Burger chain Shake Shack is expected to go public Friday in a much-hyped IPO that’s just the latest sign of the rise of so-called fast-casual restaurants that promise higher quality food, even if it is at higher prices than those at giant chains like McDonald’s.
That trend toward “better burgers” — and fresher, healthier options in general — is one of the (many) factors that resulted in five straight quarters of declining same-store sales at McDonald’s restaurants in the U.S. McDonald’s remains the world’s largest fast food chain, but it recently reported plunging global annual profits and replaced its CEO.
McDonald’s shares are flat over the past year, trailing the 14 percent gain for the S&P 500. Can Shake Shack investors expect significantly stronger performance? Here’s what you need to know about the IPO.
What is Shake Shack? The chain was started in 2001 as a hot-dog cart by restaurateur Danny Meyer, who already owned prestigious New York City restaurants including Gramercy Tavern. The company was officially founded in 2004.
Where can I find a Shake Shack? There are now 63 stores worldwide, including more than 10 in New York City. The chain can be found in Washington, D.C., Philadelphia, Las Vegas, Chicago and Boston as well as in the suburbs of Connecticut and New Jersey. There are also about 30 Shake Shacks overseas, in the Middle East, the U.K., Turkey and Russia.
When is the IPO happening? Shares started trading on the New York Stock Exchange Friday under the ticker SHAK.
How much are Shake Shack shares selling for? Late Thursday, Shake Shack priced the deal at $21 a share, above the expected range between $17 and $19 a share, which was already up from an initial $14 to $16 range, showing strong demand from investors. The company raised $90 million by offering 5 million shares. The stock opened trading at $47 and briefly popped above $52 a share, giving the company a market valuation of nearly $1.8 billion.
Why is the IPO such a big deal? The IPO market is hot and restaurant IPOs such as the Habit Burger Grill and Zoe’s Kitchen have done well in recent years. Investors have been hungry to find the next Chipotle Mexican Grill, which has gained 1,596 percent over the last 10 years after being spun off by McDonald’s in a 2006 IPO.
Plus, 2014 was a banner year for burgers. Customers at U.S. restaurants and foodservice outlets ordered 9 million burgers, up 3 percent from the previous year, according to research from the NPD Group. Investors are hoping that “better burgers” mean bigger gains, but the feeding frenzy has reminded some of the dotcom days.
How big could Shake Shack really get? Shake Shack wants to open 10 new stores in the U.S. each year and to reach at least 450 domestic outposts over the long term.
How much is Shake Shack worth? At the top end, Shake Shack could have a market valuation of about $675 million, according to Bloomberg. The company had reportedly been seeking a $1 billion market valuation.
What does this IPO mean for other quick hamburger chains? Shake Shack burgers are catering to Americans who not only want to eat better tasting food, but also want to know what their food is made of and where it comes from. While Shake Shack is taking a different (and currently more successful) approach to selling burgers than fast-food restaurants such as McDonald’s, Burger King or Ruby Tuesday, it still faces steep competition from other popular or rapidly rising “better burger” chains, including Smashburger and Five Guys.
Should I buy shares? Even before Wednesday’s IPO price increase, many viewed the Shake Shack IPO as expensive, Forbes staffer Brian Solomon noted. “Shake’s Shack’s biggest challenge will be replicating its success in smaller cities,” he wrote. If you think Shake Shack will handle its growth well, you’ll be able to buy shares once the stock starts trading.
This article was updated at 11 a.m. on Friday, Jan. 30.
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