Activist investor pursues board seats at Shake Shack

Dive Brief:

Shake Shack is facing a proxy battle with Engaged Capital, an activist investor that owns 6.6% of the burger chain, The Wall Street Journal reported Sunday evening.
The two companies have been discussing issues related to Shake Shack’s operations, stock price and board composition for at least six months, without agreement, according to the Wall Street Journal. Engaged will seek three seats on the company’s board.
The Wall Street Journal reported that Engaged has nominated or is otherwise backing Christopher Hetrick, its co-founder; Joel Bines, managing partner at Spruce Advisory and a former managing director at AlixPartners; and Kevin Reddy, a former CEO of Noodles & Company.

Dive Insight:

Engaged reportedly told Shake Shack it had plans that could improve the company’s operations and profitability. According to Shake Shack’s most recent 10-Q filing, the brand lost $1.6 million in Q1 2023, down from a roughly $11.3 million loss in the same period last year.

In a letter to shareholders attached to an 8-K filing containing Shake Shack’s earnings press release, the company said its store-level margins have improved to 18.3% from 15.2% last year, though that margin was a slight decline from 19% store-level margins in Q2 and Q4 2022. The company said it aims to raise those store-level margins to about 20% by the end of 2022.

The company has added 67 net new units since Q1 2022, 35 U.S. company operated stores and 32 licensed stores internationally, according to the shareholder letter. That growth is supported by Shake Shack’s strategic initiatives, which include efforts to improve recruitment and retention, in part by raising hourly pay. Shake Shack plans to increase staffing levels and operating hours, while using digital promotions to drive incremental sales growth, according to the shareholder letter. Shake Shack has also worked to boost its sales and marketing, most recently debuting a tie-in with the Super Mario Bros. movie in New York City.

“Looking ahead, we are guiding full year 2023 to be a record year for Adjusted EBITDA with expectations to return restaurant-level margins to 19 to 20%. Our stock is up more than 50% year-to-date and we are well positioned to continue enhancing value for shareholders,” Shake Shack said in a statement emailed to Restaurant Dive.

Engaged Capital did not immediately respond to a request for comment on the accuracy of the Wall Street Journal’s report.

One of Engaged’s most recent efforts involved taking Black Rock Rifle Company public. The conservative coffee company recently faced a lawsuit over alleged sexual harassment by its CEO.