Shake Shack slides 32% YTD as World Cup offers modest catalyst

D.A. Davidson reiterated its Buy on Shake Shack with a $70 target, citing a potential 0.2 to 0.7 percentage point World Cup sales boost.

"The World Cup could lift the stock, as more than 35% of Shake Shack's US company-owned restaurants are within 30 miles of tournament venues," analysts Matt Curtis and Andrew Tompkins at D.A. Davidson said.

Management cut its Q2 same-store sales growth outlook to 2.5 percent to 3.0 percent from a prior range of 3 percent to 5 percent, citing economic uncertainty and rising competition. The analysts expect both same-store sales and total revenue to come at the higher end of the revised guidance range of $415 million to $420 million.

Shake Shack shares traded at $54.76 Monday, down almost 4 percent on the session and roughly 32 percent year to date. The stock has languished since the company posted a first-quarter net loss of $0.3 million in early May, despite total revenue rising 14.3 percent year over year.

The quarterly loss reflected higher spending on marketing, technology, and staffing, as well as elevated pre-opening costs from a record number of new restaurant openings, management said. The analysts said they are "incrementally more confident" in Shake Shack's ability to hit its financial targets under new CFO Michelle Hook.

The World Cup has already boosted restaurants near stadiums. Venues within five miles of Seattle's Lumen Field saw transaction volume rise 56 percent on June 19, when the US played Australia, according to data from restaurant technology company Toast.

The guidance cut has kept Shake Shack in what analysts called the "investor penalty box" since early May. The next catalyst is the company's second-quarter earnings report, expected in late July or early August, which will show whether the World Cup boost and cost controls can restore investor confidence.

This article is for informational purposes only and does not constitute investment advice.