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Investing.com -- Bank of America downgraded Shake Shack to Underperform, warning that slowing consumer spending on restaurants and rising competition on price could outweigh gains from the chain’s stepped-up product innovation.
The brokerage said the U.S. labor market is losing momentum, and with households becoming more cautious, traffic and same-store sales growth are likely to remain constrained despite Shake Shack’s disciplined rollout of new menu items.
Rising beef costs, which make up roughly a third of the company’s commodity basket are also pressuring margins.
While the company has offset inflation with supply chain savings so far, BofA said further price increases could backfire given fast-casual rivals like Chipotle have taken far less pricing since late 2023.
Broader peers across the fast food and casual dining segments are leaning heavily into value messaging.
“Shake Shack has done an impressive job of systematizing its approach to innovation, deploying a stage-gate process that holds new products to high culinary, operational, and financial standards. But this rigor arrives at a time when the labor market is softening, and consumers’ restaurant spending has come under pressure,” analysts at BofA said.
BofA also questioned the company’s plan to target 1,500 U.S. locations, saying New York-style density would be difficult to replicate nationally without cannibalizing sales.
The firm cut its same-store sales forecasts below consensus through 2026 and lowered its price objective to $86 from $148, citing slower unit-level volumes and more modest margin expansion.
“We believe macro headwinds will likely continue to counterbalance product innovation tailwinds, constraining SSSG and traffic”