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Notes from Steak 'n Shake's Investor Day

I still think that there are just too many question marks.

Yes the real estate may be there but the point is that proceeds from its sale make this at most - at most- a wash.

As for the operating business:

There is another company with a great brand, you could say a long and storied history, selling at a market cap to sales of 1:3, in the casual restaurant industry: it's called Krispy Kreme donuts. I'm sure that after about 15 seconds another 5-10 names would pop up that fit this description.

I just don't think that is an automatic homerun, not even close. If additional facts come to light perhaps, but my final word is that this could very well be a dead company by now. Even if it survives, etc., it will not necessarily be great for investors. Restaurants in general usually just don't have great economics for shareholders.

As for Biglari's capital allocation abilities, there's really not much he can do with a bad business, if this is a bad business. What's he going to do, buy more restaurants?

If you strip away the PR I think that there's much less here than a lot of people think.

Notes from Steak 'n Shake's Investor Day

correction at to #3: I meant to say that the stock is not trading below its (best case, for reasons above) "liquidation value", rather it's trading about equal to it

Notes from Steak 'n Shake's Investor Day

For a guy that knows next to nothing about this company (me) I seem to have started a lively discourse. However I would like to point out some inconsistencies in your post.

1) You ignored that I said the $1.5M per property was a best case (read: unrealistic, in my eyes) scenario because it excluded costs and taxes, and also because it's not at all clear what the value of the properties is.

2) You didn't reply to my question about how much they received for the properties that they did sell.

3) Assuming this (very optimistic, for reasons stated above) liquidation value, the stock is trading around (not above) its liquidation value. And I did not include the $30M of debt or $80M of current liabilities. The company has $60M of current assets, but I don't think they'll get book value for those (I think they'd get less in a liquidation).

4) Even if they can liquidate at the current market cap, where in the world is there any evidence that the leased businesses are profitable at all? Some subset of them may (and I emphasize MAY) be profitable, but (i) if management is so shareholder-friendly, why didn't they disclose which of the restaurants are profitable, and how much profit they're making). My point is, that as a group the leased stores might not be profitable at all. Lets say 10 of the stores are profitable - so they might make $1M a year collectively, or $5M a year collectively, who knows? Not me.

5) Please don't mention this nonsense about how the chain was started during the Great Depression. That is just propaganda from management. Numbers only, please, corroborated by facts. Leave the propaganda at the annual meeting, thank you.

Notes from Steak 'n Shake's Investor Day

Also: (from 10k)
pg 4

We own the land and buildings of 164 properties and 20 parcels of land. The other 260 or whatever are leased.

At the end of fiscal year 2008, we have $25.4 million in assets held for sale which includes the 14 improved properties and 20 parcels of land which were previously purchased for development.

14 properties + 20 parcels = 34 unimproved and improved parcels. They are held for sale at less than $1M each, about 700K each for $25M

Say they sell all 160 properties for (an optimistic, best case scenario of) 1.5M each - that is $240M. OK. That's ignoring taxes, selling costs, etc. So what's left? A bunch of leased burger restaurants, their operating success is pretty much up in the air.

I think that his really has to be a successful operating business for this to work out and that's not at all clearly the case right now.

Notes from Steak 'n Shake's Investor Day

Regarding above post, I don't see other similar resturants' (ie other burger chains) operating businesses just completely disintegrate over the last 12 months.

Notes from Steak 'n Shake's Investor Day

Also, why is the operating business doing so poorly?

Notes from Steak 'n Shake's Investor Day

Yes it seems you are more or less right about the long term debt - there's about $30M of it and the rest is capital and operating lease obligations for the most part. The capital lease obligations still seem a bit fishy but I will take another look.

In the 10K, it says that they sold 1 restaurant and 11 parcels of land in 2008. I haven't yet found this, but did they mention how much cash they got for those properties.

Notes from Steak 'n Shake's Investor Day

1) If the debt is not interest-bearing, why is there about $13M of interest expense the last 4 quarters? That amount capitalized at 6% is around $215M. Hmmm....

2) If the real estate is so valuable, why hasn't it been sold? My guess is that prices are lower today than they were 6 months or a year ago. But I also don't think prices are likely to go up any time in the next couple of years. So that cash flow really will not be coming in any time soon.

Anyone can give phony, overly optimistic projections. It seems management here is outright lying.

Steak n Shake: No Plans for a Shakeup Despite Dismal Performance

How do these people still have a job? They don't own a controlling interest in the company.

Arbitrage Opportunity: Western Sizzlin/Steak 'n Shake Pair Trade

Hey Joe

I think I sort of see what you're doing and it seems you're assuming that for SNS price=value. I am not disagreeing w your way of looking at it, I'm probably wrong but I'm just assuming, agreeing w Biglari, that it seems sensible that there's a decent amount of value in SNS that could be freed up, ie just by making capex=depreciation for that co, that's about $30M in cash per year, saved. Whether thats a sensible figure I have no idea. So I'm not too concerned with short-term price fluctuations in SNS stock. NI has declined for that co too but I assume (bad to do that, I know) that has something to do w poor expense mgmt by the directors, though that could just be Biglari brainwashing me.

Again, this is just smoke, but the other thing is...if Biglari wanted to make a push, to oust the directors, etc, he needed a big chunk of stock, hence the dilution etc etc. Why he had to go after SNS and not some smaller cap'd co doesnt really make sense though

Arbitrage Opportunity: Western Sizzlin/Steak 'n Shake Pair Trade

I was looking at your 3/07 numbers

I agree w your core business valuation of about 2M of CF*10X of 20M

But as of 12/07 the co has marketable securities booked at $16M and about $4M in real estate, less 2M of debt. The $16M I presume is mostly SNS marked to market.

So seems to me, correct me if I'm wrong, you're buying an operating business at about 10X, w no capex, so that is 10% pure cash flow yield. Not dirt cheap, not 5X, but cheap enough considering the rest of the mart and the fact that most managers can't allocate capital very well. You're also getting the securities/real estate at about even, 20M (so that's 20M + 20M = 40M market cap, about even). On top of that, you're getting a guy who seems to have a nose for value, i.e. ITEX which is trading at about 8X CF. He bought Mustang and Mustang's boss seemed to speak fondly of Biglari. I like Biglari's style bc it's simple (get CF) and yet he seems to find decent co's out there, i.e. ITEX.

I am a bit bothered by the stock issuances. But, not really. Like I said, despite the dilution the valuation is reasonable. And if he's going to sell stock to buy ITEX, which is like I said trading at about 8X w no capex to speak of, and growing, and synergistic w WEST as he claims, I'm OK w using stock to buy the co.

Also, this is a small co w an almost unlimited investment universe for him to invest in.

Again, correct me if I'm wrong, but if SNS doubles, then the securities double to $32M, which is almost the value of the co right now.

Big surprise based on this post, I am long WEST.