Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
This section and other parts of this Annual Report on Form 10-K (“Form 10-K”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein. All statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements about our growth, including our long-term growth goals, strategic priorities and initiatives, and liquidity. Forward-looking statements discuss our current expectations, targets and projections relating to our financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "likely," "outlook," "potential," "preliminary," "project," "projection," "plan," "seek," "targets," "may," "could," "would," "will," "should," "can," "can have," the negatives thereof and other similar expressions.
Forward-looking statements reflect our current views with respect to future events and are based on certain assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from trends, plans, or expectations set forth in the forward-looking statement, as set forth in this Form 10-K. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this Form 10-K in the context of the risks and uncertainties disclosed in Part I, Item 1A of this Form 10-K under the heading "Risk Factors," in this Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in Item 7A "Quantitative and Qualitative Disclosures About Market Risk."
The forward-looking statements included in this Form 10-K are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.
Shake Shack Inc. Form 10-K | 45
OVERVIEW
Shake Shack serves modern, fun and elevated versions of American classics using only premium ingredients. We are known for our made-to-order 100% Angus beef burgers, crispy chicken, hand-spun milkshakes, house-made lemonades, beer, wine, and more. With our fine-dining roots and a commitment to crafting uplifting experiences, Shake Shack has become a cult-brand and created a new category, fine-casual.
We operate on a 52/53 week fiscal year ending on the last Wednesday of December. Fiscal 2025 included 53 weeks and fiscal 2024 included 52 weeks. The additional operating week of fiscal 2025 is referred to as the "53rd week."
For discussion of our results of operations and changes in financial condition for fiscal 2024 compared to fiscal 2023 refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year ended December 25, 2024, filed on February 21, 2025.
The following definitions apply to these terms as used herein:
"Average unit volume" is calculated by dividing total Shack sales by the number of Shacks open during the period. For Shacks that are not open for the entire period, fractional adjustments are made to the number of Shacks in the denominator such that it corresponds to the period of associated sales.
"Average weekly sales" is calculated by dividing total Shack sales by the number of operating weeks for all Shacks in operation during the period. For Shacks that are not open for the entire period, fractional adjustments are made to the number of operating weeks open such that it corresponds to the period of associated sales.
"Same-Shack sales" represents Shack sales for the comparable Shack base, which is defined as the number of Company-operated Shacks open for 24 full fiscal months or longer. For consecutive days that Shacks were temporarily closed, the comparative period was also adjusted.
“System-wide sales” is an operating measure and consists of sales from Company-operated Shacks and licensed Shacks. The Company does not recognize the sales from licensed Shacks as revenue. Of these amounts, revenue is limited to licensing revenue based on a percentage of sales from licensed Shacks, as well as certain up-front fees, such as territory fees, opening fees, and termination fees.
Key Operating Metrics
Same-Shack sales 1 for the fiscal fourth quarter ended December 31, 2025 increased 2.1% compared to the same period last year, driven by a 1.6% increase in price mix and a 0.5% increase in guest traffic. Same-Shack sales 1 for the fiscal year ended December 31, 2025 increased 2.3% compared to the same period last year, driven by a 3.1% increase in price mix, partially offset by a 0.8% decline in guest traffic. For the purpose of calculating same-Shack sales growth for the fiscal fourth quarter and fiscal year ended December 31, 2025, Shack sales for 278 Shacks were included in the comparable Shack base.
Average weekly sales 1 were $77,000 for the fiscal fourth quarter ended December 31, 2025, compared to $79,000 for the same period last year, primarily driven by a decline in guest traffic and menu mix, partially offset by higher menu prices. Average weekly sales 1 were $76,000 for the fiscal year ended December 31, 2025, which was flat compared to the same period last year, primarily driven by a decline in guest traffic, offset by higher menu prices.
System-wide sales increased 23.4% to $618.0 million for the fiscal fourth quarter ended December 31, 2025, versus the same period last year. System-wide sales increased 15.9% to $2,228.8 million for the fiscal year ended December 31, 2025, versus the same period last year. The 53rd week contributed $47.3 million to System-wide sales in fiscal 2025. Average unit volume for Company-operated Shacks was $4.0 million for the fiscal year ended December 31, 2025, which was flat compared to the same period last year.
Shake Shack Inc. Form 10-K | 46
Digital sales for the fiscal fourth quarter ended December 31, 2025 increased 30.0% to $150.7 million compared to the same period last year. Digital sales for the fiscal year ended December 31, 2025 increased 20.3% to $515.4 million compared to the same period last year. The 53rd week contributed $13.3 million to digital sales in fiscal 2025. Digital sales includes orders placed on the Shake Shack app, website and third-party delivery platforms, which represented 39.1% and 37.0%, respectively, of Shack sales during the fiscal fourth quarter and fiscal year ended December 31, 2025.
(1) For fiscal fourth quarter and fiscal year ended December 31, 2025, same-Shack sales and average weekly sales were calculated excluding the 53rd week.
Shake Shack Inc. Form 10-K | 47
Development Highlights
During fiscal 2025, we opened 45 new Company-operated Shacks and 40 new licensed Shacks. There were four permanent licensed Shack closures and one permanent Company-operated Shack closure in fiscal 2025. Below are Shacks opened during the fourth quarter of 2025.
Location
Type
Opening Date
Istanbul, Turkey — Kozyatagi City Mall
Licensed
Phoenix, AZ — Avondale
Company-operated
Siheung, South Korea — Siheung Premium Outlet
Licensed
Toronto, Canada — Yonge & Eglinton
Licensed
Pittsburgh, PA — Pittsburgh Airport Dining Concourse
Licensed
Syracuse, NY — Dewitt
Company-operated
Zionsville, IN — Zionsville
Company-operated
Jenkintown, PA — Jenkintown
Company-operated
Vaughan, Canada — Vaughan Mills
Licensed
Staten Island, NY — Hylan Blvd
Company-operated
Tel Aviv, Israel — Kiryat Ono
Licensed
Hong Kong, China — Elements Mall
Licensed
Mexico City, Mexico — Pedregal
Licensed
Tacoma, WA — Tacoma Mall
Company-operated
Oceanport, NJ — Monmouth Park
Licensed
Quezon City, Philippines — Robinsons Magnolia
Licensed
Oklahoma City, OK — Oak OKC
Company-operated
Perrysburg, OH — Levis Commons
Company-operated
London, UK — Kings Cross
Licensed
Selden, NY — Selden
Company-operated
Manila, Philippines — Capitol Commons
Licensed
Kuala Lumpur, Malaysia — Pavilion KL
Licensed
Pikesville, MD — Festival at Woodholme
Company-operated
Phuket, Thailand — JungCeylon
Licensed
Pittsburgh, PA — East Liberty
Company-operated
Cheshire, CT — Shops at Stone Bridge
Company-operated
Beijing, China — Da Rong Cheng Art Park
Licensed
Mason, OH — Mason
Company-operated
Hong Kong, China — Langham Place
Licensed
Gyeonggi, South Korea — Paju Premium Outlet
Licensed
Orlando, FL — Colonial Marketplace
Company-operated
Pittsburgh, PA — Ross Park Mall
Company-operated
As of December 31, 2025, there were 659 Shacks in operation system wide, of which 373 were Company-operated Shacks and 286 were licensed Shacks.
Shake Shack Inc. Form 10-K | 48
RESULTS OF OPERATIONS
The following table summarizes our results of operations for fiscal 2025 and fiscal 2024:
(dollar amounts in thousands)
Shack sales
Licensing revenue
TOTAL REVENUE
Shack-level operating expenses (2) :
Food and paper costs
Labor and related expenses
Other operating expenses
Occupancy and related expenses
General and administrative expenses
Depreciation and amortization expense
Pre-opening costs
Impairments, loss on disposal of assets, and Shack closures
TOTAL EXPENSES
INCOME FROM OPERATIONS
Other income, net
Interest expense
INCOME BEFORE INCOME TAXES
Income tax expense
NET INCOME
Less: Net income attributable to non-controlling interests
NET INCOME ATTRIBUTABLE TO SHAKE SHACK INC.
(1) We operate on a 52/53 week fiscal year ending on the last Wednesday of December. Fiscal 2025 included 53 weeks and fiscal 2024 included 52 weeks.
(2) As a percentage of Shack sales.
Shake Shack Inc. Form 10-K | 49
Shack Sales
Shack sales represent the aggregate sales of food, beverages and Shake Shack branded merchandise at our Company-operated Shacks and gift card breakage income. Shack sales in any period are directly influenced by the number of operating weeks in such period and the total number of open Shacks.
(dollar amounts in thousands)
Shack sales
Percentage of Total revenue
Dollar change compared to prior year
Percentage change compared to prior year
Shack sales for the fiscal year ended December 31, 2025 increased 15.2% to $1.4 billion versus the prior year. The increase was primarily due to the opening of 45 new Company-operated Shacks during fiscal 2025, which contributed $218.5 million, partially offset by a decline in guest traffic. Excluding the 53rd week, Shack sales for fiscal year 2025 increased 12.9% versus the prior year.
Licensing Revenue
Licensing revenue is comprised of license fees and opening fees, territory fees, and termination fees for certain licensed Shacks. License fees are calculated as a percentage of sales and territory fees are payments for the exclusive right to develop Shacks in a specific geographic area.
(dollar amounts in thousands)
Licensing revenue
Percentage of Total revenue
Dollar change compared to prior year
Percentage change compared to prior year
Licensing revenue for the fiscal year ended December 31, 2025 increased 20.2% to $54.1 million versus the prior year. The increase was primarily due to higher sales at existing licensed Shacks, which contributed $3.5 million, and the opening of 40 new licensed Shacks during fiscal 2025, which contributed approximately $3.2 million, as well as revenue recognized from the contract termination of a licensed partner. Excluding the 53rd week, Licensing revenue for fiscal year 2025 increased 17.5% versus the prior year.
Food and Paper Costs
Food and paper costs include the direct costs associated with food, beverage and packaging of our menu items. The components of Food and paper costs are variable by nature, change with sales volume, and are impacted by menu mix, channel mix and fluctuations in commodity costs, as well as geographic scale and proximity.
(dollar amounts in thousands)
Food and paper costs
Percentage of Shack sales
Dollar change compared to prior year
Percentage change compared to prior year
Food and paper costs for the fiscal year ended December 31, 2025 increased 16.7% to $396.7 million versus the prior year. The increase was primarily due to the openings from the fiscal 2024 class of Shacks, which contributed approximately $24.8 million of incremental expense as well as the opening of 45 new Company-operated Shacks during fiscal 2025, which contributed
Shake Shack Inc. Form 10-K | 50
approximately $20.8 million. Excluding the 53rd week, Food and paper costs for fiscal year 2025 increased 14.4% versus the prior year.
As a percentage of Shack sales, the increase in Food and paper costs for fiscal 2025 was primarily due to unfavorable menu mix and increased commodity costs, mainly beef, as well as increased marketing promotions, partially offset by increased menu price.
Labor and Related Expenses
Labor and related expenses include Company-operated Shack-level hourly and management wages, bonuses, payroll taxes, equity-based compensation, workers' compensation expense and medical benefits. As we expect with other variable expense items, labor costs should grow as our Shack sales grow. Factors that influence labor costs include minimum wage and payroll tax legislation, health care costs, size and location of the Shack and the performance of our Company-operated Shacks.
(dollar amounts in thousands)
Labor and related expenses
Percentage of Shack sales
Dollar change compared to prior year
Percentage change compared to prior year
Labor and related expenses for the fiscal year ended December 31, 2025 increased 6.5% to $360.7 million versus the prior year. The increase was primarily due to the opening of 45 new Company-operated Shacks during fiscal 2025, which contributed $19.4 million. Excluding the 53rd week, Labor and related expenses for fiscal year 2025 increased 4.4% versus the prior year.
As a percentage of Shack sales, the decrease in Labor and related expenses for fiscal 2025 was primarily due to labor efficiencies and sales leverage, partially offset by incremental expenses from the opening of 45 new Company-operated Shacks during fiscal 2025.
Other Operating Expenses
Other operating expenses consist of delivery commissions, Shack-level marketing expenses, repairs and maintenance, utilities and other operating expenses incidental to operating our Company-operated Shacks, such as non-perishable supplies, credit card fees and property insurance.
(dollar amounts in thousands)
Other operating expenses
Percentage of Shack sales
Dollar change compared to prior year
Percentage change compared to prior year
Other operating expenses for the fiscal year ended December 31, 2025 increased 19.2% to $212.7 million versus the prior year. The increase was primarily due to increased transaction costs, mainly delivery commissions, associated with higher sales, as well as increased facilities costs and marketing spend. Excluding the 53rd week, Other operating expenses for fiscal year 2025 increased 16.9% versus the prior year.
As a percentage of Shack sales, the increase in Other operating expenses for fiscal 2025 was primarily due to increased delivery commissions associated with the growth in our digital business and increased marketing spend, partially offset by sales leverage.
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Occupancy and Related Expenses
Occupancy and related expenses consist of Shack-level occupancy expenses (including rent, common area expenses and certain local taxes), and exclude occupancy expenses associated with unopened Shacks, which are recorded separately in Pre-opening costs.
(dollar amounts in thousands)
Occupancy and related expenses
Percentage of Shack sales
Dollar change compared to prior year
Percentage change compared to prior year
Occupancy and related expenses for the fiscal year ended December 31, 2025 increased 14.6% to $106.6 million versus the prior year. The increase was primarily due to the openings from the fiscal 2024 class of Shacks, which contributed approximately $7.7 million of incremental expense as well as the opening of 45 new Company-operated Shacks during fiscal 2025, which contributed $4.3 million, partially offset by the closure of nine Company-operated Shacks in fiscal 2024. Excluding the 53rd week, Occupancy and related expenses for fiscal year 2025 increased 14.5% versus the prior year.
As a percentage of Shack sales, Occupancy and related expenses was flat for fiscal 2025 compared to the same period last year.
General and Administrative Expenses
General and administrative expenses consist of costs associated with corporate and administrative functions that support Shack development and operations, as well as equity-based compensation expense.
(dollar amounts in thousands)
General and administrative expenses
Percentage of Total revenue
Dollar change compared to prior year
Percentage change compared to prior year
General and administrative expenses for the fiscal year ended December 31, 2025 increased 18.2% to $176.2 million versus the prior year. The increase was primarily due to increased investments in marketing as well as increased wages and other team costs to support our Shack growth, partially offset by a decrease in professional fees related to non-recurring matters and costs associated with the restatement of prior periods included in the fiscal 2023 Form 10-K.
As a percentage of Total revenue, the increase in General and administrative expenses for fiscal 2025 was primarily due to the aforementioned items.
Depreciation and Amortization Expense
Depreciation and amortization expense primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment.
(dollar amounts in thousands)
Depreciation and amortization expense
Percentage of Total revenue
Dollar change compared to prior year
Percentage change compared to prior year
Shake Shack Inc. Form 10-K | 52
Depreciation and amortization expense for the fiscal year ended December 31, 2025 increased 4.0% to $106.6 million versus the prior year. The increase was primarily due to incremental depreciation of capital expenditures related to the opening of 45 new Company-operated Shacks during fiscal 2025, partially offset by a reduction in depreciation expense due to fully depreciated technology projects and assets compared to the prior year period and the closure of nine Company-operated Shacks in fiscal 2024.
Pre-Opening Costs
Pre-opening costs consist primarily of occupancy, manager and team member wages, cookware, travel and lodging costs for our opening training team and other supporting team members, marketing expenses, legal fees and inventory costs incurred prior to the opening of a Company-operated Shack. All such costs incurred prior to the opening of a Company-operated Shack are expensed in the period in which the expense was incurred. Pre-opening costs can fluctuate significantly from period to period, based on the number and timing of Company-operated Shack openings and the specific pre-opening costs incurred for each Company-operated Shack. Additionally, Company-operated Shack openings in new geographic markets may initially experience higher pre-opening costs than our established geographic markets, such as the New York City metropolitan area, where we have greater economies of scale and incur lower travel and lodging costs for our training team.
(dollar amounts in thousands)
Pre-opening costs
Percentage of Total revenue
Dollar change compared to prior year
Percentage change compared to prior year
Pre-opening costs for the fiscal year ended December 31, 2025 increased 15.8% to $18.0 million versus the prior year. The increase was primarily due to increased legal costs and occupancy expense to support our larger development pipeline as well as increased wages and team costs for our Shack teams related to the timing of Shack openings throughout the year.
Impairments, loss on disposal of assets, and Shack closures
Impairments, loss on disposal of assets, and Shack closures primarily consists of the net book value of assets that have been retired which mainly includes furniture, equipment and fixtures that were replaced in the normal course of business; impairment charges related to our long-lived assets, which includes property and equipment, as well as operating and finance lease assets; and miscellaneous Shack closure expenses, including employee-related costs, cleaning, and sign removal costs.
(dollar amounts in thousands)
Impairments, loss on disposal of assets, and Shack closures
Percentage of Total revenue
Dollar change compared to prior year
Impairments, loss on disposal of assets, and Shack closures for the fiscal year ended December 31, 2025 decreased to $5.2 million versus the prior year. The decrease was primarily due to non-cash impairment charges and miscellaneous Shack closure expense of $29.3 million during fiscal 2024, related to the closure of nine Company-operated Shacks in August 2024, partially offset by the closure of one Company-operated Shack in December 2025.
Other Income, Net
Other income, net consists primarily of interest income, adjustments to liabilities under the Tax Receivable Agreement, dividend income, and net unrealized and realized gains and losses from marketable securities.
Shake Shack Inc. Form 10-K | 53
(dollar amounts in thousands)
Other income, net
Percentage of Total revenue
Dollar change compared to prior year
Percentage change compared to prior year
Other income, net for the fiscal year ended December 31, 2025 decreased from $13.3 million to $12.3 million. The decrease was primarily due to a change from investments in the prior year to cash equivalents in the current year and lower interest rates on cash equivalents.
Interest Expense
Interest expense generally consists of interest on the current portion of our liabilities under the Tax Receivable Agreement, imputed interest related to our financing equipment leases, amortization of deferred financing costs, interest and fees on our Revolving Credit Facility and amortization of debt issuance costs.
(dollar amounts in thousands)
Interest expense
Percentage of Total revenue
Dollar change compared to prior year
Percentage change compared to prior year
Interest expense for the fiscal year ended December 31, 2025 increased 5.6% to $2.2 million versus the prior year. The increase was primarily due to increased finance lease charges from the opening of 45 new Company-operated Shacks during fiscal 2025, partially offset by a decrease in various sales tax audit assessment charges compared to prior year.
Income Tax Expense
We are the sole managing member of SSE Holdings, and as a result, consolidate the financial results of SSE Holdings. For U.S. federal and certain state and local tax purposes, SSE Holdings is classified as a partnership. Consequently, any taxable income or loss generated by SSE Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis. As a result, the Company is subject to U.S. federal income taxes, along with applicable state and local taxes on its allocable share of any taxable income or loss of SSE Holdings. Additionally, the Company is taxed on any standalone income or loss generated by Shake Shack, Inc. The Company is also subject to withholding taxes in certain foreign jurisdictions.
(dollar amounts in thousands)
Income tax expense
Percentage of Total revenue
Dollar change compared to prior year
Percentage change compared to prior year
Our effective income tax rate for the fiscal year ended December 31, 2025 increased to 31.5% from 24.0% in the prior year. The increase in our effective income tax rate was primarily driven by foreign tax credits that are not expected to be realized and the remeasurement of deferred tax assets following the filing of the Company’s 2024 tax returns.
Net Income Attributable to Non-controlling Interests
We are the sole managing member of SSE Holdings and have the sole voting power in, and control the management of, SSE Holdings. Accordingly, we consolidate the financial results of SSE Holdings and report a non-controlling interest on our Consolidated Statements of Income, representing the portion of net income attributable to the other members of SSE Holdings.
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The Third Amended and Restated Limited Liability Company Agreement of SSE Holdings provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis. In connection with any redemption or exchange, we will receive a corresponding number of LLC Interests, increasing our total ownership interest in SSE Holdings. The weighted average ownership percentages for the applicable reporting periods are used to attribute net income and other comprehensive income to Shake Shack Inc. and the non-controlling interest holders.
(dollar amounts in thousands)
Net income attributable to non-controlling interests
Percentage of Total revenue
Net income attributable to non-controlling interests for the fiscal year ended December 31, 2025 increased from $0.6 million to $4.0 million. The increase was primarily due to increased net results compared to the same period last year, partially offset by a decrease in the non-controlling interest holders' weighted average ownership, which was 5.7% and 6.2%, respectively for fiscal 2025 and fiscal 2024.
NON-GAAP FINANCIAL MEASURES
To supplement the Consolidated Financial Statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we use the following non-GAAP financial measures: Restaurant-level profit, Restaurant-level profit margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted pro forma net income, and adjusted pro forma earnings per fully exchanged and diluted share (collectively the "non-GAAP financial measures").
Restaurant-Level Profit
Restaurant-level profit is defined as Shack sales less Shack-level operating expenses which include Food and paper costs, Labor and related expenses, Other operating expenses and Occupancy and related expenses.
How This Measure Is Useful
When used in conjunction with GAAP financial measures, Restaurant-level profit and Restaurant-level profit margin are supplemental measures of operating performance that we believe are useful measures to evaluate the performance and profitability of our Shacks. Additionally, Restaurant-level profit and Restaurant-level profit margin are key metrics used internally by our management to develop internal budgets and forecasts, as well as assess the performance of our Shacks relative to budget and against prior periods. It is also used to evaluate team member compensation as it serves as a metric in certain of our performance-based team member bonus arrangements. We believe the presentation of Restaurant-level profit and Restaurant-level profit margin provides investors with a supplemental view of our operating performance that can provide meaningful insights to the underlying operating performance of our Shacks, as these measures depict the operating results that are directly impacted by our Shacks and exclude items that may not be indicative of, or are unrelated to, the ongoing operations of our Shacks. It may also assist investors to evaluate our performance relative to peers of various sizes and maturities and provides greater transparency with respect to how our management evaluates our business, as well as our financial and operational decision-making.
Limitations of the Usefulness of this Measure
Restaurant-level profit and Restaurant-level profit margin may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of Restaurant-level profit and Restaurant-level profit margin is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Restaurant-level profit excludes certain costs, such as General and administrative expenses and Pre-opening costs, which are considered normal, recurring cash operating expenses and are essential to support the operation and development of our Shacks. Therefore, this measure may not provide a complete understanding of the operating results of our Company as a
Shake Shack Inc. Form 10-K | 55
whole and Restaurant-level profit and Restaurant-level profit margin should be reviewed in conjunction with our GAAP financial results. Reconciliations of Restaurant-level profit to Income from operations, the most directly comparable GAAP financial measure, were as follows.
(dollar amounts in thousands)
Income from operations
Less:
Licensing revenue
Add:
General and administrative expenses
Depreciation and amortization expense
Pre-opening costs
Impairments, loss on disposal of assets, and Shack closures
Adjustment:
Employee benefit charges (2)
Restaurant-level profit
Total revenue
Less: Licensing revenue
Shack sales
Restaurant-level profit margin (3)
(1) The Company operates on a 52/53 week fiscal year. Fiscal year 2025 had 53 weeks with the extra operating week occurring in fiscal fourth quarter 2025.
(2) Expenses related to California healthcare charges for fiscal 2020 through 2023 which do not represent fiscal 2024 Labor and related expenses.
(3) As a percentage of Shack sales.
EBITDA and Adjusted EBITDA
EBITDA is defined as Net income before Interest expense (net of interest income), Income tax expense (benefit) and Depreciation and amortization expense. Adjusted EBITDA is defined as EBITDA excluding equity-based compensation expense, Impairments, loss on disposal of assets, and Shack closures, amortization of cloud-based software implementation costs, as well as certain non-recurring items that we do not believe directly reflect our core operations and may not be indicative of our recurring business operations.
How These Measures Are Useful
When used in conjunction with GAAP financial measures, EBITDA and adjusted EBITDA are supplemental measures of operating performance that we believe are useful measures to facilitate comparisons to historical performance and competitors' operating results. Adjusted EBITDA is a key metric used internally by our management to develop internal budgets and forecasts and also serves as a metric in our performance-based equity incentive programs and certain of our bonus arrangements. We believe presentation of EBITDA and adjusted EBITDA provides investors with a supplemental view of our operating performance that facilitates analysis and comparisons of our ongoing business operations because they exclude items that may not be indicative of our ongoing operating performance.
Shake Shack Inc. Form 10-K | 56
Limitations of the Usefulness of These Measures
EBITDA and adjusted EBITDA may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of EBITDA and adjusted EBITDA is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. EBITDA and adjusted EBITDA exclude certain normal recurring expenses. Therefore, these measures may not provide a complete understanding of our performance and should be reviewed in conjunction with our GAAP financial measures. Reconciliations of EBITDA and adjusted EBITDA to Net income, the most directly comparable GAAP measure, were as follows.
(dollar amounts in thousands)
Net income
Depreciation and amortization expense
Interest (income) expense, net
Income tax expense (benefit)
EBITDA
Equity-based compensation
Amortization of cloud-based software implementation costs
Impairments, loss on disposal of assets, and Shack closures
Restatement costs (2)
CEO transition costs
Employee benefit charges (3)
Legal settlements (4)
Severance
Other (5)
Adjusted EBITDA
Adjusted EBITDA margin (6)
(1) The Company operates on a 52/53 week fiscal year. Fiscal year 2025 had 53 weeks with the extra operating week occurring in fiscal fourth quarter 2025.
(2) Expenses incurred related to the restatement of prior periods in the 2023 Form 10-K.
(3) Expenses related to California healthcare charges for fiscal 2020 through 2023 which do not represent fiscal 2024 Labor and related expenses.
(4) Refer to Note 17, Commitments and Contingencies, in the accompanying Consolidated Financial Statements, for additional information.
(5) Expenses incurred for professional fees related to non-recurring matters.
(6) Calculated as a percentage of Total revenue, which was $1,445.3 million, $1,252.6 million and $1,087.5 million, respectively, for fiscal 2025, 2024 and 2023.
Adjusted Pro Forma Net Income and Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share
Adjusted pro forma net income represents Net income attributable to Shake Shack Inc. assuming the full exchange of all outstanding SSE Holdings, LLC membership interests ("LLC Interests") for shares of Class A common stock, adjusted for certain non-recurring items that we do not believe are directly related to our core operations and may not be indicative of our recurring business operations. Adjusted pro forma earnings per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income by the weighted average shares of Class A common stock outstanding, assuming the full exchange of all outstanding LLC Interests, after giving effect to the dilutive effect of outstanding equity-based awards.
Shake Shack Inc. Form 10-K | 57
How These Measures Are Useful
When used in conjunction with GAAP financial measures, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share are supplemental measures of operating performance that we believe are useful measures to evaluate our performance period over period and relative to our competitors. By assuming the full exchange of all outstanding LLC Interests, we believe these measures facilitate comparisons with other companies that have different organizational and tax structures, as well as comparisons period over period because it eliminates the effect of any changes in Net income attributable to Shake Shack Inc. driven by increases in our ownership of SSE Holdings, which are unrelated to our operating performance, and excludes items that are non-recurring or may not be indicative of our ongoing operating performance.
Limitations of the Usefulness of These Measures
Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should not be considered alternatives to Net income and earnings (loss) per share, as determined under GAAP. While these measures are useful in evaluating our performance, they do not account for the earnings attributable to the non-controlling interest holders and therefore do not provide a complete understanding of the Net income attributable to Shake Shack Inc. Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should be evaluated in conjunction with our GAAP financial results. A reconciliation of adjusted pro forma net income to Net income attributable to Shake Shack Inc., the most directly comparable GAAP measure, and the computation of adjusted pro forma earnings per fully exchanged and diluted share are set forth below.
(in thousands, except per share amounts)
Numerator:
Net income attributable to Shake Shack Inc.
Adjustments:
Reallocation of Net income attributable to non-controlling interests from the assumed exchange of LLC Interests (2)
Restatement costs (3)
CEO transition costs
Employee benefit charges (4)
Impairment charges and Shack closures (5)
Legal settlements (6)
Severance
Other (7)
Tax impact of above adjustments (8)
Adjusted pro forma net income
Denominator:
Weighted average shares of Class A common stock outstanding—diluted
Adjustments:
Assumed exchange of LLC Interests for shares of Class A common stock (2)
Adjusted pro forma fully exchanged weighted average shares of Class A common stock outstanding—diluted
Adjusted pro forma earnings per fully exchanged share—diluted
Earnings per share of Class A common stock—diluted
Assumed exchange of LLC Interests for shares of Class A common stock (2)
Non-GAAP adjustments (9)
Adjusted pro forma earnings per fully exchanged share—diluted
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(1) The Company operates on a 52/53 week fiscal year. Fiscal year 2025 had 53 weeks with the extra operating week occurring in fiscal fourth quarter 2025.
(2) Assumes the exchange of all outstanding LLC Interests for shares of Class A common stock, resulting in the elimination of the non-controlling interest and recognition of the net income attributable to non-controlling interests. For fiscal 2024 and 2023 , this exchange is included in weighted-average shares of Class A common stock outstanding-diluted and therefore no additional share and per share adjustments are required.
(3) Expenses incurred related to the restatement of prior periods in the 2023 Form 10-K.
(4) Expenses related to California healthcare charges for fiscal 2020 through 2023 which do not represent fiscal 2024 Labor and related expenses.
(5) Expenses incurred related to Shack closures and impairment charges during fiscal 2024 and fiscal 2025.
(6) Expenses incurred to establish accruals related to the settlements of legal matters. Refer to Note 17, Commitments and Contingencies, in the accompanying Consolidated Financial Statements, for additional information.
(7) Expenses incurred for professional fees related to non-recurring matters.
(8) For fiscal 2025, 2024 and 2023, amounts represent the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of 24.6%, 20.1% and 24.5%, respectively, which include provisions for U.S. federal income taxes, certain LLC entity-level taxes and foreign withholding taxes, assuming the highest statutory rates apportioned to each applicable state, local and foreign jurisdiction.
(9) Represents the per share impact of non-GAAP adjustments for each period. Refer to the reconciliation of Adjusted pro forma net income above, for additional information.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Our primary sources of liquidity are cash from operations, cash and cash equivalents on hand, and availability under our Revolving Credit Facility. As of December 31, 2025, we maintained a Cash and cash equivalents balance of $360.1 million. In March 2021, we issued 0% Convertible Senior Notes (“Convertible Notes”), and received $243.8 million of proceeds, net of discounts. Refer to Note 8, Debt, in the accompanying Consolidated Financial Statements, for additional information.
On June 6, 2024, we filed a Registration Statement on Form S-3 with the SEC which permits us to issue a combination of securities described in the prospectus in one or more offerings from time to time. To date, we have not experienced difficulty accessing the capital markets; however, future volatility in the capital markets may affect our ability to access those markets or increase the costs associated with issuing debt or equity instruments.
Our primary requirements for liquidity are to fund our working capital needs, operating and finance lease obligations, capital expenditures and general corporate needs. Our requirements for working capital are generally not significant because our guests pay for their food and beverage purchases in cash or on debit or credit cards at the time of the sale and we are able to sell many of our inventory items before payment is due to the supplier of such items. Our ongoing capital expenditures are principally related to opening new Shacks, existing Shack capital investments (both for remodels and maintenance), as well as investments in our corporate technology infrastructure to support our Shack Support Centers, Shake Shack locations, and digital strategy.
In addition, we are obligated to make payments to certain members of SSE Holdings under the Tax Receivable Agreement. As of December 31, 2025, such obligations totaled $246.8 million. Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related payments under the Tax Receivable Agreement. Although the amount of any payments that must be made under the Tax Receivable Agreement may be significant, the timing of these payments will vary and will generally be limited to one payment per member per year. The amount of such payments is also limited to the extent we utilize the related deferred tax assets. The payments that we are required to make will generally reduce the amount of overall cash flow that might have otherwise been available to us or to SSE Holdings, but we expect the cash tax savings we will realize from the utilization of the related deferred tax assets to fund the required payments.
We believe our existing cash and cash equivalents balances and cash from operations will be sufficient to fund our operating and finance lease obligations, capital expenditures, Tax Receivable Agreement obligations and working capital needs for at least the next 12 months.
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Summary of Cash Flows
The following table presents a summary of our cash flows from operating, investing and financing activities.
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net Increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Operating Activities
For fiscal 2025, net cash provided by operating activities was $222.4 million compared to $171.2 million for fiscal 2024, an increase of $51.2 million. This increase was primarily due to a $49.2 million improvement in net results after excluding non-cash charges, partially offset by changes in working capital of $2.0 million. The changes in working capital primarily included an increase in promotional campaigns not yet invoiced and an increase in accrued expenses related to our larger development pipeline, partially offset by an increase in foreign withholding tax receivable related to our licensed Shack partners, an increase in payments on lease liabilities due to the opening of 45 new Company-operated Shacks in fiscal 2025, and a decrease in payables related to general business operations.
Investing Activities
For fiscal 2025, net cash used in investing activities was $165.8 million compared to $66.1 million for fiscal 2024, an increase of $99.7 million. This increase was primarily driven by the absence of $69.4 million of proceeds from maturities of held-to-maturity marketable securities in the current period as well as an increase of $30.3 million in capital expenditures related to our larger development pipeline, as compared to the prior year.
Financing Activities
For fiscal 2025, net cash used in financing activities was $17.1 million compared to $9.0 million for fiscal 2024, an increase of $8.1 million. This increase was primarily due to an increase in withholding taxes related to the vesting of equity awards and an increase in payments of financing leases due to the opening of 45 new Company-operated Shacks during fiscal 2025.
Convertible Notes
In March 2021, we issue d $250.0 million aggregate principal amount of 0% C onvertible Senior Notes due 2028 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. The Convertible Notes will mature on March 1, 2028, unless earlier converted, redeemed or repurchased in certain circumstances. Upon conversion, we pay or deliver, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock, at our election. Refer to Note 8, Debt, in the accompanying Consolidated Financial Statements included in Part II, Item 8, for additional information.
Revolving Credit Facility
In August 2019, we entered into a Revolving Credit Facility, which permits borrowings up to $50.0 million, with the ability to increase available borrowings up to an additional $100.0 million, subject to satisfaction of certain conditions. The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $15.0 million.
In July 2025, the Company entered into the sixth amendment to the Revolving Credit Facility ("Sixth Amendment"), which, among other things, extends the maturity date until the earlier of (a) February 28, 2028, or (b) the date that is 91 days prior to the scheduled maturity date of any Convertible Notes outstanding at any time.
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Outstanding borrowings under the Revolving Credit Facility bear interest at either: (i) the base rate plus applicable margin ranging from 0.0% to 1.5% or (ii) the Secured Overnight Financing Rate (“SOFR”) plus applicable margin ranging from 1.0% to 2.5%, in each case depending on the net lease adjusted leverage ratio. As of December 31, 2025 and December 25, 2024, no amounts were outstanding under the Revolving Credit Facility.
The obligations under the Revolving Credit Facility are secured by a first-priority security interest in substantially all of the assets of SSE Holdings and the guarantors. The obligations under the Revolving Credit Facility are guaranteed by each of SSE Holdings' direct and indirect subsidiaries, with certain exceptions.
The Revolving Credit Facility requires us to comply with maximum net lease adjusted leverage and minimum fixed charge coverage ratios, as well as other customary affirmative and negative covenants. As of December 31, 2025, we were in compliance with all covenants.
Contractual Obligations
Material contractual obligations arising in the normal course of business primarily consist of operating and finance lease obligations, long-term debt, liabilities under the Tax Receivable Agreement and purchase obligations. The timing and nature of these commitments are expected to have an impact on our liquidity and capital requirements in future periods. Refer to Note 8, Debt and Note 9, Leases, in the accompanying Consolidated Financial Statements included in Part II, Item 8 for additional information relating to our long-term debt and operating and financing leases.
Liabilities under the Tax Receivable Agreement include amounts to be paid to the non-controlling interest holders, assuming we will have sufficient taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits. Refer to Note 14, Income Taxes, and Note 17, Commitments and Contingencies, in the accompanying Consolidated Financial Statements included in Part II, Item 8, for additional information relating to our Tax Receivable Agreement and related liabilities.
Purchase obligations include all legally binding contracts, including commitments for the purchase, construction or remodeling of real estate and facilities, firm minimum commitments for inventory purchases, equipment purchases, marketing-related contracts, software acquisition/license commitments and service contracts. The majority of our purchase obligations are due within the next 12 months. The Company also enters into long-term, exclusive contracts with certain vendors to supply food, beverages and paper goods, obligating the Company to purchase specified quantities.
OFF-BALANCE SHEET ARRANGEMENTS
Except for operating leases entered into in the normal course of business where we have not yet taken physical possession of the leased property, certain letters of credit entered into and the unrecorded contractual obligations set forth above, we did not have any other off-balance sheet arrangements as of December 31, 2025.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and disclose contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.
The critical accounting estimates described below are those that materially affect or have the greatest potential impact on our Consolidated Financial Statements, and involve difficult, subjective, or complex judgments made by management. Due to the uncertainty inherent in these matters, actual results may differ from those estimates we use in applying our critical accounting estimates. The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.
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Valuation of Long-Lived Assets
We assess potential impairments to our long-lived assets, which includes property and equipment and operating and finance lease assets, at least annually or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability evaluation is first performed at the market service area level ("MSA"). If the carrying value of the MSA exceeds its estimated undiscounted future cash flows, a secondary recoverability test is performed for all individual Shacks within the identified MSA. An impairment charge is recognized when the carrying amount of the asset exceeds the fair value of the asset, considering external market participant assumptions, and is allocated across all assets of the impaired Shack. Significant judgment is involved in determining the assumptions used in estimating future cash flows, including projected sales growth, operating margins, economic conditions and changes in the operating environment. Changes in these assumptions could have a significant impact on the recoverability of the asset and may result in additional impairment charges.
During fiscal 2025, the Company closed one Shack due to a change in ownership of the property and subsequent termination of the lease by the landlord, which resulted in a non-cash impairment charge of $1,179. Additionally, the Company recognized a non-cash impairment charge of $170 related to the nine Shack closures in fiscal 2024.
During fiscal 2024, the Company recognized a non-cash impairment charge of $27,633 related to the closure of nine underperforming Company-operated Shacks in California, Ohio and Texas. No impairment charges were recognized during fiscal 2023. Refer to Note 4, Fair Value Measurements, for additional information.
Leases
We currently lease all of our Company-operated Shacks, the Shack Support Centers, and certain equipment under various lease agreements. Determining the probable term for each lease requires judgment by management and can impact the classification and accounting for a lease as financing or operating, as well as the period for straight-lined rent expense and the depreciation period for lease hold improvements.
We calculate operating lease right-of-use assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date. We use an incremental borrowing rate (“IBR”) in determining the present value of future lease payments as there are no explicit rates provided in the leases. The IBR is an estimate based on several factors, including financial market conditions, comparable company and credit analysis as well as management judgment. If the IBR was changed, our operating lease right-of-use assets and lease liabilities could differ materially.
Income Taxes
We compute income taxes using the asset and liability method for accounting for income taxes, as prescribed by GAAP on income taxes. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events included in the Consolidated Financial Statements. These tax amounts are determined by the differences between the financial statement and tax bases of assets and liabilities and are measured using the tax rates that are enacted and applicable for the year when the differences are expected to reverse. Any impact from changes in tax rates or laws on deferred tax assets and liabilities is reflected in income in the period during which the change in tax law is enacted.
We account for uncertain tax positions based on management’s judgment regarding the likelihood of a tax benefit being upheld if examined by tax authorities. Management evaluates whether a tax position is more likely than not to be sustained by tax authorities, considering any related appeals or litigation, based on the technical merits of the position. Since determining the likelihood of a tax benefit’s sustainability involves significant assumptions, actual outcomes may vary from our estimates, depending on different assumptions or conditions. Any interest and penalties associated with uncertain tax positions are included in Income tax expense (benefit) in the accompanying Consolidated Statements of Income.
A valuation allowance is established for deferred tax assets if it is more likely than not that they will not be realized. In evaluating whether a valuation allowance is needed, we consider all relevant evidence, including past performance, recent cumulative losses, projections of future taxable income, and the viability of tax planning strategies.
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Liabilities Under Tax Receivable Agreement
As detailed in Note 14 of the Consolidated Financial Statements included in Item 8, we are party to a Tax Receivable Agreement ("TRA") under which we are obliged to pay non-controlling interest holders 85% of any tax benefits we realize, or are deemed to realize, as a result of specific transactions. Amounts payable under the TRA are contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we are not required to make the related TRA payments. Therefore, we would only recognize a liability for TRA payments if we determine it is probable that we will generate sufficient future taxable income over the term of the TRA to utilize the related tax benefits.
As of December 31, 2025 and December 25, 2024, respectively, we recognized $246.8 million and $247.7 million of liabilities relating to our obligations under the TRA, after concluding that it was probable that we would have sufficient future taxable income to utilize the related tax benefits. There were no transactions subject to the TRA for which we did not recognize the related liability, as we concluded that we would have sufficient future taxable income to utilize all of the related tax benefits generated by all transactions that occurred in fiscal 2025. If we determine in the future that we will not be able to fully utilize all or part of the related tax benefits, we would derecognize the portion of the liability related the benefits not expected to be utilized.
Additionally, we estimate the TRA payments expected within the next 12 months and classify this portion as current on our Consolidated Balance Sheets. This classification is based on our estimate of taxable income for the upcoming fiscal year. If our estimate differs from actual results, we may need to reclassify portions of the TRA liability between current and non-current.
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