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LEASES | 6 Months Ended
--- | ---
Jun. 26, 2024
Leases [Abstract] |
LEASES | LEASES Nature of Leases Shake Shack currently leases all of its Company-operated Shacks, the home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2045. The Company evaluates contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in the contract. The Company evaluates whether it controls the use of the asset, which is determined by assessing whether substantially all economic benefit from the use of the asset is obtained, and whether the Company has the right to direct the use of the asset. If these criteria are met, the Company has identified a lease within the contract, and therefore a right of use asset and lease liability are recorded on the Condensed Consolidated Balance Sheets. Upon possession of a leased asset, the Company determines whether the lease is an operating or finance lease. All of the Company's real estate leases are classified as operating leases and most equipment leases are classified as finance leases. Generally, real estate leases have initial terms ranging from 10 to 15 years and typically include two five-year renewal options. Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that the Company would exercise the renewal options. Real estate leases typically contain fixed minimum rent payments and/or contingent rent payments which are based upon sales in excess of specified thresholds. When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period. For operating leases, fixed lease payments are recognized as operating lease costs on a straight-line basis over the lease term on the Condensed Consolidated Statements of Income in the following line items. Lease expense incurred before a Shack opens is recorded in Pre-opening costs. Once a Company-operated Shack opens, the straight-line lease expense and contingent rent, if applicable, are recorded in Occupancy and related expenses. Many of these leases also require the Company to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and related expenses. Finance leases are recognized in depreciation expense on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For both operating and finance leases that contain lease and non-lease components, the components are combined and accounted for as a single lease component. Variable lease costs for both operating and finance leases, if any, are recognized as incurred. Leases with a term of 12 months or less are deemed short-term and are not recognized on the Condensed Consolidated Balance Sheets. Fixed lease payments for short-term leases are recognized on a straight-line basis over the lease term. The Company calculates operating lease assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date. The Company uses its incremental borrowing rate ("IBR") in determining the present value of future lease payments as there are no explicit rates provided in the leases. The IBR used to measure the lease liability is derived from the average of the yield curves obtained from using the notching method and the recovery rate method. The most significant assumption in calculating the IBR is the Company's credit rating and is subject to judgment. The credit rating used to develop the IBR is determined by utilizing the credit ratings of other public companies with similar financial information as SSE Holdings. The Company expends cash for leasehold improvements to build out and equip leased properties. Generally, a portion of the leasehold improvements and building costs are reimbursed by the landlords through landlord incentives pursuant to agreed-upon terms in the lease agreements. Landlord incentives usually take the form of cash, full or partial credits against future minimum or contingent rents otherwise payable by the Company, or a combination thereof. In most cases, landlord incentives are received after the Company takes possession of the property and as milestones are met during the construction of the property. The Company includes these amounts in the measurement of the initial operating lease liability, and lease asset. A summary of operating and finance right-of-use assets and lease liabilities were as follows:
| Classification | June 26 2024 |  | December 27 2023
Operating leases | Operating lease assets | $ | 419,527 |  |  | $ | 398,296 |
Finance leases | Property and equipment, net | 12,278 |  |  | 11,801 |
Total right-of-use assets |  | $ | 431,805 |  |  | $ | 410,097 |
Operating leases: |  |  |  |
| Operating lease liabilities, current | $ | 53,140 |  |  | $ | 49,004 |
| Long-term operating lease liabilities | 487,600 |  |  | 464,533 |
Finance leases: |  |  |  |
| Other current liabilities | 3,789 |  |  | 3,435 |
| Other long-term liabilities | 8,969 |  |  | 8,721 |
Total lease liabilities |  | $ | 553,498 |  |  | $ | 525,693 |
The components of lease expense were as follows:
|  |  | Thirteen Weeks Ended |  | Twenty-Six Weeks Ended
|  | Classification | June 26 2024 |  | June 28 2023 |  | June 26 2024 |  | June 28 2023
Operating lease cost | Occupancy and related expenses Pre-opening costs General and administrative expenses | $ | 19,165 |  |  | $ | 16,523 |  |  | $ | 37,655 |  |  | $ | 32,598 |
Finance lease cost: |  |  |  |  |  |  |  |
| Amortization of right-of-use assets | Depreciation and amortization expense | 1,075 |  |  | 703 |  |  | 2,043 |  |  | 1,440 |
| Interest on lease liabilities | Interest expense | 207 |  |  | 72 |  |  | 387 |  |  | 142 |
Variable lease cost | Occupancy and related expenses Pre-opening costs General and administrative expenses | 5,523 |  |  | 4,682 |  |  | 10,729 |  |  | 8,452 |
Short-term lease cost | Occupancy and related expenses | 190 |  |  | 273 |  |  | 406 |  |  | 513 |
Total lease cost |  | $ | 26,160 |  |  | $ | 22,253 |  |  | $ | 51,220 |  |  | $ | 43,145 |
As of June 26, 2024, future minimum lease payments for operating and finance leases consisted of the following:
| Operating Leases |  | Finance Leases
2024(1) | $ | 29,716 |  |  | $ | 2,306 |
2025 | 85,913 |  |  | 4,151 |
2026 | 86,224 |  |  | 3,397 |
2027 | 81,318 |  |  | 2,719 |
2028 | 76,993 |  |  | 1,493 |
Thereafter | 342,271 |  |  | 228 |
Total minimum payments | 702,435 |  |  | 14,294 |
Less: imputed interest | 174,160 |  |  | 1,536 |
Total lease liabilities | $ | 528,275 |  |  | $ | 12,758 |
(1)Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of June 26, 2024. As of June 26, 2024, the Company had additional operating lease commitments of $134,340 for non-cancelable leases without a possession date, which commence in 2024 or later. These lease commitments are materially consistent with leases recognized on the Condensed Consolidated Balance Sheets. A summary of lease terms and discount rates for operating and finance leases were as follows:
|  | June 26 2024 |  | December 27 2023 |  |
Weighted average remaining lease term (years): |  |  |  |  |
| Operating leases | 8.9 |  | 8.9 |  |
| Finance leases | 4.7 |  | 4.7 |  |
Weighted average discount rate: |  |  |  |  |
| Operating leases | 6.2 | % |  | 6.2 | % |  |
| Finance leases | 5.7 | % |  | 5.6 | % |  |
Supplemental cash flow information related to leases was as follows:
|  |  | Twenty-Six Weeks Ended
|  |  | June 26 2024 |  | June 28 2023
Cash paid for amounts included in the measurement of lease liabilities: |  |  |
| Operating cash flows from operating leases | $ | 40,095 |  |  | $ | 34,454 |
| Operating cash flows from finance leases | 387 |  |  | 142 |
| Financing cash flows from finance leases | 1,918 |  |  | 1,504 |
Right-of-use assets obtained in exchange for lease obligations: |  |  |
| Operating leases | 43,822 |  |  | 37,625 |
| Finance leases | 2,520 |  |  | 1,408 |
LEASES | LEASES Nature of Leases Shake Shack currently leases all of its Company-operated Shacks, the home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2045. The Company evaluates contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in the contract. The Company evaluates whether it controls the use of the asset, which is determined by assessing whether substantially all economic benefit from the use of the asset is obtained, and whether the Company has the right to direct the use of the asset. If these criteria are met, the Company has identified a lease within the contract, and therefore a right of use asset and lease liability are recorded on the Condensed Consolidated Balance Sheets. Upon possession of a leased asset, the Company determines whether the lease is an operating or finance lease. All of the Company's real estate leases are classified as operating leases and most equipment leases are classified as finance leases. Generally, real estate leases have initial terms ranging from 10 to 15 years and typically include two five-year renewal options. Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that the Company would exercise the renewal options. Real estate leases typically contain fixed minimum rent payments and/or contingent rent payments which are based upon sales in excess of specified thresholds. When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period. For operating leases, fixed lease payments are recognized as operating lease costs on a straight-line basis over the lease term on the Condensed Consolidated Statements of Income in the following line items. Lease expense incurred before a Shack opens is recorded in Pre-opening costs. Once a Company-operated Shack opens, the straight-line lease expense and contingent rent, if applicable, are recorded in Occupancy and related expenses. Many of these leases also require the Company to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and related expenses. Finance leases are recognized in depreciation expense on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For both operating and finance leases that contain lease and non-lease components, the components are combined and accounted for as a single lease component. Variable lease costs for both operating and finance leases, if any, are recognized as incurred. Leases with a term of 12 months or less are deemed short-term and are not recognized on the Condensed Consolidated Balance Sheets. Fixed lease payments for short-term leases are recognized on a straight-line basis over the lease term. The Company calculates operating lease assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date. The Company uses its incremental borrowing rate ("IBR") in determining the present value of future lease payments as there are no explicit rates provided in the leases. The IBR used to measure the lease liability is derived from the average of the yield curves obtained from using the notching method and the recovery rate method. The most significant assumption in calculating the IBR is the Company's credit rating and is subject to judgment. The credit rating used to develop the IBR is determined by utilizing the credit ratings of other public companies with similar financial information as SSE Holdings. The Company expends cash for leasehold improvements to build out and equip leased properties. Generally, a portion of the leasehold improvements and building costs are reimbursed by the landlords through landlord incentives pursuant to agreed-upon terms in the lease agreements. Landlord incentives usually take the form of cash, full or partial credits against future minimum or contingent rents otherwise payable by the Company, or a combination thereof. In most cases, landlord incentives are received after the Company takes possession of the property and as milestones are met during the construction of the property. The Company includes these amounts in the measurement of the initial operating lease liability, and lease asset. A summary of operating and finance right-of-use assets and lease liabilities were as follows:
| Classification | June 26 2024 |  | December 27 2023
Operating leases | Operating lease assets | $ | 419,527 |  |  | $ | 398,296 |
Finance leases | Property and equipment, net | 12,278 |  |  | 11,801 |
Total right-of-use assets |  | $ | 431,805 |  |  | $ | 410,097 |
Operating leases: |  |  |  |
| Operating lease liabilities, current | $ | 53,140 |  |  | $ | 49,004 |
| Long-term operating lease liabilities | 487,600 |  |  | 464,533 |
Finance leases: |  |  |  |
| Other current liabilities | 3,789 |  |  | 3,435 |
| Other long-term liabilities | 8,969 |  |  | 8,721 |
Total lease liabilities |  | $ | 553,498 |  |  | $ | 525,693 |
The components of lease expense were as follows:
|  |  | Thirteen Weeks Ended |  | Twenty-Six Weeks Ended
|  | Classification | June 26 2024 |  | June 28 2023 |  | June 26 2024 |  | June 28 2023
Operating lease cost | Occupancy and related expenses Pre-opening costs General and administrative expenses | $ | 19,165 |  |  | $ | 16,523 |  |  | $ | 37,655 |  |  | $ | 32,598 |
Finance lease cost: |  |  |  |  |  |  |  |
| Amortization of right-of-use assets | Depreciation and amortization expense | 1,075 |  |  | 703 |  |  | 2,043 |  |  | 1,440 |
| Interest on lease liabilities | Interest expense | 207 |  |  | 72 |  |  | 387 |  |  | 142 |
Variable lease cost | Occupancy and related expenses Pre-opening costs General and administrative expenses | 5,523 |  |  | 4,682 |  |  | 10,729 |  |  | 8,452 |
Short-term lease cost | Occupancy and related expenses | 190 |  |  | 273 |  |  | 406 |  |  | 513 |
Total lease cost |  | $ | 26,160 |  |  | $ | 22,253 |  |  | $ | 51,220 |  |  | $ | 43,145 |
As of June 26, 2024, future minimum lease payments for operating and finance leases consisted of the following:
| Operating Leases |  | Finance Leases
2024(1) | $ | 29,716 |  |  | $ | 2,306 |
2025 | 85,913 |  |  | 4,151 |
2026 | 86,224 |  |  | 3,397 |
2027 | 81,318 |  |  | 2,719 |
2028 | 76,993 |  |  | 1,493 |
Thereafter | 342,271 |  |  | 228 |
Total minimum payments | 702,435 |  |  | 14,294 |
Less: imputed interest | 174,160 |  |  | 1,536 |
Total lease liabilities | $ | 528,275 |  |  | $ | 12,758 |
(1)Operating leases are net of certain tenant allowance receivables that were reclassified to Other current assets as of June 26, 2024. As of June 26, 2024, the Company had additional operating lease commitments of $134,340 for non-cancelable leases without a possession date, which commence in 2024 or later. These lease commitments are materially consistent with leases recognized on the Condensed Consolidated Balance Sheets. A summary of lease terms and discount rates for operating and finance leases were as follows:
|  | June 26 2024 |  | December 27 2023 |  |
Weighted average remaining lease term (years): |  |  |  |  |
| Operating leases | 8.9 |  | 8.9 |  |
| Finance leases | 4.7 |  | 4.7 |  |
Weighted average discount rate: |  |  |  |  |
| Operating leases | 6.2 | % |  | 6.2 | % |  |
| Finance leases | 5.7 | % |  | 5.6 | % |  |
Supplemental cash flow information related to leases was as follows:
|  |  | Twenty-Six Weeks Ended
|  |  | June 26 2024 |  | June 28 2023
Cash paid for amounts included in the measurement of lease liabilities: |  |  |
| Operating cash flows from operating leases | $ | 40,095 |  |  | $ | 34,454 |
| Operating cash flows from finance leases | 387 |  |  | 142 |
| Financing cash flows from finance leases | 1,918 |  |  | 1,504 |
Right-of-use assets obtained in exchange for lease obligations: |  |  |
| Operating leases | 43,822 |  |  | 37,625 |
| Finance leases | 2,520 |  |  | 1,408 |

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- Definition The entire disclosure for finance leases of lessee. Includes, but is not limited to, description of lessee's finance lease and maturity analysis of finance lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 842 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//842-20/tableOfContent + Details
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- Definition The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 842 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//842-20/tableOfContent + Details
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