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

I'm Dennis Geiger, restaurants analyst at UBS. We're pleased to be joined by Katie Fogertey, Shake Shack, CFO; and Mike Oriolo, VP, Head of Investor Relations. Shake Shack is a modern roadside burger stand with over 370 domestic locations and over 210 international locations. Shake Shack maintains one of the industry's largest growth opportunities behind robust global unit development, a focus on digital and increasing profitability. And with that, Katie and Mike, welcome. Thanks so much for joining us today.

Great. Thanks for having us.

Appreciate it very much. Shake Shack had another strong year in 2024, is off to a good start from numbers that we've seen in 2025 thus far, strength across the top line and the bottom line. I want to touch on all of that. Maybe we could start first with sort of the top line momentum that you've sort of been maintaining. How do you think about that going forward and really maintaining that momentum going forward from here?

Great. So yes, 2024 was an excellent year for us, really kind of followed on what we've been showing for the past couple of -- where we are at now, 16 quarters -- 16 straight quarters of positive revenue growth, positive comp and margin expansion. And how we're doing that from the top line perspective, the greatest driver of our sales growth given where we are in our growth journey is actually opening up new restaurants, opening up new Shacks. And we had a really successful year last year on development. We actually outperformed our goal. We opened up 43 Shacks from the company-operated side. All in, our AUVs were north of $4 million and tremendous start for that, and these shacks are going to continue to pay dividends over time. We've built up the team to be able to accelerate that. We're hoping to do 45 opens this year. Part of our key -- our strategic plan is to kind of continue to build that muscle so that we can open up more and more units as we move forward. So that's the biggest driver of our overall revenue growth. On the comp side, we've had a lot of success in our investments in marketing. Last year was a pretty pivotal year for our marketing investments. For those who are not as close to the story, Shake Shack is a brand that has just grown out of almost word of mouth, right? Very successful New York business. We've been able to then port that over the past 15 years. We've been able to go into whether it's California or Florida or Texas. This brand has really done outpunched above its weight. We have not really spent that much though and invested in marketing and in advertising. So last year, we made a pretty prescriptive, I would say, bet or investment on advertising, and that did help us for sure. We're continuing on those strategies this year, and we're excited for what's ahead. On -- when we think about comp growth, though, going forward versus kind of what was our model before, Rob Lynch, I don't think we can call him our new CEO anymore. He's coming up on his one year, but our current CEO, he has brought a lot of different angles and perspectives to the company. And one of them is around culinary. So historically, culinary at Shake Shack, we're a company that has been founded in fine dining. We really pride ourselves on having very craveable, amazing LTOs, kind of doing what traditional QSR is unwilling and unable to do. So just as an example, right now, we're running Black Truffle, a very premium burger offering that were -- some might say it's a $25 burger that we're selling for $10. So great value on that side. What we're doing here is using our culinary muscle, investing in it and kind of defining that process in a more prescriptive way so that we can then have culinary drive our comp and be much more prescriptive about what it can do in IPC and mix and most importantly, in traffic from frequency and new guests.

Terrific. That's great. I want to unpack a few of those items. Maybe let's start with opening new Shacks, it's a key growth driver for the business, as you mentioned, 45 new company-owned Shacks in 2025 as the target, another 35 to 40 on the license side. Can you talk about the potential for the brand in the U.S. as it relates to store growth?

Great. Yes. Actually, Mike and I were just at ICR in January and we gave some very exciting new targets. So historically, when Shake Shack went public in 2015, at 31 company-operated Shacks, the company gave very big targets. And those targets were that we would be able to grow to 450 domestic company-operated units. And we knew we needed to update that. And as we have been adding in new formats like drive-thru, we added more channels over time, including delivery and our app. The business potential both in our current Shacks was stronger than we had anticipated from the get-go and also the way that the brand was traveling and moving and our ability to establish in new markets was proving more successful than we had thought at the time of the IPO. So we -- with all of the data and analytics that we have in-house and with the margin improvements that we've made in our existing restaurants and the improvements we've made in development and lowering that build cost, we were able to come up with this new target, which we have a lot of confidence in that we think that we're going to be able to grow to be at least 1,500 Shacks. And we anticipate these Shacks to all kind of be within the same, if not better, return profile that we have committed to historically. So I think there's a lot of great opportunity for us to continue to get denser in our current markets. There's also markets out there in the U.S. that we have not yet gone to, which we have plans to go to. And this year, with going in -- opening up 45 Shacks. Next year, we're aiming to do more, and we're trying to build to be able to have more and more on the horizon. It's a very exciting time.

Yes, for sure. Exciting announcement at ICR. I want to talk about that lower build cost focus that you mentioned, another year of improvement targeted for 2025 related to the improvement you saw in '24. I think build cost, $2.2 million is kind of the latest target. What's the latest to share there as far as how much further you can go from here? Where are returns today on the new stores?

So returns on our new stores have been tracking very strong. And we're very pleased with what we saw the last -- so for those who aren't aware, our -- we measure returns in year 3 of the opening. So our restaurants, they open up really, really big. Our sales can be up here. And then we give them a little bit of time to settle to see what that normal run rate of the business is going to be. And by year 3, we feel like we have a very good sense of where that's tracking. And we've been really pleased with the returns that we're seeing on that '21 class that came into its third year in 2024. And sorry, what was the other part of your question?

Just kind of where those build costs can go? Is there further opportunity even after 2025 eventually?

Yes, what the team has been doing on the development side to lower build costs, it's both in looking at specific formats and trying to lower the build costs within each of that format, whether it's drive-thru or core, but then also thinking more holistically. And as we are able to open up more and more Shacks as this class gets bigger and bigger, there's just a lot of economies of scale that we've never been able to tap before. So maybe it's how we think about buying equipment and so they're going one-off for each individual opening. There's an opportunity to pool that and have more buying power within that. On our design resources, and as we move to have crisper prototypes, this all takes costs out of the build. So we are still goaling ourselves to future improvements. I will say that the number that you see, that $2.2 million, that could fluctuate based on the percentage of drive-thrus, which just cost more to build in that mix. So I'm not going to say that every year, we're going to have a lower build cost because we might decide to open bigger format in that, and we'll be very clear as to that impact. But certainly, as we scale and we're opening up more and more Shacks, we're expecting that to continue to moderate.

Terrific. Let's shift over to the drive-thrus, as you mentioned that exciting opportunity for the brand. What have you discovered so far? What are the key learnings to share? How do employees take to it? How do customers like it? What's the feedback and the learning so far on the drive-thru?

Sure. You want to take this one? I want to make sure Mike gets...

Yes. We ended last year with 42 drive-thrus. As you kind of take a step back, when Shake Shack opened the first drive-thru, there's nowhere at Shake Shack really had that historical presence of understanding what makes a great drive-thru. And so our journey now, especially with Rob and Stephanie coming on, which -- who have such an experience with drive-thru is to deliver the same in latent hospitality that you have in traditional Shacks now in the drive-through. And that's different things, right? And so when you think about what is enlightened hospitality and drive-thru, it's speed and accuracy. And so that's really what the teams are focused on now, and that's why we've committed to a new menu to be rolled out through drive-thru this year, and we really think that will help. Overall, though, we'd say we're still learning, and there's great signs. We just recently opened a drive-thru, first single-lane drive-thru and great learnings there. So we're very excited about what's to come.

Is it too early to be talking about performance of what you've seen so far as it relates to either speed, AUVs, margins, given as you kind of mentioned, it is early stage or I believe you're kind of finalizing a prototype still. Any sort of performance metrics to share thus far on the drive-thrus that are open so far?

So we have had an evolution of drive-thrus from when we first opened in -- was the first one in December '22 or is it '23?

Yes, '22.

'22. So we had a couple open in December '22. And those were really -- we all kind of have the same view in the company. So this is not just the Katie view . This is the broad company view. When we put these drive-thrus in place, we did not have the skills, the talent, the experience to really know what drive-thru should be. We basically took 2 sites, which we had already signed even pre-pandemic and said, you know what, let's just put a drive-thru here and see what that can do. And as we've grown and learned what makes successful drive-thru, what makes that investment successful, we've identified what are those kind of clear leading indicators that you need for a drive-thru site to be successful. A lot of these sound probably pretty obvious, but is there a lot of vehicular traffic? Do you have an easy cut in? Is the guest around that area kind of trained to get food in that way? And we've definitely had a really strong evolution on that front. So our drive-thrus that we're opening up now are performing a whole hell of a lot better than the drive-thrus that we opened up initially just as we've continued to learn. What we've also shared is that the way that we have designed the drive-thru, probably not ideal for -- from a speed of service standpoint. And there's definitely opportunities to get faster on that. And what Rob has shared as kind of that key bedrock opportunity is actually at the order zone. And this is kind of a good thing because that we believe we're going to be able to really fix and make material improvements on just by what Mike just explained by giving very simple and clear digital menu so that people can choose between 8 combos or 9 combos instead of having kind of a choice overload and taking about what we've shared is 3 minutes to make their way through the drive-thru. So that's going in place pretty soon, and we're excited to learn from that and expect that we'll just continue to get better just like we've had from our first days.

Great. Very exciting. I want to shift over to margins and profitability. It's been a big focus for the company, a big focus for investors. Since you both have joined the company, we've seen significant gains from a profitability perspective. So kudos there. Can we talk about some of the key initiatives that have helped support a pretty meaningful step up in profitability in just a short time.

Yes. So again, we have 16th quarter of positive margin expansion. And last quarter, our fourth quarter margins were the highest that we've had since '18. And that's been a key driving force here too for our ability to generate positive free cash flow. We've generated north of $30 million in free cash flow last year and that is -- the company had delivered free cash flow in almost 10 years. So very meaningful improvement on that side. And an area though that we still see continued opportunity. When you think about the bedrock actions and strategies that we've taken in order to improve the margin, it really does span a number of verticals. It's from how much tighter we are on our forecasting, in our data and analytics. Obviously, the tighter you are with how you're feeding sales into the restaurants, the better demand planning you can have from an ordering standpoint and also from labor scheduling. And we've also gone through a lot of the line items. We've improved our profitability on delivery quite meaningfully over the past couple of years as well. And then most recently, we kind of took pen to paper and redid our labor scheduling model. Historically, at Shake Shack, we had deployed labor based on the dollars of sales at an individual Shack per hour. But what's very clear, especially that probably worked when we were 50 Shacks, but as we've grown as different channels have evolved and then as we also have drive-thru and also we've added some things to our menu, which take a lot more time to make than others. It became very clear that we needed a more prescriptive way of measuring labor needs within the kitchen. So we took -- we had some consultants come in and help us with time and motion study and we built our own proprietary labor scheduling model. That last quarter delivered 80 basis points of margin, and we're really excited about what that will continue to do going forward. I want to make it clear though that that's just not ripping labor out of the Shacks. At a very basic level, a Shack that was a drive-thru or is a drive-thru and probably has the delivery business and makes a lot of shakes. We make our custard in our Shacks every single day. We hand-spin our shakes made to order. We bread and we fry our chicken fresh to order. Some attract with that kind of mix is doing a certain number of sales versus a food court that maybe doesn't even have a dining room, probably does not do a delivery business and is largely doing very quick to make items like cold beverage and fries. They're getting the same number of humans in the prior model in the restaurants. Now the crowded kitchen at the food court is also not optimal because the more people you have in a kitchen, sometimes it just slows you down. So this is really about kind of level setting and giving everybody what they optimally need. We gave a little bit more to our restaurants that needed it, and we rightsized the kitchens where there was excess labor.

Great. Following another solid year of gains, as you kind of mentioned in 2024 as it relates to restaurant level margins. Guidance for gains potentially again in '25 at about 22%. Can we talk about some of the considerations for the year? You talked about some of the opportunities in recent years. How about '25 specifically some of the puts and takes from a margin perspective.

Sure. I mean sales with flow-through is always what we're watching. And we're watching macro just like everybody else is. On the COGS side, we've talked about beef inflation being probably one of the biggest risks. We don't hedge our beef costs, and it is probably the biggest chunk of our food cost is in beef. So that's one where we've given some guidance and baked that into our model for continued inflation this year. And if you're -- what we've been very consistently saying is that that's an area where if there was even more elevated inflation than when we baked into our guide, there's not a lot that we can do to offset that. The good news on the COGS side, though, is that depending on the day with tariffs, we buy everything, most of our things are bought in the U.S. So we don't really have a big, huge outside risk on that side. On the labor side, there's still -- while we're flowing through the benefits from that labor model change throughout this year, there are other things that we're working on, whether it is deployment and the scorecard that we put in place with our operators to help goal them and bring awareness to how they are running their Shacks. There's still continued opportunity for improvement on that side. And there's a couple of other things on that side to continue to kind of optimize the labor deployment within each of our Shacks. And then on other OpEx, we talked about this last quarter on earnings. Most of our marketing sits within our G&A line. However, we do have some of our marketing fit within our Shack P&Ls. And that's an area where, as we're continuing to drive sales and investing in learning, you'll see that go up relative to prior years, and we're just managing all the other expenses within that line.

Awesome. Appreciate that color. And I see how you laid out 3-year targets, something investors were looking for. So great that you put those out there. On the restaurant margin side of things, I think at least 22% or so at the low end of that, the minimum point. Not a whole lot of expansion from what you've talked about for this year despite what I think a lot of investors feel like could be a continued opportunity. So could you kind of help frame up what's embedded in that long-term guidance and maybe what's not embedded in that guidance?

Yes. I would say, start with the at least 22%. When we put that out there, that aligned with our 2025 guidance. And that was really to draw line in the sand and say, this is a 4. We're not going backwards, and we still have opportunity to outperform that. And as you think about that guidance for adjusted EBITDA to outgrow revenue implies that we see continued margin expansion on that. So what is actually embedded in that, that's the business as of the end of last year. So a lot of what Katie just went through with the potential upside, both on top line and some of these margin drivers are incremental to that. And it's the same thing with the investments that are being made this year to potentially accelerate unit growth. That would all be on top of it.

Very helpful from that perspective. You talked about the EBITDA growing faster than the top line. Maybe as we shift away from restaurant margin to G&A and just how you think about G&A, you've kind of -- you have investment needs, obviously. You've taken somewhat measured approach there. So just how you think about G&A longer term?

Sure. So we've given this guidance that we're expecting to spend about or invest -- not spend, invest about 11.5% of our total revenue on G&A. And our commitment on that side is that we -- and this has been pretty consistent with the levels that we've been running at. Our commitment on this side is that we are really taking continued careful look at our baseline G&A spend and that incremental growth we want to invest in the business to drive the business forward. So what does that mean? That's our advertising sales on that side. We will be making advertising investments to grow the top line with the strong flow-through that we have on our restaurants will flow through very strongly to adjusted EBITDA. We're making investments this year around cash recognition and loyalty. That is very foundational. We're not going to see the revenue from that this year. We'll see the revenue for that next year. But that's another example of where we want to invest because we see the long-term adjusted EBITDA growth as being such a great return on that investment. So that's how you should think about how we view our G&A in light of these plans.

Perfect. Thank you. Let's shift over to some of the exciting sales drivers that the brand has for this year and beyond. Maybe we'll start with innovation. A hallmark of the brand. You touched on it a little bit earlier, Katie. As it relates to thinking at a high level about the innovation pipeline this year, and maybe beyond, what can you say that how might things look different than what we've seen.

Yes. So we talked about this last quarter on earnings, but we have -- we're currently dealing with a hole in our culinary calendar. We have been running Black Truffle for quite a while now. This is the longest we've ever run an LTO. And we definitely have seen impact from that in our traffic. And there's been a lot of noise as we've started off the year with weather. We've also called out the wildfire impacts, but then also lapping over the LTO that we had the prior year, which was Korean barbeque. Even though Black Truffle has been a very successful LTO, when you're lapping over that big food news, that big splash that we had out there in marketing is having an impact on the business. And I think that is exactly why having this culinary calendar position is so strategic and will help us navigate going forward. So we -- I just want to be very clear about we feel actually even stronger now than we did before about the need for this type of approach with managing our culinary. And about -- I think it's about 4 weeks, 4 or 5, a month -- a little over a month, let's put it a little over a month, we're going to have our new LTO launch. And that we're really excited about. And I can't preview it for competitive reasons, but we're using it as an opportunity for our new SVP of Culinary has also dug into some evolution that we can have on the menu, some ways to drive IPC. Obviously, our LTOs typically drive mix, but there are other areas that this LTO can help us lean into and it will be an exciting summer. And I think lesson definitely learned about the importance of having a strategic approach to culinary.

Awesome. Looking forward to that. Just on that kind of mismatch right now versus the prior year. As we think about the balance of the year, to the extent you can comment, will there be many mismatches as far as LTO last year versus LTO this year or like thereof?

Yes, not really. And we will also have, I guess, the opportunity to have kind of Nancy start to work her -- Nancy Combs to work her magic and put her thought through. I go back to the IPC point, but there will be kind of more ways for us to think about our menu throughout the rest of the year. But then you're really going to start to see her impact in 2026. She kind of came into a situation where there wasn't a really defined culinary calendar. So -- and our ingredients, our LTOs are very unique relative to kind of what the Taco Bells of the world put out there. We don't just take things from our kitchen and put them together. We actually work with our suppliers and have very proprietary sauces and builds on our sandwiches. So that just means that her impact will take a little bit longer to see than if we had -- you just have to put this with this in this and mash it together.

Great. Makes sense. I want to shift over to operational improvements, sort of an increased focus, I would say, for the brand. Biggest opportunities to improve operations inside Shack restaurants. How significant can operations enhancements and faster throughput be as we think about sales?

This is everything. This is -- yes, and we have the perfect person with Stephanie Sentell running the show here. We -- it's just a very basic level. We talk about speed of service, about wait times. This is -- we really have a rallying cry around this at the company. We have improved our wait times by about a minute last year. We know we have more to go. And it's not just about what that average is. It's about the tails. It's about how we think about our slowest Shacks. And who's running them? And are these the right people? Or do we need to have training? What is going on there? And then also at our peaks, it's great if your average is this amount of time. But if all of your guests are in there during a certain hour and it's way longer than that, it's not going to translate into the same guest experience and frequency. So we really do believe that operational improvements are core to our goal to drive overall guest frequency at our company.

Great. I want to touch on digital, which I assume kind of ties in to some extent to the operational side of things, but just broadly, as you think about digital contribution in '25 and beyond, what are some of the key initiatives to keep moving that digital engagement forward?

Yes. So we had a digital mix about 37% at the end of last year. We want to continue to -- we are looking at both the in-Shack digital experience and then also the app and the web as well and Shack delivery on that. In the -- the investments that we're making this year is really around guest recognition, allowing us to understand who you are through all your channels. So current state, we know who you are if you use the app and -- or if you go in through the website, like we have very good clarity on that. However, Dennis, like if you use your app one day and then you go into the Shack the next day and you're using the kiosk, we have not yet been able to link those 2 together. So the investments we're making this year is really around that. And then if you think about how you are then able to redefine what hospitality looks like in that world when you're able to know you, see you, hear you through all your channels, we're able to have much more customized messaging to you. And hopefully, that is a driver of frequency over the long term.

Great. I just want to touch on the kiosk aspect of digital, and it's not year one of it, but I mean really strong results from what you've seen so far on the kiosk side. Maybe you just kind of touched on it, but just anything from here on the kiosk side as we think about continued potential from those in the Shacks?

Yes. I mean there's so many aspects of kiosks that Mike and I can talk about. What I would say, first of all, a big opportunity that we're going after right now is wayfinding. So a year ago, when we retrofitted -- maybe it's 2 years now, we retrofitted all of our Shacks with kiosks. There were some very logical places for us to put kiosks in most of our Shacks. However, in some of them, just because of the way that the footprint was or where the entrance was, we probably didn't get it right, so we've gone in and we're kind of fixing that and trying to put them in the optimal -- or optimal location. We've also recently put in some simple enhancements on the kiosks, including upsell opportunities. So we're seeing some really great traction from. Even a simple Order Here sign is actually really starting to move the needle and even broader kiosk adoption. So there's a lot more on that side that we can continue to optimize. But it's a channel that we've had a lot of success in. It's our largest channel. It's our greatest opportunity to get known guests from it, too. if you think about that. And it's one where we've had incredible returns from that investment.

Great. You touched on marketing quite a bit earlier, and that's been a pretty sizable shift from how the brand used to operate. Can we talk a little more about the learnings from a marketing perspective and sort of how you see the potential for marketing partnerships and promotions going forward for the brand.

Yes. And really kind of this is a kudos to the finance team working closely with the marketing team to really optimize and also our data science team as well to optimize and really get into what is working and what is delivering returns. And what I'll say is that this is a brand that historically had not really leaned into discounting, promotions, any kind of value type messaging. But over the past couple of years, we've had to kind of come to the realization that this is how restaurants communicate with guests. And how are we going to do that in the Shake Shack way, without having a loyalty program, without having kind of all of the other bells and whistles that some of our fast casual peers have. And so we've really tried to tap into cultural moments and have that message tied with a compelling reason to act. Just garner a lot of earned media on the back of that and have a lot of success on that side. So that's been a lot of the incremental net new. We also have a pretty good performance marketing, digital marketing program that's been underway now for a number of years that continues to get smarter every day. And then with Rob coming in, in his marketing background, we're really kind of taking pen to paper as to what this brand is, what our guidance is, it's really going down to the basics. And hopefully, over time, we'll have some compelling message to go out from a broader brand marketing perspective.

The only thing I'd add, Dennis, is a lot of these promotions that Katie is talking about, we have very good visibility that we're getting strong checks on it. So it's not like it's just dilutive and we're giving away food. It's very value-added. And you're also seeing the tailwinds of awareness and certain things like this, like our Shake Shack promotion last year, we have an awesome chicken sandwich. Not only did we get an uplift from the promotion on sales, but you get that awareness, that should have a tail going forward as well.

And Mike just on that point and on Katie's point, on kind of marketing, working with the finance team, as we think about marketing investment that maybe didn't exist before, but that focus still on margins and profitability, obviously, it all works together and the returns that you expect, et cetera, from the marketing.

Yes. I think it goes back to Katie's point on 2025 and the confidence that we have in the margin expansion even as we're making some of these investments on the other OpEx line and in G&A.

Yes. Perfect. I want to touch on delivery. Katie, you touched on it earlier as it related to the profitability improvement that the channel has seen, maybe just kind of what you're seeing right now in the channel, how you see the delivery channel evolving for the brand from here?

Yes. I mean delivery, this is a business that we really didn't have pre-pandemic and then has been -- it's an important channel for us for sure. We have our own white label delivery, and we also work with the major aggregators on that side. There is going to -- I'm not the guru on delivery, but this channel, I think, has been a lot more resilient than some people had expected, especially in macroeconomic cycles. There is a premium that guests will pay for convenience. I know from my own personal experience being a mom of 3, there's just some nights that I cannot take everybody out to eat, but we get delivery. And I'm willing to pay a little bit more for that in that moment. I think there's just that use case for it. We need to continue to make sure that our guests are having a great experience through all of our channels. But yes, I think it is here to stay.

No, terrific. There are way too many nights of that.

Exactly.

But -- terrific. I want to touch on combo meals. You touched a little bit on combo meals as it relates to drive-thru. The Chicken Shack combo, I think, running right now digitally, if I remember correctly. Can we talk about combos and sort of the strategy behind it and the opportunity, Mike, you touched on a little bit with drive-thru, but maybe even more broadly as we think about that opportunity?

Yes. I think just first things first on the $9.99 Chicken Shack that you alluded to. We came into this year saying we were going to test things. And this is a test, just like any other test. So as we think of combos more broadly, I would not really read into that as the necessary level of discount or something that would continue. It's a test we're learning, and we're committed to continuing to learn as we're driving profitable sales. As far as combos themselves and what we've committed to in 2025, that is in drive-thru -- in the drive-thru channel. And it goes back to Katie's point earlier in that when we first did drive-thru, it's like ordering just like you would in a core Shack and that doesn't really work for speed and accuracy. And so as we think about combos, it will be kind of a more traditional order your 1 through 6, 1 through 8, whatever it might be. And we really think that this will be an unlock to our drive-thru and increase that frequency that we need to see.

I think that's a very important point. Like what is your highest priority of what you're doing here on the combo. And the combo for us at drive-thru is speed of service and accuracy, like that's how you get frequency long term from a drive-thru guests. It just so happens to be that we also are -- like the margin lift that you get from selling more cold beverage and fries. But that is our priority. That's how we're measuring, we're successful.

Yes. Terrific. Can we just touch on loyalty and how you see the opportunity, how significant that could be perhaps looking ahead?

Yes. I mean loyalty could be very, very big. As we've said before, Shake Shack does not have necessarily an awareness problem. We opened up very strong in a lot of our markets. And kind of blow the doors off. We actually just opened up in Naperville yesterday, just giant numbers. We have an opportunity to continue to hold on to those guests and drive frequency. And a proven way to drive frequency with your existing guests is through loyalty. Now loyalty at Shake Shack probably won't look like the loyalty that you've seen at some other places. We're really still working through what that is. It could be -- it will have definitely a hospitality angle associated with it. And making sure that whether Dennis, we see that you are getting a shake every Friday. And we want to make sure that we're continuing to drive that type of behavior. We're going to gamify it maybe or this tenth shake might be free, almost like, ala, a punch card. It could be -- I really love our ShackMeister beer, a huge fan of it and maybe they might identify that through the algos and have some kind of an incentive or some fun way to interact with me personally around that messaging. So I wouldn't think of it necessarily at this point like a stars-type program, but it's going to be a much more personalized way for us to connect with our guests one-to-one to hear them, to give them the things that they're looking for, and we believe that, that will drive more frequency.

Great. A couple of things I want to touch on kind of more near in the current environment, et cetera. We touched on it a little bit earlier. Maybe as we think about the macro, some of the challenges out there, risk to demand that the industry is seeing right now, trade down behavior, et cetera. Beyond weather and calendar shifts and fires, which you guys called out on the earnings call, anything else that you would note from a customer perspective, behaviors changing?

Yes. We're watching the news and the macro, just like everybody else is. I would say that the weather has certainly not been kind this year. And that's probably all I can really add on that front.

Another one, maybe touching on 1Q guidance, and you touched a little bit on the LTO mismatch to some extent. Strong start -- very strong start to January with a 3.7% comp number despite weather and the wildfires. February, you had that LTO mismatch that you touched on. Guidance for the quarter, 2.5% to 3.5%. Can we just touch a little bit on kind of what was embedded over the balance of the kind of final month and change or so of the quarter?

Yes, sure. I mean we reiterate what we've already shared on the embedded pressures to the guidance.

Yes. So we gave the January pressures of the 150 to 200 bps and that 3.7%. So that's a great number to your point. How do you think of that 2.5% to 3.5% guidance? We did embed kind of a low single-digit headwind from these, and that was the estimate that was at the time of earnings. And so we'll keep you updated, but that's how to think of it at that level.

Great. One more. I know we touched on tariff a little bit. And generally, you're buying most within the U.S. domestically, as you mentioned, Katie. Anything else that you guys would mention as it relates to demand maybe that you've seen from immigration or other policies from the new administration.

Yes, nothing to share. We're watching just like everybody else is. I mean there's just a lot of noise right now in the news, in the media. A lot to -- when we wake up every morning, there's a lot to try to catch up on.

I'm sure. I want to touch on the licensed opportunity for the business, both domestically and internationally. Maybe first in the U.S. as you think about that development opportunity strategically, maybe how you think about the U.S. license business currently and kind of going forward?

Yes. So our -- we have a very robust U.S. license business and then also international. On the U.S. side, most of our sales are coming from airport locations, which I don't have these -- how many do we have right now? Would you say, 7? We don't actually have very many airport locations. And still, these are just really big drivers of that business. So I think there's a lot more opportunity for us to go deeper in airport. We have 2 at JFK, and you'd be surprised at the sales that they both do in the same terminal. So I think there's a lot more opportunity on that side to get deeper. We also have started with some roadway locations, which are kind of when you are driving in the summer and you're going maybe to upstate, New York or wherever you're going, you have this great opportunity to get Shake Shack along the way, a really fun way to do it. There's probably more opportunities on that side. We have a pretty robust stadium business that we're continuing to get into. But I think we're still just scratching the surface as to what that can be. And then, I guess, actually, most excitingly, you can now get Shake Shack on your Delta first-class flights going to about 4 or 5 airports at this time.

Just on the license side, as you talk about the rest stops at airports, can you remind me, I should know this, does the app work with the licensed locations, yet?

Yes. It does not at this time. It's something that we've talked about from time to time. It would require a level of investment. But yes, at this time, we don't have the ability to track an app user from a licensed location to our own.

Yes, [indiscernible].

It would be a home run though. We cut 35 to 40 minutes from some of those car trips, I do think, but we'll wait for that. Maybe just on the international license side of things, as you think about some of the key growth markets from that perspective, high level, maybe the performance of those stores so far, positioning of the brand in some of these key markets?

Yes. So largest market outside of the U.S., I would think about that being as far as store count, definitely in Asia and China. We also have a very robust business in the Middle East. Both of these areas, though, have been under macroeconomic pressures, and that has definitely had an impact on our comp. It has had an impact, probably also on how quickly we're opening up units in those areas. But those are things that we expect to kind of work themselves out over time. We have opened up in a number of countries over the past couple of years, including most recently Canada. And we had 3 amazing Shacks in Toronto right now. They're some of the highest sales among our system. We have a great business in Mexico. We're building more in the U.K. Just a lot of great growth happening in that -- in the current countries that we have as well as our team has an eye to expanding that and adding more countries and partners over time.

Terrific. Well, we're just about out of time, and I know you guys have a meeting right after this upstairs. So thanks to Katie and Mike so much for spending the time with us here and today. I appreciate it very much.

Thank you.