A burger, fries, and milkshake at Shake Shack can easily run you up to $20. Its IPO is now nearly as expensive.
On Wednesday morning, Shake Shack raised its initial public offering range to $17-19 per share -- up from $14-16 a week ago. The company's valuation at the top of that range now approaches $675 million, and it would net about $95 million selling 5 million shares.
Even last week's valuation around $560 million seemed rich for Shake Shack. The chain only has 63 stores worldwide right now, including 31 company-owned shops in the US. At the new valuation, each of Shake Shack's restaurants are worth about $10.7 million (now nearly 4.3x as much as a single McDonald's franchise, based on that company's market cap).
Of course, the range increase shows Wall Street is clamoring for a chance to get shares in the Shake Shack growth story. The chain started in 2001 with a successful hot dog cart in Madison Square Park. That cart upgraded to a permanent kiosk in the park in 2004, drawing even longer lines. 11 years later, Shake Shack has expanded to nine countries and 34 cities.
Shake Shack's biggest challenge will be replicating its success in smaller cities (and eventually surburban areas). Its Manhattan locations generated $7.4 million in sales on average during the last fiscal year, while Shake Shacks elsewhere generated $3.8 million. Profit margins are also lower -- 22% outside vs. 30% in the Big Apple.
In its prospectus, Shake Shack says it expects the majority of future restaurants will come in at closer to $2.8 million to $3.2 million a year. That's still a fantastic number -- Chipotle average sales are around $2.4 million.
At $19 per share, founder and chairman Danny Meyer's stake in his company would be worth about $140 million.
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