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How Shake Shack Leadership Is Delivering a Job Well Done

The importance of leadership is heightened during times of crisis. A savvy move from management can save a company from extinction -- or a bad one can lead to its demise.

Shake Shack (NYSE: SHAK) has benefited from sound management during the COVID-19 pandemic. Executives have made prompt and rational choices in the face of COVID-19 to ensure the company's longevity and growth. I'll break down some of the most significant ones.

Image source: Getty Images.

Strong leadership

Leadership quickly adapted brick-and-mortar locations to meet evolving consumer demands amid the pandemic, adding drive-through lanes and pickup windows to limit contact. The program -- called "Shack Track" -- also emphasized ordering online and picking up in-store to make eating Shake Shack as safe and socially distant as possible.

Customers have responded positively: Shake Shack's first quarter included four weeks of the pandemic shutdowns, yet it still managed to boast 8% sales growth (compared to almost 34% growth in the same period the year before), pointing to the power of its brand.

Beyond making its physical locations more approachable for consumers, Shake Shack is aggressively building out its delivery business. This past November, before the pandemic, Grubhub and Shake Shack announced an exclusive delivery partnership. Some analysts scratched their heads at a company deliberately limiting delivery to a single service rather than using every available option. But the exclusive partnership represents yet another positive managerial decision.

Shake Shack and Grubhub now plan to combine marketing resources to juice same-Shack sales. The advertising duo will enjoy deeper pockets and enhanced brand recognition to win over customers. CEO Randy Garutti and his team are dedicated to creating a thriving delivery system that also maintains premium quality. Focusing on a single delivery service with high customer service scores and a large scale allows Shake Shack to enjoy rapid delivery growth without compromising quality control.

Moves to bolster liquidity

Garutti and his team also acted wisely in the credit and equity markets to ensure future growth and success. After drawing down $50 million on its revolving credit facility and bringing in almost $140 million from a common share offering, Shake Shack now has a cash position of $250 million, enough to cover two full years of fixed costs with zero revenue. Zero revenue is a wildly pessimistic scenario given that the company is continuing to report 70% of its normalized sales even after shutdowns. Sales trends have since rebounded off of that low.

With the cash cushion, Shake Shack continued to open up new locations across the globe amid COVID-19. Seven Shacks opened internationally in places like China and South Korea despite the shutdowns, demonstrating that this company can continue to expand in challenging times. As if this wasn't enough, management chose to take compensation in stock rather than cash for the whole year, illustrating a strong insider vote of confidence.

What to do

Warren Buffett invests in management teams as much as businesses, and times like these show why. You wouldn't hire a CEO without conducting an interview, and investing should be no different. Shake Shack is a perfect example of experienced leadership looking ahead to brighter days. Give this growth story another look -- its managerial moves truly are well done.

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Bradley Freeman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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