Beef is very expensive right now - and Shake Shack just lost money for the first time in years

By Bill Peters and Emily Bary

The burger chain's shares were dropping nearly 30% in the face of cost inflation and challenging consumer sentiment

Shake Shack reported quarterly results on Thursday.

Shake Shack is expanding rapidly and projecting success with new menu items - yet its stock is on course for a record decline, as investors assess the pressures brought on by high beef prices and a volatile consumer backdrop.

The fast-casual burger chain (SHAK) on Thursday reported a $300,000 net loss for the latest quarter on a GAAP basis. That was the first time in three years that the company failed to report positive net income, according to FactSet data. Analysts had been expecting 12 cents in earnings per share for the most recent period.

"Obviously, beef prices are elevated, continue to be elevated, although the rate of growth on the beef pricing that we're seeing is less than a half than it was last year," Shake Shack CEO Rob Lynch said on the company's earnings call.

Alison Sternberg, Shake Shack's head of investor relations, noted that beef costs rose by a low-teens percentage in the first quarter - though she also said that "proactive procurement and cost-mitigation initiatives" helped the company "meaningfully offset continued beef inflation" without raising customer-facing prices further.

Shake Shack expressed excitement about the second quarter, when it could see a potential boost in demand from this summer's FIFA World Cup and items like a new baby-back-rib sandwich. The company stuck with its full-year outlook of $1.6 billion to $1.7 billion in sales.

But given an unpredictable backdrop marked by higher costs, the Iran war and anxious consumers, investors appeared not to buy it.

Shake Shack's stock was tumbling 28.2% on Thursday, putting it on pace for lows not seen in more than two years. Shares are down 32.9% over the past 12 months.

The ongoing rise in beef prices is something that's caught the eye of regulators recently. The U.S. Justice Department confirmed on Monday that it was conducting an antitrust investigation into whether corporate consolidation has squeezed out smaller players and contributed to higher consumer prices.

Thinner cattle herds, tariffs and plant closures have sent prices hovering near record levels. Meanwhile, the restaurant industry has been dealing with a protracted discount war, as chains try to win back consumers who were turned off by menu-price increases that were intended to offset higher costs.

"We recognize that there is volatility in the marketplace, and we want to express our guidance" in a way that accounts for that volatility, Lynch said. The company is still "very confident in our organic business model," he added, but is balancing cost inflation and challenging consumer sentiment.

Still, Shake Shack's second-quarter outlook was still better than what analysts expected. The chain said it expects $424 million to $428 million in revenue, above Wall Street's estimates for $418.3 million, with same-store sales up 3% to 5%, compared to analysts' estimates for a 3% gain.

But that forecast assumed no significant changes to the current economic and geopolitical backdrop. Management noted that near-term results at stores abroad have taken a hit from the conflict in the Middle East, leading to temporary closures, reduced operating hours and delayed openings. And inbound U.S. tourism, Lynch noted, had "slowed substantially."

The company reported first-quarter revenue of $366.7 million, a 14.3% jump from the previous year but below Wall Street's estimates for $372.4 million. A same-store sales increase of 4.6% was below analyst estimates for a 4.7% gain.

Shake Shack on Thursday also said it had appointed Michelle Hook as its new CFO, a move that takes effect May 11.

-Bill Peters -Emily Bary

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05-07-26 1311ET