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Shake Shack has a Grubhub problem

Heidi Chung
Reporter

Shake Shack (SHAKreported a revenue and same-store miss during its third quarter Monday after the closing bell. The burger chain also slashed its same-store sales growth target for the full year and now expects 1.5% growth, down from the previously anticipated 2%. The results sent the stock tanking 17%.

The company blamed transitioning to delivery exclusively through Grubhub (GRUB) as a reason for softer-than-expected sales during Q3. After working with several different delivery companies like Postmates, DoorDash and Caviar, Shake Shack decided that it would work solely with Grubhub moving forward.

On the earnings conference call, management said that the negative impact from the transition to Grubhub exclusivity will significantly disrupt sales in the near term.

“We believe the transition to Grubhub caused some noise in our Q3 numbers and will certainly have an impact through the fourth quarter and into next year. As we remove direct point-of-sale integrations with DoorDash, Postmates and Caviar, we expect an impact to our delivery revenue, especially in those regions where Grub may not be the current market leader,” CEO Randy Garutti said on the conference call. “Any difference in pricing, placement or regional strength in non-Grub marketplaces will affect our sales for a period of time. How much volatility this will cause during this transitional period is uncertain, but the reality is this represents short- to mid-term revenue risk.”

Currently, no integrated delivery platform has been removed from Shake Shack’s systems. The company plans to completely disconnect the other third-party delivery providers from its system in the fourth quarter. As a result, there is still a significant lack of reasonable visibility into the impact on digital sales for Shake Shack in the fourth quarter and beyond.

Ahead of the earnings announcement, shares of Shake Shack surged a whopping 82% this year, while the broader market rose 24% in the same time period.

Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.

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