Top News

Bank of America (BofA) downgraded Shake Shack (NYSE: SHAK) to Underperformwarning that weakening consumer spending and intensifying competition in the fast-casual space could limit growth, even as the company continues to innovate its menu.

BofA said that the U.S. labor market is showing signs of slowing, and as households become more cautious with discretionary spending, traffic and same-store sales growth (SSSG) at restaurants like Shake Shack are likely to stay under pressure.

The brokerage also flagged rising beef costs, which account for nearly a third of Shake Shack’s total commodity basket, as a key concern for margins. Although the company has managed to offset some inflationary pressures through supply chain efficiencies, BofA cautioned that further price hikes could backfire, especially since competitors like Chipotle have avoided significant pricing moves since late 2023.

Meanwhile, the broader fast food and casual dining industry is increasingly leaning into value-based marketing, which could make Shake Shack’s premium positioning harder to sustain in a more price-sensitive environment.

BofA acknowledged Shake Shack’s strong innovation framework, noting its disciplined “stage-gate” process for new products, which emphasizes culinary quality and operational efficiency. However, analysts said these strengths may not be enough to offset the macro and competitive headwinds.

“Shake Shack has done an impressive job of systematizing its approach to innovation, but this rigor arrives just as the labor market softens and restaurant spending weakens,” the firm wrote.

Additionally, BofA questioned Shake Shack’s long-term expansion plan to reach 1,500 U.S. locations, saying the company may struggle to replicate its high-traffic, urban density model nationwide without cannibalizing existing store sales.

Reflecting a more cautious outlook, the brokerage cut its same-store sales forecasts below consensus through 2026 and lowered its price target to $86 from $148, citing slower traffic, lower unit-level volumes, and more modest margin expansion.

BofA concluded that while Shake Shack’s brand strength and innovation pipeline remain intact, macro headwinds and rising input costs will likely continue to offset these positives, limiting upside potential in the near term.