Biglari Holdings (BH)

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Clock's ticking on changes at Steak n Shake
Indy Star Daniel Lee July 21, 2008

Steak n Shake is famous for Steakburgers, right?

So the $2.99 bacon double Steakburger proved too tempting to resist during lunch last week at the Steak n Shake restaurant at Exit 103 off I-65 on the Southeastside. Rounding out my lunch? A bean crock, cottage cheese and a mocha shake.

It seemed like an opportune time for Insider Action to visit Steak n Shake, given all of the turmoil within the Indianapolis-based restaurant chain. The company's revenue and stock price are down. (Steak n Shake lost $2.8 million in its most recent quarter.) Chief Financial Officer Jeffrey Blade suddenly resigned this month.

Texas investor Sardar Biglari -- who became Steak n Shake's executive chairman after a lengthy battle for control of the company -- now is leading a turnaround effort.

His job is a tough one.

First, the competition is brutal. Wendy's, Bob Evans, Waffle House, Cracker Barrel and Texas Roadhouse are some of the eateries within sight of the Steak n Shake where I ate lunch.

And there's the struggling economy. My lunch cost $11.23 -- including a $2 tip for my friendly and efficient server, Rachael -- not bad when you consider the milkshake is a splurge. But it's more than you'd typically want to spend for a weekday lunch.

On this day, Steak n Shake seemed to be doing pretty well. The restaurant was fairly busy with about 35 people when I walked in around 1:15 p.m. My meal came within 7 minutes of ordering and was tasty. Although it was packed with 1,697 calories and 51.5 grams of fat, according to the nutritional information tool on Steak n Shake's Web site, it was a pretty pleasant lunch. If only things went that smoothly all the time for Steak n Shake.

Steve West, restaurant analyst with Stifel Nicolaus in St. Louis, said the company's challenges include sometimes poor service and older stores -- two potential turnoffs for customers.

Steak n Shake also is struggling along with its peers. "As gas prices go up, people are trading down to fast food," West said. "It's cheaper."

He said Steak n Shake is likely to follow a strategy similar to others in the restaurant industry: close underperforming stores, establish more franchise (as opposed to company-owned) stores, and remodel and update stores.

"This is a proud, well- established brand," West said. "Biglari is on the clock now. He has run everybody out. He supposedly has a plan, but we haven't heard anything about this plan."

Steak n Shake did not respond to an interview request by Friday afternoon. New details may emerge when Steak n Shake reports earnings Aug. 7.

Steak n Shake's challenges are not of Biglari's making. But he no doubt is now the head cook.

And investors, as with restaurant customers, can grow impatient pretty quickly.