Activist Shareholder Plans Proxy Battle at Shake Shack
Engaged Capital seeks three seats on burger chain’s board, has 6.6% stake
Activist investor Engaged Capital is planning to run a proxy fight for three board seats at high-end burger chain Shake Shack SHAK -1.93%decrease; red down pointing triangle, according to people familiar with the matter.
Including swaps, Engaged has a roughly 6.6% stake, the people said.
Shake Shack had a market capitalization of roughly $2.8 billion as of Friday. Its shares have been cut nearly in half from an early-2021 high—even after rallying more than 50% this year—as inflation pressures have led some customers to pull back on spending and compressed margins. Shake Shack has also struggled to bring back lunchtime diners in bigger cities as fewer people commute to offices daily.
Engaged, which has been in talks with Shake Shack’s management for over six months, sent a letter to the company’s board in March detailing its proposal for new directors and other changes to help boost the restaurant chain’s lagging stock price, but the two sides have thus far failed to reach an agreement, the people said.
“We are executing our strategic plan and making substantial operational and financial progress,” a spokesman for Shake Shack said in a statement. “We are well positioned to continue enhancing value for shareholders.”
Shake Shack was founded by New York City restaurateur Danny Meyer, who has served as chairman of board since January 2010. Current Chief Executive Randy Garutti, who also has a spot on the 11-person board, has held his role since April 2012.
The company now operates more than 460 locations globally, including about 300 in the U.S., and recently has invested more money into drive-through lanes to serve suburban customers.
Engaged’s nominees are Kevin Reddy, a restaurant-industry veteran who previously served as chief executive of Noodles & Co.; Joel Bines, who led the global retail practice at consulting firm AlixPartners; and Christopher Hetrick, co-founder of Engaged and the firm’s director of research.
In addition to the new directors, Engaged has asked Shake Shack to retain a consulting firm to help improve operating efficiency and make changes to its supervoting share structure, which dates back to the company’s 2015 initial public offering.
Engaged said it has determined ways to double Shake Shack’s profitability within two years and believes the burger chain should get rid of its staggered board, which means that not all directors are up for election at the same time, the people said.
“Thus far, management has been reluctant to commit to a timeframe for regaining lost profitability,” Engaged founder and Chief Investment Officer Glenn Welling said in the letter, which was seen by The Wall Street Journal.
“In order for the company to reach its full growth potential and profitably scale this brand across the U.S. and the world, we believe significant adjustments to the company’s real estate strategy, store design, labor planning and supply chain framework will be required,” Mr. Welling said.
Shake Shack earlier this month said it was anticipating fiscal 2023 to be a record year for adjusted earnings before interest, taxes, depreciation and amortization, with its restaurant-level margins returning to between 19% and 20%.
Newport Beach, Calif.-based Engaged, which was founded in 2012, manages roughly $1 billion. The firm previously pushed Jamba Juice’s parent company to slash costs, with Mr. Welling gaining a seat on the chain’s board in 2015, and it helped shake up apparel retailer Abercrombie & Fitch’s board.
Shake Shack’s annual shareholder meeting is expected to be held in June, according to proxy materials. A window for shareholder nominations ran from Feb. 15 through March 17.