Shake Shack Inc. (SHAK) shares are reeling, down 6.19% to $38.34 after second quarter earnings disappointed. Profit came in at $0.14 a share, a slight beat to the analysts’ estimates of $0.13. Revenue rose 37.2% to $66.5 million, much higher than the eyed $63.3 million projection. The market focused on the same store sales 4.5% reading. Sales from stores opened at least 2 years, where expected to come in at 5.4%, in Q1, SSS grew at 9.9% pace.
The market also ignored the raised guidance, but focused on earning’s call comments of expecting to see high wage costs for the rest of 2016 and all of 2017. The New York based company increased their 2016 revenue outlook from $245-249 million to $253-256 million.
Price action on the SHAK 60-minute chart shows that price has tentatively stabilized after making a low at $36.80. If we continue to see price rebound, key resistance may come from the $41.18 level. It is around that area that price could form a bearish ABCD pattern. Point D is targeted with the .707% Fibonacci retracement level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move. If valid we could see decline back to the $38.00 area.
The Trade: Sell SHAK at $41.10, with a stop loss at $41.60 and a take profit at $39.10. The Risk/Reward Ratio is 1:4