Shake Shack Extends Decline After Same-Store Sales Disappoint

Shake Shack Inc. (SHAK) shares fell more than 17% during Tuesday's session after third quarter comparable store sales fell short of analyst expectations. Third quarter revenue rose 31.9% to $157.76 million, beating consensus estimates by $310,000, and non-GAAP net income came in at 26 cents per share, beating consensus estimates by five cents per share.

While store traffic rose 1.2% during the quarter, same-store sales rose just 2%, falling well short of consensus estimates calling for a gain of 2.9% for the period. Looking ahead, the company projects full-year revenue of $592 million to $597 million, versus a prior view of $585 million to $590 million, but those figures fell short of a $600 million analyst consensus.

Analysts lowered their price targets in response to the third quarter financial results. Piper Jaffray lowered its price target from $109 to $97 per share but reiterated its Overweight rating on Shake Shack stock. Analyst Nicole Miller Regan believes that the chain continues to benefit from scarcity value but notes that profit-taking and comp concerns are driving the current weakness.

Wedbush also lowered its price target from $84 to $75 and maintained its Neutral rating on Shake Shack stock. Analyst Nick Setyan citied same-store sales growth and margins for the downgrade, adding that cannibilization and new comp base units will remain ongoing headwinds over the long term.

From a technical standpoint, the stock fell sharply below its 200-day moving average at $71.46 following the third quarter earnings report. The relative strength index (RSI) moved into oversold territory with a reading of 20.45, but the moving average convergence divergence (MACD) extended its bearish move lower. These indicators suggest that the stock could see some reprieve in the near term, but the long-term trend remains lower.

Traders should watch for some consolidation around the 200-day moving average near $71.46 before any extended move lower. The next area of support lies at around $55.00, near reactions lows from May 2019, while upper trendline resistance stands at around $75.00, where the stock consolidated in July 2019. Currently, the stock trades with a bearish bias given the pre-existing downtrend and disappointing third quarter results.

The author holds no position in the stock(s) mentioned except through passively managed index funds.