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

Cracker Barrel’s revenue increased 4.8% in the first quarter ending Nov. 2, 2012. CBRL same store sales increased by 3.3% — 2.5% due to menu price increases/mix and  0.8% from higher traffic.

Cracker Barrel has not only outperformed Steak ‘n Shake, but they are also returning cash to shareholders and increased the dividend by 50% year-over-year to $0.50 in Q1.

If we remove the dividend paid by Cracker Barrelyin Q1 2013, EPS would have been $1.51 and that approximates what the restaurant segment of Biglari is earning. It’s ironic that Cracker Barrel is contributing so much to Biglari’s bottom line. Sardar Biglari himself has spent almost two years condemning management and their approach to running restaurants and claiming he would be a better manager.  Although not brilliant at running restaurants, Biglari is an adequate stock picker under the right conditions. His activism may have both convinced the market that Cracker Barrel was undervalued and spurred Cracker Barrel management to return some cash to shareholders through dividends. When he attacks the management of a company, it often creates changes that cause the share price to increase. Several of his targets were acquired at premiums by third parties — part luck and perhaps part design.

The yield on his rather large investment (4.74 million shares) is only 3%. He might do better if he was managing his own restaurants more dynamically. Unrealized gains on the Cracker barrel investment are now around $61 million ,and rather than accept a 3% yield on the investment he might want to consider using that money elsewhere for a better return. If he is not going to be a great restaurateur then he better become a great money manager.

As a footnote, if all else fails and he steps aside, he will be able to make a living off the value of his name. What’s that worth? He has an agreement signed in January 2013 that he personally will receive a 2.5% royalty on any revenue derived from use of the name Biglari. That’s what I call a sweet deal.

The article The King of Steakburger’s Shaky Quarter originally appeared on Fool.com and is written by j.a. graham.

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