Why Shake Shack Reported a Loss in the Fourth Quarter

Shake Shack’s Revenue, Earnings, and Sales Increase in 4Q14 (Part 9 of 10)

(Continued from Part 8)

Why Shake Shack reported a loss

On December 29, 2014, Shake Shack filed a Form S-1 with the SEC (US Securities and Exchange Commission). It filed the form for  an initial public offering, or IPO, of $100 million through Class A common stock under the symbol SHAK.

Initially, the IPO was priced between $14 and $16. The company later hiked the IPO to $17 and $19 and it finally ended at $21. A company going public raises its offer price if it anticipates strong demand for its shares.

Shake Shack’s (SHAK) initial public offering or IPO debuted on January 30 ,  2014, with shares popping as much as 118% on the first day. The company issued 5.75 million Class A common stocks, which includes about 0.75 million shares sold to the underwriters. Shake Shack received $112 million in net proceeds from this IPO.

The company used its proceeds from the IPO to purchase ownership interests from SSE Holdings. You can see this purchase in the chart above. Shake Shack operates and conducts its business through SSE Holdings and its subsidiaries.

IPO-related expenses sink profits

Shake Shack’s IPO debuted in the fourth quarter, which led to ~$1.1 million in related expenses. Due to these expenses, Shake Shack reported a net loss of $1.4 billion in the fourth quarter. For the  full year , the company’s net income declined to $2.1 million in fiscal 2014 from $5.4 million in fiscal 2013. The diluted earnings per share declined from $0.18 to $0.07.

To gain diversified exposure to restaurants, you may consider the Consumer Discretionary Select Sector SPDR ETF (XLY), which holds about 10% of its portfolio in restaurant stocks—including McDonald’s (MCD), Chipotle Mexican Grill (CMG), and Darden Restaurants (DRI).

In the next part of this series, we’ll discuss Shake Shack’s management guidance for the year ahead.

Continue to Part 10

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