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Shake Shack's Avid Growth Plans Hampered by Weak Locations

Shake Shack's Avid Growth Plans Hampered by Weak Locations

(Bloomberg)—Shake Shack Inc., which has tantalized investors with promises of rapid growth, may have its expansion plans hindered by weaker real estate skills.

The burger chain doesn’t have the management experience or information needed to pick prime locations, according to a Bloomberg Intelligence study from analytics provider Fishbowl. Newer Shake Shack locations were in areas that scored lower on out-of-home food spending and households per restaurant, potentially hindering their success. The weaker site selection may put the company’s relatively high $5 million annual average restaurant sales at risk.

“Everyone has heard it -- location, location, location -- it’s critical, especially when a company is growing as quickly as they are,” said Bloomberg Intelligence analyst Michael Halen, who led the study.

Edwin Bragg, a spokesman for Shake Shack, didn’t immediately respond to requests for comment.

Shake Shack shares trade at about a 19 percent premium to the Standard & Poor’s 500 Index, in large part because of its promise of new locations. The company, which was founded as a hot-dog cart in Madison Square Park and opened its first restaurant in 2004, currently has about 50 sites domestically. The purveyor of burgers and custard has said it can expand to about 450 locations across the U.S., which would make it larger than White Castle, Smashburger or In-N-Out Burger.

Shares Deflate

The shares fell as much as 3 percent to $35.59 in New York on Tuesday, the biggest intraday loss since April 7. Shake Shack tumbled 42 percent in the 12 months through Monday’s close, hurt by slower sales gains.

Shake Shack has recently opened stores in Baltimore and the Boston area. Other chains, such as Popeyes Louisiana Kitchen Inc., which wasn’t included in the study, are better at picking restaurant locations, Halen said.

Shake Shack doesn’t have the same discipline, he said.

“Part of it may be that they’re rushing it, part of it may be that they just don’t have the data,” he said.

(A previous version of the story was corrected to show that Popeyes was not a part of the study.)

To contact the reporter on this story: Leslie Patton in Chicago at [email protected] To contact the editors responsible for this story: Nick Turner at [email protected] Kevin Orland

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