Shake Shack (SHAK) Stock Lower after Pricing Secondary Offering

Shares of Shake Shack Inc. (SHAK) were down -2.82 or -4.35 percent to $61.97 in this morning's premarket after the company announced its pricing on a secondary stock offering late yesterday. The company reported stellar second quarter earnings Monday after the close. Shake Shack shares closed at $64.79, down -3.77 or -5.50 percent in Wednesday's regular trading session.

New York City based Shake Shack was started from a hot dog food cart business in Madison Square Park in 2000 by its current Chief Executive Officer, Randy Garutti.
The business moved to a larger stand within the park in July of 2004 expanding its menu to include burgers, hot dogs and fries in addition to its famous milkshakes. The restaurant chain expanded in 2010 adding a restaurant in Miami's South Beach area followed by Shake Shack outlets opening in Connecticut, Florida, Georgia, Illinois, New Jersey, Las Vegas, Maryland, Massachusetts, Pennsylvania, Texas and Washington D.C.

The company has also opened outlets internationally in London, Dubai, Moscow, Istanbul, Beirut, Abu Dhabi, Doha and Kuwait City. Shake Shack had its initial public offering in January of 2015, pricing shares at $21 each. The stock opened for trading on the New York Stock Exchange at $41 per share the next morning.

Shake Shack announced its secondary offering right after announcing its second quarter earnings on Monday afternoon. The company announced it would be offering 4 million shared of its Class A common stock with an additional number of shares in an overallotment option.

Since the stock is from selling stockholders taking advantage of the 180 day expiration of the lockout for sales of the stock after its IPO, the company will not receive any of the proceeds from the offering. Shake Shack announced it would price the 4,000,000 shares of Class A common stock at $60 per share. The overallotment option will give underwriters a 30-day option to purchase an additional 600,000 shares at the offering price.

The offering is expected to close by August 18th, 2015 and is subject to the customary closing requirements. J.P. Morgan Securities LLC is the lead book-running manager for the offering with Barclays Capital Inc., Goldman, Sachs & Co., Jefferies LLC, Morgan Stanley & Co. LLC, Stifel and William Blair & Company, L.L.C. are the other brokers acting as book-running managers in the offering.

Shake Shack stock has been selling off since reporting earnings on Monday afternoon, when it reached a high of $79.72 in afterhours trading. The company reported earnings per share of $0.09 on $48.5 million in revenue for its second quarter compared to $0.03 per share on $27.74 million in the same period one year ago. The consensus was for the company to report earnings of $0.03 on revenue of $42.8 million.

The company also upwardly revised its revenue guidance for its 2015 full year; Shake Shack now expects revenue of $171 million to $174 million compared to a previous forecast of $161 million to $165 million. Same shack sales growth is expected to be in the mid to high single digits versus low to mid single digits.

Despite the better than expected results for the second quarter, many analysts are bearish on the stock. Investors are concerned on the high valuation of the company and have acted accordingly. Nevertheless, if the selloff continues, it could present an opportunity for savvy investors.

Other News About SHAK

Shake Shack Profit Tops Estimates as New Stores Help Sales

Company reported a profit that was three times higher than the consensus.

Shake Shack: Insiders Agree That The Valuation Is Too High

The high valuation is one of the principal reasons for the secondary sale.
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Company will lay off ten percent of its white collar staff.

Cisco's CEO reins in the chit-chat on his first earnings call

Company reported better than expected earnings in its latest quarter.

Published on Aug 13, 2015
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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