Categories Earnings Call Transcripts, Other Industries

Shake Shack Inc Class A (SHAK) Q4 2021 Earnings Call Transcript

SHAK Earnings Call - Final Transcript

Shake Shack Inc Class A  (NYSE: SHAK) Q4 2021 earnings call dated Feb. 17, 2022

Corporate Participants:

Annalee Leggett — Investor Relations

Randy Garutti — Chief Executive Officer and Director

Katie Fogertey — Chief Financial Officer

Analysts:

Michael Tamas — Oppenheimer — Analyst

Jared Garber — Goldman Sachs — Analyst

Sharon Zackfia — William Blair — Analyst

Nick Setyan — Wedbush Securities — Analyst

Lauren Silberman — Credit Suisse — Analyst

Andrew Charles — Cowen — Analyst

Brian Mullan — Deutsche Bank — Analyst

Jeffrey Bernstein — Barclays — Analyst

John Glass — Morgan Stanley — Analyst

Alec Estrada — Stifel — Analyst

David Tarantino — Robert W. Baird — Analyst

Peter Saleh — BTIG — Analyst

Brett Levy — MKM Partners — Analyst

Jim Sanderson — Northcoast Research — Analyst

John Ivankoe — J.P. Morgan — Analyst

Brian Vaccaro — Raymond James — Analyst

Presentation:

Operator

Greetings and welcome to the Shake Shack Fourth Quarter 2021 Earnings Call. [Operator Instructions]

I will now turn the conference over to your host, Annalee Leggett. You may begin.

Annalee Leggett — Investor Relations

Thank you and good evening, everyone. Joining me for Shake Shack’s conference call is our CEO, Randy Garutti; and CFO, Katie Fogertey. During today’s call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Reconciliations to comparable GAAP measures are available in our earnings release and the financial details section of our supplemental materials. Some of today’s statements may be forward-looking, and actual results may differ materially due to a number of risks and uncertainties, including those discussed in our annual report on Form 10-K filed on February 26, 2021. Any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change.

As a reminder, 2020 included a 53rd fiscal week and to normalize for a consistent like-for-like comparison when discussing 2021 year-over-year sales and revenue metrics tonight, we’ve excluded the impact of the 53rd week in 2020. We’ve included metrics, including the 53rd week in our press release, and a slide detailing the impact to the same-Shack sales calculation in the financial details section of our earnings supplemental.

By now, you should have access to our fourth quarter 2021 earnings release, which can be found at investor.shakeshack.com in the News section. Additionally, we have posted our fourth quarter 2021 supplemental earnings materials, which can be found in the Events and Presentations section on our site or as an exhibit to our 8-K for the quarter.

I will now turn the call over to Randy.

Randy Garutti — Chief Executive Officer and Director

Thanks, Annalee. Good evening, everyone. Tonight we’ll highlight the strong fourth quarter recovery and full year 2021 performance following up from our pre-release of initial revenue and profitability results earlier in January. Katie and I will also be giving color on the current quarter’s performance, especially in light of Omicron impacts. As always, I want to take a moment to thank our team. This recent Omicron wave amidst an already challenging staffing environment has been a tough hurdle for our teams. The way they get out there day after day to take care of each other and their communities amazes us and they deserve our thanks. More than ever, it’s important we maintain our commitment to Stand for Something Good by elevating our people. This is Shake Shack.

The fourth quarter represented a strong improvement in sales and profitability and highlighted what recovery can start to look like when urban centers, travel and a return to pre-COVID movement patterns take hold. In 2021, we had a record system-wide sales of over $1.1 billion, growing over 47%, marking the highest sales in the Company’s history. Average weekly sales outpaced historical seasonality at 74,000. Same-Shack sales were up nearly 21% versus 2020. And for the first time was positive versus 2019 at up 2.2% due to the strength in both urban and suburban markets. Our licensed Shacks in the US and around the globe also performed well, contributing to record license revenue.

Our Shack-level operating profit in the fourth quarter was 16.4%, benefiting from strong sales, offset by continued labor and cost of goods inflation. The environment of commodity and labor wage inflation is still taking a material impact on our restaurant margins. We expect this dynamic for the foreseeable future. But in order to offset some inflationary pressures, we took a price increase of 3% to 3.5% in October of last year. Given the continued outlook, we’ve decided to take another 3% to 3.5% in March, resulting in an inflation-based price raise of 6% to 7% heading into Q2. We’ll also be raising our price premium on third-party delivery services from 10% to 15% higher than our in-Shack pricing. This gives us the opportunity for better profitability on those channels and even more reasons to drive people to our own digital channels for the best value.

Shake Shack has historically taken roughly 2% price per year and that’s given us a strong value proposition for our premium products. We believe these current price raises are necessary to protect margins. We’ll be keeping a close eye towards the cost of our business and we’ll consider whether additional price may be necessary later this year. We’re committed to delivering a high quality restaurant experience at a reasonable price and believe this value proposition is key as we expand in new and existing markets across the country.

While the fourth quarter results represented a lot of optimism around our recovery, we started this year with much more volatility on the business due to Omicron. The first quarter typically experiences a seasonal decline in sales versus the fourth quarter. But in January, a sharp increase of COVID cases limited our ability to staff and keep all of our restaurants fully open. Additionally, we saw many of the drivers of our business, such as office returns, events, travel, tourism and a general gathering of people that contributes to Shake Shack’s best results, turn downward. A combination of lower-than-average sales per hour, reduced operating hours and outright closures due to COVID resulted in materially lower sales versus our seasonal expectations.

We expect these trends may continue to impact sales in our Company-owned Shacks and our license business through the first quarter. However, we’re happy to report a steady uptick in sales over the last few weeks, with fiscal February month-to-date same-Shack sales of approximately 13% as of Tuesday of this week. With Omicron rates now plummeting, we’ll point back to the fourth quarter as an indicator of the kind of momentum we know can occur as a more normalized consumer environment returns. No one quite knows the timing of how people will move about following this recent Omicron wave, but we’re bullish on what spring in our recovery can look like later this year.

So let’s check in on each of our strategic pillars for 2022. First, elevating our people. We are not alone in the challenges of staffing and increased turnover amongst our teams. Omicron exacerbated this over the last couple of months and our teams worked diligently to hire, train and develop leaders at every level. We’ll remain an employer of choice through our competitive pay, benefits and commitments to our team and the way we take care of them during tough times like these and through their tenure as they rise up through the ladder of opportunity here at Shake Shack.

Heading into 2022, we have raised hourly starting wages more than 13% over where they were at the end of 2020. And this year for the fourth year in a row, the Human Rights Campaign Corporate Equality Index gave us a 100% score and named us as the best place to work for our LGBTQ plus team. Yet another way our team is recognized as we Stand for Something Good. This year we will also host our biannual leadership retreat where will gather all of our managers, partners, key suppliers for a week of inspiration, learning and connection as we prepare for the incredible growth ahead. In 2021, we filled nearly 60% of operations leadership positions with internal candidates, 70% of those being people of color and approximately half of those promotions being women. We still have much work to do, but we’re incredibly proud of how the team is developing.

Our second strategic pillar is our focus on digital transformation. Katie will go into more specifics here, but I’ll begin by sharing that over the past two years, we’ve invested deeply in our digital transformation, shifting guest preferences over to our digital tools, improving our products and guest experience, adding 3.5 million new app and web purchasers since March 2020 and enhancing all the ways our guests can more easily and more frequently come to the Shack on their terms. We are building a true omnichannel experience. And this year, we’re investing in new brand marketing within our digital products to enhance personalization, drive frequency and grow guest connection. We’re also leveraging digital tools to improve operations by allowing teams to manage the digital business based on current traffic and wait times. We’ll be focused on improving the Shack Track digital experience, upgrading and adding kiosks in Shacks and developing more personalized ways to connect and reward our digital community.

[Indecipherable] growth and development of our third strategic pillar, to build a better Shack. In 2021, we opened 36 domestic Company-operated Shacks currently with an AUV of $3.9 million. And this year we’re targeting our largest ever development class of 45 to 50 Company-operated Shacks with our development schedule heavily weighted to the back half, specifically to the fourth quarter of the year.

So I want to level set those targets as we’ve been shooting for that schedule for a couple of years. We expect to open a total of seven Company-operated Shacks in Q1 and between five and seven in Q2, as we’re already feeling the impact of supply chain disruption, labor availability in construction and extended permitting timelines pushing this year’s opening schedule heavily into the fourth quarter. And there’s risk to these numbers as uncertainty in availability of timeline-critical items has continued to grow even over the last quarter. We’ll keep you posted on timing and final guidance, but we’re really excited about this year and into the coming years, as we transform our portfolio of Shacks around the country.

The class of 2022 will feature a big commitment to new formats like drive-thru, while expanding proven formats like urban street retail and suburban freestanding. Now, we expect 25% of the class to have a Shack Track walk-up or drive-up window. In December, we opened our first ever drive-thru locations, Maple Grove, Minnesota, Lee’s Summit, Missouri. This past week we opened our third drive-thru in Livonia, Michigan outside Detroit and are preparing upcoming openings in Vineland Pointe, Orlando and Castle Rock, Colorado. Our strategy is to open this first group in busy-traffic locations so we can optimize learnings from the markets and our guests.

We’re building an experience that provides the elevated hospitality we’re known for, including made-to-order burgers and hand-spun shakes, balanced with the convenience that guests expect at a drive-thru. And while our preliminary results have been impacted by Omicron, we’re really encouraged by what we’re seeing, how the drive-thru is operating and all the use cases we can already imagine for how we’ll build these in the future. We look forward to continue to expand with up to a total of 10 drive-thrus operating by the end of 2022.

Unlocking this potential can have a tremendous impact on our long-term addressable market and we’re focused on deepening our investments, resources and learning about this critical new addition to the Shack family of experiences. We continue to anticipate build-out costs for the class of 2022 to increase 10% to 15% above historical levels due to sustained inflation of material costs and labor costs.

We continue to be pleased with the growth of our license business. In 2021, this part of our business drove over $400 million of system-wide sales. Contributing to this was the opening of 26 new licensed Shacks, highlighted by new market launches in Monterrey, Mexico, Macau, Shenzhen, Hangzhou and the deepening of our commitment to growth in Korea, Mexico and more. In the fourth quarter, we opened six new licensed Shacks, including our second in the city of Shenzhen. We’re really excited to continue building on this momentum in China and we see this region as a major potential growth focus with expansion this year into brand new markets, such as Guangzhou and Chengdu.

We are also proud to announce that we’ll be targeting opening in Malaysia in 2023 through a new development agreement. Our international license business remains a key focus, asset-light strategy to grow our brand and profitability over the long term. On the domestic side, our business in Q4 benefited from increased air travel, especially serving holiday travelers. We’ll be building on that momentum with a slate of new roadside Shacks in New Jersey and Upstate New York in a new development agreement we now have with Applegreen to grow this format.

Finally, we’re always working on improving our guest experience. In our kitchen, we are uplifting our culinary program with exciting LTOs and buzzworthy collabs, which drive engagement with new and existing guests. Recently, we ran our Truffle Burger and Fries, which were the strongest performing LTOs of 2021 in our digital channels after being launched early exclusively on our app. And right now, we’re highlighting our new Buffalo Chicken Sandwich, a crispy hand-breaded chicken breast covered in our Buffalo sauce, topped with our ranch sauce over pickles and shredded lettuce on a toasted potato bun. This pairs great with our Buffalo Spiced Fries, classic crinkle cuts dusted with our Buffalo seasoning served with our ranch sauce. Our seasonal shakes in the first quarter incorporated delicious flavors with a connection to our communities. The Wake & Shake is a coffee shake hand-spun with vanilla frozen custard, maple syrup and orange zest, topped with whipped cream and orange candies.

We’ve partnered with Red Bay Coffee, a Black-owned coffee maker out of Oakland, California, as yet another example of our commitment to gather communities and enrich our neighborhoods by supporting local businesses. We’ve got an exciting lineup of LTOs planned for this year focusing on chicken burgers, shakes and lemonades, all with the goal of driving frequency check and brand love.

And with that, I’ll hand it off to Katie to share more about the details of the quarter and our expectations moving forward.

Katie Fogertey — Chief Financial Officer

Great. Thank you, Randy. And good afternoon, everyone. I want to thank our amazing teams in our Shacks and at our home office for the tireless work that they do as we continue to work together and navigate this challenging landscape. Our deep dedication, perseverance and innovation is shining bright through the lingering pressures from COVID.

We ended the year on an optimistic note with encouragement about what a recovery for our more urban and tourism-heavy restaurant footprint can start to look like. We saw notable green shoots across Shacks, even as consumers were still not fully back to pre-COVID behavior patterns in terms of international and domestic tourism, return to office, as well as dining in restaurants.

Our fourth quarter revenue grew over 38% year-over-year to $203.3 million as our same-Shack sales rose 20.8%, more than closing the gap to 2019 same-Shack sales. This was a long-awaited milestone for the Company, and this happened even as many of our Shacks that had the largest sales volumes prior to COVID were still far from recovered.

We generated Shack-level operating profit margin of 16.4%, up 40 basis points year-on-year, our license business had a record quarter, and we generated adjusted EBITDA of $12.4 million, up 36% year-over-year. System-wide sales were $314.3 million in the quarter and more than $1.1 billion for the full year, up over 47% year-over-year and by more than 25% relative to 2019 levels. We are learning more insights as we enter new countries, markets and format, as there are now 379 Shake Shacks operating across 15 countries and we have a strong digital presence in our Company-owned business.

We generated $74,000 in average weekly sales, up from $72,000 we reported last quarter. And each month of the quarter outperformed historical seasonality, driven by a function of higher menu price and a building recovery in our urban Shacks, as well as continued strength in our suburban Shacks. In the fourth quarter, our urban same-Shack sales were 4% below 2019 levels, a material improvement from down 15% in the prior quarter. Most urban markets outside of Manhattan were up relative to 2019, and New York city had the largest impact on the sequential improvement in total same-Shack sales. Our suburban same-Shack sales were 9% above 2019 levels, also a material acceleration quarter-over-quarter even as our urban business performed well. Towards the end of the quarter, our mall-based Shacks benefited from more of our guests out shopping for the holidays. Our traditional freestanding and outdoor shopping center same-Shack sales also showed continued strength.

We saw strong performance across all regions in the fourth quarter. Texas, Connecticut and Georgia same-Shack sales were each up 20% or more relative to 2019 levels. Then with rising COVID case counts in the end of December and throughout January, we saw a swift reversal of the strong fourth quarter trends. Our average weekly sales fell to $63,000 in January, flat to last year and our same-Shack sales momentum slowed to up 2% year-over-year.

Rising case counts, in addition to weather, drove 87 full days of Shack closures and a high single-digit reduction in operating hours. We also throttled digital channels in some cases. These pressures of course are not new, but rather consistent with what we have experienced in prior COVID waves. While the timing of when our guests will return to pre-COVID momentum or movement patterns is uncertain, our sales in February is showing strong improvement from January levels, and our same-Shack sales are now up approximately 13% year-over-year as of Tuesday this week.

We are cautiously optimistic on recent sales trends, but this uncertainty is understandably impacting our ability to guide 1Q and full year 2022 with precision as it pertains to sales, cost, staffing, development and other metrics. We are guiding first quarter Shack sales of $190 million to $195 million, supported by an assumption that our sales remain impacted by COVID but that the impact will continue to lessen from January levels. However, this assumes no major new unanticipated disruptions throughout the quarter. We expect our same-Shack sales to grow high single-digits to low double-digits year-over-year.

We are encouraged by the results of our October price increase and believe our brand has pricing power. The extent of inflation this year remains uncertain and we may take additional price later this year to help build back margins, all while focusing on a tiered approach to pricing and ensuring that our guests still realize a great value in terms of superior food quality and guest service, as well as a wide range of offerings across price points. With rising COVID case counts in January, we saw a significant sales impact and deleverage across our restaurant P&L. This along with the higher delivery mix, ongoing inflationary pressures and added expenses to support the return of our in-Shack sales are likely to negatively impact our Shack-level operating profit margins for the first quarter. We are guiding to Shack-level operating profit margins to be between 11% and 14%. We are taking price late in the first quarter, so we’ll have little benefit to this quarter’s Shack-level operating profit margin.

We generated nearly 40% of our system sales through our license partners in the quarter, with license sales reaching $118.4 million, up 50% year-over-year. This performance was driven by new openings, increased holiday air travel domestically and relaxation of COVID-related restrictions in select international markets. Our partners are now operating more than 150 licensed restaurants worldwide and we expect to see 20 to 25 new licensed Shack openings in 2022.

Our license partners are seeing a wide range of impacts from the recent increase in COVID case counts and restrictions and we expect this impact to continue throughout the year. As such, we are guiding for a license business revenue of $6 million to $6.4 million in the first quarter and note risks and uncertainties around rising restrictions, particularly in Asia. While our momentum in the fourth quarter was encouraging, the swift sales pressure we faced in January simply reinforced the importance of our strategic plan in terms of our commitment to elevating our people, our digital transformation, evolving our formats and making sure that our guest experience rules in terms of quality and hospitality.

We believe that we must continue to invest in the digital transformation of the Company and are committed to building a true omnichannel guest experience where our digital platforms, meaning our app and our web, are the preferred channel. In the fourth quarter, we grew our first-time web and app customer base by nearly 10% versus the prior quarter and by more than 80% for the full year 2021, as we leaned into more personalized and digital marketing, as well as launching key limited time offers through our own app channels.

Our digital retention remains strong. In December, we retained nearly 80% of the digital business that we had generated in January 2021, even as our in-Shack sales nearly doubled. Our digital sales mix was 42% in the quarter and nearly 60% when considering kiosks and our digital channels combined. The long term and sustainable growth of our digital business is top of mind in our 2022 G&A guidance and overall investment plan. We believe our initiatives are important to lay the groundwork for improved digital frequency and lifetime value of these guests.

Now, on to the cost side of our Shacks. We are committed to working with the best-in-class suppliers and our supply chain team has done a commemorable job navigating macro-driven challenges in an inflationary backdrop. In the fourth quarter, our food and paper costs were $60.8 million [Phonetic] [Technical Issues] flat. The price increase we implemented in the quarter helped offset low single-digit quarter-over-quarter and low double-digit year-over-year food and paper inflation.

We realized cost pressures across many inputs, but particularly protein. We may take more price this year as the inflationary environment warrants. However, we currently anticipate mid to high single-digit inflation across most of our non-protein inputs and double-digit inflation across our paper and packaging. The biggest part of our basket is our 100% all-natural Angus beef where we expect continued inflation and are subject to weekly and monthly moving prices.

Labor was $57.9 million, or 29.6% of total Shack sales, down from 31.1% in the prior quarter and 30.3% in the fourth quarter of 2020, with the leverage driven primarily by higher sales. The staffing environment remains challenging, and we are going to continue to invest to build our teams for the growth ahead.

Operating expenses were $29.2 million, or 14.9% of total Shack sales, up from 14.2% in the third quarter of 2021 and 14.7% in the fourth quarter of 2020. Our in-Shack business doubled year-over-year in the quarter and with that came some additional expenses as it relates to maintaining our Shacks, including our dining rooms and in local marketing. We are committed to delivering a great guest experience, being a community gathering place and enriching the neighborhoods we operate in.

Occupancy was $15.8 million, or 8.1% of total Shack sales, down from 8.9% in the fourth quarter of 2020, with leverage coming from stronger sales. Total Shack-level operating profit in the quarter was $32.2 million, or 16.4% of Shack sales, up from 15.8% of Shack sales in the third quarter and up from 16% of sales in the fourth quarter of 2020. Sales pressures realized in January, plus a combination of inflationary pressures across a variety of restaurant P&L line items and a higher delivery mix compared to pre-COVID times is pressuring our restaurant margin recovery in the near term. We are taking some important steps to build back the profitability of our Shacks with an eye to the long-term health of the business.

First, we believe we are a strong brand with pricing power. We are taking price as the inflationary environment today warrants on menu and through third-party delivery and may take additional price increases this year if needed. Also, as we saw in the fourth quarter, sales leverage can help offset some of the cost pressures we face. We are accelerating investments and going deeper in marketing and digital as we look forward to a more sustainable sales-driven recovery over time.

Our G&A was $25.6 million, up 24.7% quarter-over-quarter, bringing the full year 2021 G&A spend to $86 million, inclusive of $2.5 million in equity-based stock compensation expense for the fourth quarter and $7.9 million for the full year. The largest increase in G&A year-over-year came from our additional marketing and technology investments. We are investing in G&A this year with an eye on the long-term growth potential for the Company, and expect to spend between $108 million and $114 million, inclusive of approximately $12 million in equity-based stock compensation expense. The rise in equity-based stock compensation is a function of us making key investments this year in our teams, including our general managers. This level of investment is necessary to open low Shacks on record and build out our digital and marketing strategies.

Pre-opening expense was $4.5 million in the quarter as we opened 13 new Shacks and we expect 2022 pre-opening expense to be between $14 million and $17.5 million. Depreciation and amortization expense was $15.6 million, up 24% year-over-year. We expect 2022 depreciation and amortization expense to be between $70 million and $75 million.

We realized a GAAP actual net loss of $9.7 million in the fourth quarter or a negative $0.25 earnings per share. On an adjusted pro forma basis, we reported a net loss of $4.8 million, or a negative $0.11 per fully exchanged and diluted share. Excluding the tax impact of stock-based compensation, our pro forma tax rate in the fourth quarter was 30.9.%. A full reconciliation between our GAAP and adjusted pro forma net income and earnings per share can be found in our earnings release and a reconciliation of our tax rates can be found in the financial details section of our supplemental materials.

We expect our adjusted pro forma tax rate, excluding the impact of stock-based compensation, to be between 28% to 30% for the full year. However, we could see variability from this range depending on the extent of our business recovery in higher tax jurisdictions and other factors.

Our balance sheet remains in a strong position, and we ended the quarter with $382.4 million in cash and marketable securities. We will be using our healthy cash balance to support our strong growth in new Shack openings across a variety of formats, including drive-thru, as well as continue to make investments across our business.

Thank you for your time. And with that, I’ll turn it back to Randy.

Randy Garutti — Chief Executive Officer and Director

Thanks, Katie. I just want to end today sharing the optimism that our team feels around what’s ahead. There is no doubt the whipsaw of COVID-induced impact continues, has been felt already in this first quarter, but the team is forging ahead. We’re driving excitement around our products, our Shacks in each and every way our guests can experience Shake Shack. We’ve got a big year ahead and we’re thankful you’re along for the ride with us. As always, hope that you and your family stay safe and healthy.

With that operator, please go ahead and open the call for questions.

Questions and Answers:

Operator

Thank you. And at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Michael Tamas with Oppenheimer and Company. Please proceed with your question.

Michael Tamas — Oppenheimer — Analyst

Hi, thanks. Good afternoon, everyone. You said you’re planning to take more price in March to protect your margins, and I think the comment to protect margins sounds like a little bit of a shift from the last few calls. And so how do you want us to think about that comment specifically on protecting margins? Is that meaning that 2022 should look similar to ’21 or what’s the right way that we should all be interpreting the protecting margins comment? Thanks.

Randy Garutti — Chief Executive Officer and Director

Well, I think you got to — I think you interpret it as the price of 6% to 7% that we’re going to have in total running through the system as we head into Q2. And there is a lot of puts and takes, there is a lot of uncertainty and inflation, the cost of goods entering our business and our continued investments in our people and all the things. So we’re not going to run this business to just hit some expected margin. We’re going to run it for the long-term return of sales. The number 1 thing we’ll do to protect margins is getting our sales fully back. And those are — that’s the number 1 focus will always be sales on that. And we will take price appropriate with that. I think what we’ve shared today is, it’s clear that inflation and its hit on our business remains persistent, may remain persistent and we will watch closely to see if it gets worse into this year. So we’ll keep you posted as they change on that, Michael, but that’s the plan for right now. And as Katie said a couple of times, we’ll keep an eye on whether we need more price next year. But at this moment, we have no plan to do that, but we’ll keep an eye on that as the biggest inputs come.

Michael Tamas — Oppenheimer — Analyst

All right, makes sense. And then obviously you’re still really early in the process of drive-thrus and drive-ups. You have 10 planned I think by the end of ’22. And so as you think about your unit growth beyond ’22, I know you’re not giving us numbers, but if you were to just say grow 50 units, I mean this is just such a transformation for your business. Is there a point where we might see these be 30% to 40% — or 30% to 40% of those 50 units and if that wouldn’t be the case, why not? Thanks.

Randy Garutti — Chief Executive Officer and Director

Well, I think we got to get to know drive-thru, right? So we’re not guiding any of those numbers today. You can see in my comments how excited we are about it to have three open. And we’ve got less than two months of experience running a drive-thru, so we got a lot to learn, a lot to do. And as — the words I continue to use is we’re optimized for learning on that. We have various kitchen designs, various drive-up scenarios that we’re practicing, we’re learning. And there’s going to be places where drive-thrus, we believe, will be a critical part of Shake Shack’s future, but we’ve got to prove that and we’ve got to figure out how to build that. So a lot ahead, a lot of optimism on that and quite a few Shacks that are coming our way soon, so look forward to a drive-thru near you.

Michael Tamas — Oppenheimer — Analyst

Thanks very much.

Operator

Our next question comes from the line of Jared Garber with Goldman Sachs. Please proceed with your question.

Jared Garber — Goldman Sachs — Analyst

Hi, thanks for taking the question. Wanted to circle back on the commentary on pricing. Obviously encouraging to view you guys kind of step out and increase the price there to help the margin profile, but wondering what your studies would show on pricing elasticity. I think one of the things that we hear investors talk about a lot is that the price of a Shake Shack Burger. So just curious how you view that pricing tower that you talked about, Katie or Randy, and maybe what kind of research you’ve done to suggest that you have sort of 6% to possibly more than that percent price to take it. Thanks.

Katie Fogertey — Chief Financial Officer

We do keep a careful eye on where we are relative to where we think our competitors are, and we still feel very good about what that price gap is, and that’s probably all that I can go into today. We do take a tiered approach to our pricing and so we’re very — we take into account our guests kind of willingness to pay in various markets. And that’s kind of what we look at when we see pricing. The results of our — we raised price in October and we saw pretty good reception to that price increase and that gives us more confidence here, but it is a risk and something that we’re very mindful of.

Randy Garutti — Chief Executive Officer and Director

And Jared, look, none of us have seen this kind of inflationary environment in a generation, certainly no one alive has ever seen it following a pandemic. So I think there’s just going to be a lot to watch and learn, but we have — as we said like really feel good about where we sit. When you kind of look at your typical Shack meal, you kind of Shack Burger Fries and a drink, does that sit comfortably against other options that you might have for lunch or dinner? And we sure think it does and we feel like that gives us a strong platform to grow from.

Jared Garber — Goldman Sachs — Analyst

That’s great, thanks. And then just one sort of quick follow-up on the delivery pricing, you’re taking that incrementally higher on the third-party channels. Does that drive sort of a channel-agnostic scenario in terms of margins, or are those margins still lower than your direct channels? Thanks.

Katie Fogertey — Chief Financial Officer

I would say with that, this is an important step to improve our profitability and our delivery channels.

Jared Garber — Goldman Sachs — Analyst

Cool. Thank you.

Operator

Your next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.

Sharon Zackfia — William Blair — Analyst

Hi, good afternoon. I guess a question on the pricing, sorry. I remember, Randy, we were sitting together in New York the week before the pandemic really started in the US, and you were doing the pricing elasticity analysis at that point. And I recognize you don’t want to get overly into where you can take price and where you can’t, but have you seen any noticeable consumer resistance over the past years you’ve taken a bit more price? And then secondarily, Katie, the margin range for the quarter is a bit wider than normal. Is that just reflecting the uncertainty with sales given the pandemic volatility?

Randy Garutti — Chief Executive Officer and Director

Okay. So on the pricing, look, we’ve got — we just took 3.5% in October, right, towards the end of October. That is all new and we’ve had a wild consumer environment since then, so really hard to say. We continue to believe, Sharon, that we’ve got some really strong pricing power. That’s what two — more than two years ago as what you’re referring to, we continue to believe. And we also have just gotten smarter about how we price, how we price for a fair value exchange in things like our delivery channels and market by market tiered pricing.

So we feel really good about getting smarter about price and still keeping it within a range that we think is reasonable. And yet, this Company has a history of a roughly 2% price take every year. For us to be at 7% is indicative of the time we’re living in. And I think we’re more, probably, on the conservative end of that if you look at us against the industry, us against at-home cost of food. And I think that would tell you that we’re probably in a pretty strong pricing position as we enter this next phase of things getting more expensive around us, which is why we’ll keep an eye on things for the future.

Katie Fogertey — Chief Financial Officer

And then, Sharon, on your question on the wide range of margin. I mean, it’s something that we talked about in our prepared remarks. There is kind of growing uncertainty here about our ability to really nail down the true cost landscape here and the impacts from Omicron and so we’ve done our best to reflect that in the guidance today.

Randy Garutti — Chief Executive Officer and Director

And also I want to make sure you catch that. We’re very clear that Q4 really started to see those drivers for Shake Shack that we know can drive our business results happen and we celebrate what that looked like in Q4. Q1 in January was really tough and yet the last three weeks in February have been consistently better every week. So you can kind of see that wave. And as we’ve talked about for two years, Shake Shack is generally more impacted by these waves given our unique real estate proposition. And we look forward to more of a return of normal traffic patterns and we’re hopeful, but we’re going to be cautious in that in our op profit and our sales guidance for this quarter and beyond.

Sharon Zackfia — William Blair — Analyst

Great. Thank you.

Operator

Our next question comes from the line of Nick Setyan with Wedbush Securities. Please proceed with your question.

Nick Setyan — Wedbush Securities — Analyst

Thank you. Q4 average weekly sales were above the average weekly sales than in Q4 ’19 and even in the best of times pre-COVID year-over-year, your average weekly sales tended to decline because of the new unit volumes. Can you maybe just take a step back and explain to us what was so favorable about Q4 ’21 versus Q4 ’19 the average weekly sales and as we go forward and sales do normalize post-Omicron what we should expect there?

Randy Garutti — Chief Executive Officer and Director

Yeah, Nick. A couple things on that. We bucked the seasonal trend in Q4, and I think that’s the optimism of what we’re talking about here, right? You started to see that, you saw a little bit of that towards the end where we had some price, but most of that was that urban recovery to start to see what the Shacks we all know and love looks like and will look like. And some of that was some pretty strong openings that we had through 2021, as I noted, some above-average continued average weekly sales and AUVs for that class that kicked off, and that gives us confidence.

And that’s why — nobody is excited about being slower than we expected AWS for January, but as we look ahead and we know and we can see the kind of things that Shake Shack has always been, it’s why we’re confident and optimistic for where this thing is headed. But we’re not going to quote an average weekly sales number, but all of the strategies we just talked about, specifically to our people, our digital and our Shacks, is what we’re building towards to get that back and growing.

Katie Fogertey — Chief Financial Officer

And just to tail-on there, New York City, the recovery that New York City saw in the fourth quarter while still many of our Shacks were below 2019 levels, that improvement was a very significant driver of our total same-Shack sales in the quarter. And so we really — we’re very encouraged by what we started to see as movement trends started to get — we’re nowhere near a fully return to pre-COVID levels, but you started to see more international tourism, you started to see more return to office. All those things are just such great benefits for us and left us encouraged for what the recovery could look like once we move past Omicron.

Nick Setyan — Wedbush Securities — Analyst

Okay. And Katie, let’s say Q2 recovers to pre-Omicron levels of sales, what the incremental price increase — assuming again pre-Omicron sort of levels of sales, what could the overall margin look like in Q2?

Katie Fogertey — Chief Financial Officer

Yeah. We’re not going to go into that at this point. There’s a lot of uncertainties too as we go throughout the quarter into 2Q, so…

Nick Setyan — Wedbush Securities — Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Lauren Silberman with Credit Suisse. Please proceed with your question.

Lauren Silberman — Credit Suisse — Analyst

Thank you for the question. So I just wanted to ask about your longer-term outlook on restaurant margins. A little bit similar to the last question but near-term, a lot of volatility across the P&L, transitory headwinds creating noise, high-volume Shacks pressuring margins in outsized degree. As we move towards a more normalized environment, which I guess means a full return to pre-COVID AUVs across the base and no further acceleration in cost, what do you see as the right margin for the system? Is it 20%, is that how we should be still thinking about it?

Randy Garutti — Chief Executive Officer and Director

Yeah. Lauren, we haven’t given that long-term official guidance yet. We know we have work to do to rebuild. You started to see that rebuild in Q4 and kind of finishing out the year. So we’ve got work to do. A lot of that is going to be watching this inflationary environment, how much things continue to increase, where our digital channels end up landing, and the cost of delivery and some of the other things that impact that. But look, we fully believe in the long-term strength of the margins of this brand. We’ve proved that for every year prior to COVID and COVID has had an impact for the last two years.

And I think given how volatile it’s been, given how many of our restaurants still have some ups and downs, the team has done a great job getting basically three-quarters of that profitability back. And we’ve got a road and a lot of work to do to get that back and that’s our work ahead. That’s every strategic pillar that you heard me say is what that is all based upon, and that will start and always begin and end with driving sales and that’s the next part of the work ahead.

Lauren Silberman — Credit Suisse — Analyst

Got it, okay. Then I can transition to — sorry, for a near-term question. Are you willing to give what January and February same-store sales were versus — I guess month-to-date, versus 2020 which was normalized at the time, or I guess where average weekly sales are trending through February relative to $63,000 in January, just as we try to look at the underlying [Phonetic].

Katie Fogertey — Chief Financial Officer

Yeah, no, we are always going to be comparing to our one-year stack at this point, and we’re doing this for a very specific reason. We are growing so fast. Our comp base is so different today than it is versus 2019 or 2020, and so we are reverting to kind of more of a normalized reporting pattern here.

Lauren Silberman — Credit Suisse — Analyst

Thank you, guys.

Katie Fogertey — Chief Financial Officer

Thanks.

Operator

And our next question comes from the line of Andrew Charles with Cowen. Please proceed with your question.

Andrew Charles — Cowen — Analyst

Yeah, just my first question, maybe just follow-up with my last one. The formal long-term guidance before for margins was 18% to 22% and look, of course there is a lot of things the industry is facing right now, it’s going to make it very challenging for that number. The industry is going to have challenges with margins for the foreseeable future. But I just want to make sure, I mean is that still the number you guys are thinking about longer term and if so, do you view that kind of as something that you have confidence in or something that’s a bit more of a stretch from where you are today?

Randy Garutti — Chief Executive Officer and Director

I’m not sure anything different that I could say to that question, Andrew, than I just said. So I think we are not changing our long-term guidance that we’ve given about the long-term opportunities for Shake Shack. We’ve got work to do to rebuild that beyond the last 16%-plus in Q4. So certainly got work to do. We believe in the strength of the Op profits of this brand and the AUVs being strong moving forward. So we’ll keep you posted and we’re going to rebuild.

Andrew Charles — Cowen — Analyst

Got it, thanks. And then my other question was just on marketing for this year. Would love to know — the brand historically has done some fun collaborations, things that have been a little bit outside the box like with Game of Thrones, with Klay Thompson. Looking beyond menu innovation, I mean are there plans to create some buzz for the brand in 2022 that we should be thinking about in terms of new marketing ideas?

Randy Garutti — Chief Executive Officer and Director

Definitely. Well, you can see recently we’ve been running with our Buffalo Chicken and you’ll see that in new digital channels. And we’ve also — we ended Q4 with some different out-of-home advertising and various localized things for our Black Truffle. And the team is just having a ton of fun creating some super fun. We’ve got some — we’ll have some great chef-and-brand collabs this year. We’ll have some great LTOs that will have a wider brand collab attachment to it. And you’ll see us doing more digital marketing specific even on channels right now, like we’re testing some work with YouTube TV and Hulu and some things that you may see our Buffalo Chicken pop up from time to time. So the team is definitely starting to dabble more and more into greater marketing spend and that’s part of our G&A guide for this year.

Andrew Charles — Cowen — Analyst

Good stuff. Thanks, Randy.

Operator

Our next question comes from the line of Brian Mullan with Deutsche Bank. Please proceed with your question.

Brian Mullan — Deutsche Bank — Analyst

Hey, thank you. Just a question on delivery, specifically around consumer demand. Just curious what you’ve seen over the last few months. Is that a channel that has transactions growing year-over-year across your system? I’m asking because I imagine there are some tough compares from the year-ago period, so any color on what consumer demand for delivery looks like right now would be helpful.

Katie Fogertey — Chief Financial Officer

Yeah. So delivery, the business did a lot of delivery clearly in 2021 if you think about where the market was there versus now. The rise in Omicron cases, we did see an increase in our delivery mix. However, we are comparing against a pretty severe time the year before.

Randy Garutti — Chief Executive Officer and Director

I think it’s going to be interesting to just watch. I think it’s — look, it’s unknown. We have a strong continued demand for delivery. That’s the punchline. We’d like to do that in our own channels, and we have great relationships with our third-party delivery partners. So we’ll see that. I think it’s proven to be a little more seasonal, right, when it’s cold, when you have COVID, we generally tend to do more deliveries. When people are out and about, and you really saw this even in the fourth quarter, our in-Shack sales really rose. So to me that just starts to show you too when — how our return to more normalized traffic patterns happens we expect that to lean more towards in-Shack sales.

Brian Mullan — Deutsche Bank — Analyst

Okay. Thanks. And then just a question on the labor environment, high level maybe you could talk about what has gotten objectively better or easier of late, but what still remains really challenging. And then labor is always important, will always be important, but any thoughts on when the industry gets to a point where this is no longer what is being labeled as a crisis or at least such an acute challenge. Can that happen over the course of this year?

Randy Garutti — Chief Executive Officer and Director

I wish I knew. And the reality is, I don’t think anyone knows. There’s labor challenges across every industry at every pay level. Look, that was really hardest, I would say, in December and January when Omicron really hit because on top of a challenged environment, you just had a lot of COVID cases and that just made it even harder to work in a restaurant. I’m a believer that people will continue to return to work in restaurants as a great career choice. That’s what Shake Shack aims to do. And we’re going to work to keep building that back one great team member at a time. And I just want to note. Operator, we have a limited time and a lot of questions, so I’m going to ask each person to maybe limit to one question from here so that we can try to get to as many people as possible.

Operator

All right. And our next question comes from the line of Jeffrey Bernstein with Barclays. Please foresee with your question.

Jeffrey Bernstein — Barclays — Analyst

Great, thank you. Randy, just one question. You clearly have got an outsized US Company-operated pipeline in 2022, that 45 to 50 units, which equates to a low 20% unit growth. I think your long-term guide was for 20% plus. Obviously your base is many multiples the size that it was at the IPO. I’m just wondering if you still believe that that 20% is appropriate, not been necessarily changing it today, but whether or not it’s just increasingly difficult either to find the right sites or the right people? Obviously you want quality over quantity, especially when I think you noted the building costs are up double-digits. So kind of how do you think about that as you get to a larger and larger base at some point, presumably having to temper that unit growth algorithm? Thank you.

Randy Garutti — Chief Executive Officer and Director

Yeah, Jeff. Thanks. We haven’t — we’ve obviously performed well above those percentages for the history of the Company. We haven’t really guided anything like long-term 20%. So just to be clear, the only guide we have this year is 45 to 50. We think that’s a great number. We have a lot of good growth in front of us, Jeff. We’ve got more opportunity, I would say, than ever, a stronger, better team than ever and more formats that can find more places for strong Shacks than ever.

And we are not at all dismayed by a higher cost to build environment. That is why we have $400 million, roughly, in our balance sheet. We’re going to use it to grow restaurants. We’re going to do that at an appropriate pace. We’re not going to go — you’re not going to see us build 100 restaurants next year, but we’re working on that now and we’ll keep you posted. For this year, 45 to 50 is the right one. We’ll keep you posted on what that looks like in the coming years. But I think the opportunity for strong growth ahead for Shake Shack remains one of the most exciting parts of our story and we still feel like we’ve barely gotten started.

Jeffrey Bernstein — Barclays — Analyst

Thank you.

Operator

Our next question comes from the line of John Glass with Morgan Stanley. Please proceed with your question.

John Glass — Morgan Stanley — Analyst

Thanks very much. Randy or Katie, I’m wondering how do you measure new store returns in this environment, right, just because you’ve got good sales, but the margins are uncertain, the costs are going up. So how does the mechanics of it work? Is it a discounted cash flow, and do you — you have to plug some margin assumption in there, so how do you do that? And related to the increased building costs, are you thinking about ways to make Shacks cheaper so you can start to offset some of that inflation, or is that not part of how you think about building new stores right now?

Randy Garutti — Chief Executive Officer and Director

Yeah, John, it’s a great question and the math is really easy. When cost to build is up and profits are down, payback takes a little longer. We look at it in lots of different ways. Obviously, we have a pretty good cost of capital given our situation here with our balance sheet, but we are going to keep building with confidence. And we’re also going to keep building restaurants to optimize for learning. Specifically with drive-thrus, that will cost us more for a while as we build those. So we’re not trying to cut anything out of that learning. We’re trying to spend money to learn to open up the addressable market.

As we look at core Shacks, we’re constantly doing smarter things with our building materials, with the ways that we build our designs and teams, internal and our third-party design and construction teams to do that better, do that more efficiently. But, yeah, there is going to be some period of time here in this different environment where we expect to keep building and the returns may not be what they’ve historically been while margins are depressed. But we believe we’re going to get a lot of that back. As we’ve said on this call today, we’ve got work to do to do that. And in the meantime, we’re taking this opportunity to continue to grow because Shake Shack is so small compared to our opportunity and we’ve got a long way to go.

John Glass — Morgan Stanley — Analyst

Thanks.

Operator

And our next question comes from the line of Chris O’Cull with Stifel. Please proceed with your question.

Alec Estrada — Stifel — Analyst

Hi, thanks. This is actually Alec Estrada on for Chris. I know kiosks were slated to be a big part of the digital initiatives this year, so I was hoping to get a little more color on that. How many of those do you have in place today? And then with 75% of sales with those kiosk restaurants being digital to obviously have lower labor requirements, how much of a benefit is that kiosk model to the labor line from here? Thanks.

Katie Fogertey — Chief Financial Officer

Yeah. Kiosks, we’re really excited about kiosks and about half of our Shacks today have kiosks. In some instances, we’ve taken out one cash register and in other instances, we’ve taken out more, but we don’t really view kiosks at this point in time as being really just a cost-savings initiative. For us, it’s more about the sales lift that we see on the back of it and the opportunity to drive deeper our digital strategy and really bring kiosks into that full digital ecosystem. We see higher attach rates with our LTOs through this channel. We can see that guests really understand the menu items and really kind of engage with us in a really exciting way. And we’re investing this year to increase the number of Shacks that have kiosks. It’s going to be really a very exciting learning opportunity as we do that, as we have digital menu boards and drive-thru. There’s a lot of very exciting points of sale-type technology that we’re investing in today.

Alec Estrada — Stifel — Analyst

Thank you.

Operator

Our next question comes from the line of David Tarantino with Baird. Please proceed with your question.

David Tarantino — Robert W. Baird — Analyst

Hi, good afternoon. I have a clarification question on the sales that you’re running today, and I just wanted to get a better sense of how much Omicron has taken out of the business. So could you give us some sense of what the typical seasonality would do to your sales from Q4 to Q1? And then I guess as you look at your February trend, how far off of that are you in percentage terms?

Katie Fogertey — Chief Financial Officer

Yeah, so as you probably appreciate, our business is growing incredibly fast and it makes compares to prior years very challenging. But we do typically tend to see sales or at least AWS trends decline from fourth quarter from December into January. And we are pleased with where our same-Shack sales are trending in February relative to typical seasonality. But it’s hard to really talk about typical seasonality when our comp base has basically doubled over the past three years.

David Tarantino — Robert W. Baird — Analyst

Understood, but I guess maybe said differently, I guess is February still under the run rate you were in Q4, I guess, if you adjusted however you adjust them internally?

Randy Garutti — Chief Executive Officer and Director

I think February is still, as we said, improving every week from January but still impacted by Omicron, still impacted by the number of Shacks in our base that rely on the kind of traditional Shack traffic. So, yeah, I mean there is going to be some impact to February remaining down, and that’s all part of our guide for Q1. And I think it’s going to take some time to rebuild that through the year, as we’ve said today.

David Tarantino — Robert W. Baird — Analyst

Okay, thank you.

Operator

Our next question comes from the line of Peter Saleh with BTIG. Please proceed with your question.

Peter Saleh — BTIG — Analyst

Great, thank you. Just taking into consideration you guys are — you raised prices in October and again planning for in March, can you just give us a sense of how much of that pricing — how much of the inflation you think that will offset based on your current forecast for both commodities and labor for the year?

Katie Fogertey — Chief Financial Officer

Yeah, we’re not going to give that for the full year. This is a very dynamic environment. We’ve given you our expectation, so for how we expect certain parts of our basket to play out over the year. But there’s going to be volatility potential in beef and other parts of our protein basket. We are subject to that as well.

Peter Saleh — BTIG — Analyst

All right. Thank you very much.

Operator

Our next question comes from the line of Brett Levy with MKM Partners. Please proceed with your question.

Brett Levy — MKM Partners — Analyst

Great, thanks. Just with respect to labor. What are you seeing in terms of not just applications, but your ability to hire people with experience, people that really fit the mold for what you’re looking for at Shake Shack? We’ve heard some others talking about applications are up, but they’re not — they weren’t necessarily getting that same flow through. And what are you seeing in terms of just their level of experience? Thanks.

Randy Garutti — Chief Executive Officer and Director

Yeah. We’re coming off some pretty low lows given the Omicron environment in January, but we’ve certainly seen that tick back up. So I think the answer to all of those parts of that question is slight improvement continuing, though more encouraging every day, it’s still going to be a region by region conversation. There’s going to be cities where it’s just not that hard to hire and we have strong teams fully staffed and ready to roll, and then there’ll be cities where it’s really hard to hire. And those things existed before COVID, they’re exacerbated by COVID. And I think what we would say is, we’re optimistic about trend, but it’s a long way from any normalized staffing environment and we’re going to have to see how this goes through this year. And for us, part of — we’re looking for great human beings. We’re not so worried about if you know how to spin a milkshake. Our job is to teach you that and drive your opportunity of leadership development from there. So we feel real good about our training, but we’re doing a lot of training right now. There’s a lot of new people, there is a cost to that, there is an impact to that, and we will keep investing there.

Brett Levy — MKM Partners — Analyst

Just on that last point, could you give any guidepost in terms of what you’re seeing in terms of over time and training cost? Thank you.

Randy Garutti — Chief Executive Officer and Director

We haven’t broken that out, but it’s inherent in the current results, right? It’s inherent in even the last year’s results of that more challenging environment. And certainly in the Q1 guide, there is a labor cost impact to all that newness to getting people up to speed and to everything that we’ve gone through in this first couple — the initial tough period of Q1.

Brett Levy — MKM Partners — Analyst

Thanks.

Operator

Our next question comes from the line of Jim Sanderson with Northcoast Research. Please proceed with your question.

Jim Sanderson — Northcoast Research — Analyst

Hey, thanks for the question. Just following up on the labor issue. I’m wondering if you’re satisfied currently with the lay out of supervisory management and the number of actual employees you have in stores on average, or if your experience of COVID and the disruptions have made you rethink the need to bolster your team to start rethinking maybe increasing the number of employees per store or supervisory management to make sure that you can handle throughput, assuming that business does improve in the next couple of quarters

Randy Garutti — Chief Executive Officer and Director

Yeah, Jim, it’s a really good question. We’ve always felt really strong about having significant management teams and paying them well, especially our general managers, which are critical to our success. So we have always felt like we’ve never been trying to be efficient and tight on that. We’re trying to run great restaurants. And you hit on it. I think it’s more about seasonality and return. So this is a staffing up time, right? You’ve seen the seasonality of our business. We generally grow quite a bit in average weekly sales as we go through Q2 to Q3. And now is the time to begin to bulk up those teams a little bit as sales hopefully begin to return. So that’s the work.

I don’t think we have any change, other than we just want to be better at it. We want to be better at running our businesses, we want to be better at hiring great people that want to be with us, stay with us and develop long term. And I don’t know if you caught my comments earlier, but 60% of our promotions came from within in 2021, 70% of those, people of color, and a half of those women. We feel incredibly good about that opportunity. We’ve got to do more of that. That’s just a starting point, but that tells you the kind of culture that we are continuing to build.

Jim Sanderson — Northcoast Research — Analyst

Thank you.

Operator

Our next question comes from the line of John Ivankoe with J.P. Morgan. Please proceed with your question.

John Ivankoe — J.P. Morgan — Analyst

There we go. Hi, thank you. One question. How are we thinking about different self-help things to kind of think about what you can do on the margin side, whether it’s kind of shorter-term tactical changes to more medium-term actually changes to your business whether to the stores that are already in existence, the stores of ’22, or maybe the store of the future that simply will allow you to run a more efficient business model even in this high commodity environment and difficult labor environment?

Randy Garutti — Chief Executive Officer and Director

Yeah, there is a lot in there, John. And the way we’re thinking about, first, is driving sales. First, let’s drive sales, let’s get back, and then let’s build new formats that allow us to drive strong AUVs for the future. That’s what drive-thru is about, that’s what all these other additional formats. The second part of that is digital. And again, don’t expect Shake Shack to have robotics anytime soon here, right, but in what ways can we automate processes. And really when we think about that today, that work is happening in the ordering and pick-up process. We’re getting — having more and more tech in our digital, our kiosks, our app. And then in the pick-up experience, where you can — more and more we’re testing guest pick-up screens that tell you when and how your stuff is ready. We’re making our communications with our guests more direct and more real-time engaged. So all lots of stuff.

But, yeah, we’ve got a lot of stuff to do. That’s why we keep thinking about the menu, it’s why we’ve held off on returning even some of our classic items that we’ve kept off the menu for a while. Some of our LTOs now, you may notice, are running for longer periods of time. So instead of kind of a three-month, we may do four-month. Again that depends on the LTO and the timeline and the goals of it, but trying to ease that operation is one of our top goals in the Company is to reduce the admin, reduce the operational steps that our teams have to go through every day. And that’s a lot of work over many years, so we’ve got a lot to do. So we’re committed to that as part of our margin recovery continued work and plan. But first, we’re always going to focus on the sales side.

John Ivankoe — J.P. Morgan — Analyst

Understood. Thank you.

Operator

And then for our final question, we had the line of Brian Vaccaro with Raymond James. Please proceed with your question.

Brian Vaccaro — Raymond James — Analyst

Thanks. Just a quick one on labor, if I could. What level of wage inflation did you see in the fourth quarter and are you expecting in ’22? And is there a way to ballpark the level of investment and what form or forms some of those investments could take that you alluded to earlier in the call? Thank you.

Randy Garutti — Chief Executive Officer and Director

The one number we gave that is clear, is just our starting wage from the end of 2020 until, roughly, now, we are 13% higher in wage inflation on just our starting hourly wage. That doesn’t include the continued raises we’ve given our shift managers, our exempt managers, the general managers and the other support functions around here. So that gives you a little idea of what’s running through the system now and there’ll be continued investments there, right? There’ll be some Shacks in regions where we need to keep increasing. We’re doing various things on that to keep learning and find the right competitive wages. And that’ll be a journey this year, I’m sure.

Brian Vaccaro — Raymond James — Analyst

All right. Thank you.

Operator

And we have reached the end of the question-and-answer session. I will now turn the call back over to the CEO, Randy Garutti for closing remarks.

Randy Garutti — Chief Executive Officer and Director

Thanks, everybody,for being with us tonight. We look forward to grabbing a Buffalo Chicken Sandwich with you soon. Take care.

Operator

[Operator Closing Remarks]

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