shake shack IPO

[shalab]

http://www.shakeshack.com/

 

Now we need Sanjeev, the burger connoisseur to do a taste test  ;D

 

S1 filed here:

 

http://www.sec.gov/Archives/edgar/data/1620533/000104746914010114/a2222577zs-1.htm

 

 

[Ham Hockers]

My rankings (strictly burgers):

 

1. Shake Shack

2. Five Guys

3. In n Out

4. Swensons

5. Burger King

6. McD

7. Fuddruckers

 

Having In n Out at #3 may be blasphemous to some people. I'm sure there are other large chains I haven't tried.

 

[oddballstocks]

I've never heard of Shake Shack.  Looks like they're an East Coast + key destination cities chain.  Are they IPO'ing to expand nationwide?

 

In n Out vs Five Guys is difficult.  I want to say I prefer In n Out, but I also realize that's probably due to the scarcity factor.  I can have Five Guys anytime, I can only have In n Out when I travel out west once a year.

 

 

[premfan]

Remember rule # 1 :

 

In and Out has the most delicious  burgers

 

Rule # 2:

 

Dont forget rule # 1

 

 

 

[Ham Hockers]

Remember rule # 1 :

 

In and Out has the most delicious  burgers

 

Rule # 2:

 

Dont forget rule # 1

I've never heard of Shake Shack.  Looks like they're an East Coast + key destination cities chain.  Are they IPO'ing to expand nationwide?

 

In n Out vs Five Guys is difficult.  I want to say I prefer In n Out, but I also realize that's probably due to the scarcity factor.  I can have Five Guys anytime, I can only have In n Out when I travel out west once a year.

 

 

 

I believe it started here in NYC.

 

Yeah, I could go either way as well, though the fries at Five Guys are clearly superior.

[Ham Hockers]

Actually, Fuddruckers should be like number 1,000 because I can't imagine any burger place being more disgusting than Fuddruckers.

[oddballstocks]

Actually, Fuddruckers should be like number 1,000 because I can't imagine any burger place being more disgusting than Fuddruckers.

 

I didn't even know they were still in business.  I've had two lousy burgers there, and those are/were the only two visits I'll ever make.

[AzCactus]

I also don't think the burgers at Burger King are that good.  In my opinion, there is really only a top three (west coast) but I haven't been to some of the east coast names.

 

1. In N Out

2. 5 Guys

3. The Habit

 

 

[boilermaker75]

By far my favorite is In-N-Out. I tried Five Guys several years ago and really did not like it. Since many of you rank Five Guys high, I'll have to give Five Guys another try. Maybe I had an outlier burger experience my one time at Five Guys.

[Kraven]

That's interesting about Fuddruckers.  I think over the years they've made their way through various private equity shops, etc.  I haven't had it in a long time. I remember when it first came out in the 80's, I believe, it was pretty unique.  The food was really good and there would be lines outside the door.  One thing that disgusted me though, which thankfully they changed, was that they had the meat processing area right by the front door with clear windows.  So as you waited in line you could watch them cutting and processing the meat and putting it through the grinder.  I suppose the thought was that you knew it was fresh, but I don't think people really were interested in actually thinking about what they were eating.  At some point they changed it to frosted glass and then I think moved it into the back.

[BG2008]

Huge fan of Shake Shack.  I truly believe they have the best burgers out there.  Got have the Shack Stack with a beef patty, fried portabella breaded with cheese.  It's just so sinful and wrong, but so good.  You can kind of use food porn words to describe the experience.  Juicy, succulent, feels so wrong, yet so good, etc.  I see a ton of red flag on this IPO. 

 

P/Sales multiple at 8X.  Although, there is a time where P/Sales does make senses, i.e. 10x P/S for a single location that can be successfully rolled out nationwide.  At $1bn valuation, it's tough.  I think that Shake Shack has limited market to penetrate.  NYC is a great place to start shake shack when a slice of pizza cost $4, it's "okay" to pay $9 for a shack stack burger, and another $6 for a its frozen custards, etc.  Basically a meal at Shake Shack for two with fries, drink, and burger will run you about $30.  It's an amazing experience, but I seriously doubt whether the rest of the US and world can afford that type of luxury. 

 

What's more troubling is the intention of the IPO.  It seems like it's a mechanism for the insiders to cash out rather than raise capital to grow the store counts.  Also, $12.5mm of G&A for running a burger joint that does $82mm in sales?  I've noticed concepts that stars in NYC tend to have very high G&A as everything is expensive.

 

According to the filing, Shake Shack plans to use the IPO proceeds to buy interests in a private partnership owned by investors including Mr. Meyer and private-equity firms Leonard Green & Partners LP and Select Equity Group LP, all of which own more than 5% of Shake Shack. (Alliance Consumer Growth, which invested in 2013, also owns a stake of at least 5%.)

 

That partnership then will use some of the money it receives to repay a credit facility led by J.P. Morgan Chase & Co., which is a lead bank on the IPO with Morgan Stanley .

 

The credit facility will be used in part to fund a $22 million payout to private investors before the IPO.

 

Some of the money going to the partnership also will be used to fund new restaurants and renovate existing ones, the company said. It said it plans to open 10 new U.S. Shake Shacks a year starting in 2015 for the “foreseeable future.”

 

After the IPO, the private investors also will continue to get payments from Shake Shack equal to 85% of certain tax benefits the company might receive, an arrangement known as a “tax receivable agreement,” according to the filing. The company said it expects the payments to be significant.

 

Robert Willens, an independent tax analyst in New York, said the arrangements are common and can be controversial. But, he said, if they are “fully disclosed and…reflected in the IPO price, it’s probably not that objectionable.”

[compoundinglife]

I remember going to Fudruckers in Florida in the late 80s or early 90s and the food was pretty good. I was surprised to see them in an airport recently (maybe Boston?) and the food was sub par. I saw another one (I think it was in downtown SF) and could tell just by looking inside that it was not nearly the same quality it was years ago. With regards to the meat locker inside the place, I can see how that would turn off some people. I really liked the idea. Now at days I am sure all their meat comes of a Cisco truck. 

 

As far as fast food burgers go...

In Seattle we have Redmill (http://www.redmillburgers.com/) which is pretty damn good although a tad pricey for fast food. We also have Dick's (http://www.ddir.com/) which is great especially considering the price and the fact that they are open till 2am. Zippy's is also pretty good ( http://zippysgiantburgers.com/ ).

 

For more nationwide chains I have to go with In and Out as #1. Five guys is good, I like their fries better and they also offer a lettuce wrap burger. But there is something about the In and Out burger that gives it an edge over Five Guys IMO. 

 

The best burgers I find overall though are at local resturaunts with a focus on fresh and high quality ingredients. But because of the price range its not fair to compare them to the fast food joints.

[Ham Hockers]

Quirky take

 

http://marginalrevolution.com/marginalrevolution/2014/12/does-the-shake-shack-ipo-mean-you-should-stop-eating-there.html

 

Umami Burger, which I missed in my list, was mentioned in the comments. Was not impressed at all.

[constructive]

They earned $4M this year so $1B valuation sounds about right.

[rkbabang]

My rankings (strictly burgers):

 

1. Shake Shack

2. Five Guys

3. In n Out

4. Swensons

5. Burger King

6. McD

7. Fuddruckers

 

Having In n Out at #3 may be blasphemous to some people. I'm sure there are other large chains I haven't tried.

 

 

I haven't tried Shake Shack (never heard of them), nor Swensons.  But McDs and Burger King shouldn't be on anyone's list of good burgers.  I get nauseated even thinking of them.    Wendy's, which didn't make your list is at least edible and Red Robin is really good, although not fast food.

 

My list would be:

 

1) Five Guys

2) Red Robin

3) In n Out

9) Wendy's  (yes I know I skipped 4-8, but Wendy's isn't close to the others).

 

[Ham Hockers]

My rankings (strictly burgers):

 

1. Shake Shack

2. Five Guys

3. In n Out

4. Swensons

5. Burger King

6. McD

7. Fuddruckers

 

Having In n Out at #3 may be blasphemous to some people. I'm sure there are other large chains I haven't tried.

 

 

I haven't tried Shake Shack (never heard of them), nor Swensons.  But McDs and Burger King shouldn't be on anyone's list of good burgers.  I get nauseated even thinking of them.    Wendy's, which didn't make your list is at least edible and Red Robin is really good, although not fast food.

 

My list would be:

 

1) Five Guys

2) Red Robin

3) In n Out

9) Wendy's  (yes I know I skipped 4-8, but Wendy's isn't close to the others).

 

Yeah, sorry I should have been clear. This is a list of places that I've tried (though I forgot Wendy's). Not that I think these are the best burger places.

[rkbabang]

 

Yeah, sorry I should have been clear. This is a list of places that I've tried (though I forgot Wendy's). Not that I think these are the best burger places.

 

Ahh, I got you. 

 

A lot of people hating on Fuddruckers, I haven't eaten there in years, but I don't remember it being bad.

[randomep]

Remember rule # 1 :

 

In and Out has the most delicious  burgers

 

Rule # 2:

 

Dont forget rule # 1

 

Now I have been in In&Out more than once but I don't recall if I ate a burger or just watched my friends eat. But what exactly is so special about it? this is a serious question and I am looking for an objective answer, do they make it differently? use different cows? never frozen beef?

 

 

 

[fareastwarriors]

http://www.breakingviews.com/shake-shack-ipo-disappoints-in-taste-test/21179431.article

[tengen]

They earned $4M this year so $1B valuation sounds about right.

 

It's a solid Shackvaluation based on Shackenomics.

[jawn619]

They earned $4M this year so $1B valuation sounds about right.

 

LOL the old 250x earnings right?

[cobafdek]

Now I have been in In&Out more than once but I don't recall if I ate a burger or just watched my friends eat. But what exactly is so special about it? this is a serious question and I am looking for an objective answer, do they make it differently? use different cows? never frozen beef?

 

Ultimately, I'm not sure there can be an objective answer in matters of taste preferences.  No doubt In-N-Out is great, and living in SoCal I'd eaten there about ten years before the first Five Guys opened regionally.  I had heard from cousins living in Maryland how great Five Guys is, so maybe I was primed, or maybe I was inured to In-N-Out.  First bite of a Five Guys burger and I liked it better than In-N-Out.  The meat patty is objectively thicker, and I thought it had a richer charbroiled flavor.

 

But then I need to remind myself of the lessons from Cialdini's Influence.  The relevant chapters are the one on "Social Proof" and the one on "Scarcity."  If you relate to people who happen to be In-N-Out cultists, that's a powerful influence on your taste perception (social proof).  If you live in the eastern U.S. with access to In-N-Out only on occasional west coast trips, the taste of In-N-Out will be a novelty (scarcity).

 

The In-N-Out marketing machine constantly repeats their "always fresh, never frozen" mantra, and for objective evidence, they don't build restaurants more than a day from their meat distribution centers. But can I objectively say it therefore tastes fresher?  If I do, I suspect their commercials have worked on my unconscious more powerfully.

 

You can make up for the thinness of an In-N-Out burger by getting a Double-Double, which would probably equal the thickness of a single Five Guys burger, and at almost half the price.  But it still doesn't beat the flavor of Five Guys meat patty (to me).  How long this quality will last, who knows, since Five Guys is expanding at a rapid clip (now more than 1000 restaurants in the past 7-10 years).  Maybe quality control is better ensured with the smaller operations of In-N-Out:  only 250 restaurants since 1948, in two or three states.

[LC]

Shake shack started in a literal shack (maybe 15sqft) in Madison park in NYC. To this day there are lines which span the south end of the park during lunchtime. The burgers are as BG2008 mentioned succulent and juicy.

 

No idea about the investment qualities as I haven't read the S1 but just in case people wanted some color.

[PatientCheetah]

ONDK similar valuation, not sure how much competitive advantage it has, but the potential runway is huge relative to Shake Shack

[Philip Morris IV]

Shake shack started in a literal shack (maybe 15sqft) in Madison park in NYC. To this day there are lines which span the south end of the park during lunchtime. The burgers are as BG2008 mentioned succulent and juicy.

 

No idea about the investment qualities as I haven't read the S1 but just in case people wanted some color.

 

I can recall in 2010-11 several times waiting in that exact line for up to an hour.  It was worth it.  When they opened a closer one to me in Westport CT, that one always had a long wait as well.  Their whole menu and execution of quasi-upscale fast-casual is very good.

 

Props to BG2008 for pointing out the shady proceeds purposes.  It'll be funny to see how little that will probably be mentioned in the eve and wake of the offering.