Shake Shack shares more than double in stock market debut

AP News
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Posted: Jan 30, 2015 5:16 PM
Shake Shack shares more than double in stock market debut

NEW YORK (AP) — Wall Street went wild for burgers Friday.

Shares of Shake Shack, a burger chain that started as a New York City hot dog cart, more than doubled in their first day of trading.

The company raised $105 million in its initial public offering Thursday, selling 5 million shares at $21 per share. It had initially forecast that its shares would fetch $14 to $16 per share from investors, and raised that prediction to $17 to $19 per share on Wednesday as demand grew.

Shake Shack is known for its burgers, milkshakes and crinkle-cut fries. Its journey from a hot dog cart in Manhattan's Madison Square Park to Wall Street started in 2001. Three years later, Union Square Hospitality Group, a company owned by restaurateur Danny Meyer, opened a kiosk in the same park. Restaurants throughout New York City followed, and in 2010, it ventured out of its hometown for the first time with a Miami restaurant.

It now has 63 locations, mostly on the East Coast, with plans for more.

Shares of Shake Shack Inc. rose $24.90, or 119 percent, to close at $45.90 Friday, valuing the small chain at more than $1.6 billion.

Here's what you need to know about the burger joint's sizzling debut:

WHY DID THE STOCK POP?

Shake Shack feeds into investors' growing appetite for restaurants that are quick but also serve food consumers think is healthier or fresher than what a fast-food chain offers.

Americans' tastes have been changing. They are trading fast-food joints, such as McDonald's, for ones that tout their fresh ingredients, such as burrito chain Chipotle. Shake Shack's IPO comes on the same week McDonald's Corp. announced it is replacing CEO Don Thompson with its chief brand officer, Steve Easterbrook. The world's largest burger chain has been struggling with falling sales as it faces completion from smaller rivals, such as Shake Shack and Five Guys.

Shake Shack cooks its burgers to order and promotes its use of natural ingredients, including hormone- and antibiotic-free beef. Long lines are common, and guests are given vibrating pagers that signal when an order is ready.

Investors view these types of restaurants, known as "fast-casual" chains, as a fast-growing sector. Many tend to be regional chains that plan to expand around the country.

Another likely reason for the huge demand: Shake Shack's New York roots.

"There isn't anyone on Wall Street who hasn't tried their burgers and shakes," said Kathleen Smith, principal at Renaissance Capital, an exchange-traded fund manager that focuses on IPOs. "It's a local favorite."

IN GOOD COMPANY

Other restaurant chains that went public over the past year also had huge first-day gains. Burger chain The Habit Restaurants Inc. soared 120 percent in its November debut. Chicken chain El Pollo Loco Holdings Inc. jumped 60 percent in July and Mediterranean-style restaurant chain Zoe's Kitchen Inc. popped 65 percent in its April debut.

SMALL CHAIN, BIG FOLLOWING

Shake Shack's locations are mostly along the East Coast, but its brand has grown beyond that, thanks to social media, TV appearances and some well-known fans. President Barack Obama has dropped by a Shake Shack near the White House. "Saturday Night Live," ''The Daily Show with Jon Stewart," and other TV shows have featured the burgers. And Shake Shack's fans on social media have swelled. It has 148,000 followers on photo- and video-sharing app Instagram, about 2,000 more than Chipotle.

CEO Randy Garutti said being based in New York helped turn Shake Shack into a global brand. There are now Shake Shacks in London, Istanbul and Moscow.

WHAT'S NEXT

The company wants to use money from the IPO to open more stores. The plan is to eventually have about 450 locations, according to the company's filling with the Securities and Exchange Commission.

Ten locations will open this year, Garutti said, including its first in Austin, Texas. Others are coming to Orlando, Florida and Baltimore, he said.