Shake Shack Inc. (NYSE:SHAK) faces mounting margin pressure and slowing same-store sales growth as rising beef costs and aggressive pricing in the fast-casual sector challenge its expansion ambitions.
Bank of America downgraded Shake Shack to Underperform from Neutral and cut its price forecast to $86 from $148, implying an 11% downside to the current share price of $96.79.
Analyst Sara Senatore said Shake Shack has strengthened its innovation process through a stage-gate system that enforces strict culinary, operational, and financial standards. However, this comes as the labor market softens and consumer spending on dining weakens, trends that may restrain same-store sales growth and traffic.
Also Read: Shake Shack Battles Rising Beef Costs With Clever Price Moves
The firm also warned that margin pressure is likely to persist as rising beef prices and competitive pricing weigh on profitability. Beef accounts for roughly 30% to 35% of Shake Shack’s food costs, and while the company has managed to offset some of the impact through supply chain savings, it may need to raise prices further to help protect its margins.
Bank of America noted that Shake Shack’s menu prices have risen about 19% since the third quarter of 2023, nearly double the pace of some fast-casual peers such as Chipotle (NYSE:CMG), which increased prices by 8.6%. The analyst said this may make it harder for Shake Shack to compete on value as rivals across the industry promote lower-priced offerings to attract cost-conscious consumers.
The analyst noted that fast-food hamburger restaurants (FFHRs) are focusing on price-led value deals, while casual dining restaurants (CDRs) are emphasizing quality and generous portions to reinforce their value proposition.
Following a decade-long slowdown in expansion, with unit growth gradually slowing down from 44% in 2014 to 12% in 2024, Shake Shack plans to reaccelerate domestic development by roughly 15% year over year this year.
The bank raised concern about the company’s plan to reach 1,500 U.S. locations, saying that its saturation analysis suggests that the goal may be overly ambitious and could result in sales cannibalization outside of high-income urban markets such as New York City.
Analyst Sara Senatore lowered Shake Shack’s 2025 earnings estimate to $1.19 a share from $1.26, 2026 to $1.53 from $1.68, and 2027 to $2.06 from $2.13. She also cut her 2026 EBITDA forecast to $235.8 million from $245.8 million.
Despite strong innovation and marketing tailwinds in the third quarter, Bank of America sees a risk that Shake Shack’s same-store sales growth (SSSG) could slow from July’s 3.2% pace.
The firm’s estimates are below consensus across upcoming periods, projecting 2% growth in the third quarter versus the 2.7% consensus, 2% in the fourth quarter versus 2.8%, and 1.5% for fiscal 2026 compared with 2.4% expected by Visible Alpha.
On valuation, Bank of America based its $86 price forecast on steady state earnings power, assuming Shake Shack grows its store base by 13% annually to about 3,000 global locations in 10 years, with modest 1.5% average unit volume growth.
Price Action: SHAK shares were trading lower by 1.01% to $95.81 at last check Monday.
Read Next:
Boeing’s 737 Momentum Fuels Delivery Surge, Embraer Stays On Track
Photo by Ned Snowman via Shutterstock
