Shake Shack activist investor reportedly seeks to secure three board seats

Yahoo Finance Live discusses a report of a potential proxy battle at Shake Shack as Activist investor Engaged Capital seeks three board seats at the popular chain.

Video transcript

- Let's talk about some of the movers that we're watching. Individual ones with news. We're talking about Shake Shack. Because a proxy battle could be on the horizon for the company. That's according to the Wall Street Journal. The report there says activist investor Engaged Capital is seeking three board seats at the chain.

And according to the journal, they've actually been in talks here for about six months time and now it's coming to this point where Engaged is sort of bringing this public or at least linking it to the journal so they can report on it. And essentially, what you have seen here is that Engaged has built up a stake of about 6.6%, including swaps, according to the Journals reporting and really wants to push for a stock price improvement, profitability improvement and some other changes.

- Yeah. I mean, looking for the board seats. There's three board seats, as you mentioned. And then also, within this proxy fight, it'll be interesting to see what they're able to insert in terms of the conversation to get to the profitability metrics that they're looking for. They're looking for them to double their profitability within two years here. And so that is particularly noteworthy.

Of course, Shake Shack has already reported earnings for the quarter that came out last week. And the company had reported revenue that was actually up by about 24 and 1/2% versus the same period last year. You also saw system-wide sales move higher by about 27 and 1/2%. So largely a question of where-- even in the interactions, the engagements that they have with their end consumers, where they're able to promote more profitability that investors can perhaps bank on in this near term.

But it's also going to come at a spending period for them too. If they're continuing to open up even more stores, they continue to give an update on the number of locations that they're going to have to roll out in order to create more customer touchpoints and hopefully drive some of the profitability along the way.

- Yeah. And Shake Shack did come back to us with a statement on this, saying we're executing our strategic plan and making substantial operational and financial progress. And they cited some of the figures that you were just talking about from their most recent report. Importantly, I think, in this discussion of profitability, Shake Shack pointing out that for the year, they are predicting that consistency in adjusted EBITDA that it will be a record year for that figure. Restaurant-level margins, they say, should return to 19% to 20%.

I think the-- one of the issues here, if you look-- I was looking back at the EBITDA numbers on an annual basis. And there's a consistency issue in part because of the pandemic, but even before that, a consistency in the level of profitability, a consistency in the level of those margins that, I imagine, Engaged wants them to improve upon.

I was also taking a look at the stock performance. As they pointed out, the stock is up more than 50% year to date. It's also down about 50% from its high, which was back in February of 2021 when so many stocks were flying and then have come down. The IPO, though, all the way back in 2015 now. I remember that IPO. It was very exciting--

- Oh yeah. Yeah.

- --at $21 a share. So they're obviously-- we're not talking about a company that has languished since its IPO. It's just maybe not as robust perhaps as a shareholder like Engaged would like it to be.

- Yeah. I mean-- and you mentioned the Shack sales. They're looking to get that back to 19% to 20%. Right now, most recent quarter, 18.3% profitability.

- Well, it's getting there.

- So, yeah, getting there. Still, a business that had to report an operating loss in this most recent quarter. About $3.2 million. So will be interesting to see if we see any improvement on that front for Shake Shack.

- Yes.

- But the Chicken Shack is tasty. I'll say that.

- Yeah, definitely.