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Biglari Holdings Inc (BH): The King of Steakburger’s Shaky Quarter

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There are a few ways a restaurant chain can increase revenue: they can open new restaurants, increase traffic, and increase prices for menu items. In short, earnings will grow if they can manage expenses and increase margins.  Biglari Holdings Inc (NYSE:BH) failed to do all of these last quarter, and with a minimal revenue increase earnings per share fell.

Biglari Holdings Inc (NYSE:BH)Steak ‘n Shake/Western Sizzlin’s (restaurant operations only) revenue grew 1.3% in Q1 2013. Same store sales were 1.3% on traffic increases at 1.6%, while prices decreased 0.3%.  That compares to traffic increases of 5.7% in Q1 2012 and same store sales of 5.5%.The comps and traffic have been in decline for several quarters, suggesting  consumers are finding the Steak ‘n Shake concept less interesting than some of the competition who continue to turn in better traffic numbers and same stores sales. Chipotle Mexican Grill, Inc. (NYSE:CMG), Panera Bread Company and Buffalo Wild Wings continue to turn in better traffic numbers and same stores sales with higher revenue growth then Biglari’s restaurants.

Chipotle Mexican Grill, Inc. (NYSE:CMG) has managed impressive same store sales and traffic growth over the past two years:

While comps slowed in the past quarter, it has numbers that Biglari should be shooting for. Chipotle also manages to increase its store base without cannibalizing its existing stores, and that has allowed revenue growth of over 20% for nearly three years. These are all lessons Biglari needs to take to heart. Without increased same stores sales, better margins, and store growth, revenue will be stalled and earnings per share will be disappointing.

Initially, Biglari had an impressive track record of increasing margins, same store sales, and traffic. That road to growth has become less effective as the Steak ‘n Shake wreck was fixed and innovation beyond cost cutting and promotional programs was absent. The company under Biglari’s leadership has not been growing through new store openings either, and franchise expansion is slower than the line at the DMV.

Total restaurant revenue growth in Q1 was 1.3% and franchise revenue increased 15%, but with franchise revenue at only 1.5% of combined revenue this isn’t enough to provide noticeable growth. Operating income declined 41% and adjusted EPS was down 30.5%. Biglari was unable to decrease expenses and improve restaurant/franchise margins this quarter, and combined operating income came in at negative numbers due to a 50% decline in operating margins.

Fortunately for Biglari Holdings they were paid a dividend from Biglari’s arch rival Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) accounting for around 50% of Q1 earnings per share.  Biglari’s Q1 2013 EPS was $3.42 and decreased from $6.60 in Q1 2012. In Q1 2012 there was a realized gain on investments and adjusting for the gain on sale, and EPS was $4.92.

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