients for -- that we use. On the labor side, continuing to refine on the hourly side with the hourly labor model that we put in place last quarter, that should be a tailwind for us next year. But then I can't really underemphasize all the work that Stephanie Sentell is doing within our Shacks and really helping us to optimize our operations. It's a new muscle for us. And Rob can kind of go through the scorecard that she's created. It's just been a really great way to help direct our leadership, our top of restaurant leadership to have best operator restaurants. And so those are kind of the 2 main things that I would focus on. But really, at the end of the day, it also comes down to how we're leveraging our marketing investments and our brand awareness to drive top of funnel and drive sales and being mindful about how we're running our restaurants and really providing the best throughput possible. Are you going through the scorecard?

I think you nailed it. In the past, Shake Shack has been managed by -- run by 4 different regional vice presidents. And each of those regional vice presidents essentially kind of did things the way that they thought best. I mean that would include kind of regional menu items that would include processes, that would include formats. And I think there's definitely some benefit that comes from localized knowledge, but there's definitely benefit that comes from scale. So Stephanie has kind of come in and said, "Look, here are the things that matter, speed of service, 4-wall margins, cost of goods, labor attainment," a scorecard of all these things and said, "Everyone is going to be held accountable to these things." Everyone knows like what we're measuring, how we're measuring it and what -- how everyone racks and stacks. That's been like -- I mean this -- once again, this is kind of like restaurant management 101. It's just not the way we've done things in the past. But like we rack and stack every Shack.

Rack and stack the Shacks, here you go.

I didn't mean to do that, but I'm going to use that. We actually stack our Shacks. And so we know who's operating the best and who's operating the worst, and we know where we have to focus and we know -- and the people that are at the bottom know that they're at the bottom, which wasn't always the case. They're like, "Oh, I'm doing a pretty good job." So that has driven a very high degree of accountability and is driving activity for people to drive improvement.

At a very basic level, if you don't know that you're at the bottom, you don't know that you have opportunity for improvement, we don't have an ability to direct and train and coach. So it's not about making people feel bad about being at the bottom, it's about helping to develop our future leaders and our people and giving them the skills that they need to be successful.

Right. Okay. Let's talk about store development a little bit. So you obviously have said about 45 new Shacks next year, 35 to 40 licensed. I don't know how many of those are -- I think it's fewer new markets, maybe if there are any, which are those? And I don't know if you commented on the drive-through mix. What are some of the -- more recently, I guess, what are some of the stronger new markets? How has new unit performance been?

Our broad markets are strong.

They are. So Rochester were -- we opened Rochester where I went to college this year and Pittsburgh, where I grew up. And I mean they are like the 2 best Shacks we've opened this year. But it is -- no, it's pure coincidence. But our 2024 class has been exceptionally strong in terms of their performance out of the gate. I think our teams are getting much better at optimizing how we open Shacks, training people, getting the right management in place early and even the Shack designs. Like the original drive-throughs, which we opened in like '22, '23, like we didn't know how to build a drive-through. And so you didn't have good throughput in the drive-through. And once people came in and they didn't have a good experience, and they didn't come back as frequently. And so I think we're a lot better at opening Shacks. I think we're a lot better at designing Shacks. I think we're a lot better at managing these new openings. And so they're performing and exceeding our expectations. I think we can get even better, especially at the drive-through. As I mentioned, a lot of our drive-throughs don't even end at the drive-through window. That is changing with the drive-throughs we're building right now. So I think it's only going to continue to get better.

Yes. What has -- you have been delivering build cost reductions. I mean what's actually changed? What more could change from just like a design and build perspective?

I mean everything. I mean we've always gone and built these big flagship restaurants in every market, and we're still going to do that. There's still a lot of opportunity and a lot of space for us to go in and open new markets with big flagships and even put more flagships into places that we already exist. But we also are working really hard to develop new formats that will open up access to a lot of different types of real estate. So those are going to be smaller footprints. Those are going to be different models where we may do more delivery, that may be more drive-throughs, smaller dining rooms, like we're exploring all of that. And that's going to have an impact on a lot of things, but it'll also have an impact on build costs. If we don't have to build kind of Shangri-La, we can kind of still deliver a great beautiful Shack and a different footprint. The materials we use, where we source our equipment, we've kind of had one best way to do it forever. And some of us, including me, are challenging those kind of long-standing -- here's our equipment, here's the people who make our equipment. Well, why can't we explore other potential equipment makers or vendors? They are the people that make our ingredients, why can't we explore new vendors for that? So we're really challenging kind of like how we've always done things, and I think there's a lot of opportunity for us to continue to decrease the cost. And as Katie mentioned, like on a rate basis, we're one of the fastest-growing brands out there. As we continue to scale, it's only going to give us more leverage to decrease our costs even further and make us even more productive. So building more Shacks is kind of my #1 priority, now doing it the right way, but getting more Shacks open faster is only going to help like every other component of our business model.

What was the driver of the closures? Was that -- did the trade area shift? Was it sort of like a competitively difficult area?

Yes. I think it was a function of a bunch of things. The reality is, is that there's just a mindset we were never going to close a restaurant. And that's not how any other restaurant -- scaled restaurant company operates. On average, like an established, developed scaled restaurant concept closes 2% of their system every year because leases are expiring or some other franchisees have decided they don't want to do it anymore. Like we've never closed a Shake Shack in 20 years. So when I got here, Katie and her team came and said, "Hey, here's a list of restaurant Shacks that aren't necessarily making money. Some of them are in bad trade areas. Some we've had crime issues at some of them." And so we went through all of them. And this has probably been the question I've been asked more about in 6 months than any other question, and it's the least material thing on our P&L. But the reality is, like we just went in and said, "Look, it's profit accretive to close these Shacks. It's -- we're spending incremental resources on marketing and operations to try to fix them when, in fact, they're in a situation that they're not going to be fixed. So we just said, let's like give the water to the plants that are going to grow and put -- and it's never easy to close a restaurant. Obviously, you impact people's lives when you do that, both communities as well as the employees. But we did it in a way where every single manager in those Shacks was offered another management job in an adjacent Shake Shack. And every team member and every employee had the opportunity to go and work at Shake Shack, a different Shake Shack. So we felt good that we were doing right by our employees and doing right by our P&L and our shareholders.

Something to add on there, too, is that these were not restaurants that were just run with poor operations in that way. In fact, in a lot of these locations, we had some really great talent there to help turn it around. And so one of the things I've really, really liked about the way that we went about this whole process was the fact that we were offering these great managers opportunities at other Shacks so that we could, as Rob said, kind of make sure that we're pruning the trees and letting the plant grow and flourish.

I mean the good news is that we reviewed every single Shack. So 330 Shacks, we closed 9, that means 321 are doing pretty good.

Maybe just 2 minutes we have left. Talk about licensing real quickly. I'm sure we can't cover all of it. But -- so 30 to 40 next year. I mean, are some regions on pause here. Given the conditions? So maybe where are those focused, do you sort of aspire to grow faster there? And do you think that's sort of an untapped -- it's certainly not untapped, but is it a little bit underappreciated here?

Yes. So I just spent 8 days in Asia. I went and visited Korea, China, Hong Kong, Japan. And some of those markets are going to accelerate, and some of those markets are slowing down a bit. And some of that's macro and some of that is our situation. We've been a little bit, let's say, structured in how we've allowed our license partners to operate and how we've allowed them to source different equipment and materials, the kind of Shacks we have allowed them to build. And my challenge to our licensing team is that we need to approach this part of our business the same way we're approaching our company operations. Like we need to explore new formats, we need to look at new suppliers and vendors, we need to look at new operating models and labor scheduling and all those types of things. We need to look at the innovation, we need to allow for maybe a little bit more flavor localization and allow some of these folks to do things that are a little bit different than how we do them in the States. And that really hasn't been the model in the past. So we're going to open up and get rid of some of these guardrails and let these guys do what they do in their markets. But there are -- so that's going to improve, that's going to help. We're also looking at like reducing the cost of their build-outs and all those types of things. So that's going to help accelerate growth, but that's going to take a little bit of time. We are seeing strength in a lot of markets. The Middle East, obviously, was a challenge for everybody in 2024. We're seeing the Middle East get stronger and improve. China, I was just there. I was in China and Hong Kong for 4 or 5 days. China, I think, is a challenge from a macro standpoint, but we're actually performing really well. And so I think that we're going to continue to grow in every one of those markets I just mentioned, and we're bullish on the future. This year is a little bit of optimism -- I should say this year, it's 2025 will be a bit of an optimization of the model to propel us for the next 10 years.

Yes. Okay. I'll leave it there. Rob and Katie, thanks. Thank you for joining us.

Thank you very much. Thanks.