Shake Shack (SHAK) risk factors, FY2024 10-K

Risks Related to Operating in the Restaurant Industry

1. 01Shake Shack Inc. Form 10-K | 18

RISKS RELATED TO OUR GROWTH STRATEGIES AND OPERATIONS

1. 02Our long-term success is dependent on the selection, design and execution of appropriate business strategies
2. 03Our primary growth strategy is highly dependent on the availability of suitable locations and our ability to develop and open new Shacks on a timely basis and on terms attractive to us
3. 04Shake Shack Inc. Form 10-K | 20
4. 05Our plans to open new Shacks, the ongoing need for capital expenditures at our existing Shacks and our ongoing digital enhancements require us to spend capital
5. 06Our expansion into new domestic markets may present increased risks, which could affect our profitability
6. 07Shake Shack Inc. Form 10-K | 21
7. 08Our failure to manage our growth effectively could harm our business and operating results
8. 09New Shacks, once opened, may not be profitable, and may negatively affect Shack sales at our existing Shacks
9. 10Our investments to enhance the guest experience through expanding the availability of our drive-thru options has required and will continue to require significant capital expenditures and may not generate the expected returns
10. 11If we are unable to maintain and grow Shack sales at our existing Shacks, our financial performance could be adversely affected
11. 12Shake Shack Inc. Form 10-K | 22
12. 13Our purpose to Stand For Something Good subjects us to risks
13. 14Shake Shack Inc. Form 10-K | 23
14. 15Our marketing strategies and channels will evolve and our programs may or may not be successful
15. 16We rely heavily on social media for many of our marketing efforts. If consumer sentiment towards social media changes or a new medium of communication becomes more mainstream, we may be required to fundamentally change our current marketing strategies which could require us to incur significantly more costs
16. 17We rely on a limited number of licensees for the operation of our licensed Shacks, and we have limited control with respect to the operations of our licensed Shacks, which could have a negative impact on our reputation and business
17. 18Shack brand could suffer. Failure of these Shacks to operate effectively could adversely affect the results of operations from our licensed business or have a negative impact on our reputation
18. 19If we fail to maintain our corporate culture, our relationships with our team members and guests could be negatively affected

RISKS RELATED TO OPERATING IN THE RESTAURANT INDUSTRY

1. 20Incidents involving food safety and food-borne illnesses could adversely affect guests' perception of our brand, result in lower sales and increase operating costs
2. 21may also have a more difficult time recovering from a food-borne illness incident and may be required to incur significant costs to repair our reputation
3. 22Rising labor costs and difficulties recruiting and retaining the right team members could adversely affect our business
4. 23In addition to the expected increased costs of labor, if we are unable to identify and recruit a sufficient number of individuals to meet our growing needs, we may need to decrease the operating hours of some of our Shacks, which would result in lost sales
5. 24Increased food commodity and energy costs could decrease our Restaurant-level profit margins or cause us to limit or otherwise modify our menu, which could adversely affect our business
6. 25Shake Shack Inc. Form 10-K | 26
7. 26The digital and delivery business, related expenses, execution and expansion thereof, is uncertain and subject to risk
8. 27We are also subject to risk if there is a shortage of delivery drivers, which could result in a failure to meet our guests' expectations
9. 28We face significant competition for guests, and if we are unable to compete effectively, our business could be adversely affected
10. 29Shortages or interruptions in the supply or delivery of food products could adversely affect our operating results
11. 30Inflationary environment poses a risk to broader demand for restaurants, including ours
12. 31Pandemics or disease outbreaks, such as the COVID-19 pandemic, have disrupted, and may continue to disrupt our business, results of operations and our financial condition
13. 32ability to offer all sales channels at all Shacks. These restrictions and changing travel patterns may adversely affect our guest traffic and the ability to adequately staff our Shacks
14. 33Our international licensed Shacks import many of our proprietary and other core ingredients from the United States and other countries. If this international supply chain is interrupted, our international licensed operations could encounter supply shortages and incur higher costs
15. 34We do not own any real property and all of our Company-operated Shacks are located on leased premises. The leases for our Shacks generally have initial terms ranging from 10 to 15 years and typically include two five-year renewal options
16. 35The increasing focus on environmental, sustainability, social and governance matters could increase our costs, harm our reputation and adversely impact our business and financial results
17. 36sustainability and social matters affecting our industry and meeting evolving stakeholder expectations, our brand image may suffer, which could lead to a loss of sales. Certain investors may choose not to invest in our securities if we do not meet their relevant ESG expectations, which may continue to evolve over time
18. 37Restaurant companies have been the target of class action lawsuits and other proceedings that are costly, divert management attention and, if successful, could result in our payment of substantial damages or settlement costs
19. 38Our business is subject to risks related to our sale of alcoholic beverages
20. 39Shake Shack Inc. Form 10-K | 31

GENERAL BUSINESS AND ECONOMIC RISKS

1. 40Damage to our reputation could negatively impact our business, financial condition and results of operations
2. 41Changes in economic conditions, both domestically and internationally, could materially affect our business, financial condition and results of operations
3. 42Because many of our Company-operated Shacks are concentrated in local or regional areas, we are susceptible to economic and other trends and developments, including adverse weather conditions, in these areas
4. 43Security breaches of either confidential guest information in connection with, among other things, our electronic processing of credit and debit card transactions; kiosk, app, or web ordering; or confidential team member information may adversely affect our business
5. 44Shake Shack Inc. Form 10-K | 33
6. 45If we are unable to maintain and update our information technology systems to meet the needs of our business, our business could be adversely impacted
7. 46If we experience a material failure or interruption in our systems, our business could be adversely impacted
8. 47Because a component of our strategy is to continue to grow our licensed business internationally, the risks of doing business internationally could lower our revenues, increase our costs, reduce our profits or disrupt our business
9. 48Shake Shack Inc. Form 10-K | 34
10. 49We may not be able to adequately protect our intellectual property, which, in turn, could harm the value of our brand and adversely affect our business
11. 50Shake Shack Inc. Form 10-K | 35
12. 51We depend on key members of our executive management team
13. 52Our insurance coverage and self-insurance reserves may not provide adequate levels of coverage against claims

REGULATORY AND LEGAL RISKS

1. 53If we fail to develop and maintain effective internal controls over financial reporting, our ability to produce timely and accurate financial information or comply with Section 404 of the Sarbanes-Oxley Act of 2002 could be impaired, which could have a material adverse effect on our business and stock price
2. 54As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), the Sarbanes-Oxley Act of 2002, as amended (the "Sarbanes-Oxley Act"), and the listing standards of the New York Stock Exchange
3. 55Shake Shack Inc. Form 10-K | 36
4. 56We are subject to many federal, state, local and foreign laws and regulations, as well as other statutory and regulatory requirements, with which compliance is both costly and complex. Failure to comply with, or changes in these laws or requirements, could have an adverse impact on our business
5. 57Shake Shack Inc. Form 10-K | 37
6. 58Shake Shack Inc. Form 10-K | 38
7. 59Our ability to use our net operating loss carryforwards may be subject to limitation
8. 60Shake Shack Inc. Form 10-K | 39
9. 61Changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition

RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE

1. 62Shake Shack has non-controlling interest holders, whose interests may differ from those of our public stockholders
2. 63Shake Shack Inc. Form 10-K | 40
3. 64Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the non-controlling interest holders that will not benefit Class A common stockholders to the same extent as it will benefit the non-controlling interest holders
4. 65The non-controlling interest holders have the right to have their LLC Interests redeemed or exchanged into shares of Class A common stock, which may cause volatility in our stock price
5. 66We will continue to incur relatively outsized costs as a result of being a public company and in the administration of our complex organizational structure
6. 67and coverage or incur substantially higher costs to obtain the same or similar coverage. Furthermore, if we are unable to continue to satisfy our obligations as a public company, we would be subject to delisting our common stock, fines, sanctions and other regulatory action and potentially civil litigation
7. 68Our anti-takeover provisions could prevent or delay a change in control of our Company, even if such change in control would be beneficial to our stockholders
8. 69We do not currently expect to pay any cash dividends

RISKS RELATED TO OUR TAX RECEIVABLE AGREEMENT

1. 70Shake Shack Inc. Form 10-K | 42
2. 71In certain cases, payments under the Tax Receivable Agreement to the non-controlling interest holders may be accelerated or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the Tax Receivable Agreement
3. 72Shake Shack Inc. Form 10-K | 43
4. 73We will not be reimbursed for any payments made to the non-controlling interest holders under the Tax Receivable Agreement in the event that any tax benefits are disallowed

RISKS RELATED TO OUR CONVERTIBLE NOTES

1. 74Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt
2. 75The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results
3. 76Conversion of the Notes may dilute the ownership interest of our stockholders or may otherwise depress the price of our Class A common stock
4. 77Certain provisions in the indenture governing the Notes may delay or prevent an otherwise beneficial takeover attempt of us