What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-02-18 compared with 2021-02-26 · 220 added, 170 removed, 608 unchanged (39% of the section changed)

2 unchanged sentences

You should carefully consider each of the following risk factors in conjunction with other information provided in this Annual Report on Form 10-K and in our other public disclosures.

The risks described below highlight potential events, trends or other circumstances that could adversely affect our business, financial condition, results of operations, cash flows, liquidity or access to sources of financing, and consequently, the market value of our Class A common stock.

The risks described below highlight potential events, trends or other circumstances that could adversely affect our business, reputation, financial condition, results of operations, cash flows, liquidity or access to sources of financing, and consequently, the market value of our Class A common stock.

These risks could cause our future results to differ materially from historical results and from guidance we may provide regarding our expectations of future financial performance.

The risks described below are not the only risks we may face and additional risks not currently known to us or that we presently deem immaterial may emerge or become material at any time.

Summary Risk Factors

2 unchanged sentences

Risks Related to Our Growth Strategies and Operations

▪ Pandemics or disease outbreaks, such as the recent outbreak of the COVID-19 pandemic, have disrupted, and may continue to disrupt our business, and have materially affected our operations, results of operations and our financial condition.

▪ Pandemics or disease outbreaks, such as the COVID-19 pandemic, have disrupted, and may continue to disrupt our business, and have materially affected our business, results of operations and our financial condition.

▪ Our long-term success is dependent on the selection, design and execution of appropriate business strategies.

10 unchanged sentences

▪ We 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.

▪ If we fail to maintain our corporate culture, our relationships with our employees and guests could be negatively affected.

Shake Shack Inc.

Form 10-K | 19

▪ If 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

• Incidents involving food safety and food-borne illnesses could adversely affect guests' perception of our brand, result in lower sales and increase operating costs.

• The digital and delivery business, and expansion thereof, is uncertain and subject to risk.

• The digital and delivery business, related expenses, execution and expansion thereof, is uncertain and subject to risk.

• Rising labor costs and difficulties recruiting and retaining the right team members could adversely affect our business.

2 unchanged sentences

• We face significant competition for guests, and if we are unable to compete effectively, our business could be adversely affected.

• Inflationary environment poses a new risk to broader demand for restaurants, including ours.

• The increasing focus on environmental sustainability and social initiatives could increase our costs, harm our reputation and adversely impact our financial results.

2 unchanged sentences

• We are subject to risks associated with leasing property subject to long-term non-cancelable leases.

Shake Shack Inc.

Form 10-K | 20

• Restaurant 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.

4 unchanged sentences

• Because many of our domestic 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.

• Security breaches of either confidential guest information in connection with, among other things, our electronic processing of credit and debit card transactions, kiosk ordering or mobile ordering app, or confidential employee information may adversely affect our business.

• Security breaches of either confidential guest information in connection with, among other things, our electronic processing of credit and debit card transactions, kiosk ordering or mobile ordering app, or confidential team member information may adversely affect our business.

• If we are unable to maintain and update our information technology systems to meet the needs of our business, our business could be adversely impacted.

10 unchanged sentences

• If we fail to 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.

Shake Shack Inc.

Form 10-K | 20

Risks Related to Our Organizational Structure

11 unchanged sentences

• We will not be reimbursed for any payments made to the non-controlling interest holders under the TRA in the event that any tax benefits are disallowed.

RISKS RELATED TO OUR GROWTH STRATEGIES AND OPERATIONS

Pandemics or disease outbreaks, such as the recent outbreak of the COVID-19 pandemic, have disrupted, and may continue to disrupt our business, and have materially affected our operations, results of operations and our financial condition.

Pandemics or disease outbreaks such as the COVID-19 pandemic have and may continue to impact customer traffic at our Shacks, may make it more difficult to staff our Shacks and, in more severe cases, may cause a temporary inability to obtain supplies and increase commodity costs.

COVID-19 was officially declared a global pandemic by the World Health Organization in March 2020, and the virus has impacted all global economies, and in the United States has resulted in varying levels of restrictions and shutdowns implemented by national, state, and local authorities.

In response to the outbreak, in March 2020, we closed all dining rooms and temporarily shifted to a “to-go” only operating model in our domestic Company-operated Shacks.

With a prioritization on health and safety, we have re-opened Shacks, where permitted, under modified operations to meet public health guidelines and evolving customer behaviors and expectations.

As of December 30, 2020, two domestic Company-operated Shacks and 17 licensed Shacks remain temporarily closed.

Approximately half of the Company's domestic Company-operated Shacks had open dining rooms with varying capacity restrictions.

We have also modified hours or reductions in on-site staff, resulting in cancelled shifts for some of our employees.

COVID-19 may also materially adversely affect our ability to implement our growth plans, including delays in construction of new Shacks, delays in our digital initiatives, or adverse impacts to our overall ability to successfully execute our plans to enter into new markets.

These changes have negatively impacted our results of operations, and these and any additional changes may materially adversely affect our business or results of operations in the future, and may impact our liquidity or financial condition, particularly if these changes are in place for a significant amount of time.

In addition, our operations have been further disrupted when employees or employees of our business partners are suspected of having COVID-19 or other illnesses since this has required us or our business partners to quarantine some or all such employees and close and disinfect our impacted restaurant facilities.

If a significant percentage of our workforce or the workforce of our business partners are unable to work, including because of illness or travel or government restrictions in connection with

Shake Shack Inc.

Form 10-K | 21

pandemics or disease outbreaks, our operations may be negatively impacted, potentially materially adversely affecting our business, liquidity, financial condition or results of operations.

In addition, we are required by local and state regulations to report employees who have contacted or been exposed to the virus.

Furthermore, such viruses may be transmitted through human contact and airborne delivery, and the risk of contracting viruses could continue to cause employees or guests to avoid gathering in public places, which has had, and could further have, adverse effects on our restaurant guest traffic or the ability to adequately staff restaurants.

We have been adversely affected when government authorities have imposed and continue to impose restrictions on public gatherings, human interactions, operations of restaurants or mandatory closures, seek voluntary closures, restrict hours of operations or impose curfews, restrict the import or export of products or if suppliers issue mass recalls of products.

Additional regulation or requirements with respect to the compensation of our employees could also have an adverse effect on our business.

Even if such measures are not implemented and a virus or other disease does not spread significantly within a specific area, the perceived risk of infection or health risk in such area may adversely affect our business, liquidity, financial condition and results of operations.

Additionally, different jurisdictions have seen varying levels of outbreaks or resurgences in outbreaks, and corresponding differences in government responses, which may make it difficult for us to plan or forecast an appropriate response.

The COVID-19 pandemic and mitigation measures have also had an adverse impact on global economic conditions, which have had an adverse effect on our business and financial condition.

The Company’s sales and operating results may be affected by uncertain or changing economic and market conditions arising in connection with and in response to the COVID-19 pandemic, including prolonged periods of high unemployment, inflation, deflation, prolonged weak consumer demand, a decrease in consumer discretionary spending, political instability or other changes.

The significance of the operational and financial impact to the Company will depend on how long and widespread the disruptions caused by COVID-19, and the corresponding response to contain the virus and treat those affected by it, prove to be.

The ability of local and international authorities in containing COVID-19, limiting the spread of infections, and effectively rolling out vaccines, will impact our business operations.

Throughout the pandemic, states and local governments in the U.S.

and throughout the world have both removed or eased certain restrictions, and also reintroduced restrictions, on businesses, including restaurants, depending on the severity of local outbreaks.

While we cannot predict the duration or scope of the COVID-19 pandemic, it has negatively impacted our business and such impact has been and is expected to continue to be material to our financial results, condition and outlook.

Risks Related to Our Convertible Notes

• Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.

• The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.

• Conversion of the Notes may dilute the ownership interest of our stockholders or may otherwise depress the price of our Class A common stock.

• Certain provisions in the indenture governing the Notes may delay or prevent an otherwise beneficial takeover attempt of us.

RISKS RELATED TO OUR GROWTH STRATEGIES AND OPERATIONS

Pandemics or disease outbreaks, such as the COVID-19 pandemic, have disrupted, and may continue to disrupt our business, and have materially affected our operations, results of operations and our financial condition.

COVID-19 was officially declared a global pandemic by the World Health Organization in March 2020.The outbreak of the virus has continued to impact the United States and the global economy, resulting in varying levels of restrictions and shutdowns implemented by international, national, state, and local authorities.

In response to the outbreak, in March 2020, we closed all dining rooms and temporarily shifted to a “to-go” only operating model in our domestic Company-operated Shacks.

With a prioritization on health and safety, we have re-opened dining rooms, where permitted, under modified operations to meet public health guidelines and evolving guest behaviors and expectations.

Viruses such as COVID-19 may be transmitted through human contact and airborne delivery, and the risk of contracting viruses could continue to cause team members or guests to avoid gathering in public places.

Additionally, government authorities have imposed and may continue to impose vaccine or testing mandates, mandatory closures, curfews, restrictions on public gatherings, human interactions and restaurant operations which have impacted our ability to offer all sales channels at all Shacks.

These restrictions have had, and may continue to have, adverse effects on our guest traffic and the ability to adequately staff our Shacks.

Throughout the pandemic, state and local governments in the U.S.

and throughout the world have alternated between removing and easing certain restrictions on the one hand, and reintroducing restrictions on businesses, including restaurants, on the other hand, depending on the severity of local or regional outbreaks.

Additionally, different jurisdictions have seen varying levels of outbreaks or resurgences in outbreaks, and corresponding differences in government responses, which has made it, and may continue to make it, difficult for us to plan or forecast an appropriate response.

For example, a material portion of our licensed revenue comes from Asia, a region which has seen more severe restrictions lately from rising COVID-19 cases than the United States.

While we cannot predict the duration or scope of the COVID-19 pandemic or the ongoing response from governing authorities, the pandemic and the response to the pandemic has negatively impacted our business and such impact has been, and is expected to continue to be, material to our business, financial condition and results of operations.

The significance of the operational and financial impact on us will depend on how long and widespread the disruptions caused by COVID-19, and the corresponding response to contain the virus and treat those affected by it prove to be.

Further uncertain or changing economic and market conditions, including prolonged periods of high unemployment, staffing issues, inflation, deflation or prolonged weak consumer demand or a decrease in consumer discretionary spending, or political or other changes resulting from the pandemic or other factors would continue to impact our business, sales and operating results.

The COVID-19 pandemic has adversely affected our ability to execute our growth plans, including delays in construction of new Shacks, delays in our digital initiatives and adverse impacts to our overall ability to successfully enter into new markets.

Our operations have been further disrupted when team members contract or have been exposed to COVID-19 or other illnesses, since this has required us or our business partners to quarantine some or all such employees and disinfect our impacted restaurant facilities.

In some cases, we are required by local and state regulations to report team members who have contracted or been exposed to the virus.

If a significant percentage of our workforce or the workforce of our business partners are unable to work due to reasons including illness or travel restrictions in connection with pandemics or disease outbreaks, our operations

Shake Shack Inc.

Form 10-K | 22

may be negatively impacted, which could have a material adverse effect on our business, financial condition and results of operations.

Our long-term success is dependent on the selection, design and execution of appropriate business strategies.

3 unchanged sentences

▪ Enhancing our omnichannel guest experience.

This will occur through the accelerated innovation of new digital tools (e.g., new digitally-enabled ordering experiences, the introduction of a new digital payments platform and our testing of delivery through our Company-owned app, to support a broader rollout in 2021) and the continued integration of our data platforms enabling segmentation and targeted marketing strategies.

This will occur through the accelerated innovation of new digital tools (e.g., new digitally-enabled ordering experiences, the introduction of a new digital payments platform, our recently upgraded website, and in-app delivery) and the continued integration of our data platforms enabling segmentation and targeted marketing strategies.

▪ Global unit expansion and the expansion of Shack formats to incorporate increased convenience and frequency.

This will include the pursuit of top-tier real estate in both urban and suburban markets that can incorporate diverse formats, including new Shack Track and drive-thru formats, as well as our focus on increasing our licensed Shack presence, both domestically and abroad, particularly in China.

▪ Menu innovation, with a focus on LTOs, collaborations and the expansion of existing menu categories.

▪ Menu innovation, with a focus on LTOs, collaborations and the expansion of existing menu categories including expanding the options for premium add-ons.

We may experience challenges in achieving the goals we have set and we may be unsuccessful in executing on our strategies once identified.

1 unchanged sentence

Our strategies may expose us to additional risks, and strategies that have been successful for us in the past may fail to be so in the future.

We may incur significant costs and damage our brand if we are unable to identify, develop and execute on appropriate business strategies, which could have a material adverse impact on our business and results of operations.

We may incur significant costs and damage our brand if we are unable to identify, develop and execute on appropriate business strategies, which could have a material adverse effect on our business, financial condition and results of operations.

Our 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.

4 unchanged sentences

The number and timing of new Shacks opened during any given period may be negatively impacted by a number of factors including:

▪ the identification and availability of attractive sites for new Shacks;

▪ identification and availability of attractive sites for new Shacks;

▪ difficulty negotiating suitable lease terms;

5 unchanged sentences

▪ failure of the landlords to timely deliver real estate to us and other landlord delays;

▪ the proximity of potential sites to an existing Shack, and the impact of cannibalization on future growth;

▪ proximity of potential sites to an existing Shack, and the impact of cannibalization on future growth;

▪ anticipated commercial, residential and infrastructure development near our new Shacks;

▪ the cost and availability of capital to fund construction costs and pre-opening costs.

Accordingly, we cannot assure you that we will be able to successfully expand as we may not correctly analyze the suitability of a location or anticipate all of the challenges imposed by expanding our operations.

Our growth strategy, and the substantial investment associated with the development of each new domestic Company-operated Shack, may cause our operating results to fluctuate and be unpredictable or adversely affect our profits.

In addition, as has happened when other restaurant concepts have tried to expand, we may find that our concept has limited appeal in new markets or we may experience a decline in the

▪ cost and availability of capital to fund construction costs and pre-opening costs;

▪ COVID-19 related factors such as longer permitting cycles and availability of construction and restaurant equipment and services.

Shake Shack Inc.

Form 10-K | 23

popularity of our concept in the markets in which we operate.

In addition, as has happened when other restaurant concepts have tried to expand, we may find that our concept has limited appeal in new markets or we may experience a decline in the popularity of our concept in the markets in which we operate.

If we are unable to expand in existing markets or penetrate new markets, our ability to increase our revenues and profitability may be materially harmed or we may face losses.

6 unchanged sentences

If the costs of funding new Shacks or renovations or enhancements to existing Shacks exceed budgeted amounts, and/or the time for building or renovation is longer than anticipated, our profits could be reduced.

Additionally, recent inflation of material and labor costs have resulted in higher construction costs.

Additionally, recent inflation of material and labor costs in addition to our new, larger drive-thru formats have resulted in higher construction costs.

If we cannot access the capital we need, we may not be able to execute our growth strategy, take advantage of future opportunities or respond to competitive pressures.

4 unchanged sentences

We may need to make greater investments than we originally planned in advertising and promotional activity in new markets to build brand awareness.

We may find it more difficult in new markets to hire, motivate and keep qualified employees who share our values.

We may find it more difficult in new markets to hire, motivate and retain qualified team members who share our values.

We may also incur higher costs from entering new markets if, for example, we assign area directors to manage comparatively fewer Shacks than we assign in more developed markets.

8 unchanged sentences

We may not be able to respond on a timely basis to all of the changing demands that our planned expansion will impose on management and on our existing infrastructure, or be able to hire or retain the necessary management and operating personnel, which could harm our business, financial condition or results of operations.

These demands could cause us to operate our existing business less effectively, which in turn could cause a deterioration in the financial performance of our existing Shacks.

If we experience a decline in financial performance, we may decrease the number of or discontinue Shack openings, or we may decide to close Shacks that we are unable to operate in a profitable manner.

These demands could cause us to operate our existing business less effectively, which in turn could cause

Shake Shack Inc.

Form 10-K | 24

a deterioration in the financial performance of our existing Shacks.

New Shacks, once opened, may not be profitable, and may negatively affect Shack sales at our existing Shacks.

5 unchanged sentences

Although we have specific target operating and financial metrics, new Shacks may not meet these targets or may take longer than anticipated to do so.

Any new Shacks we open may not be profitable or achieve operating results similar to those of our existing Shacks, which could adversely affect our business, financial condition or results of operations.

The opening of a new Shack in or near markets in which we already have Shacks could adversely affect the Shack sales of those existing Shacks.

1 unchanged sentence

We will continue to cluster in select markets and open new Shacks in and around areas of existing Shacks that are operating at or near capacity to leverage operational efficiencies and effectively serve our guests.

Cannibalization of Shack sales among our Shacks may become significant in the future as we continue to expand our operations and could adversely affect our Shack sales growth, which could, in turn, adversely affect our business, financial condition or results of operations.

Additionally, many of our current domestic Company-operated Shacks are located in high volume urban markets.

As we expand, our number of domestic Company-operated Shacks located in high volume urban markets will decline and as a result we do not expect to maintain our current average unit volumes ("AUVs") and Shack-level operating profit margins, and our business, financial condition and results of operations may be adversely affected.

As we expand, the number of domestic Company-operated Shacks located in high volume urban markets will decrease relative to the system-wide Shack portfolio and as a result we do not expect to maintain our current average unit volumes ("AUVs") and Shack-level operating profit margins, which could adversely affect our business, financial condition and results of operations.

If we are unable to maintain and grow Shack sales at our existing Shacks, our financial performance could be adversely affected.

4 unchanged sentences

Our mission to Stand For Something Good is a significant part of our business strategy and who we are as a Company.

It's our commitment to all that is good in the world and a reflection of how we embrace our values both internally and externally.

We pride ourselves on sourcing premium ingredients from like-minded producers — all natural proteins, vegetarian fed, humanely raised and source verified, with no hormones or antibiotics.

We are dedicated to using sustainable materials and equipment whenever possible, and distinctive furniture and fixtures that advance our sustainability initiatives, as well as being committed to achieving ethical and humane practices for the animals in our supply chain.

It's our commitment to all that is good in the world and is a reflection of how we embrace our values both internally and externally.

We pride ourselves on sourcing premium ingredients from like-minded producers — all-natural proteins, vegetarian fed, humanely raised and source verified, with no added hormones or antibiotics.

We are dedicated to using sustainable materials and equipment whenever possible, and distinctive furniture and fixtures that advance our sustainability and diversity initiatives, as well as being committed to achieving ethical and humane practices for the animals in our supply chain.

We also strive to be the best employer and a good citizen in each community we call home.

We do, however, face many challenges in carrying out our mission to Stand For Something Good.

We incur higher costs and other risks associated with paying above-average wages to our employees and purchasing high quality ingredients grown or raised with an emphasis on quality and responsible practices.

As a result, our food and labor costs may be significantly higher than other companies who do not source high quality ingredients or pay above minimum wage.

Additionally, the supply for high quality ingredients may be limited and it may take us longer to identify and secure relationships with suppliers that are able to meet our quality standards and have sufficient quantities to support our growing business.

If we are unable to obtain a sufficient

We incur higher costs and other risks associated with paying above-average wages to our team members and purchasing high quality ingredients grown or

Shake Shack Inc.

Form 10-K | 25

and consistent supply for our ingredients on a cost-effective basis, our food costs could increase or we may experience supply interruptions which could have an adverse effect on our operating margins.

Additionally, some of our competitors have announced initiatives to offer better quality ingredients, such as antibiotic-free meat.

raised with an emphasis on quality and responsible practices.

As a result, our food and labor costs may be significantly higher than other companies who do not source high quality ingredients or pay above minimum wage.

If we are unable to obtain a sufficient and consistent supply for our ingredients on a cost-effective basis, our food costs could increase or we may experience supply interruptions which could have an adverse effect on our operating margins.

Additionally, some of our competitors have announced initiatives to offer better quality ingredients, such as antibiotic-free and fresh meat.

If this trend continues, it could further limit our supply for certain ingredients and we may lose our competitive advantage as it will be more difficult to differentiate ourselves.

8 unchanged sentences

We have a limited number of suppliers for our major ingredients, including beef patties, chicken, potato buns, custard, portobello mushrooms and cheese sauce.

In fiscal 2020, we purchased all of our (i) ground beef patties from seven suppliers, with approximately 44% of our ground beef patties supplied by one supplier;

(ii) chicken breast from one supplier;

(iii) potato buns directly from one supplier;

In fiscal 2021, we purchased all of our (i) ground beef patties from nine of our ten approved beef processors, with approximately 41% of our ground beef patties supplied from one supplier;

(ii) chicken breasts from one supplier;

(iii) potato buns from one supplier;

(iv) custard base from two suppliers;

(v) 'Shroom Burgers from one supplier;

and (vi) ShackSauce from two suppliers, with approximately 78% of our ShackSauce supplied by one supplier.

(vi) crinkle cut fries from two suppliers;

and (vii) ShackSauce from one supplier.

Due to this concentration of suppliers, the cancellation of our supply arrangements with any one of these suppliers or the disruption, delay or inability of these suppliers to deliver these major products to our Shacks may materially and adversely affect our results of operations while we establish alternate distribution channels.

7 unchanged sentences

The other 19 distribution centers collectively supply the other approximately 79% of our domestic Company-operated Shacks, which represented the remaining 75% of our Shack sales.

Accordingly, although we believe that alternative supply and distribution sources are available, there can be no assurance that we will continue to be able to identify or negotiate with such sources on terms that are commercially reasonable to us.

If our suppliers or distributors are unable to fulfill their obligations under their contracts or we are unable to identify alternative sources, we could encounter supply shortages and incur higher costs, each of which could have a material adverse effect on our results of operations.

Although we believe that alternative supply and distribution sources are available, there can be no assurance that we will continue to be able to identify or negotiate with such sources on terms that are commercially reasonable to us.

If our suppliers or distributors are unable to fulfill their obligations under their contracts or we are unable to identify alternative sources, we could

Shake Shack Inc.

Form 10-K | 26

encounter supply shortages and incur higher costs, each of which could have a material adverse effect on our results of operations.

Our marketing strategies and channels will evolve and our programs may or may not be successful.

8 unchanged sentences

Should our competitors increase spending on marketing and advertising or our marketing funds decrease for any reason, or should our advertising and promotions be less effective than those of our competitors, there could be a material adverse effect on our business, financial condition and results of operations.

Additionally, we face additional expenses as it relates to our digital business which can vary over time and may impact our overall profitability.

We 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.

We rely, in part, on our licensees and the manner in which they operate their Shacks to develop and promote our business.

As of December 30, 2020, six licensees operated all of our domestic licensed Shacks and six licensees operated all of our international licensed Shacks, with one such licensee operating 52% of our international licensed Shacks.

As of December 29, 2021, nine licensees operated all of our domestic licensed Shacks and six licensees operated all of our international licensed Shacks, with one such licensee operating 44% of our international licensed Shacks.

Our licensees are required to operate their Shacks according to the specific guidelines we set forth, which are essential to maintaining brand integrity and reputation, all laws and regulations applicable to Shake Shack and its subsidiaries, and all laws and regulations applicable in the countries in which Shake Shack operates.

10 unchanged sentences

Licensees may not have access to the financial or management resources that they need to open the Shacks contemplated by their agreements with us or to be able to find suitable sites on which to develop them, or they may elect to cease development for other reasons.

Licensees may not be able to negotiate acceptable lease or purchase terms for the sites, obtain the necessary permits and governmental approvals or meet construction schedules.

Additionally, financing from banks and other financial institutions may not always be available to licensees to construct and open new Shacks.

Any of these problems could slow our growth from licensing operations and reduce our licensing revenues.

Licensees may not be able to negotiate acceptable lease or

Shake Shack Inc.

Form 10-K | 27

If we fail to maintain our corporate culture, our relationships with our employees and guests could be negatively affected.

purchase terms for the sites, obtain the necessary permits and governmental approvals or meet construction schedules.

Additionally, financing from banks and other financial institutions may not always be available to licensees to construct and open new Shacks.

Any of these problems could slow our growth from licensing operations and reduce our licensing revenues.

If we fail to maintain our corporate culture, our relationships with our team members and guests could be negatively affected.

We take great pride in our culture and believe that it is an extremely important factor in our success.

We believe that our culture of Enlightened Hospitality and our mission to Stand For Something Good creates a truly differentiated experience for our guests and is one of the reasons guests choose to dine with us and employees choose us as a place of employment.

If we are unable to maintain our culture, especially as we continue to rapidly grow and expand in new markets, our reputation may be damaged, we may lose the trust of our guests, employee morale may be diminished and we may experience difficulty recruiting and retaining qualified employees.

If we are unable to maintain our culture, especially as we continue to rapidly grow and expand in new markets, our reputation may be damaged, we may lose the trust of our guests, team member morale may be diminished and we may experience difficulty recruiting and retaining qualified team members.

Any of these factors could have a material adverse effect on our business, financial condition and results of operations.

17 unchanged sentences

Form 10-K | 28

The digital and delivery business, and expansion thereof, is uncertain and subject to risk.

The digital and delivery business, related expenses, execution and expansion thereof, is uncertain and subject to risk.

Digital innovation and growth remains a key focus for us.

We continue to execute upon our digital strategy, including the enhancement of our omnichannel guest experience through the accelerated innovation of new digital tools, and the continued integration of our data platforms enabling segmentation and targeted marketing strategies.

Furthermore, we have expanded our reach with third-party delivery partners, and have begun testing delivery through our Company-owned app at several locations in the Miami area to support a broader rollout in 2021.

Furthermore, in fiscal 2020 we expanded our reach with third-party delivery partners, and in September 2021, we began offering delivery through the Shake Shack website.

Delivery will be across all our native digital platforms with the anticipated launch of the new Android experience in early 2022.

We believe these digital investments to be a critical differentiator for our business, creating the opportunity to drive greater engagement and frequency with both new and existing guests.

As the digital space around us continues to evolve, our technology needs to evolve concurrently to stay competitive with the industry.

If we do not maintain and innovate our digital systems that are competitive with the industry, our digital business may be adversely affected and could damage our sales.

If we do not maintain and innovate our digital systems that are competitive with the industry, and as we face execution risks around upgrades of existing and new digital platforms, our digital business may be adversely affected and could damage our sales as well as profitability.

We rely on third-parties for our ordering and payment platforms relating to our mobile app and kiosks.

Such services performed by these third-parties could be damaged or interrupted by technological issues, which could then result in a loss of sales for a period of time.

We also could see higher costs from our digital partners which we may not be able to fully offset by price.

Information processed by these third-parties could also be impacted by cyber-attacks, which could not only negatively impact our sales, but also harm our brand image.

11 unchanged sentences

Should our competitors increase their spend in these areas, or if our advertising and promotions be less effective than our competitors, there could be an adverse impact on our business in this space.

Third-party delivery services within the restaurant industry typically charge restaurants a fee per order.

We currently have contracts with our major delivery service providers for a fixed period of time.

However, there is uncertainty as to how these fees will evolve.

In 2021, we implemented menu price inflation on our third-party delivery platforms to help offset a portion of this fee;

the higher menu prices could result in loss of sales.

As delivery, as well as the partnerships we have made in connection with delivery, is still a growing business for us, it is difficult for us to anticipate its impact to our sales as well as the challenges we may face in the future.

Shake Shack Inc.

Form 10-K | 29

Rising labor costs and difficulties recruiting and retaining the right team members could adversely affect our business.

As our culture remains an important factor to our success, it in part depends on our ability to attract, motivate and retain a sufficient number of qualified managers and team members to meet the needs of our existing Shacks and to staff new Shacks.

We aim to hire people who have integrity, who are warm, friendly, motivated, caring, self-aware and intellectually curious — what we call "51%'ers." 51%'ers are excited and committed to high performance, remarkable and enriching hospitality, embodying our culture, and actively growing themselves and the brand.

We aim to hire talented people who have integrity, who are warm, motivated, self-aware, intellectually curious, and possess the competencies and skills to continue to foster our growth.

We value people who are excited and committed to high performance, remarkable and enriching hospitality, embodying our culture, and actively growing themselves and the brand.

In many markets, competition for qualified individuals is intense and we may be unable to identify and attract a sufficient number of individuals to meet our growing needs, especially in markets where our brand is less established.

1 unchanged sentence

Our commitment to taking care of our team may cause us to incur higher labor costs compared to other restaurant companies.

Additionally, several states in which we operate have enacted minimum wage increases and it is possible that other states or the federal government could also enact minimum wage increases, scheduling and benefit changes, increased health care and workers' compensation insurance costs and benefits and costs related to the COVID-19 pandemic.

Additionally, several states in which we operate have enacted minimum wage increases and it is possible that other states or the federal government could also

Shake Shack Inc.

Form 10-K | 29

enact minimum wage increases, scheduling and benefit changes, increased health care and workers' compensation insurance costs and benefits and costs related to the COVID-19 pandemic.

Such increases have and may continue to cause an increase to our labor and related expenses and cause our Shack-level operating profit margins to decline.

As more minimum wage increases or other legislation relating to employee benefits are enacted or changed, such as the Affordable Care Act, we may be required to implement additional pay increases or provide additional benefits in the future in order to continue to attract and retain the most qualified people, which may put further pressure on our operating margins by increasing costs.

In the event there are additional minimum wage increases, increases in employee turnover or other legislation related to employee benefits are enacted or changed, such as the Affordable Care Act, we may be required to implement additional pay increases or provide additional benefits in the future in order to continue to attract and retain the most qualified people, which may put further pressure on our operating margins by increasing costs.

Overall, we expect wages at all levels to continue to increase in the near and short term and we expect these rising wages to add pressure to our operating profit.

We place a heavy emphasis on the qualification and training of our team members and spend a significant amount of time and money training our employees.

We place a heavy emphasis on the qualification and training of our team members and spend a significant amount of time and money training our team members.

Any inability to recruit and retain qualified individuals may result in higher turnover and increased labor costs, and could compromise the quality of our service, all of which could adversely affect our business.

Any such inability could also delay the planned openings of new Shacks and could adversely impact our existing Shacks.

Such increased costs of attracting qualified employees or delays in Shack openings could adversely affect our business and results of operations.

Such increased costs of attracting qualified team members or delays in Shack openings could adversely affect our business, financial condition and results of operations.

Increased food commodity and energy costs could decrease our Shack-level operating profit margins or cause us to limit or otherwise modify our menu, which could adversely affect our business.

2 unchanged sentences

For example, in previous years, there were recalls for romaine lettuce, and although we do not serve romaine lettuce, we nonetheless experienced a slight financial impact due to higher demand and price of other types of lettuce we do serve on our burgers and sandwiches.

Similarly, beef supply shortages during the second quarter of 2020 - largely due to the COVID-19 pandemic - resulted in significant inflation in beef, with cost nearly double that of the same period in the prior year.

Other events could increase commodity prices or cause shortages that could affect the cost and quality of the items we buy or require us to further raise prices or limit our menu options.

Similarly, beef supply shortages, largely caused by plant shut downs due to COVID-19 and lack of labor at processing facilities resulted in significant inflation in beef compared to fiscal 2019.

Other events could increase commodity prices or cause shortages that could affect the cost and quality of the items we buy or require us to further raise prices or limit our menu items.

Furthermore, increasing weather volatility or other long-term changes in global weather patterns, including any changes associated with global climate change, could have a significant impact on the price or availability of some of our ingredients.

6 unchanged sentences

We may decide to enter into certain forward pricing arrangements with our suppliers, which could result in fixed or formula-based pricing with respect to certain food products.

However, these arrangements generally are relatively short in duration and may

Shake Shack Inc.

Form 10-K | 30

provide only limited protection from price changes.

However, these arrangements generally are relatively short in duration and may provide only limited protection from price changes.

In addition, the use of these arrangements may limit our ability to benefit from favorable price movements.

3 unchanged sentences

In this manner, increased costs could adversely affect our results of operations.

Shake Shack Inc.

Form 10-K | 30

Additionally, with elevated inflationary pressures across the business, we face an above average risk that we will have to renegotiate contracts and agreements with suppliers on a more frequent basis.

Shortened windows of certainty can impact our ability to plan our business from a supply and profitability perspective and we face greater risk of margin volatility.

Shortages or interruptions in the supply or delivery of food products could adversely affect our operating results.

8 unchanged sentences

In addition, our second largest regional grinder can, in an emergency, supply us in the event of a disruption of operations at one of our beef grinders through our broadline distributor's network, but there would be a delay in availability due to production and shipping.

We currently have seven approved raw beef suppliers and eight approved beef processors in the United States.

We currently have eight approved raw beef suppliers and ten approved beef processors in the United States.

If there is a supply issue with all U.S.

raw beef, we have eight approved raw beef suppliers and seven approved beef processors in other countries.

raw beef, we have seven approved raw beef suppliers and eight approved beef processors in other countries.

The risks to using international suppliers are shipping lead time, shipping costs, potential import duties and U.S.

11 unchanged sentences

Our competition continues to intensify as new competitors enter the burger, fast casual, quick service and casual dining segments.

Many of our competitors emphasize low cost "value meal" menu options or other programs that provide price discounts on their menu offerings, a strategy we do not pursue.

Many of our competitors emphasize low cost "value meal" menu items or other programs that provide price discounts on their menu items, a strategy we do not pursue.

We also face increasing competitive pressures from some of our competitors who have announced initiatives to offer better quality ingredients, such as antibiotic-free meat.

Shake Shack Inc.

Form 10-K | 31

Changes in consumer tastes, nutritional and dietary trends, traffic patterns and the type, number, and location of competing restaurants often affect the restaurant business.

1 unchanged sentence

Our competitors may react more efficiently and effectively to these changes than we can.

We cannot make any assurances regarding our ability to effectively respond to changes in consumer health perceptions or our ability to adapt our menu offerings to trends in eating habits.

We cannot make any assurances regarding our ability to effectively respond to changes in consumer health perceptions or our ability to adapt our menu items to trends in eating habits.

Shake Shack Inc.

Form 10-K | 31

Additionally, as we continue to innovate upon our digital strategy and offer more ways to reach our guests through digital channels, such as the app, web ordering, kiosk and delivery, and new Shack Track formats, we compete with other competitors who currently, or are beginning to, offer the same options as well as new and improved technologies.

2 unchanged sentences

If we are unable to continue to compete effectively on any of the factors mentioned above, our traffic, Shack sales and Shack-level operating profit margins could decline and our business, financial condition and results of operations would be adversely affected.

Inflationary environment poses a new risk to broader demand for restaurants, including ours.

Our continued success depends on our guest ability and willingness to pay for rising menu prices across our channels.

The restaurant industry broadly has faced wide-spread inflation over the past year, and is likely to continue to face inflationary pressures for the foreseeable future.

In a bid to help offset these additional cost pressures, many restaurants have raised menu prices as well as charging a premium price through third-party delivery channels.

As of December 2021, the US Bureau of Labor and Statistics reported 6% year-on-year inflation in all Food Away From Home, and 8% in Limited-Service Restaurants.

Shake Shack as a young and growing brand, has historically been conservative on price, typically raising price by 1%-2% a year.

However, we implemented a 3.0% to 3.5% menu price increase in October 2021, inclusive of a 10% premium menu price on third party delivery platforms to partially offset the current above average inflationary pressures across the business.

We anticipate additional price increases in 2022 beyond the normal pricing pattern as inflationary pressures warrant.

However, there is risk that consumer demand suffers as a result of our more aggressive price increases.

The increasing focus on environmental sustainability and social initiatives could increase our costs, harm our reputation and adversely impact our financial results.

3 unchanged sentences

If we are not effective in addressing environmental, social and other sustainability matters affecting our industry, or setting and meeting relevant sustainability goals, our brand image may suffer.

In addition, we may experience increased costs in order to execute upon our sustainability goals and measure achievement of those goals, which could have an adverse impact on our business and financial condition.

Our international licensed Shacks import many of our proprietary and other core ingredients from the United States and the United Kingdom.

Our 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.

Our international licensed Shacks import many of our proprietary ingredients from the United States and the United Kingdom.

For example, our mushrooms originate from the United States and United Kingdom.

In addition, outside of Turkey, Japan, South Korea and China, our custard supplies are from the United States and United Kingdom.

In addition, our proprietary blend of beef patties and/or raw materials for beef patties primarily originate from the United States, Australia and Uruguay.

While we have established secondary supply solutions for some of these ingredients, we have not acquired secondary supplies for all of them.

Due to the long lead time and general volatility in the supply chain, the third-party logistic providers for our international licensed Shacks in the Middle East carry at least three months of inventory to allow for delays or interruptions in the supply chain.

Specifically, we have had past and ongoing issues ensuring that timely and adequate supplies reach our Middle East Shacks.

In the Middle East, our licensee delegates the supply function to its own third-party logistics providers in each country in which it operates, with which we have limited and restricted communication, preventing us from exercising direct control or instruction over such entities.

If our international licensed Shacks are unable to obtain our proprietary ingredients in the necessary amounts in a timely fashion as a result of logistics issues, sanctions or other challenges, it could harm its business and adversely affect the licensing revenue we receive, adversely impacting our business and results of operations.

Our international licensed Shacks import many of our proprietary ingredients from the United States as well as other countries.

For example, our proprietary blend of beef patties and/or raw materials for beef patties primarily originate from the United States, Australia and Uruguay and our mushrooms originate from the United States and United Kingdom.

We have worked to expand our international supply chain with secondary suppliers for various key ingredients across Turkey, Japan, South Korea and China.

While we have established secondary supply solutions for some of these ingredients, we have not acquired secondary suppliers for all of them.

Most of our suppliers around the world have experienced difficulties and delays in acquiring ingredients to make our products.

Due to the increasingly long lead time and general volatility in the supply chain and global ocean freight disruptions, the third-party logistic providers for our international licensed Shacks carry at least three months of inventory to allow for delays or interruptions in the supply chain.

Specifically, we have had past and ongoing issues ensuring that timely and adequate supplies

Shake Shack Inc.

Form 10-K | 32

reach our international licensed Shacks.

Our licensees delegate the supply function to their internal or third-party logistics providers in each country in which they operate, with which we have limited and restricted communication, preventing us from exercising direct control or instruction over such entities.

We are subject to risks associated with leasing property subject to long-term non-cancelable leases.

10 unchanged sentences

Restaurant 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.

Our business is subject to the risk of litigation by employees, guests, suppliers, licensees, stockholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation.

Our business is subject to the risk of litigation by team members, guests, suppliers, licensees, stockholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation.

The outcome of litigation, particularly class action and regulatory actions, is difficult to assess or quantify.

8 unchanged sentences

Although we maintain what we believe to be adequate levels of insurance to cover any of these liabilities, insurance may not be available at all or in sufficient amounts with respect to these or other matters.

A judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our business and results of operations.

A judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our business, financial condition and results of operations.

Our business is subject to risks related to our sale of alcoholic beverages.

We serve beer and wine at most of our Shacks.

Alcoholic beverage control regulations generally require our Shacks to apply to a state authority and, in certain locations, county or municipal authorities for a license that must be renewed annually and may be revoked or suspended for cause at any time.

Alcoholic beverage control regulations relate to numerous aspects of daily operations of our Shacks, including minimum age of patrons and employees, hours of operation, advertising, trade practices, wholesale purchasing, other relationships with alcohol manufacturers, wholesalers and distributors, inventory control and handling, storage and dispensing of alcoholic beverages.

Any future failure to comply with these regulations and obtain or retain licenses could adversely affect our business, financial condition and results of operations.

We are also subject in certain states to "dram shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.

Shake Shack Inc.

Form 10-K | 33

carry liquor liability coverage as part of our existing comprehensive general liability insurance.

revoked or suspended for cause at any time.

Alcoholic beverage control regulations relate to numerous aspects of daily operations of our Shacks, including minimum age of patrons and team members, hours of operation, advertising, trade practices, wholesale purchasing, other relationships with alcohol manufacturers, wholesalers and distributors, inventory control and handling, storage and dispensing of alcoholic beverages.

Any future failure to comply with these regulations and obtain or retain licenses could adversely affect our business, financial condition and results of operations.

We carry liquor liability coverage as part of our existing comprehensive general liability insurance.

Recent litigation against restaurant chains has resulted in significant judgments and settlements under dram shop statutes.

Because these cases often seek punitive damages, which may not be covered by insurance, such litigation could have an adverse impact on our business, results of operations or financial condition.

Because these cases often seek punitive damages, which may not be covered by insurance, such litigation could have an adverse impact on our business, financial condition and results of operations.

Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and resources away from operations and hurt our financial performance.

A judgment significantly in excess of our insurance coverage or not covered by insurance could have a material adverse effect on our business, results of operations or financial condition.

A judgment significantly in excess of our insurance coverage or not covered by insurance could have a material adverse effect on our business, financial condition and results of operations.

GENERAL BUSINESS AND ECONOMIC RISKS

1 unchanged sentence

Our reputation and the quality of our brand are critical to our business and success in existing markets, and will be critical to our success as we enter new markets.

We believe that we have built our reputation on the high quality of our food and service, our commitment to our guests, our strong employee culture, and the atmosphere and design of our Shacks, and we must protect and grow the value of our brand in order for us to continue to be successful.

Any incident that erodes consumer loyalty for our brand could significantly reduce its value and damage our business.

We believe that we have built our reputation on the high quality of our food and service, our commitment to our guests, our strong team culture, and the atmosphere and design of our Shacks, and we must protect and grow the value of our brand in order for us to continue to be successful.

Any incident that erodes consumer loyalty to our brand could significantly reduce its value and damage our business.

We may be adversely affected by any negative publicity, regardless of its accuracy, including with respect to:

3 unchanged sentences

▪ guest injury;

▪ security breaches of confidential guest or employee information;

▪ security breaches of confidential guest or team member information;

▪ third-party service providers, particularly related to delivery services and information technology, and potential guest dissatisfaction from circumstances out of our control relating to third-party service providers;

1 unchanged sentence

▪ government or industry findings concerning our Shacks, restaurants operated by other food service providers or others across the food industry supply chain.

Also, there has been a marked increase in the use of social media platforms and similar devices that provide individuals with access to a broad audience of consumers and other interested persons.

Additionally, there has been a marked increase in the use of social media platforms and similar devices that provide individuals with access to a broad audience of consumers and other interested persons.

The availability of information on social media platforms is virtually immediate as is its impact.

13 unchanged sentences

Reduced guest traffic could result in lower Shack sales and licensing revenue, as well as a decline in our profitability as we spread fixed costs across a lower level of Shack sales.

Prolonged negative trends in sales could cause us and our licensees to, among other things, reduce the number and frequency of new Shack openings, close Shacks or delay remodeling of our existing Shacks or recognize asset impairment charges.

Prolonged negative trends in sales could cause us and our licensees to, among other things, reduce the number and frequency of new Shack openings, close Shacks, delay remodeling of our existing Shacks or recognize asset impairment charges.

Because many of our domestic 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.

1 unchanged sentence

As a result, so much of our real estate footprint has been centered in urban, office, travel and dynamic traffic-driving sales environments.

Our urban Shacks, make up approximately half of the units in our same-Shack sales base, and have historically accounted for approximately 60% of our same-Shack sales base sales prior to the COVID-19 pandemic.

Our urban Shacks make up approximately 40% of the units in our same-Shack sales base, and have historically accounted for approximately 50% of our same-Shack sales base sales prior to the COVID-19 pandemic.

Additionally, our financial performance is highly dependent on Shacks located in the Northeast and the New York City metropolitan area, which comprise approximately 29% (or 63 out of 218) of our total domestic Company-operated Shacks as of December 29, 2021.

As a result, adverse economic conditions in any of these markets or regions could have a material adverse effect on our overall results of operations.

In addition, given our geographic concentrations, negative publicity regarding any of our Shacks in these areas could have a material adverse effect on our business and operations, as could other regional occurrences such as local strikes, terrorist attacks, increases in energy prices, inclement weather or natural or man-made disasters.

In addition, given our geographic concentrations, negative publicity regarding any of our Shacks in these areas and other regional occurrences such as local strikes, terrorist attacks, increases in energy prices, inclement weather or natural or man-made disasters could have a material adverse effect on our business and operations.

In particular, adverse weather conditions, such as regional winter storms, floods, severe thunderstorms and hurricanes, could negatively impact our results of operations.

Temporary or prolonged Shack closures may occur and guest traffic may decline due to the actual or perceived effects of future weather related events.

Security breaches of either confidential guest information in connection with, among other things, our electronic processing of credit and debit card transactions, kiosk ordering or mobile ordering app, or confidential employee information may adversely affect our business.

Our business requires the collection, transmission and retention of large volumes of guest and employee data, including credit and debit card numbers and other personally identifiable information, in various information technology systems that we maintain and in those maintained by third parties with whom we contract to provide services.

The integrity and protection of that guest and employee data is critical to us.

Further, our guests and employees have a high expectation that we and our service providers will adequately protect their personal information.

Security breaches of either confidential guest information in connection with, among other things, our electronic processing of credit and debit card transactions, kiosk ordering or mobile ordering app, or confidential team member information may adversely affect our business.

Our business requires the collection, transmission and retention of large volumes of guest and team member data, including credit and debit card numbers and other personally identifiable information, in various information technology systems that we maintain and in those maintained by third parties with whom we contract to provide services.

The integrity and protection of that guest and team member data is critical to us.

Further, our guests and team members have a high expectation that we and our service providers will adequately protect their personal information.

Like many other retail companies, and because of the prominence of our brand, we have experienced, and will likely continue to experience, attempts to compromise our information technology systems.

Additionally, the techniques and sophistication used to conduct cyber-attacks and breaches of information technology systems, as well as the sources and targets of these attacks, change frequently and are often not recognized until such attacks are launched or have been in place for a period of time.

While we continue to make significant investment in physical and technological security measures, employee training, and third party services, designed to anticipate cyber-attacks and prevent breaches, our information technology networks and infrastructure or those of our third party vendors and other service providers could be vulnerable to damage, disruptions, shutdowns, or breaches of confidential information due to criminal conduct, employee error or malfeasance, utility failures, natural disasters or other

While we continue to make significant investment in physical and technological security measures, team member training, and third party services designed to anticipate cyber-attacks and prevent breaches, our information technology networks and infrastructure or those of our third party vendors and other service providers could be vulnerable to damage, disruptions, shutdowns or breaches of confidential information due to criminal conduct, team member error or malfeasance, utility failures, natural disasters

Shake Shack Inc.

Form 10-K | 35

catastrophic events.

or other catastrophic events.

Due to these scenarios we cannot provide assurance that we will be successful in preventing such breaches or data loss.

Additionally, the information, security and privacy requirements imposed by governmental regulation are increasingly demanding.

Our systems may not be able to satisfy these changing requirements and guest and employee expectations, or may require significant additional investments or time in order to do so.

Our systems may not be able to satisfy these changing requirements and guest and team member expectations, or may require significant additional investments or time in order to do so.

Efforts to hack or breach security measures, failures of systems or software to operate as designed or intended, viruses, operator error or inadvertent releases of data all threaten our and our service providers' information systems and records.

A breach in the security of our information technology systems or those of our service providers could lead to an interruption in the operation of our systems, resulting in operational inefficiencies and a loss of profits.

Additionally, a significant theft, loss or misappropriation of, or access to, guests' or other proprietary data or other breach of our information technology systems could result in fines, legal claims or proceedings, including regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, which could disrupt our operations, damage our reputation and expose us to claims from guests and employees, any of which could have a material adverse effect on our financial condition and results of operations.

Additionally, a significant theft, loss or misappropriation of, or access to, guests' or other proprietary data or other breach of our information technology systems could result in fines, legal claims or proceedings including regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, which could disrupt our operations, damage our reputation and expose us to claims from guests and team members, any of which could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to maintain and update our information technology systems to meet the needs of our business, our business could be adversely impacted.

1 unchanged sentence

As a rapidly growing business, our current information technology infrastructure may not be adequately suited to handle the increasing volume of data and additional information needs of our organization.

If we are unable to successfully upgrade our information systems to meet the growing needs of our business or are delayed in doing so, whether through our enterprise-wide finance initiative Project Concrete or other future ones, our growth could be adversely affected.

Additionally, as technology systems continue to evolve and as consumers adopt new technologies, we may need to enhance our systems or modify our strategies in order to remain relevant in our industry and to our guests.

7 unchanged sentences

Additionally, as we continue to evolve and innovate our digital platforms and enhance our internal systems, we place increasing reliance on third-parties to provide infrastructure and other support services.

We may be adversely affected if any of our third-party service providers experience any interruptions in their systems, which then could potentially impact the services we receive from them and cause a material failure or interruption in our own systems.

We may be adversely affected if any of our third-party service providers experience any interruptions in their systems, which could potentially impact the services we receive from them and cause a material failure or interruption in our own systems.

Shake Shack Inc.

1 unchanged sentence

Because 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.

106 of our 128 licensed Shacks as of December 30, 2020 are located outside the United States and we expect to continue to expand our licensed Shacks internationally.

126 of our 151 licensed Shacks as of December 29, 2021 are located outside the United States and we expect to continue to expand our licensed operations internationally.

As a result, we are and will be, on an increasing basis, subject to the risks of doing business outside the United States, including:

2 unchanged sentences

earnings in a tax effective manner;

▪ inability to achieve international tax treaty status with select license partners;

▪ the presence and acceptance of business corruption in various international markets;

▪ the ability to comply with, or impact of complying with, complex and changing laws, regulations and policies of foreign governments that may affect investments or operations, including foreign ownership restrictions, import and export controls, tariffs, embargoes, intellectual property, licensing requirements and regulations, increase in taxes paid and other changes in applicable tax laws;

▪ the difficulties involved in managing an organization doing business in many different countries;

▪ the ability to comply with, or impact of complying with, complex and changing laws, regulations and economic political policies of the U.S.

▪ the ability to comply with, or impact of complying with, complex and changing laws, regulations and economic policies of the U.S.

government, including U.S.

3 unchanged sentences

▪ political and economic instability.

Any or all of these factors may adversely affect the performance of and licensing revenues we receive from our licensed Shacks located in international markets.

Any or all of these factors may adversely affect the performance of and revenues we receive from our licensed Shacks located in international markets.

Our international licensed Shacks operate in several volatile regions that are subject to geopolitical and socio-political factors that pose risk to our business operations.

In the past, certain licensees have been negatively impacted by currency devaluation, and we have seen a reduction in licensing revenue from those respective Shacks.

In 2019, we closed all of our Shacks operating in Russia.

Also, the economy of any region in which our Shacks are located may be adversely affected to a greater degree than that of other areas of the country or the world by certain developments affecting industries concentrated in that region or country.

In the past, certain licensees have been negatively impacted by currency devaluation, and we have seen a reduction in licensing revenue from those respective Shacks.Also, the economy of any region in which our Shacks are located may be adversely affected to a greater degree than that of other areas of the country or the world by certain developments affecting industries concentrated in that region or country.

For example, our Shacks that recently opened in Hong Kong have suffered from political unrest due to protesting in the area, and as such, have had to close in certain instances.

Such closures result in a loss of sales for the respective time period.

Additionally, a health outbreak, such as the COVID-19 pandemic could slow traffic in the impacted regions, as well as abroad and domestically, and could result in a loss of sales.

While these factors and the impact of these factors are difficult to predict, any one or more of them could lower our revenues, increase our costs, reduce our profits or disrupt our business, and, as our international licensed operations increase, these risks will become more pronounced.

Additionally, a health outbreak, such as the COVID-19 pandemic, could slow traffic in the impacted regions and could result in a loss of sales.

While these factors and the impact of these factors are difficult to predict, any one or more of them could lower our revenues, increase our costs, reduce our profits or disrupt our business.

As our international licensed operations increase, these risks will become more pronounced.

We may not be able to adequately protect our intellectual property, which, in turn, could harm the value of our brands and adversely affect our business.

27 unchanged sentences

Our insurance coverage and self-insurance reserves may not provide adequate levels of coverage against claims.

We maintain various insurance policies for employee health, workers' compensation, general liability, and property damage.

We maintain various insurance policies for team member health, workers' compensation, general liability, and property damage.

We believe that we maintain insurance customary for businesses of our size and type.

1 unchanged sentence

Such losses could have a material adverse effect on our business and results of operations.

Additionally, we are self-insured for our employee medical plan and we recognize a liability that represents our estimated cost of claims incurred but not reported as of the balance sheet date.

Additionally, we are self-insured for our team member medical plan and we recognize a liability that represents our estimated cost of claims incurred but not reported as of the balance sheet date.

Our estimated liability is based on a number of assumptions and factors, including actuarial assumptions and historical trends.

8 unchanged sentences

▪ Nutritional content labeling and disclosure requirements - There has been increased legislative, regulatory and consumer focus on the food industry including nutritional and advertising practices.

These changes have resulted in, and may continue to result in, the enactment of laws and regulations that impact the ingredients and nutritional content of our menu offerings, or laws and regulations requiring us to disclose the nutritional content of our food offerings.

These changes have resulted in, and may continue to result in, the enactment of laws and regulations that impact the ingredients and nutritional content of our menu items, or laws and regulations requiring us to disclose the nutritional content of our food offerings.

For example, a number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information to customers, or have enacted legislation restricting the use of certain types of ingredients in restaurants.

20 unchanged sentences

Increased health care and insurance costs, as well as the potential increase in participation by our employees who previously had not participated in our medical plan coverage, could have a material adverse effect on our business, financial condition and results of operations.

▪ The Americans with Disabilities Act ("ADA") and similar state laws - We are subject to the ADA and similar state laws, which, among other things, prohibits discrimination in employment and public accommodations on the basis of disability.

Under the ADA, our Shacks are required to meet federally mandated requirements for the disabled and we could be required to incur expenses to modify our Shacks to provide service to, or make reasonable accommodations

Shake Shack Inc.

Form 10-K | 39

for the employment of, disabled persons.

The expenses associated with these modifications, or any damages, legal fees and costs associated with resolving ADA-related complaints could be material.

11 unchanged sentences

Foreign Corrupt Practices Act and other similar anti-bribery and anti-kickback laws - A significant portion of our licensed operations are located outside the United States.

Foreign Corrupt Practices Act, and other similar anti-bribery and anti-kickback laws and regulations, generally prohibit companies and their intermediaries from making improper payments to non-U.S.

Foreign Corrupt Practices Act, and other similar anti-bribery and anti-kickback laws and regulations, in general prohibit companies and their intermediaries from making improper payments to non-U.S.

officials for the purpose of obtaining or retaining business.

3 unchanged sentences

Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability.

In addition, certain laws, including the ADA, could require us to expend significant funds to make modifications to our Shacks if we failed to comply with applicable standards.

In addition, certain laws, including the ADA, could require us to expend significant funds to make modifications to our Shacks if we fail to comply with applicable standards.

Compliance with all of these laws and regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings.

Shake Shack Inc.

Form 10-K | 40

Our ability to use our net operating loss carryforwards may be subject to limitation.

6 unchanged sentences

Similar rules may apply under state tax laws.

In connection with the equity offering, as described in "Part I.

In connection with the equity offering, as

Shake Shack Inc.

Form 10-K | 40

described in "Part I.

Business," herein, we conducted a Section 382 study to determine whether the use of our NOLs is limited.

While we did not experience an ownership change related to the equity offering in April 2020, we did experience an ownership change in the second quarter of 2018.

While we did not experience an ownership change related to the equity offering during 2021, we did experience an ownership change in the second quarter of 2018.

An ownership change under Section 382 of the IRC establishes an annual limitation to the amount of NOL carryforwards we could utilize to offset our taxable income in a single year.

21 unchanged sentences

federal income tax purposes and thus would be subject to entity-level tax on its taxable income, which could have a material adverse effect on our results of operations, financial position and cash flows.

Shake Shack Inc.

Form 10-K | 41

If we fail to 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.

3 unchanged sentences

We are required to have our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting.

Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.

Any failure to develop or maintain effective controls, or any difficulties encountered in the implementation or improvement of such controls, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.

Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of management evaluations and independent registered public accounting firm audits of our internal control over financial reporting that we are required to include in our periodic reports that will be filed with the SEC.

Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which may have a negative effect on the trading price of our Class A common stock.

Shake Shack Inc.

Form 10-K | 41

common stock.

In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the New York Stock Exchange.

10 unchanged sentences

In addition, certain of the non-controlling interest holders are in the business of making or advising on investments in companies and may hold, and may from time to time in the future acquire interests in or provide advice to businesses that directly or indirectly compete with certain portions of our business or the business of our suppliers.

Our amended and restated certificate of incorporation provides that, to the fullest extent permitted by law, none of the non-controlling interest holders or any director who is not employed by us or his or her affiliates has any duty to refrain from engaging in a corporate opportunity in the same or

Shake Shack Inc.

Form 10-K | 42

similar lines of business as us.

The non-controlling interest holders may also pursue acquisitions that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

6 unchanged sentences

Payments under the Tax Receivable Agreement are not conditioned on any non-controlling interest holders continued ownership of LLC Interests or our Class A common stock after the IPO.

Shake Shack Inc.

Form 10-K | 42

The actual amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of redemptions or exchanges by the holders of LLC Interests, the amount of gain recognized by such holders of LLC Interests, the amount and timing of the taxable income we generate in the future, and the federal tax rates then applicable.

11 unchanged sentences

Furthermore, if we are unable to continue to satisfy our obligations as a public company, we would be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

Shake Shack Inc.

Form 10-K | 43

Our organizational structure, including our Tax Receivable Agreement, is very complex and we require the expertise of various tax, legal and accounting advisers to ensure compliance with applicable laws and regulations.

11 unchanged sentences

▪ our advance notice and duration of ownership requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

Shake Shack Inc.

Form 10-K | 43

These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions you desire.

4 unchanged sentences

Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.

Shake Shack Inc.

Form 10-K | 44

We do not currently expect to pay any cash dividends.

19 unchanged sentences

Under the terms of the SSE Holdings LLC Agreement, SSE Holdings is obligated to make tax distributions to its members, including us.

In addition to tax expenses, we will also incur expenses related to our operations, including payments under the Tax Receivable Agreement, which we expect will be significant.

In addition to tax expenses, we will also incur expenses related to our operations, including payments under the Tax Receivable Agreement, which we expect will be

Shake Shack Inc.

Form 10-K | 44

We intend, as its managing member, to cause SSE Holdings to make cash distributions to its members in an amount sufficient to (i) fund all or part of their tax obligations in respect of taxable income allocated to them and (ii) cover our operating expenses, including payments under the Tax Receivable Agreement.

4 unchanged sentences

In addition, if SSE Holdings does not have sufficient funds to make distributions, our ability to declare and pay cash dividends will also be restricted or impaired.

Shake Shack Inc.

Form 10-K | 45

In 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.

10 unchanged sentences

However, we might not determine that we have effectively made an excess cash payment to a non-controlling interest holder for a number of years following the initial time of such payment and, if any of our tax reporting positions are challenged by a taxing authority, we will not be permitted to reduce any future cash payments under the Tax Receivable Agreement until any such challenge is finally settled or determined.

As a result, payments could be made under the Tax Receivable Agreement in excess of the tax savings that we realize in respect of the tax attributes with respect to non-controlling interest holders that are the subject of the Tax Receivable Agreement.

As a result, payments could be made under

Shake Shack Inc.

Form 10-K | 45

the Tax Receivable Agreement in excess of the tax savings that we realize in respect of the tax attributes with respect to non-controlling interest holders that are the subject of the Tax Receivable Agreement.

RISKS RELATED TO OUR CONVERTIBLE NOTES

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.

Our ability to make scheduled payments of the principal of, to pay special interest on or to refinance our indebtedness, including the $250.0 million 0% Convertible Senior Notes due 2028 (the “Notes”), depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.

Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures.

If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive.

Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time.

We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert their Notes at any time during specified periods at their option.

If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.

In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

Conversion of the Notes may dilute the ownership interest of our stockholders or may otherwise depress the price of our Class A common stock.

The conversion of some or all of the Notes may dilute the ownership interests of our stockholders.

Upon conversion of the Notes, we have the option to pay or deliver, as the case may be, cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock.

If we elect to settle our conversion obligation in shares of our Class A common stock or a combination of cash and shares of our Class A common stock, any sales in the public market of our Class A common stock issuable upon such conversion could adversely affect prevailing market prices of our Class A common stock.

In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our Class A common stock could depress the price of our Class A common stock.

Certain provisions in the indenture governing the Notes may delay or prevent an otherwise beneficial takeover attempt of us.

Certain provisions in the indenture governing the Notes may make it more difficult or expensive for a third party to acquire us.

For example, the indenture governing the Notes will require us, except as described in this offering memorandum, to repurchase the Notes for cash upon the occurrence of a fundamental change and, in certain circumstances, to increase the conversion rate for a holder that converts its Notes in connection with a make-whole fundamental change.

A takeover of us may trigger the requirement that we repurchase the Notes and/or increase the conversion rate, which could make it costlier for a potential acquirer to engage in such takeover.

Such additional costs may have the effect of delaying or preventing a takeover of us that would otherwise be beneficial to investors.

Shake Shack Inc.

Form 10-K | 46

Unresolved Staff Comments.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors