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Shake Shack Prices $225 Million of Zero Coupon Convertible Senior Notes at 45% Conversion Premium

The initial conversion price of the notes is approximately $170.42 per share, a conversion premium of about 45% over the closing price of $117.53 on March 1, 2021.

Image source: Shake Shack Inc

Shake Shack Inc (NYSE: SHAK announced the pricing of $225 million aggregate principal amount of zero coupon senior notes in a private placement to qualified institutional buyers under Rule 144A.

The initial conversion rate is 5.8679 shares of Shake Shack’s Class A common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $170.42 per share, a conversion premium of about 45% over the closing price of $117.53 on The New York Stock Exchange on March 1, 2021.

The bonds are not callable until March 6, 2025, after which Shake Shack may redeem for cash all or any portion of the notes, at its option, if the last reported sale price of the Class A common stock has been at least 130% of the conversion price for at least 20 trading days during any consecutive period of 30 trading days. 

Shake Shack said it expects to use the funding from the offering “to support its growth and development plans” and investments “may include, but not be limited to, the opening of new Shacks, Shack format evolution, such as drive-thru, Shack Track, the digital guest experience and continued investment in talent."

Over the next two years, the 300-unit chain plans to increase its number of company-owned restaurants by 45%, adding 35 to 40 locations in 2021 and up to 50 more in 2022. 

About 10% of new Shake Shack locations this year will be in new markets, such as Tampa, Indianapolis and Portland, Oregon, with expansion in existing markets including California, Florida and the Northeast, Restaurant Dive reported. 

The funding enables Shake Shack to continue reconfiguring its existing locations with drive-thru windows, walk-up windows, curbside pickup and enhanced interior pickup.

In May 2020, the company said it would be changing up its service model, noting the impact of the ongoing COVID-19 pandemic. Due to a rapid growth in orders placed through Shake Shack’s app and website, the chain developed a plan to better support those customers. 

“Shake Shack is being a little more impacted than your average fast casual or certainly than [quick service restaurants] just because of the kind of real estate we have,” chief executive officer Randy Garutti said last spring. “We have zero drive-thrus.”

The first drive-up window is expected to open in Orlando by the middle to second half of this year. Five to eight drive-thru windows will be added around the country in 2022. 

About a dozen exterior pick-up windows have been added to restaurants, and the feature will be coming to 10 to 15 more Shake Shacks in 2021. Its curbside pickup program was also expanded to 70 restaurants.

Sometime during the second quarter of this year, Shake Shack expects a full rollout of an app-based delivery service it has been piloting with third party partner Uber Eats at more than 100 locations. 

Last week, Shake Shack reported fourth quarter revenue of $157.5 million, up from $151.4 million the prior year, which was in line with expectations. It saw a fourth quarter net loss of $19.4 million, about 50 cents per share, vs. a net loss of $2.1 million, or 6 cents per share, the prior year.

It also reported an operating loss of $12.2 million for the quarter. For the final three months of the year, same-store sales were down 17.4% systemwide, with suburban locations roughly flat and urban same-store sales declining 31%.


Source: Equities News