Services

Shake Shack's Own Financing Blows Away Returned Government Aid

Shake Shack Inc. (NYSE: SHAK) was in the news because the company returned a $10 million government assistance loan as it had access to other funding sources. The funding is from a secondary offering of common stock, and frankly it looks like the company is getting a good deal.

Shake Shack announced that it was selling 3,416,070 shares of its Class A common stock to JPMorgan, BofA Securities and Wells Fargo. While the last reported sale price of the shares ahead of the offering was $43.50, the company sold shares to the underwriters at a price of $39.77 per share. As a result, Shake Shack will receive more than $135.8 million in total proceeds, before taking related deal expenses out of the funds. That is against a market cap of just over $1.6 billion.

The U.S. Securities and Exchange Commission (SEC) filing signaled that the company will use the new capital to strengthen its balance sheet. While the “Use of Proceeds” section included “for general corporate purposes,” it also noted that it would further enhance its ability to resume execution of its long-term strategic growth plan.

As for whether these shares will be coming on the market, it should be assumed the shares will be sold. The SEC filing said:

The Underwriters may offer our Class A common stock in one or more transactions on the NYSE, in the over-the-counter market or through negotiated transactions at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices.

While Shack Shack shares have fallen from $105.84 at their peak, this offering looks “cheap” for the company under the new COVID-19 economy. Imagine all locations either closed or operating on limited sales and staff for take-out. Shake Shack generated $0.72 in operating earnings in 2019 on almost $595 million in sales. Refinitiv currently has estimates of −$0.30 in earnings per share and $547.7 million in revenues for 2020, but the estimates are very wide.

Shake Shack stock traded as low as $41.56 after the news of the offering, but the shares were last seen up 30 cents at $43.80, on nearly 1 million shares after the first 45 minutes of trading on Monday.

Shake Shack now counts more than 280 locations across 30 states and the District of Columbia, including over 95 international locations in London, Hong Kong, Shanghai, Singapore, Philippines, Mexico, Istanbul, Dubai, Tokyo, Seoul and elsewhere.