Why Shake Shack Isn't Feeling The Same Sales Pressure as McDonald's, Burger King

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Key Takeaways Shake Shack's earnings earlier this week showed its sales surged from a year ago. A number of its burger-selling rivals like McDonald's, however, have struggled with customers pulling back on spending and introduced value meals to drive sales in recent months. Shares of Shake Shack have climbed along with its sales, up 30% from the start of the year through Friday's close, while shares of McDonald's, Wendy's, and Burger King parent Restaurant Brands International slumped. Analysts and Shake Shack executives cited the narrowing price gap between fast-food and "fast-casual" chains like Shake Shack and Chipotle as a contributing factor driving sales to the latter. Shake Shack's (SHAK) sales have surged this year, boosting its stock price, while some of its burger-selling rivals like McDonald's (MCD), Wendy's (WEN), and Burger King of Restaurant Brands International (QSR) have struggled with customers pulling back on spending. Shake Shack reported earlier this week that its sales jumped 16% in the second quarter from a year earlier, in another strong quarter for the burger chain after posting a double-digit jump in sales in the first quarter. By contrast, McDonald's reported last week that its same-store sales dropped year-over-year, as the company said it has continued to see a pullback in discretionary spending by consumers. The fast-food giant and others have leaned into value in recent months to boost sales, with some success. Wendy's recently reported a small increase in same-store sales, though its revenue missed estimates. Meanwhile, Burger King's results have started to improve amid a turnaround campaign of advertising and restaurant renovations. Value Proposition of Dining Out Shifts in Shake Shack's Favor Analysts have suggested that fast-casual chains with traditionally higher prices like Shake Shack, Chipotle (CMG), and Sweetgreen (SG) are benefitting from improving perceptions of the value of their offerings after a faster rise in fast-food prices narrowed the price gap between the two categories. That trend could persist, with Baird analysts writing Thursday that Shake Shack reported positive same-store sales and foot traffic for the start of the third quarter in July amid "extreme discounting activity" by competitors like McDonald's. Shares of Shake Shack soared on its strong earnings results earlier in the week, before a weaker-than-expected jobs report and concerns about the economy drove a broad-based sell-off Friday that sent Shake Shack shares nearly 6% lower in a single session. However, even with Friday's losses, Shake Shack shares have gained 30% from the start of the year through Friday's close. Shares of McDonald's have lost close to 7% over the same period, while Burger King parent Restaurant Brands International fell 10%, and Wendy's dropped over 13%.