Steak 'N Shake (NYSE: SNS), a decades-old iconic restaurant chain, served up more than its regular fourth-quarter and full-year earnings, which were very positive. The company also announced a new direction, as Chairman Sardar Biglari said Steak 'N Shake will function as a holding company and invest heavily in other businesses. Indeed, this change is already under way and will intensify as Steak 'N Shake moves ahead. The question has been asked: Will Steak 'N Shake become a mini-Berkshire Hathaway (NYSE: BRK.A)? So you might add: Will Biglari become a mini-Warren Buffett? (Learn more about Warren Buffett in Warren Buffett: The Road To Riches and What Is Warren Buffett's Investing Style?)

IN PICTURES: World's Greatest Investors

First The Earnings

Steak 'N Shake achieved a major advance in its earnings, as the Q4 shows. The company earned $3.4 million, or 12 cents a share, compared to a $9.2 million loss, or negative 32 cents a share, in last year's Q4. Sales increased to $158 million from $138 million. For the full year, the company earned $6 million versus a $23 million loss in fiscal 2008, which came out to positive 21 cents a share against a negative 81 cents a share last year. Revenue was up slightly to $622.8 million compared to $606.07 million the previous year. These are all diluted share numbers, as they include losses and impairment charges both years, largely due to Steak 'N Shake's aggressive cost-cutting and restructuring.

The Steak 'N Shake Strategy
Biglari, who comes from running the Lion Investment Fund originally, has clearly set out the plan for Steak 'N Shake in his chairman's letter. He details not only the recent acquisition of Western Sizzlin' (Nasdaq: WEST), which will bring cost efficiencies to Steak 'N Shake, but also the need for and success already achieved by the extreme cost-cutting that the company has undertaken. Biglari slashed company capital expenditures from more than $31 million in 2008 to $5.7 million in 2009. This is part of his plan to put the restaurant on a footing where it can compete in a difficult casual dining space with burger places like Red Robin Gourmet Burger (Nasdaq: RRGB), not to mention fast-food burger giant McDonald's (NYSE: MCD), both of which had a recent sales downturn in a tough industry.

Reverse Split And Long-Term Investing
In a move that looks right out of Buffett 101, Biglari is having the company undergo a 20-to-1 reverse stock split; so the shares, trading in the $10-$12 range before the split, will fetch a $200-$240 per share price. The goal is to encourage more long-term holding of the stock. Coupled with his "demon on cost" approach and his emphasis on intrinsic value - also strong echoes of the Buffett approach - Biglari has already invested excess cash in a small insurance company, Fremont Michigan Insurance (Nasdaq: FMMH).

A Method Or Madness?
Although Biglari's letter to shareholders is filled with candor but lacks the humor, wit or charm of Warren Buffett's annual tutorials, he gets his point across. He is operating his companies not for quarterly earnings growth, but for long-term increases in cash flow. He bluntly states that he will make all the investment decisions, and he will put the excess cash from Steak 'N Shake and any other holdings into investments that do not necessarily follow any theme, pattern or related industries. The clear, guiding investing principle will be intrinsic value and long-term growth. Nor will the company employ investment banks, road shows or the whole extravaganza of advisors and presentations favored, or at least traditionally done, by most companies. With Steak 'N Shake you now get Biglari - big time - and he freely admits that many shareholders won't like this, and that Steak 'N Shake stock won't be for everyone.

Steak 'N Shake Stock
The ongoing changes, self-described by Biglari as a turnaround and a transformation, will be fascinating to see as he executes this new plan. Investors will want to watch and carefully judge Biglari's acquisitions over the coming months and years, but they have been given a clear road map of what to watch and expect. Whether it will produce a strong, growing, diverse capital allocation company worth investing in, or a disparate, far-flung, weakened former restaurant company, will be fascinating to see.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  5. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  6. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  7. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  8. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  9. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  10. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
Trading Center