What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-29 · 198 added, 227 removed, 340 unchanged (56% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

This section and other parts of this Annual Report on Form 10-K (“Form 10-K”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein.

All statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements about the Company's growth, strategic plan, and liquidity.

Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business.

This section and other parts of this Annual Report on Form 10-K (“Form 10-K”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein.

All statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements about the Company's growth, including our long-term growth goals, strategic initiatives, and liquidity.

Forward-looking statements discuss our current expectations, targets and projections relating to our financial position, results of operations, plans, objectives, future performance and business.

You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts.

These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "likely," "outlook," "potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," the negatives thereof and other similar expressions.

These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "likely," "outlook," "potential," "preliminary," "project," "projection," "plan," "seek," "targets," "may," "could," "would," "will," "should," "can," "can have," the negatives thereof and other similar expressions.

Forward-looking statement reflect our current views with respect to future events and are based on certain assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from trends, plans, or expectations set forth in the forward-looking statement, as set forth in this Form 10-.

All forward-looking statements are expressly qualified in their entirety by these cautionary statements.

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The forward-looking statements included in this Form 10-K are made only as of the date hereof.

We undertake no obligation to publicly update any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

Restatement of Previously Issued Consolidated Financial Statements

The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the restatement of the Company’s previously issued Consolidated Financial Statements for the fiscal year ended December 28, 2022.

The restatement was related to incorrect accounting for the deferred tax asset associated with the Company's investment in SSE Holdings, LLC primarily due to incorrect accounting for state tax depreciation.

The error led to an overstatement of income tax expense and an understatement of deferred tax assets during the impacted period.

The error did not impact total revenue or loss before income taxes for the fiscal year ended December 28, 2022.

Refer to Note 3, Restatement of Previously Issued Consolidated Financial Statements, in the accompanying Consolidated Financial Statements included in Part II, Item 8 for additional information.

Shake Shack Inc.

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With our fine-dining roots and a commitment to crafting uplifting experiences, Shake Shack has become a cult-brand and created a new category, fine-casual.

Our mission is to Stand For Something Good in all aspects of our business, including the talented team we hire and train, the premium ingredients making up our menu, our community engagement and the design of our Shacks.

Our purpose is to Stand For Something Good in all aspects of our business, including the talented team we hire and train, the premium ingredients making up our menu, our community engagement and the design of our Shacks.

Stand For Something Good is a call to action for all of our stakeholders — our team, guests, communities, suppliers and investors — and we actively invite them all to share in this philosophy with us.

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For Shacks that are not open for the entire period, fractional adjustments are made to the number of operating weeks open such that it corresponds to the period of associated sales.

"Same-Shack sales" represents Shack sales for the comparable Shack base, which is defined as the number of domestic Company-operated Shacks open for 24 full fiscal months or longer.

"Same-Shack sales" represents Shack sales for the comparable Shack base, which is defined as the number of Company-operated Shacks open for 24 full fiscal months or longer.

For consecutive days that Shacks were temporarily closed, the comparative period was also adjusted.

“System-wide sales” is an operating measure and consists of sales from the Company's domestic Company-operated Shacks, domestic licensed Shacks and international licensed Shacks.

“System-wide sales” is an operating measure and consists of sales from Company-operated Shacks and licensed Shacks.

The Company does not recognize the sales from licensed Shacks as revenue.

Of these amounts, revenue is limited to licensing revenue based on a percentage of sales from domestic and international licensed Shacks, as well as certain up-front fees, such as territory fees and opening fees.

Of these amounts, revenue is limited to licensing revenue based on a percentage of sales from licensed Shacks, as well as certain up-front fees, such as territory fees and opening fees.

Recent Business Trends

Fiscal 2023 was a year of milestones at Shake Shack as we surpassed 500 Shacks system-wide, crossed $1 billion in Shack sales, and expanded Shack-level operating profit margin.

The thirteen weeks ended December 27, 2023 ended on a high note as we realized positive traffic through the success of our marketing strategies while we continued to expand Shack-level operating profit margin.

During the thirteen weeks ended December 25, 2024, we drove strength across the business as we grew Total revenue and same-Shack sales, and expanded our Restaurant-level profit margin as we delivered on our strategic priorities, including driving sales and improving how we manage labor in our Shacks.

During the thirteen weeks ended December 25, 2024, we opened a total of 28 Shacks system-wide, including 19 Company-operated Shacks.

As of December 25, 2024 there were 579 Shacks open globally.

Same-Shack sales for the thirteen weeks ended December 27, 2023 increased 2.8% compared to the same period last year, with suburban Shacks increasing 5.1% and urban Shacks increasing 0.4%.

This increase was driven by a 1.4% increase in price mix primarily due to menu price increases and a 1.4% increase in guest traffic.

Same-Shack sales for the fifty-two weeks ended December 27, 2023 increased 4.4% compared to the same period last year wholly driven by an increase in price mix, with suburban Shacks increasing 5.2% and urban Shacks increasing 3.5%.

Same-Shack sales for the thirteen weeks ended December 25, 2024 increased 4.3% compared to the same period last year, driven by a 4.8% increase in price mix, partially offset by a 0.5% decline in guest traffic.

Same-Shack sales for the fifty-two weeks ended December 25, 2024 increased 3.6% compared to the same period last year, driven by a 4.3% increase in price mix, partially offset by a 0.7% decline in guest traffic.

For the purpose of calculating same-Shack sales growth for the thirteen and fifty-two weeks ended December 25, 2024, Shack sales for 235 Shacks were included in the comparable Shack base.

Average weekly sales were $79,000 for the thirteen weeks ended December 25, 2024, compared to $76,000 for the same period last year, primarily driven by higher menu prices and the closure of nine underperforming Company-operated Shacks, partially offset by a decrease in items per check and guest traffic.

Average weekly sales were $76,000 for the fifty-two weeks ended

Shake Shack Inc.

Form 10-K | 53

Average weekly sales were $76,000 for the thirteen weeks ended December 27, 2023, which was flat compared to the same period last year, driven by higher menu prices, partially offset by menu mix and the performance of the 2022 class of Shacks.

Average weekly sales were $75,000 for the fifty-two weeks ended December 27, 2023 compared to $73,000 for the same period last year, driven by higher menu prices and the opening of 41 new domestic Company-operated Shacks.

December 25, 2024 compared to $75,000 for the same period last year, primarily driven by higher menu prices, partially offset by a decline in guest traffic.

System-wide sales increased 13.3% to $500.7 million for the thirteen weeks ended December 25, 2024, versus the same period last year.

System-wide sales increased 13.0% to $1,922.7 million for the fifty-two weeks ended December 25, 2024, versus the same period last year.

Average unit volume for domestic Company-operated Shacks was $3.9 million for the fifty-two weeks ended December 27, 2023 compared to $3.8 million in the same period last year.

Digital sales for the thirteen and fifty-two weeks ended December 27, 2023 increased 15.9% and 6.9% respectively, compared to the same periods last year.

Average unit volume for Company-operated Shacks was $3.9 million for the fifty-two weeks ended December 25, 2024, which was flat compared to the same period last year.

Digital sales for the thirteen and fifty-two weeks ended December 25, 2024 decreased 20.1% and 20.3% respectively, compared to the same periods last year.

Digital sales includes orders placed on the Shake Shack app, website and third-party delivery platforms, which represented 36.6% of Shack sales during the thirteen weeks ended December 25, 2024.

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Development Highlights

During fiscal 2023, we opened 41 new domestic Company-operated Shacks and 44 new licensed Shacks.

There were three permanent international licensed Shack closures and no permanent domestic Company-operated Shack closures in fiscal 2023.

During fiscal 2024, we opened 43 new Company-operated Shacks and 33 new licensed Shacks.

There were six permanent licensed Shack closures and nine permanent Company-operated Shack closures in fiscal 2024.

Below are Shacks opened during the fourth quarter of 2024.

Location Type Opening Date

Puebla, Mexico — Angelópolis International Licensed 9/28/2023

Round Rock, TX — Round Rock Domestic Company-operated 10/2/2023

Seattle, WA — Westfield Southcenter Domestic Company-operated 10/2/2023

Tigard, OR — Bridgeport Village Domestic Company-operated 10/15/2023

Guadalajara, Mexico — Guadalajara Airport International Licensed 10/19/2023

Hainan, China — Haikou International Licensed 10/24/2023

Seoul, South Korea — Mokdong International Licensed 10/25/2023

Salem, NH — Tuscan Village Domestic Company-operated 10/29/2023

Raleigh, NC — Village District Domestic Company-operated 11/8/2023

Colorado Springs, CO — Interquest Domestic Company-operated 11/8/2023

Tianjin, China — Joy City International Licensed 11/9/2023

Grand Prairie, TX — Grand Prairie Domestic Company-operated 11/15/2023

Querétaro, Mexico — Querétaro Drive Thru International Licensed 11/29/2023

Bangkok, Thailand — EmSphere International Licensed 12/2/2023

Cedar Park, TX — Cedar Park Domestic Company-operated 12/4/2023

Liberty Township, OH — Liberty Center Domestic Company-operated 12/6/2023

Sentosa, Singapore — Sentosa International Licensed 12/9/2023

North Las Vegas, NV — Craig Road Domestic Company-operated 12/13/2023

Ogden, UT — Riverdale Road Domestic Company-operated 12/13/2023

Oxford, United Kingdom — Cornmarket Street International Licensed 12/18/2023

Saint Louis, MO — Des Peres Domestic Company-operated 12/20/2023

Webster, TX — Baybrook Domestic Company-operated 12/20/2023

Nashville, TX — Nashville Tanger Outlets Domestic Company-operated 12/26/2023

Studio City, CA — Studio City Domestic Company-operated 12/27/2023

Shanghai, China — Livat Licensed 9/26/2024

San Jose, CA — Westgate Center Company-operated 10/15/2024

Huntington Beach, CA — Huntington Beach Company-operated 10/22/2024

Newport News, VA — Newport News Company-operated 10/22/2024

Las Vegas, NV — Rhodes Ranch Company-operated 10/28/2024

Novi, MI — Novi Company-operated 11/5/2024

Tampa, FL — International Plaza Company-operated 11/7/2024

San Jose, CA — Campbell Company-operated 11/19/2024

Folsom, CA — Folsom Company-operated 11/19/2024

Nashville, TN — River North Nashville Company-operated 11/21/2024

Redlands, CA — Redlands Company-operated 11/25/2024

Wrentham, MA — Wrentham Company-operated 11/26/2024

Bangkok, Thailand — One Bangkok Licensed 11/28/2024

Brea, CA — Brea Company-operated 12/3/2024

Toronto, Canada — Union Station Licensed 12/4/2024

Old Bridge, NJ — Old Bridge Company-operated 12/5/2024

Tijiuana, Mexico — Tijiuana Airport Licensed 12/5/2024

College Park, MD — College Park Company-operated 12/10/2024

Birmingham, United Kingdom — Grand Central Licensed 12/10/2024

Boston, MA — Boston Logan International Airport Licensed 12/11/2024

Louis, MO — Enterprise Center Suite Level Licensed 12/12/2024

Downey, CA — Downey Company-operated 12/18/2024

Pittsburgh, PA — North Fayette Company-operated 12/18/2024

Lutz, FL — Wesley Chapel Company-operated 12/19/2024

Kuala Lumpur, Malaysia — Sunway Pyramid Licensed 12/19/2024

Palm Desert, CA — El Paseo Company-operated 12/20/2024

Philadelphia, PA — Fishtown Company-operated 12/21/2024

Istanbul, Turkey — Mall of Istanbul Licensed 12/25/2024

Shake Shack Inc.

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The following table summarizes our results of operations for fiscal 2024 and fiscal 2023:

(As Restated)

(dollar amounts in thousands) 2024 2023

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Pre-opening costs 15,547 1.2 % 19,231 1.8 %

Impairment and loss on disposal of assets 3,007 0.3 % 2,425 0.3 %

Impairments, loss on disposal of assets, and Shack closures 32,368 2.6 % 3,007 0.3 %

TOTAL EXPENSES 1,249,570 99.8 % 1,081,612 99.5 %

INCOME (LOSS) FROM OPERATIONS 5,921 0.5 % (26,894) (3.0) %

INCOME FROM OPERATIONS 3,038 0.2 % 5,921 0.5 %

Other income, net 13,251 1.1 % 12,776 1.2 %

Interest expense (2,045) (0.2) % (1,717) (0.2) %

INCOME (LOSS) BEFORE INCOME TAXES 16,980 1.6 % (24,285) (2.7) %

Income tax benefit (4,010) (0.4) % (1,180) (0.1) %

NET INCOME (LOSS) 20,990 1.9 % (23,105) (2.6) %

Net income (loss) attributable to non-controlling interests 726 0.1 % (1,876) (0.2) %

NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC.

INCOME BEFORE INCOME TAXES 14,244 1.1 % 16,980 1.6 %

Income tax expense (benefit) 3,424 0.3 % (4,010) (0.4) %

NET INCOME 10,820 0.9 % 20,990 1.9 %

Net income attributable to non-controlling interests 613 — % 726 0.1 %

NET INCOME ATTRIBUTABLE TO SHAKE SHACK INC.

$ 10,207 0.8 % $ 20,264 1.9 %

(1) As a percentage of Shack sales.

(2) The Company elected to reclassify certain marketing expenses for prior periods to conform with the presentation for the fifty-two weeks ended December 27, 2023.

These reclassifications had no effect on previously reported Net Income (Loss).

For the fifty-two weeks ended December 28, 2022, the Company reclassified $1,219 from Other operating expenses to General and administrative expenses in the accompanying Consolidated Financial Statements.

Shake Shack Inc.

Form 10-K | 56

Shack sales represent the aggregate sales of food, beverages and Shake Shack branded merchandise at our domestic Company-operated Shacks and gift card breakage income.

Shack sales represent the aggregate sales of food, beverages and Shake Shack branded merchandise at our Company-operated Shacks and gift card breakage income.

Shack sales in any period are directly influenced by the number of operating weeks in such period and the total number of open Shacks.

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Percentage change compared to prior year 15.4 %

Shack sales for the fiscal year ended December 27, 2023 increased 20.4% to $1,046.8 million versus the prior year.

The increase was primarily due to the class of 2022 being open for a full year, which contributed $72.2 million and the opening of 41 new domestic Company-operated Shacks during the fiscal year, which contributed $71.0 million, as well as increased menu prices.

Shack sales for the fiscal year ended December 25, 2024 increased 15.4% to $1.2 billion versus the prior year.

The increase was primarily due to increased menu prices, which contributed $64.0 million, as well as the opening of 43 new Company-operated Shacks during fiscal 2024, which contributed $63.9 million.

Licensing Revenue

Licensing revenue is comprised of license fees and opening and territory fees for certain licensed Shacks.

Licensing revenue is comprised of license fees and opening fees and territory fees for certain licensed Shacks.

License fees are calculated as a percentage of sales and territory fees are payments for the exclusive right to develop Shacks in a specific geographic area.

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Licensing revenue for the fiscal year ended December 25, 2024 increased 10.6% to $45.0 million versus the prior year.

The increase was primarily due to 41 net new licensed Shacks opened during fiscal 2023, which contributed approximately $4.0 million, as well as higher sales at existing licensed Shacks, particularly domestic airports.

The increase was primarily due to 27 net new licensed Shacks opened during fiscal 2024, which contributed approximately $2.5 million, as well as higher sales, mainly at existing domestic licensed Shacks.

Food and Paper Costs

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Food and paper costs for the fiscal year ended December 25, 2024 increased 11.4% to $339.9 million versus the prior year.

The increase was primarily due to the opening of 41 new domestic Company-operated Shacks during fiscal 2023, which contributed approximately $19.0 million, as well as increased commodity costs particularly in beef and fries.

The increase was primarily due to the openings from the fiscal 2023 class of Shacks, which contributed approximately $20.7 million of incremental expense as well as the opening of 43 new Company-operated Shacks during fiscal 2024, which contributed approximately $18.2 million.

Shake Shack Inc.

Form 10-K | 57

As a percentage of Shack sales, the decrease in Food and paper costs for fiscal 2023 was primarily due to menu price increases partially offset by higher commodity costs, as mentioned above.

As a percentage of Shack sales, the decrease in Food and paper costs for fiscal 2024 was primarily due to increased menu prices, partially offset by increased marketing promotions and certain commodity costs, mainly beef and fries.

Labor and Related Expenses

Labor and related expenses include domestic Company-operated Shack-level hourly and management wages, bonuses, payroll taxes, equity-based compensation, workers' compensation expense and medical benefits.

Labor and related expenses include Company-operated Shack-level hourly and management wages, bonuses, payroll taxes, equity-based compensation, workers' compensation expense and medical benefits.

As we expect with other variable expense items, labor costs should grow as our Shack sales grow.

Factors that influence labor costs include minimum wage and payroll tax legislation, health care costs, size and location of the Shack and the performance of our domestic Company-operated Shacks.

Factors that influence labor costs include minimum wage and payroll tax legislation, health care costs, size and location of the Shack and the performance of our Company-operated Shacks.

(dollar amounts in thousands) 2024 2023

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Labor and related expenses for the fiscal year ended December 25, 2024 increased 11.3% to $338.8 million versus the prior year.

The increase was primarily due to the opening of 41 new domestic Company-operated Shacks during fiscal 2023 as well as openings from the fiscal 2022 class of Shacks weighted to the fourth quarter of 2022.

As a percentage of Shack sales, the decrease in Labor and related expenses for fiscal 2023 was primarily due to sales leverage and labor efficiencies, partially offset by the opening of 41 new domestic Company-operated Shacks during fiscal 2023 and increased wages and salaries at remaining Shacks.

The increase was primarily due to the opening of 43 new Company-operated Shacks during fiscal 2024, which contributed $20.3 million.

As a percentage of Shack sales, the decrease in Labor and related expenses for fiscal 2024 was primarily due to labor efficiencies and sales leverage, partially offset by increased wages and incremental expenses from the opening of 43 new Company-operated Shacks during fiscal 2024.

Other Operating Expenses

Other operating expenses consist of delivery commissions, Shack-level marketing expenses, repairs and maintenance, utilities and other operating expenses incidental to operating our domestic Company-operated Shacks, such as non-perishable supplies, credit card fees and property insurance.

Other operating expenses consist of delivery commissions, Shack-level marketing expenses, repairs and maintenance, utilities and other operating expenses incidental to operating our Company-operated Shacks, such as non-perishable supplies, credit card fees and property insurance.

(dollar amounts in thousands) 2024 2023

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Other operating expenses for the fiscal year ended December 25, 2024 increased 19.4% to $178.4 million versus the prior year.

The increase was primarily due to the opening of 41 new domestic Company-operated Shacks during fiscal 2023, increased facilities costs, mainly utilities, as well as increased transaction costs associated with higher sales.

As a percentage of Shack sales, the decrease in Other operating expenses for fiscal 2023 was primarily due to sales leverage, lower delivery commissions due to a shift in channel mix and decreased repair and maintenance expenses.

The increase was primarily due to increased transaction costs associated with higher sales, increased facilities costs, mainly utilities and repair and maintenance, as well as increased marketing spend.

As a percentage of Shack sales, the increase in Other operating expenses for fiscal 2024 was primarily due to increased delivery commissions associated with higher delivery sales and increased marketing spend, partially offset by sales leverage.

Occupancy and Related Expenses

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Occupancy and related expenses for the fiscal year ended December 25, 2024 increased 16.6% to $93.1 million versus the prior year.

The increase was primarily due to the openings from the fiscal 2022 class of Shacks weighted to the fourth quarter of 2022, which contributed approximately $5.0 million, as well as the opening of 41 new domestic Company-operated Shacks during fiscal 2023.

As a percentage of Shack sales, the decrease in Occupancy and related expenses for fiscal 2023 was primarily due to sales leverage and lower base rent.

The increase was primarily due to the openings from the fiscal 2023 class of Shacks weighted to the second half of fiscal 2023, which contributed approximately $4.6 million, as well as the opening of 43 new Company-operated Shacks during fiscal 2024.

As a percentage of Shack sales, the increase in Occupancy and related expenses for fiscal 2024 was primarily due to higher base rent.

General and Administrative Expenses

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General and administrative expenses for the fiscal year ended December 25, 2024 increased 15.1% to $149.0 million versus the prior year.

The increase was primarily due to an increase in wages and other team costs to support our Shack growth, professional fees related to a non-recurring matter of $3.4 million, as well as investments in marketing and technology initiatives, partially offset by lower legal expenses compared to the prior year period.

As a percentage of Total revenue, the decrease in General and administrative expenses for fiscal 2023 was primarily due to sales leverage partially offset by the aforementioned items.

The increase was primarily due to increased investments in marketing and increased wages and other team costs to support our Shack growth and strategic initiatives, as well as costs associated with the prior restatement of prior periods included in the fiscal 2023 Form 10-K.

As a percentage of Total revenue, General and administrative expenses were flat for fiscal 2024 primarily due to sales leverage offset by the aforementioned items.

Depreciation and Amortization Expense

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Depreciation and amortization expense for the fiscal year ended December 25, 2024 increased 12.3% to $102.5 million versus the prior year.

The increase was primarily due to incremental depreciation of capital expenditures related to the class of 2022 Shacks being open for a full year and the opening of 41 new domestic Company-operated Shacks during fiscal 2023, as well as additional depreciation related to technology projects placed in service.

The increase was primarily due to incremental depreciation of capital expenditures related to the opening of 43 new Company-operated Shacks during fiscal 2024.

Shake Shack Inc.

Form 10-K | 59

As a percentage of Total revenue, the increase in Depreciation and amortization expense for fiscal 2023 was primarily due to the aforementioned items.

Pre-Opening Costs

Pre-opening costs consist primarily of occupancy, manager and team member wages, cookware, travel and lodging costs for our opening training team and other supporting team members, marketing expenses, legal fees and inventory costs incurred prior to the opening of a Shack.

All such costs incurred prior to the opening of a domestic Company-operated Shack are expensed in the period in which the expense was incurred.

Pre-opening costs can fluctuate significantly from period to period, based on the number and timing of domestic Company-operated Shack openings and the specific pre-opening costs incurred for each domestic Company-operated Shack.

Additionally, domestic Company-operated Shack openings in new geographic markets may initially experience higher pre-opening costs than our established geographic markets, such as the New York City metropolitan area, where we have greater economies of scale and incur lower travel and lodging costs for our training team.

All such costs incurred prior to the opening of a Company-operated Shack are expensed in the period in which the expense was incurred.

Pre-opening costs can fluctuate significantly from period to period, based on the number and timing of Company-operated Shack openings and the specific pre-opening costs incurred for each Company-operated Shack.

Additionally, Company-operated Shack openings in new geographic markets may initially experience higher pre-opening costs than our established geographic markets, such as the New York City metropolitan area, where we have greater economies of scale and incur lower travel and lodging costs for our training team.

(dollar amounts in thousands) 2024 2023

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Percentage change compared to prior year (19.2) %

Pre-opening costs for the fiscal year ended December 27, 2023 increased 27.8% to $19.2 million versus the prior year.

The increase was due to increased wages and benefits for our Shack teams related to the timing of Shack openings throughout the year as well as legal costs compared to the prior year period.

Impairment and Loss on Disposal of Assets

Impairment and loss on disposal of assets primarily consists of impairment charges related to our long-lived assets, which includes property and equipment, as well as operating and finance lease assets.

Additionally, Impairment and loss on disposal of assets includes the net book value of assets that have been retired which primarily consists of furniture, equipment and fixtures that were replaced in the normal course of business.

Pre-opening costs for the fiscal year ended December 25, 2024 decreased 19.2% to $15.5 million versus the prior year.

The decrease was primarily due to reductions in wages and team costs as we standardize the training process for unopened Shacks.

Impairments, loss on disposal of assets, and Shack closures

Impairments, loss on disposal of assets, and Shack closures primarily consists of the net book value of assets that have been retired which primarily consists of furniture, equipment and fixtures that were replaced in the normal course of business;

impairment charges related to our long-lived assets, which includes property and equipment, as well as operating and finance lease assets;

and miscellaneous Shack closure expenses, including employee-related costs, cleaning, and sign removal costs.

(dollar amounts in thousands) 2024 2023

Impairment and loss on disposal of assets $ 3,007 $ 2,425

Impairments, loss on disposal of assets, and Shack closures

$ 32,368 $ 3,007

Percentage of Total revenue 2.6 % 0.3 %

Dollar change compared to prior year $ 29,361

Percentage change compared to prior year 24.0 %

Impairment and loss on disposal of assets for the fiscal year ended December 27, 2023 increased 24.0% to $3.0 million versus the prior year.

The increase was primarily due to increases in disposal of home office assets and abandoned construction projects, and the number of Shacks maturing in our base in the current year compared to the prior year.

Impairments, loss on disposal of assets, and Shack closures for the fiscal year ended December 25, 2024 increased to $32.4 million versus the prior year.

The increase was primarily due to expenses related to the closure of nine Company-operated Shacks in August 2024.

Other Income, Net

Other income, net consists primarily of interest income, adjustments to liabilities under the Tax Receivable Agreement, dividend income and net unrealized and realized gains and losses from marketable securities.

Shake Shack Inc.

Form 10-K | 62

(dollar amounts in thousands) 2024 2023

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Percentage change compared to prior year 3.7 %

Other income, net for the fiscal year ended December 27, 2023 increased from $4.1 million to $12.8 million versus the prior year.

The increase was primarily due to an increase in dividend income generated by Cash and cash equivalents of $6.2 million, related to higher interest rates in fiscal 2023.

Other income, net for the fiscal year ended December 25, 2024 increased from $12.8 million to $13.3 million.

The increase was primarily due to increased income from cash equivalents, partially offset by decreased income from investments that matured in fiscal 2024.

Shake Shack Inc.

Form 10-K | 60

Interest Expense

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Interest expense for the fiscal year ended December 25, 2024 increased 19.1% to $2.0 million versus the prior year.

The increase was primarily due to increased finance lease charges partially offset by a decrease in various sales tax audit assessment charges.

Income Tax Benefit

The increase was primarily due to increased finance lease charges from the opening of 43 new Company-operated Shacks during fiscal 2024.

Income Tax Expense (Benefit)

We are the sole managing member of SSE Holdings, and as a result, consolidate the financial results of SSE Holdings.

SSE Holdings is treated as a partnership for U.S.

federal and most applicable state and local income tax purposes.

As a partnership, SSE Holdings is not subject to U.S.

federal and certain state and local income taxes.

Any taxable income or loss generated by SSE Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis.

We are subject to U.S.

federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of SSE Holdings, as well as any stand-alone income or loss generated by us.

We are also subject to withholding taxes in foreign jurisdictions.

(As Restated)

federal and certain state and local tax purposes, SSE Holdings is classified as a partnership.

Consequently, any taxable income or loss generated by SSE Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis.

As a result, the Company is subject to U.S.

federal income taxes, along with applicable state and local taxes on its allocable share of any taxable income or loss of SSE Holdings.

Additionally, the Company is taxed on any standalone income or loss generated by Shake Shack, Inc.

The Company is also subject to withholding taxes in certain foreign jurisdictions.

(dollar amounts in thousands) 2024 2023

Income tax benefit

Income tax expense (benefit)

$ 3,424 $ (4,010)

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Percentage change compared to prior year (185.4) %

Our effective income tax rate for the fiscal year ended December 27, 2023 decreased to (23.6)% from 4.9% in the prior year.

The decrease in our effective income tax rate was primarily driven by additional benefit related to a decrease in valuation allowance and higher tax credits, partially offset by an increase in foreign tax expense and the revaluation of deferred tax assets as a result of a reduction in certain state income tax rates.

Shake Shack Inc.

Form 10-K | 63

Net Income (Loss) Attributable to Non-controlling Interests

Our effective income tax rate for the fiscal year ended December 25, 2024 increased to 24.0% from (23.6)% in the prior year.

The increase in our effective income tax rate was primarily driven by the release of a valuation allowance and a higher remeasurement of deferred tax assets in fiscal 2023.

Net Income Attributable to Non-controlling Interests

We are the sole managing member of SSE Holdings and have the sole voting power in, and control the management of, SSE Holdings.

Accordingly, we consolidate the financial results of SSE Holdings and report a non-controlling interest on our Consolidated Statements of Income (Loss), representing the portion of net income (loss) attributable to the other members of SSE Holdings.

The Third Amended and Restated Limited Liability Company Agreement of SSE Holdings provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis.

In connection with any redemption or exchange, we will receive a corresponding number of LLC Interests, increasing our total ownership interest in SSE Holdings.

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) and other comprehensive income (loss) to Shake Shack Inc.

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income and other comprehensive income to Shake Shack Inc.

and the non-controlling interest holders.

(dollar amounts in thousands) 2024 2023

Net income (loss) attributable to non-controlling interests

$ 726 $ (1,876)

Net income attributable to non-controlling interests

Percentage of Total revenue — % 0.1 %

Net income (loss) attributable to non-controlling interests for the fiscal year ended December 27, 2023 improved to income of $0.7 million from a loss of $1.9 million in the prior year.

The improvement was primarily due to an increase in net results compared to the same period last year, partially offset by a decrease in the non-controlling interest holders' weighted average ownership, which was 6.7% and 6.9%, respectively for fiscal 2023 and fiscal 2022.

Shake Shack Inc.

Form 10-K | 61

Net income attributable to non-controlling interests for the fiscal year ended December 25, 2024 decreased from $0.7 million to $0.6 million.

The decrease was primarily due to a decline in net results compared to the same period last year, partially offset by a decrease in the non-controlling interest holders' weighted average ownership, which was 6.2% and 6.7%, respectively for fiscal 2024 and fiscal 2023.

NON-GAAP FINANCIAL MEASURES

To supplement the Consolidated Financial Statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), we use the following non-GAAP financial measures:

Shack-level operating profit, Shack-level operating profit margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted pro forma net income (loss), and adjusted pro forma earnings (loss) per fully exchanged and diluted share (collectively the "non-GAAP financial measures").

Shack-Level Operating Profit

Shack-level operating profit, also referred to as restaurant profit, is defined as Shack sales less Shack-level operating expenses which include Food and paper costs, Labor and related expenses, Other operating expenses and Occupancy and related expenses.

Restaurant-level profit, Restaurant-level profit margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted pro forma net income (loss), and adjusted pro forma earnings (loss) per fully exchanged and diluted share (collectively the "non-GAAP financial measures").

Restaurant-Level Profit

Restaurant-level profit, formerly referred to as Shack-level operating profit, is defined as Shack sales less Shack-level operating expenses which include Food and paper costs, Labor and related expenses, Other operating expenses and Occupancy and related expenses.

How This Measure Is Useful

When used in conjunction with GAAP financial measures, Shack-level operating profit and Shack-level operating profit margin are supplemental measures of operating performance that we believe are useful measures to evaluate the performance and profitability of our Shacks.

Additionally, Shack-level operating profit and Shack-level operating profit margin are key metrics used internally by our management to develop internal budgets and forecasts, as well as assess the performance of our Shacks relative to budget and against prior periods.

When used in conjunction with GAAP financial measures, Restaurant-level profit and Restaurant-level profit margin are supplemental measures of operating performance that we believe are useful measures to evaluate the performance and profitability of our Shacks.

Additionally, Restaurant-level profit and Restaurant-level profit margin are key metrics used internally by our management to develop internal budgets and forecasts, as well as assess the performance of our Shacks relative to budget and against prior periods.

It is also used to evaluate team member compensation as it serves as a metric in certain of our performance-based team member bonus arrangements.

We believe presentation of Shack-level operating profit and Shack-level operating profit margin provides investors with a supplemental view of our operating performance that can provide meaningful insights to the underlying operating performance of our Shacks, as these measures depict the operating results that are directly impacted by our Shacks and exclude items that may not be indicative of, or are unrelated to, the ongoing operations of our Shacks.

We believe the presentation of Restaurant-level profit and Restaurant-level profit margin provides investors with a supplemental view of our operating performance that can provide meaningful insights to the underlying operating performance of our Shacks, as these measures depict the operating results that are directly impacted by our Shacks and exclude items that may not be indicative of, or are unrelated to, the ongoing operations of our Shacks.

It may also assist investors to evaluate our performance relative to peers of various sizes and maturities and provides greater transparency with respect to how our management evaluates our business, as well as our financial and operational decision-making.

Limitations of the Usefulness of this Measure

Restaurant-level profit and Restaurant-level profit margin may differ from similarly titled measures used by other companies due to different methods of calculation.

Presentation of Restaurant-level profit and Restaurant-level profit margin is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

Restaurant-level profit excludes certain costs, such as General and administrative expenses and Pre-opening costs, which are considered normal, recurring cash operating expenses and are essential to support the operation and development of our Shacks.

Therefore, this measure may not provide a complete understanding of the operating results of our Company as a whole and Restaurant-level profit and Restaurant-level profit margin should be reviewed in conjunction with our GAAP financial results.

A reconciliation of Restaurant-level profit to Income (loss) from operations, the most directly comparable GAAP financial measure, is as follows.

Shake Shack Inc.

Form 10-K | 62

Limitations of the Usefulness of this Measure

Shack-level operating profit and Shack-level operating profit margin may differ from similarly titled measures used by other companies due to different methods of calculation.

Presentation of Shack-level operating profit and Shack-level operating profit margin is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

Shack-level operating profit excludes certain costs, such as General and administrative expenses and Pre-opening costs, which are considered normal, recurring cash operating expenses and are essential to support the operation and development of our Shacks.

Therefore, this measure may not provide a complete understanding of the operating results of our Company as a whole and Shack-level operating profit and Shack-level operating profit margin should be reviewed in conjunction with our GAAP financial results.

A reconciliation of Shack-level operating profit to Income (loss) from Operations, the most directly comparable GAAP financial measure, is as follows.

(dollar amounts in thousands) 2024 2023 2022

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Depreciation and amortization expense

102,468 91,242 72,796

Pre-opening costs 15,547 19,231 15,050

Impairment and loss on disposal of assets (2)

Impairments, loss on disposal of assets, and Shack closures

32,368 3,007 2,425

Shack-level operating profit $ 208,229 $ 152,170 $ 120,353

Employee benefit charges (2)

Restaurant-level profit $ 257,874 $ 208,229 $ 152,170

Total revenue $ 1,252,608 $ 1,087,533 $ 900,486

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Shack sales $ 1,207,561 $ 1,046,819 $ 869,270

Shack-level operating profit margin (3,4)

Restaurant-level profit margin (3,4)

21.4% 19.9% 17.5%

(1) The Company has elected to reclassify certain marketing expenses from Other operating expenses to General and administrative expenses in the accompanying Consolidated Financial Statements for prior periods to be comparable with the classification for the fifty-two weeks ended December 27, 2023.

(2) For the fifty-two weeks ended December 28, 2022, this amount includes a non-cash impairment charge of $0.1 million related to one Shack.

(3) For the fifty-two weeks ended December 28, 2022, Shack-level operating profit margin includes a $1,281 cumulative catch-up adjustment for gift card breakage income, recognized in Shack sales.

(1) The Company elected to reclassify certain marketing expenses from Other operating expenses to General and administrative expenses in the accompanying Consolidated Financial Statements for the fiscal year ended December 28, 2022 to conform with the presentation for the fiscal year ended December 25, 2024 and December 27, 2023 .

(2) Expenses related to California healthcare charges for fiscal 2020 through 2023 which do not represent fiscal 2024 Labor and related expenses.

(3) For the fifty-two weeks ended December 28, 2022, Restaurant-level profit margin includes a $1,281 cumulative catch-up adjustment for gift card breakage income, recognized in Shack sales.

(4) As a percentage of Shack sales.

EBITDA and Adjusted EBITDA

EBITDA is defined as Net income (loss) before Interest expense (net of interest income), Income tax benefit and Depreciation and amortization expense.

Adjusted EBITDA is defined as EBITDA (as defined above) excluding equity-based compensation expense, Impairment and loss on disposal of assets, amortization of cloud-based software implementation costs, as well as certain non-recurring items that we do not believe directly reflect our core operations and may not be indicative of our recurring business operations.

During the fiscal year ended December 27, 2023, the Company revised its definition of Adjusted EBITDA to exclude deferred lease costs and executive transition costs as adjustments to the measure.

The Company believes excluding both of these items improves the usefulness of Adjusted EBITDA as these items are characteristic of the Company’s ongoing operations and such presentation is consistent with other companies in the restaurant industry.

Previously reported periods have been revised to conform to the current period presentation.

Shake Shack Inc.

Form 10-K | 65

EBITDA is defined as Net income (loss) before Interest expense (net of interest income), Income tax expense (benefit) and Depreciation and amortization expense.

Adjusted EBITDA is defined as EBITDA (as defined above) excluding equity-based compensation expense, Impairments, loss on disposal of assets, and Shack closures, amortization of cloud-based software implementation costs, as well as certain non-recurring items that we do not believe directly reflect our core operations and may not be indicative of our recurring business operations.

How These Measures Are Useful

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We believe presentation of EBITDA and adjusted EBITDA provides investors with a supplemental view of our operating performance that facilitates analysis and comparisons of our ongoing business operations because they exclude items that may not be indicative of our ongoing operating performance.

Shake Shack Inc.

Form 10-K | 63

Limitations of the Usefulness of These Measures

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A reconciliation of EBITDA and adjusted EBITDA to Net income (loss), the most directly comparable GAAP measure, is as follows.

(As Restated) (As Restated)

(dollar amounts in thousands)

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2,138 1,798 1,500

Impairment and loss on disposal of assets (1)

3,007 2,425 1,632

Legal settlements (2)

Impairments, loss on disposal of assets, and Shack closures

32,368 3,007 2,425

Restatement costs (1)

CEO transition costs

Employee benefit charges (2)

Legal settlements (3)

Gift card breakage cumulative catch-up adjustment — — (1,281)

Debt offering related costs (3)

Other income related to adjustment of liabilities under tax receivable agreement — — (2)

3,652 3,386 —

Adjusted EBITDA $ 175,579 $ 131,816 $ 72,709

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14.0% 12.1% 8.1%

(1) For the fifty-two weeks ended December 28, 2022, this amount includes a non-cash impairment charge of $0.1 million related to one Shack.

(1) Expenses incurred related to the restatement of prior periods in the 2023 Form 10-K.

(2) Expenses related to California healthcare charges for fiscal 2020 through 2023 which do not represent fiscal 2024 Labor and related expenses.

(3) Refer to Note 17, Commitments and Contingencies, in the accompanying Consolidated Financial Statements, for additional information.

(3) Costs incurred in connection with the Company’s Convertible Notes, issued in March 2021, including consulting and advisory fees.

Refer to Note 9, Debt, in the accompanying Consolidated Financial Statements, for additional information.

(4) Related to professional fees for a non-recurring matter.

(4) Expenses incurred for professional fees related to non-recurring matters.

(5) Calculated as a percentage of Total revenue, which was $1,252.6 million, $1,087.5 million and $900.5 million, respectively, for the fifty-two weeks ended December 25, 2024, December 27, 2023 and December 28, 2022.

Shake Shack Inc.

Form 10-K | 66

Adjusted Pro Forma Net Income (Loss) and Adjusted Pro Forma Earnings (Loss) Per Fully Exchanged and Diluted Share

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Adjusted pro forma earnings (loss) per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income (loss) by the weighted average shares of Class A common stock outstanding, assuming the full exchange of all outstanding LLC Interests, after giving effect to the dilutive effect of outstanding equity-based awards.

During the fiscal year ended December 27, 2023 , the Company revised its definition of Adjusted Pro Forma Net Income to exclude executive transition costs as an adjustment to the measure.

Previously reported periods have been revised to conform to the current period presentation.

See "EBITDA and Adjusted EBITDA" above for additional information.

Shake Shack Inc.

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How These Measures Are Useful

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A reconciliation of adjusted pro forma net income (loss) to Net income (loss) attributable to Shake Shack Inc., the most directly comparable GAAP measure, and the computation of adjusted pro forma earnings (loss) per fully exchanged and diluted share are set forth below.

Shake Shack Inc.

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(As Restated) (As Restated)

(in thousands, except per share amounts) 2024 2023 2022

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613 726 (1,876)

Restatement costs (2)

CEO transition costs

Employee benefit charges (3)

Impairment charge and Shack closures (4)

Legal settlements (5)

619 6,710 560

Gift card breakage cumulative catch-up adjustment — — (1,281)

Asset impairment charge (3)

CEO transition costs

Debt offering related costs (4)

Other income related to the adjustment of liabilities under tax receivable agreement

Revolving Credit Facility amendments related costs (5)

3,652 3,386 —

Tax impact of above adjustments (7)

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Assumed exchange of LLC Interests for shares of Class A common stock (1)

— 2,892 2,927

Adjusted pro forma fully exchanged weighted average shares of Class A common stock outstanding—diluted 44,203 43,899 42,129

Adjusted pro forma earnings (loss) per fully exchanged share—diluted $ 0.92 $ 0.37 $ (0.31)

(As Restated) (As Restated)

2024 2023 2022

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Assumed exchange of LLC Interests for shares of Class A common stock (1)

— (0.01) (0.02)

Non-GAAP adjustments (8)

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Adjusted pro forma earnings (loss) per fully exchanged share—diluted $ 0.92 $ 0.37 $ (0.31)

Shake Shack Inc.

Form 10-K | 65

(1) Assumes the exchange of all outstanding LLC Interests for shares of Class A common stock, resulting in the elimination of the non-controlling interest and recognition of the net income (loss) attributable to non-controlling interests.

For the thirteen and fifty-two weeks ended December 27, 2023, this exchange is included in weighted-average shares of Class A common stock outstanding-diluted and therefore no additional share and per share adjustments are required.

For the fifty-two weeks ended December 25, 2024 and December 27, 2023, this exchange is included in weighted-average shares of Class A common stock outstanding-diluted and therefore no additional share and per share adjustments are required.

(2) Expenses incurred related to the restatement of prior periods in the 2023 Form 10-K.

(3) Expenses related to California healthcare charges for fiscal 2020 through 2023 which do not represent fiscal 2024 Labor and related expenses.

(4) Expenses incurred related to Shack closures during fiscal 2024.

For the fifty-two weeks ended December 28, 2022, this amount includes a non-cash impairment charge of $0.1 million related to one Shack.

(5) Expenses incurred to establish accruals related to the settlements of legal matters.

Refer to Note 17, Commitments and Contingencies, in the accompanying Consolidated Financial Statements, for additional information.

(3) For the fifty-two weeks ended December 28, 2022, this amount includes a non-cash impairment charge of $0.1 million related to one Shack.

(4) Costs incurred in connection with the Company’s Convertible Notes, issued in March 2021, including consulting and advisory fees.

Refer to Note 9, Debt, in the accompanying Consolidated Financial Statements, for additional information.

(5) Expense incurred in connection with the Company's amendments on the Revolving Credit Facility, including the write-off of previously capitalized costs on the Revolving Credit Facility.

(6) Related to professional fees for a non-recurring matter.

(6) Expenses incurred for professional fees related to non-recurring matters.

(7) For the fifty-two weeks ended December 25, 2024, December 27, 2023 and December 28, 2022, amounts represent the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of 20.1%, 24.5% and 31.0%, respectively, which include provisions for U.S.

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Refer to the reconciliation of Adjusted Pro Forma Net Income (Loss) above, for additional information.

Shake Shack Inc.

Form 10-K | 68

LIQUIDITY AND CAPITAL RESOURCES

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Our primary sources of liquidity are cash from operations, cash and cash equivalents on hand, short-term investments and availability under our Revolving Credit Facility.

As of December 27, 2023, we maintained a Cash and cash equivalents balance of $224.7 million and a short-term investments balance of $68.6 million within Marketable securities.

As of December 25, 2024, we maintained a Cash and cash equivalents balance of $320.7 million.

In March 2021, we issued 0% Convertible Senior Notes (“Convertible Notes”), and received $243.8 million of proceeds, net of discounts.

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The payments that we are required to make will generally reduce the amount of overall cash flow that might have otherwise been available to us or to SSE Holdings, but we expect the cash tax savings we will realize from the utilization of the related deferred tax assets to fund the required payments.

We believe our existing cash and cash equivalents balances and cash from operations will be sufficient to fund our operating and finance lease obligations, capital expenditures, Tax Receivable Agreement obligations and working capital needs for at least the next 12 months and the foreseeable future.

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Summary of Cash Flows

The following table presents a summary of our cash flows from operating, investing and financing activities.

(As Restated)

(in thousands) 2024 2023

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Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents (5,868) (71,885)

Net Increase (decrease) in cash and cash equivalents 96,061 (5,868)

Cash and cash equivalents at beginning of period 224,653 230,521

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For fiscal 2024, net cash provided by operating activities was $171.2 million compared to $132.1 million for fiscal 2023, an increase of $39.1 million.

This increase was primarily due to an $69.2 million increase in net results after excluding non-cash charges, partially offset by changes in working capital of $20.0 million.

The changes in working capital included the timing and payments of legal settlements and a decrease in the construction in progress accruals due to the timing of shack openings this period compared to the same period last year.

This increase was primarily due to a $50.5 million improvement in net results after excluding non-cash charges, partially offset by changes in working capital of $11.4 million.

The changes in working capital primarily included an increase in payments on lease liabilities due to the opening of 43 new Company-operated Shacks in fiscal 2024 and termination payments related to the Shack closures in fiscal 2024.

Investing Activities

For fiscal 2024, net cash used in investing activities was $66.1 million compared to $132.3 million for fiscal 2023, a decrease of $66.2 million.

This decrease was primarily due to net proceeds from marketable securities activity of $14.5 million partially offset by an increase of $3.6 million in capital expenditures to support our real estate development.

The marketable securities activity was the result of the sale of equity securities of $81.5 million and the maturities of held-to-maturity securities of $27.0 million partially offset by purchase of held-to-maturity securities of $94.0 million.

This decrease was primarily due to a decrease in net proceeds from marketable securities activity of $55.5 million as well as a decrease of $10.7 million in capital expenditures.

The marketable securities activity was primarily the result of an increase in maturities of held-to-maturity securities of $42.3 million and a decrease in net purchases of held-to-maturity securities of $94.0 million, offset by a decrease in sales of equity securities of $81.5 million.

Financing Activities

For fiscal 2024, net cash used in financing activities was $9.0 million compared to $5.7 million for fiscal 2023, an increase of $3.3 million.

This increase was primarily due to an increase in withholding taxes related to the vesting of equity awards, partially offset by an increase in proceeds from stock option exercises and a decrease in distributions paid to non-controlling interest holders.

This increase was primarily due to an increase in withholding taxes related to the vesting of equity awards.

Convertible Notes

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The Revolving Credit Facility also permits the issuance of letters of credit upon our request of up to $15.0 million.

In June 2023, the Company entered into the fourth amendment to the Revolving Credit Facility ("Fourth Amendment"), which, among other things, modified the benchmark interest rate to either:

(i) the base rate plus applicable margin ranging from 0.0% to 1.5% or (ii) the Secured Overnight Financing Rate (“SOFR”) plus applicable margin ranging from 1.0% to 2.5%, in each case

Shake Shack Inc.

Form 10-K | 67

depending on the net lease adjusted leverage ratio.

In June 2023, the Company entered into the fourth amendment to the Revolving Credit Facility ("Fourth Amendment"), which, among other things, modified the benchmark interest rate to either:

(i) the base rate plus applicable margin ranging from 0.0% to 1.5% or (ii) the Secured Overnight Financing Rate (“SOFR”) plus applicable margin ranging from 1.0% to 2.5%, in each case depending on the net lease adjusted leverage ratio.

As of December 25, 2024 and December 27, 2023, no amounts were outstanding under the Revolving Credit Facility.

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OFF-BALANCE SHEET ARRANGEMENTS

Except for operating leases entered into in the normal course of business where we have not yet taken physical possession of the leased property, certain letters of credit entered into as security under the terms of several of our leases and the unrecorded contractual obligations set forth above, we did not have any other off-balance sheet arrangements as of December 27, 2023.

Except for operating leases entered into in the normal course of business where we have not yet taken physical possession of the leased property, certain letters of credit entered into and the unrecorded contractual obligations set forth above, we did not have any other off-balance sheet arrangements as of December 25, 2024.

CRITICAL ACCOUNTING ESTIMATES

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The critical accounting estimates described below are those that materially affect or have the greatest potential impact on our Consolidated Financial Statements, and involve difficult, subjective, or complex judgments made by management.

Because of the uncertainty inherent in these matters, actual results may differ from those estimates we use in applying our critical accounting estimates.

Due to the uncertainty inherent in these matters, actual results may differ from those estimates we use in applying our critical accounting estimates.

The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

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Changes in these assumptions could have a significant impact on the recoverability of the asset and may result in additional impairment charges.

We currently lease all of our domestic Company-operated Shacks, the home office, and certain equipment under various lease agreements.

Determining the probable term for each lease requires judgement by management and can impact the classification and accounting for a lease as financing or operating, as well as the period for straight-lined rent expense and the depreciation period for lease hold improvements.

We calculate operating lease assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date.

In fiscal 2024, we determined to close nine underperforming Company-operated Shacks, and as a result, we recorded $27.6 million of impairment expense, related to right-of-use assets, and property, plant and equipment.

No impairment charges were recognized during fiscal 2023.

During fiscal 2022, the Company recognized an impairment charge of $0.1 million related to one Shack.

Refer to Note 4, Fair Value Measurements, for additional information.

We currently lease all of our Company-operated Shacks, the home office, and certain equipment under various lease agreements.

Determining the probable term for each lease requires judgment by management and can impact the classification and accounting for a lease as financing or operating, as well as the period for straight-lined rent expense and the depreciation period for lease hold improvements.

We calculate operating lease right-of-use assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date.

We use an incremental borrowing rate (“IBR”) in determining the present value of future lease payments as there are no explicit rates provided in the leases.

The IBR is an estimate based on several factors, including financial market conditions, comparable company and credit analysis as well as management judgement.

If the IBR was changed, our operating lease assets and lease liabilities could differ materially.

In determining the provision for income taxes for financial statement purposes, we make estimates and judgments which affect our evaluation of the carrying value of our deferred tax assets as well as our calculation of certain tax liabilities.

We evaluate the carrying value of our deferred tax assets on a quarterly basis.

In completing this evaluation, we consider all available positive and negative evidence.

Such evidence includes historical operating results, the existence of cumulative earnings and losses in the most recent fiscal years, taxable income in prior carryback year(s) if permitted under the tax law, expectations for future pre-tax operating income, the time period over which our temporary differences will reverse, and the implementation of feasible and prudent tax planning strategies.

Estimating future taxable income is inherently uncertain and requires judgment.

In projecting future taxable income, we consider our historical results and incorporate certain assumptions, including projected Shack openings, revenue growth, and operating margins, among others.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of this evidence, it is more likely than not that all or a portion of the recorded deferred tax assets will not be realized in future periods.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years.

As of December 27, 2023, we are in a three-year cumulative loss position.

This is considered significant evidence that is difficult to overcome.

However, the three-year cumulative loss position is not solely determinative, and, accordingly, management considered all available positive and negative evidence in our analysis.

Although we are in a three-year cumulative loss position as of December 27, 2023, we have a recent history of earnings prior to the onset of the COVID-19 pandemic.

Additionally, we have returned to a profitable pre-tax earnings position for the year ended December 27, 2023 and are forecasted to continue this trajectory.

We have recorded a valuation allowance against certain state tax attributes that are not expected to be utilized prior to expiration.

As of December 27, 2023, we had $326.2 million of net deferred tax assets, net of valuation allowances.

Based upon the weight of the positive and negative evidence, we determined that the positive evidence outweighs the negative evidence to support the conclusion that future taxable income should be included in the evaluation of the need for a valuation allowance.

The IBR is an estimate based on several factors, including financial market conditions, comparable company and credit analysis as well as management judgment.

If the IBR was changed, our operating lease right-of-use assets and lease liabilities could differ materially.

We compute income taxes using the asset and liability method for accounting for income taxes, as prescribed by GAAP on income taxes.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of events included in the Consolidated Financial Statements.

These tax amounts are determined by the differences between the financial statement and tax bases of assets and liabilities and are measured using the tax rates that are enacted and applicable for the year when the differences are expected to reverse.

Any impact from changes in tax rates or laws on deferred tax assets and liabilities is reflected in income in the period during which the change in tax law is enacted.

We account for uncertain tax positions based on management’s judgment regarding the likelihood of a tax benefit being upheld if examined by tax authorities.

Management evaluates whether a tax position is more likely than not to be sustained by tax authorities, considering any related appeals or litigation, based on the technical merits of the position.

Since determining the likelihood of a tax benefit’s sustainability involves significant assumptions, actual outcomes may vary from our estimates, depending on different assumptions or conditions.

Any interest and penalties associated with uncertain tax positions are included in Income tax expense (benefit) in the accompanying Consolidated Statements of Income (Loss).

A valuation allowance is established for deferred tax assets if it is more likely than not that they will not be realized.

In evaluating whether a valuation allowance is needed, we consider all relevant evidence, including past performance, recent cumulative losses, projections of future taxable income, and the viability of tax planning strategies.

Shake Shack Inc.

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Liabilities Under Tax Receivable Agreement

As described in Note 15 to the Consolidated Financial Statements included in Item 8, we are a party to the Tax Receivable Agreement under which we are contractually committed to pay the non-controlling interest holders 85% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of certain transactions.

Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws.

If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments.

Therefore, we would only recognize a liability for TRA Payments if we determine it is probable that we will generate sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits.

Estimating future taxable income is inherently uncertain and requires judgment.

In projecting future taxable income, we consider our historical results and incorporate certain assumptions, including projected Shack openings, revenue growth, and operating margins, among others.

As of December 27, 2023, we recognized $235.6 million of liabilities relating to our obligations under the Tax Receivable Agreement, after concluding that it was probable that we would have sufficient future taxable income to utilize the related tax benefits.

There were no transactions subject to the Tax Receivable Agreement for which we did not recognize the related liability, as we concluded that we would have sufficient future taxable income to utilize all of the related tax benefits generated by all transactions that occurred in fiscal 2023.

If we determine in the future that we will not be able to fully utilize all or part of the related tax benefits, we would de-recognize the portion of the liability related the benefits not expected to be utilized.

Additionally, we estimate the amount of TRA Payments expected to be paid within the next 12 months and classify this amount as current on our Consolidated Balance Sheets.

This determination is based on our estimate of taxable income for the next fiscal year.

To the extent our estimate differs from actual results, we may be required to reclassify portions of our liabilities under the Tax Receivable Agreement between current and non-current.

As detailed in Note 14 of the Consolidated Financial Statements included in Item 8, we are party to a Tax Receivable Agreement ("TRA") under which we are obliged to pay non-controlling interest holders 85% of any tax benefits we realize, or are deemed to realize, as a result of specific transactions.

Amounts payable under the TRA are contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws.

If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we are not required to make the related TRA payments.

Therefore, we would only recognize a liability for TRA payments if we determine it is probable that we will generate sufficient future taxable income over the term of the TRA to utilize the related tax benefits.

As of December 25, 2024, we recognized $247.7 million of liabilities relating to our obligations under the TRA, after concluding that it was probable that we would have sufficient future taxable income to utilize the related tax benefits.

There were no transactions subject to the TRA for which we did not recognize the related liability, as we concluded that we would have sufficient future taxable income to utilize all of the related tax benefits generated by all transactions that occurred in fiscal 2024.

If we determine in the future that we will not be able to fully utilize all or part of the related tax benefits, we would derecognize the portion of the liability related the benefits not expected to be utilized.

Additionally, we estimate the TRA payments expected within the next 12 months and classify this portion as current on our Consolidated Balance Sheets.

This classification is based on our estimate of taxable income for the upcoming fiscal year.

If our estimate differs from actual results, we may need to reclassify portions of the TRA liability between current and non-current.

Shake Shack Inc.

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What changed 10-K

Item 7. Management’s Discussion and Analysis