(Bloomberg) -- Shake Shack Inc. shares jumped after its annual outlook bolstered investors’ confidence in the burger chain’s ability to boost profits, which had dipped during the pandemic.

In the fourth quarter, Shake Shack’s restaurant-level operating profit margin rose to about 20%. The growth was a “key pillar” of the company’s 2023 plan to improve profitability, it said. Shake Shack expects margins of 20% to 21% for the full year, which on the high end would be the loftiest since 2019.

The stock rose as much as 23% in New York trading Thursday, the most since November 2021. 

Shake Shack’s sales and profits took a hit during the pandemic, in part because of the company’s heavy concentration of stores in city centers. Since then, the chain has expanded outside of urban areas, added self-service kiosks to restaurants, boosted advertising and invested in formats such as drive-thrus. 

The quarterly results and guidance signal progress, with analysts including Baird’s David Tarantino highlighting the company’s full-year outlook for one measure of profitability as a constructive sign.

“We have an increasingly positive view of the strong progress on improving companywide profitability,” Tarantino wrote in a note to clients following the company’s results.

The New York-based chain plans to add 80 locations in the coming year, split evenly between licensed and domestic, company-operated stores. It highlighted the 24% sales growth in its licensing business in the most recent quarter, especially at domestic airports and roadways.

Fourth-quarter sales “outperformed historical seasonality,” Chief Financial Officer Katie Fogertey said on the Thursday earnings call, driven partially by advertising.

Productivity Investments

Quick-service chains have been investing in productivity to increase sales, speed up service times and combat inflation. In 2024, Shake Shack will focus on improved training and kitchen operations to cut service times by about 30 seconds, Chief Executive Officer Randy Garutti said. It’s also planning to significantly increase its advertising spending and streamline its supply chain, as well as cut the cost to open locations by at least 10%. 

Shake Shack is expecting positive traffic this year, Fogertey said. The burger chain plans to raise prices by 2.5% at most locations, and more in areas with outsize labor inflation, including California. It already raised prices for some types of delivery.

William Blair analyst Sharon Zackfia said she expects comparable-store sales growth and restaurant margin expansion to drive results in the coming year.

“Longer-term, we continue to view Shake Shack’s growth runway as one of the strongest and most proven among emerging restaurant brands,” Zackfia wrote.

Shake Shack is still searching for a replacement for Garutti, who plans to retire this year after more than 20 years at the company.

The company’s shares are up 5.3% this year through Wednesday, outpacing the 0.1% rise of the S&P SmallCap 600 consumer-discretionary index.

(Updates with shares in third paragraph, additional details throughout.)

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