Steak'n Shake Quarterly Results Will Be Out Today

[EdWatchesBoxing]

That's an interesting severance agreement.

 

Sanjeev, congrats on the earnings estimate. Bang on!

[Ballinvarosig Investors]

In terms of guessing what Biglari has bought, may I direct you to this quote.

 

http://www.bizjournals.com/sanantonio/stories/2003/03/31/story6.html

All of the Lion Fund's investments are tied up in the equity markets, although Biglari declined to reveal which individual stocks are in the fund's portfolio. He does say the fund is aggressive in investing in the insurance market, however.

 

"Insurance products are pretty much recession proof," he says. "(But) I'm across the board. I have retailing, home furnishing, communications and manufacturing, pretty much old-line economy stocks. In fact, I trade very little."

 

 

[valuecfa]

According to the last 13-D filing by Sardar, Biglari Capital Corp (his personal company), owns 76,241 shares (pre-split), so much less than 1%.  I think people will critique that naming a company after yourself, when you only own 0.5%, is probably a bit egotistical. 

 

That being said, if you assume the shareholders who own 15% of SNS via Lion Fund, WEST, Mustang, etc still support him (I see absolutely no reason why not), then this is his baby to roll with and everyone wants to enjoy the ride...me included!  Cheers!

 

Seems egotistical to me as well, however irrelevant it is to shareholder value. When you factor in the recent reverse split, etc. it seems he is trying a little to hard. At least he didn't name it Biglari Hathaway. (I might of had to have sold then, if i owned some shares, out of sheer humiliation). He will most certainly get criticism for all this, but like u say...So long as he continues to create shareholder value, then who cares. As for the image thing,... I think he cares much more than he lets on, given recent events. He has a very decent record of value creation, and just couldn't wait 10 years to join the >$100 share club like BRK, MKL, or FFH. --Give it time Sardar, your young. By the time your Buffett's age you might now have a $3 million share price. I get that you want to attract long term shareholders and not daytraders, but come on...slow it down with these seemingly buffett-wannabee moves, and just create value for yourself and shareholders the old fashioned way, over time, which u seem to know how to do.

[Parsad]

I agree with you valuecfa, and I even considered voting our shares against the name change (I still might), but at the same time I looked at it more objectively:  If Sardar had not come along in 2008 and taken the company over, it's almost a certainty that Steak'n Shake shareholders would have been wiped out by 2011! 

 

While I certainly would never name a company after myself, I really have no problem with him doing so, since it does not affect intrinsic value in any manner.  I would much prefer he keep the iconic "The Steak & Shake Holding Company" name, but that is more my sentimental side coming out and nothing more.  At the end of the day, it's almost irrelevant what the company is called, as long as Sardar keeps doing smart things with capital.  Cheers!   

[txlaw]

Some facts:

-1Q is only 12 weeks of a 52 week year.  It's also seasonally slower due to weather.

 

-From 2002-2007, the 1st Quarter averaged 21.4% of the fiscal years net sales.

 

-Q1 2010 sales were 148 million, and applying that ratio would imply 692 million in net sales this year.

 

-2009 net sales were 627 million, with the boost of a 53rd week.  Without the 53rd week, it was 615.

 

-692 / 615 means 12.5% same store sales growth.

 

-As I've read from gas companies, the quarter was a particularly cold one. . .

 

Excellent points to keep in mind when trying to extrapolate how SNS is going to do for the year.

 

Man, I can't wait until we start getting to the refranchising part of the strategic plan.

[valuecfa]

I agree with you valuecfa, and I even considered voting our shares against the name change (I still might), but at the same time I looked at it more objectively:  If Sardar had not come along in 2008 and taken the company over, it's almost a certainty that Steak'n Shake shareholders would have been wiped out by 2011! 

 

While I certainly would never name a company after myself, I really have no problem with him doing so, since it does not affect intrinsic value in any manner.  I would much prefer he keep the iconic "The Steak & Shake Holding Company" name, but that is more my sentimental side coming out and nothing more.  At the end of the day, it's almost irrelevant what the company is called, as long as Sardar keeps doing smart things with capital.  Cheers!   

 

I have a feeling shareholders will vote to keep the Steak'n Shake name. It has a much better ring to it, and makes me feel a bit more fuzzy inside than Biglari Holdings. I wonder if Gabelli will file a 13-D and and proxy for Gabeli Holdings.

[Matson125]

I can understand his reasoning behind the name change however as a shareholder I would have liked the idea of a choice.  Sardar could sent up an e-mail account and taken suggestions.  This is not out of the norm as he encourges customers to e-mail the management team with pros and cons of their Steak and Shake experience.  With the 3 or 4 suggestions he can simply put it to vote.  

 

Cheers

 

Michael

[dual_bid]

I'm neutral on the name change. Though, I think that along with the other recent changes (even if they're the right changes) it's a little "too much too fast" for the employees and older shareholders. Why not change the name in the AR last month? Part of me thinks that Biglari may have spoken with Gabelli, and is more confident knowing he has his back.

 

"Looking for the financial story behind the 91-98 stock performance"

 

Some older financial history can be found in this S-3, when SNS was under the E.W. Kelly umbrella of Consolidated Products:

 

http://sec.gov/Archives/edgar/data/93859/0000950124-96-002986.txt

 

Interesting. Cheers... as always, market awards rapid growers, double and triple so, and then, surprise surprise, rapid turns too-rapid and market stalls or decline.

 

You might enjoy this site as well... the previous change of name didn't work out well:

http://www.fundinguniverse.com/company-histories/The-Steak-n-Shake-Company-Company-History.html

[Ballinvarosig Investors]

In fairness, the name has to change. I remember that when Sardar made an unsolicited approach to ITEX, Steven White didn't take too favourably to being taken over by a burger company.

[farnamstreet]

I think there is one benefit to the name change I haven't heard anyone mention: mainly, it creates another incentive for Biglari not to mess up because it will be impossible to distance himself from the company (in the minds of everyone). If the CEO of Goldman does something stupid, he can quit and after a few years people forget. If Biglari, of Biglari Holdings, does something stupid it becomes almost impossible to separate himself (and his family name) from the company.

[txlaw]

I think there is one benefit to the name change I haven't heard anyone mention: mainly, it creates another incentive for Biglari not to mess up because it will be impossible to distance himself from the company (in the minds of everyone). If the CEO of Goldman does something stupid, he can quit and after a few years people forget. If Biglari, of Biglari Holdings, does something stupid it becomes almost impossible to separate himself (and his family name) from the company.

 

I think you're right about that, farnamstreet.  The name actually makes me more confident that he will run the company the right way.

 

The name also suggests that most if not all of his business activity will be run through the public company.  I would not be surprised if BH becomes Sardar's primary investment vehicle, which means that he could potentially close shop on the Lion Fund and distribute BH shares to his partners.

 

He will almost certainly take criticism in the media about the name change.  That's to be expected.  Sardar's beginning to look more and more like Eddie Lampert -- great investment allocator that doesn't worry about Mr. Market, supreme confidence in himself, trying to turn around a venerable franchise, takes great pride in his work and it shows ("Biglari Holdings" versus "ESL Investments"), etc.  Of course they're gonna go after him.

 

I'd like to meet the guy someday.  I hope he stays in San Antonio instead of going out to NYC. 

[KFRCanuk]

According to the last 13-D filing by Sardar, Biglari Capital Corp (his personal company), owns 76,241 shares (pre-split), so much less than 1%.  I think people will critique that naming a company after yourself, when you only own 0.5%, is probably a bit egotistical. 

 

That being said, if you assume the shareholders who own 15% of SNS via Lion Fund, WEST, Mustang, etc still support him (I see absolutely no reason why not), then this is his baby to roll with and everyone wants to enjoy the ride...me included!  Cheers!

 

Ok so he controls about 15%. I guess the name change slightly solidifies his control of the company.

[Guest Bronco]

Parsad is right-a name change doesn't change the intrinsic value.  But we all know Buffett was 100 percent pro shareholder. 

 

Sardar has proven a good operator to date, but I am concerned about his pro- shareholder values.

[ragnarisapirate]

Parsad is right-a name change doesn't change the intrinsic value.  But we all know Buffett was 100 percent pro shareholder.  

 

Sardar has proven a good operator to date, but I am concerned about his pro- shareholder values.

 

I don't know about that... I mean, could there be someone out there, that otherwise would have done business with the company, that won't due to the name change (or even the former Steak 'n Shake HC)? Sometimes, perceptions can change the actual results of things. Thus, if someone wouldn't sell to BH, then that would represent a degree of opportunity cost, regardless of how small it would be (Sanjeev pointed out the example of a small family company). If Steven White didn't want to be corporately associated with a rest. chain, that's cool and all, but I (and all SNS holders) would have been better off had they merged; but then again, ITEX is worth more than Sardar was wanting to pay, it could well be that he was trying to get some shareholders that have an aversion to such things to not vote/tender their shares by bashing burgers...

 

With that said, I agree with Farnam Street's previous comment.

 

I would be interested to hear what people thought of a small and water treading textile company buying up insurance and candy companies a handful of decades ago. :) If anyone has any New England based newspaper clippings, they would be greatly appreciated!

[txlaw]

Parsad is right-a name change doesn't change the intrinsic value.  But we all know Buffett was 100 percent pro shareholder. 

 

Sardar has proven a good operator to date, but I am concerned about his pro- shareholder values.

 

A name change does not necessarily change the intrinsic value of the company, but it can in certain circumstances help align the incentives of the controlling individual after whom the organization is named such that he takes extraordinary care in order to protect his individual reputation.  

 

Ultimately, it comes down to the character of the fellow after whom the organization is named.  If Sardar Biglari would be more inclined to act with due care and as a fiduciary to his shareholders because his name is over the front door, the name change will be a good thing for shareholders.  On the other hand, if the name change is merely signaling Biglari's belief that SNS is now his personal fiefdom, then it will not be helpful to shareholders.

 

But take a look at the evidence.  Read the SEC filings.  Read his shareholder letters.  Read his hedge fund letters.  Read the interviews with him.  Take a look at what people who have actually met the guy say about him.  Try to figure out what the ethos of the company will be under Biglari's leadership based on the available information.  For that matter, read what Biglari himself has said about the importance of the "ethos factor" in evaluating a business.

 

In my opinion, the evidence suggests that he will be pro-shareholder, not anti-shareholder.

[Nnejad]

Yet similarly, reading news stories and successful results from "Steak N Shake Co" may be free publicity and marketing for the business... something like:

 

"Oh, Steak N Shake.

I like them. 

And a lot more people are eating there now?

23% more customer traffic?!

I want to go today."

[Parsad]

A name change does not necessarily change the intrinsic value of the company, but it can in certain circumstances help align the incentives of the controlling individual after whom the organization is named such that he takes extraordinary care in order to protect his individual reputation.

 

I disagree.  I think that is the wrong type of incentive.  And the word "controlling" also does not apply here.  The shareholders control the company, not any single individual unless they own 51%, have multiple interests that would align themselves with the CEO, control multiple voting shares, or have all of the voting shares.  None of those four things apply here.

 

Sardar will never do anything that isn't in shareholder interests, but I think this is probably something the board should have said no to, as it sets the wrong tone, and has nothing to do with increasing shareholder value.  As Buffett says, if your entire net worth is invested in a company, isn't that enough to incentivize you to do the right thing?  Cheers!

[txlaw]

A name change does not necessarily change the intrinsic value of the company, but it can in certain circumstances help align the incentives of the controlling individual after whom the organization is named such that he takes extraordinary care in order to protect his individual reputation.

 

I disagree.  I think that is the wrong type of incentive.  And the word "controlling" also does not apply here.  The shareholders control the company, not any single individual unless they own 51%, have multiple interests that would align themselves with the CEO, control multiple voting shares, or have all of the voting shares.  None of those four things apply here.

 

Sardar will never do anything that isn't in shareholder interests, but I think this is probably something the board should have said no to, as it sets the wrong tone, and has nothing to do with increasing shareholder value.  As Buffett says, if your entire net worth is invested in a company, isn't that enough to incentivize you to do the right thing?  Cheers!

 

You'll notice that when I used the word "controlling," I did not say that Sardar was a "controlling shareholder."  There are many ways to exert "control" over a corporation other than through ownership.  As CEO of SNS, Sardar certainly has the ability to directly influence the operations and management of the corporation, which is one way of defining "control" over a corporation.  In fact, there are many regulatory regimes that recognize this fact and therefore take special notice of "key employees" who are deemed to exert control over the corporation.  So the word "controlling" does apply.

 

But in any case, your point is that you believe the name change necessarily sets the wrong tone for the corporation.  I disagree. 

 

Would it be wrong to have a mutual fund named after yourself?  Is it inherently bad for Yacktman Asset Management to have a fund called the Yacktman fund?  Does that somehow set the wrong tone such that Donald Yacktman will ignore his obligations as a fiduciary to his shareholders?  I don't think so. 

 

What about Ford Motor Company?  When Henry Ford named the company after himself, it became his palette to paint on, and he ran it pretty well thereafter.  Not that he wouldn't have done so if it hadn't been named after himself! 

 

What about the Gates Foundation?  I suppose some would argue that he won't run it in a way that maximizes value to society.  He will instead run it in a way that will maximize his and his wife's legacy.  But note that these two things are not mutually exclusive.  You can do both at the same time.  And, frankly, I think Bill Gates will be very involved to make sure that things are on the up and up at the Gates Foundation because his name will be there for however long the institution lasts.

 

My point is that it really depends on the individual circumstances surrounding a name change.  I really don't think Sardar's naming the company "Biglari Holdings" is that big of a deal.  Maybe it won't increase his incentives to do right by the shareholders.  But the name change is being blown way out of proportion.

 

 

[Rabbitisrich]

I like the name change. It makes explicit, from the get go, that the holding company form dominates any particular business, regardless of the current earnings weighted importance of the business. I think that Biglari is aggressively managing the composition of the shareholders, and that he doesn't want shareholders who believe that they are investing in a simple restaurant turnaround.

 

Farnamstreet's site contains a good article by Keith Stanovich that mentions how, even when people will buy X if A happens and if A doesn't happen, they won't buy when the status of A is unresolved.

[Daytripper]

In fairness, the name has to change. I remember that when Sardar made an unsolicited approach to ITEX, Steven White didn't take too favourably to being taken over by a burger company.

 

I completely agree about the need to change the name.  The value and goodwill of the Steak N Shake name is preserved.  BH is the parent, SNS is a sub.  I can certainly understand why some business owners wouldn't want to sell out to a burger chain.

 

Let the "fools" laugh all they want!

 

[Parsad]

Would it be wrong to have a mutual fund named after yourself?  Is it inherently bad for Yacktman Asset Management to have a fund called the Yacktman fund?  Does that somehow set the wrong tone such that Donald Yacktman will ignore his obligations as a fiduciary to his shareholders?  I don't think so. 

 

What about Ford Motor Company?  When Henry Ford named the company after himself, it became his palette to paint on, and he ran it pretty well thereafter.  Not that he wouldn't have done so if it hadn't been named after himself! 

 

What about the Gates Foundation?  I suppose some would argue that he won't run it in a way that maximizes value to society.  He will instead run it in a way that will maximize his and his wife's legacy.  But note that these two things are not mutually exclusive.  You can do both at the same time.  And, frankly, I think Bill Gates will be very involved to make sure that things are on the up and up at the Gates Foundation because his name will be there for however long the institution lasts.

 

All those businesses originated with those names.  The namesakes were also responsible for a signficant portion of the capital.

 

My point is that it really depends on the individual circumstances surrounding a name change.  I really don't think Sardar's naming the company "Biglari Holdings" is that big of a deal.  Maybe it won't increase his incentives to do right by the shareholders.  But the name change is being blown way out of proportion.

 

I think it is actually a pretty big deal.  I invested in Steak'n Shake under Sardar's stewardship, not Biglari Holdings.  Nor did I ever expect the board to approve a name change that throws such accolades on the CEO.  It's like changing the Indianapolis Colts to the Biglari Colts if Sardar was the general manager and won the Superbowl...doesn't that sound quite ridiculous?  By changing names would the Colts be making perfectly clear to the world what their future goals are?  Would free agents be less likely to sign with Indianapolis Colts, but more likely with Biglari Colts?  Or would they just care about being taken care of and winning a Superbowl?  What if Sardar gets hit by a bus...do you change the name back to "The Steak'n Shake Company"? 

 

On top of that, it's a completely unnecessary distraction to such a spectacular job they've done in the 1st Quarter.  I don't think the board thought through the ramifications of this decision very clearly.  Sometimes, when you have a successful CEO who has made enormous strides, you get a collegial atmosphere on the board, and they are resistant to show any sort of dissent on a decision.  I think this is one of those cases.  I will be sending a letter to the board of directors this week and also voting our shares against the name change.  Aside from that, I firmly believe in the strategy that Steak'n Shake is employing to grow their business and fully support their initiatives.  Cheers!

[shalab]

I agree with Parsad on this one. The board is asleep at the wheel. Not sure what happened to Cooley - I am sure if it was Munger this wouldnt have happened. There is a thing or two about this in the almanac about behaving in a particular way when you are very successful. The name change is an unnecessary distraction.

 

This is nothing to say about the way SNS has executed. It has been phenomenal. I support Biglari's stewardship. However, I too will be voting my shares against the name change.

 

 

[keerthiprasad]

I'm with you guys....this is in bad taste.  I have followed sardar's career for quite sometime now and I am not sure I am surprised (I don't mean this in a bad way).  You have to be a very self-confident person to have accomplished what he has in such a short time period.  Of all the CEO's I have met, I would guess that maybe half of them would love to pass something like this off. 

 

I just wonder what kind of investing/burger-selling dictator we have running the company now lol. Look at Sardar's approval on glassdoor.com ( I am not implying that this has anything to do with short term performance and many of the reviewers appear to be working at the restaurant level):

 

http://www.glassdoor.com/Reviews/Steak-n-Shake-Reviews-E1296.htm

 

I'm guessing in Buffett's early brk day's he had a low approval rating too, as a result of a similar strategy.  I think Biglari is very talented, but the shift to long-term manager is not something I have seen many people accomplish well. 

 

l I and everyone I know will be voting against this, although even combined we own a relatively small position. 

[bookie71]

If i remember correctly, WEB got good reviews and worked closely with the unions at Berkshire. 

SNS hasn't had enough time to see if Biglari can perform well.  It takes time to prove your mettle, he may have been lucky the last couple of years, only time will tell, but with the big bonus and this I will be watching much more closely as there seems to be a very big ego involved, and it might get in the smaller shareholder's way down the road.

[Zorrofan]

I had suggested a few months back that the holding company name be changed to reflect the new nature of SNS. I had suggested something like SNS Holdings for example. I note that Prem named FFH as an acromyn for "Fair Freindly Acquistions". WEB went with Berkshire Hathaway. I like the idea of changing the name but I have to say the name chosen is a bit much. I still think something like SNS Holdings or SNS Western. I give Sardar full credit for what he has accomplished but I am not a fan of the new name.......

 

cheers

Zorro