Shake Shack Inc. is going public and may be worth as much as $1 billion -- not bad considering New York restaurateur Danny Meyer started the joint as a public service.
Founded more than a decade ago to help support the restoration of Manhattan’s Madison Square Park, Shake Shack was an instant success, drawing long lines of urbanites attracted by Meyer’s modern spin on a roadside burger stand. Today, Shake Shack has more than 63 outlets in 30-plus cities from London to Dubai.
Shake Shack started as a hot-dog cart that later became a permanent kiosk and neighborhood fixture. Hungry urbanites have been known to hop on the subway to get their fix of $4.95 burgers and $5.15 shakes. Besides burgers and fries, the chain sells the frozen custard Meyer enjoyed as a boy in St. Louis.
Meyer’s timing with Shake Shack was auspicious. Shake Shack joined a “better burger” boom as foodies from Los Angeles to New York began clamoring for food that tasted good and used sustainably raised ingredients. Much like many fast casual joints these days, Shake Shack advertises “100% all-natural Angus beef, vegetarian fed, humanely raised and source verified.”
Now, the company is approaching public investors with its growth rate slowing and profitability falling, the IPO filing reveals. Even as sales rose 41 percent to almost $84 million in the 39 weeks through Sept. 24, net income fell amid a rise in expenses that included a more than doubling of pre-opening costs.
The company also said its “shack-level” profit margins edged lower while “same-shack” sales growth slowed to 3 percent in the period through September, from 5.5 percent year earlier and 7.1 percent in fiscal 2012.
Meyer, 56, is credited with founding some of New York’s most prestigious eateries, including Gramercy Tavern, Eleven Madison Park, and Union Square Cafe, which he opened three decades ago. Born and raised in St. Louis, he serves as chairman of Shake Shack and his Union Square Hospitality Group LLC also operates a catering business and hospitality consulting services.
In the U.S., Shake Shack plans to open 10 new company-operated stores each year starting in 2015, and expects it could grow from 31 company-operated stores to 450 over the long-term, it said in the filing. The company didn’t say how long it will take to reach that target.
Overseas, the company warned of the impact of sanctions enacted by Russia against U.S. imports -- saying that its licensee in the country has been led to ingredients that may be lower-quality than what Shake Shack fans are used to -- and that Middle East volatility has threatened the delivery of Shake Shack ingredients.
Outside the U.S., the company has 20 stores in the Middle East, four in Turkey, two in Russia and one in the U.K.
The company, which will list early next year on the New York Stock Exchange (ticker: SHAK), is aiming for a $1 billion valuation in the initial public offering, people familiar with the matter said in September.
Shake Shack used a $100 million placeholder for the IPO, a figure to calculate fees that may change.
In addition to making a payment to Meyer and early backers including Leonard Green Partners & Partners LP, the company plans to use its IPO proceeds to repay debt, open new Shake Shack restaurants and renovate existing ones.
JPMorgan Chase & Co. and Morgan Stanley are managing the offering. Because Shake Shack filed as an emerging-growth company under the Jumpstart Our Business Startups Act, or JOBS Act, it must wait at least 21 days before officially marketing its share sale.
Other restaurants chains have been tapping the public market this year, capitalizing on investors’ appetites for new and growth stocks. Pizza seller Papa Murphy’s Holdings Inc. raised $63.8 million after going public in May, while chicken chain El Pollo Loco Holdings Inc. has gained about 38 percent since its July IPO.