Shake Shack is closing nine underperforming units, the company said Tuesday.
The move is a result of a periodic evaluation of its portfolio of company-operated units, Shake Shack said in a filing with the U.S. Securities and Exchange Commission, or SEC. The nine locations were deemed to be underperforming because of changes in the trade area, and in some cases cannibalization from other nearby Shake Shack locations.
“These Shacks are not projected to provide acceptable returns in the foreseeable future,” the filing said.
It's the first time the chain has closed restaurants for purposes that were not construction related, a spokesperson said.
The units to be closed are in California (including five in the Los Angeles area), Ohio and Texas. Shake Shack said the closures are expected to optimize the chain’s footprint in those states and maximize profitable growth. Closing the restaurants will not impact plans to open additional units there in future, the filing said.
Management and hourly team members at the impacted restaurants will be eligible for rehire at other Shake Shack units. Managers who don’t want to transfer, and team members who don’t move to another store will be eligible for 60-days pay.
The company expects the closures to be completed by Sept. 25, subject to third-party agreements and other contingencies. Shake Shack at the end of the second quarter had 547 units.
As a result of the closures, Shake Shack expects to record cumulative pretax charges in the range of $28 to $30 million in the third quarter, the filing said.
Shake Shack CEO Rob Lynch took the helm of the New York City-based burger chain in May. Earlier this month, he outlined his plan for leading the chain into the next stage of growth, saying Shake Shack needs to get faster, and appeal more broadly to consumers who see the brand as a special occasion meal.
Same-store sales were up 4% during the second quarter, though that was largely a result of menu price increases. Traffic fell 0.8% during the quarter.
Year to date, the chain added 18 new company-operated units. For the year, Shake Shack projected opening 40 company-owned units and it has been working to cut about 10% in buildout costs. The development pipeline for 2025 has not yet been revealed.
Here is a list of the markets where restaurants are scheduled to close:
Oakland, California
Bunker Hill, downtown Los Angeles
Downtown Culver City in Los Angeles
Koreatown in Los Angeles
Silverlake in Los Angeles
Westfield Topanga, in Woodland Hills, California
Polaris, Ohio
Houston Galleria in Texas
Montrose, Texas
UPDATE: This article has been updated with new information from Shake Shack.
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