Comments on: Steak n Shake Company Quietly Shifting to Berkshire Hathaway Business Model http://www.peridotcapitalist.com/2010/02/steak-n-shake-company-quietly-shifting-to-berkshire-hathaway-business-model.html Stock market and investing blog published by Chad Brand, Founder/President of Peridot Capital Sat, 11 Feb 2012 23:26:23 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: john http://www.peridotcapitalist.com/2010/02/steak-n-shake-company-quietly-shifting-to-berkshire-hathaway-business-model.html/comment-page-1#comment-1869 john Fri, 05 Feb 2010 22:27:45 +0000 http://www.peridotcapitalist.com/?p=1552#comment-1869 Chad, thanks for the thoughts, I know it took you some time. My WAG would be taht $6m is quite low, but that they can only get away with it for a year or two before rising back to the $15 - $20 range. just a guess, though. I'd need to do a lot more work to get a grounded estimate. Chad, thanks for the thoughts, I know it took you some time. My WAG would be taht $6m is quite low, but that they can only get away with it for a year or two before rising back to the $15 – $20 range. just a guess, though. I’d need to do a lot more work to get a grounded estimate.

]]> By: Chad Brand http://www.peridotcapitalist.com/2010/02/steak-n-shake-company-quietly-shifting-to-berkshire-hathaway-business-model.html/comment-page-1#comment-1867 Chad Brand Thu, 04 Feb 2010 22:17:47 +0000 http://www.peridotcapitalist.com/?p=1552#comment-1867 @john: You're right... some of it flows through as an expense in the period it was spent, and the rest is charged as D&A over subsequent periods. I am not sure how many new locations they were opening before, so I cannot tell you what % of the capex cuts are from stopping the expansion. Was the previous management team that inept in terms of wildly spending money on things that did little to boost sales? I believe so. Look at these numbers: Cash Earnings/CapEx/Free Cash Flow By Year: 2000: $39m/$76m/($37m) 2001: $42m/$40m/$2m 2002: $46m/$41m/$5m 2003: $45m/$31m/$14m 2004: $53m/$46m/$7m 2005: $57m/$64m/($7m) 2006: $57m/$81m/($24m) 2007: $44m/$69m/($25m) 2008: $11m/$31m/($20m) 2009: $37m/$6m/$31m If you compare all the money they spent with the change in earnings during the subsequent years, their ROI record was horrible in terms of allocating capital. So maybe they really were spending money for no good reason. Time will tell, however, if $6m annually is enough to keep nearly 500 locations humming along. @john:
You’re right… some of it flows through as an expense in the period it was spent, and the rest is charged as D&A over subsequent periods.

I am not sure how many new locations they were opening before, so I cannot tell you what % of the capex cuts are from stopping the expansion.

Was the previous management team that inept in terms of wildly spending money on things that did little to boost sales? I believe so. Look at these numbers:

Cash Earnings/CapEx/Free Cash Flow By Year:

2000: $39m/$76m/($37m)
2001: $42m/$40m/$2m
2002: $46m/$41m/$5m
2003: $45m/$31m/$14m
2004: $53m/$46m/$7m
2005: $57m/$64m/($7m)
2006: $57m/$81m/($24m)
2007: $44m/$69m/($25m)
2008: $11m/$31m/($20m)
2009: $37m/$6m/$31m

If you compare all the money they spent with the change in earnings during the subsequent years, their ROI record was horrible in terms of allocating capital. So maybe they really were spending money for no good reason. Time will tell, however, if $6m annually is enough to keep nearly 500 locations humming along.

]]> By: john http://www.peridotcapitalist.com/2010/02/steak-n-shake-company-quietly-shifting-to-berkshire-hathaway-business-model.html/comment-page-1#comment-1866 john Thu, 04 Feb 2010 21:50:18 +0000 http://www.peridotcapitalist.com/?p=1552#comment-1866 Chad, at the risk of asking a dumb question - maybe I don't really understand what falls into capex at restaurant chains. I assumed it was renovations and new equipment - how does that interact with operating expenses? I assumed it was expensed over time for accounting but that cash flow is an immediate boost? thoughts? Chad, at the risk of asking a dumb question – maybe I don’t really understand what falls into capex at restaurant chains. I assumed it was renovations and new equipment – how does that interact with operating expenses? I assumed it was expensed over time for accounting but that cash flow is an immediate boost? thoughts?

]]> By: Carl Hyde http://www.peridotcapitalist.com/2010/02/steak-n-shake-company-quietly-shifting-to-berkshire-hathaway-business-model.html/comment-page-1#comment-1865 Carl Hyde Thu, 04 Feb 2010 16:12:36 +0000 http://www.peridotcapitalist.com/?p=1552#comment-1865 In April of 2007 Sears Holding was trading at almost $200 a share. Its been downhill ever since having lost half of its value since. I'm not sure a model based on SHLD is necessarily a good thing. With the economy like it is today Macdonalds is still the best food play in town. We have a Steak & Shake near us that was doing fairly well until a Five Guys Hamburgers opened nearby. The S & S has half the cars in the parking lot each night while the Five Guys is jammed. Maybe he should add a railroad to his holdings and a jewelry chain. In April of 2007 Sears Holding was trading at almost $200 a share. Its been downhill ever since having lost half of its value since. I’m not sure a model based on SHLD is necessarily a good thing. With the economy like it is today Macdonalds is still the best food play in town. We have a Steak & Shake near us that was doing fairly well until a Five Guys Hamburgers opened nearby. The S & S has half the cars in the parking lot each night while the Five Guys is jammed. Maybe he should add a railroad to his holdings and a jewelry chain.

]]> By: Chad Brand http://www.peridotcapitalist.com/2010/02/steak-n-shake-company-quietly-shifting-to-berkshire-hathaway-business-model.html/comment-page-1#comment-1864 Chad Brand Thu, 04 Feb 2010 12:21:53 +0000 http://www.peridotcapitalist.com/?p=1552#comment-1864 @john: It could be sustainable if he actually goes ahead and franchises out some company-owned locations, but aside from that I am not sure how much more he can cut. For the fourth quarter (year over year) operating expenses were reduce from 55% of sales to 50% of sales. A meaningful cut, yes. Enough to result in noticeable differences for the customer, probably not. The fact that traffic is increasing nicely also lends credence to that conclusion, but we will have to see the effects longer term. @john:
It could be sustainable if he actually goes ahead and franchises out some company-owned locations, but aside from that I am not sure how much more he can cut. For the fourth quarter (year over year) operating expenses were reduce from 55% of sales to 50% of sales. A meaningful cut, yes. Enough to result in noticeable differences for the customer, probably not. The fact that traffic is increasing nicely also lends credence to that conclusion, but we will have to see the effects longer term.

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