Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Steak n Shake's Flip Side

In its television ads, Steak n Shake (NYSE: SNS  ) tries to distance itself from other quick-service burger flippers. These are steakburgers, not hamburgers. These are handspun milkshakes, not stuff oozing out of a machine.

Unfortunately, after watching Steak n Shake's stock close 11% lower Thursday after a horrendous second-quarter report, maybe the company should look into rolling out hamburgers and shake machines.

Yes, it was that bad. Revenue fell by 6% to $190.5 million, weighed down by a 6.3% slide in same-store sales, or comps. Margins were slammed, with the company swinging to a net loss of $0.10 a share this time around from last year's profit of $0.21 a share.

The numbers are laughably disappointing when compared with chains like Burger King (NYSE: BKC  ) and CKE Restaurants' (NYSE: CKR  ) Carl's Jr., which Steak n Shake's ads aim to belittle.

Even the companies that posted uninspiring comps for the quarter, like Jack in the Box (NYSE: JBX  ) , Wendy's (NYSE: WEN  ) , and McDonald's (NYSE: MCD  ) , managed to hold up better and whip up a profit.

The grim news on Steak n Shake is that comps could have been worse. Like most eateries these days, Steak n Shake is down to offering steep promotions to win over the hungry. The deals included a popular promotion in February offering double steakburgers with fries for $2.99 in a dozen core markets. Like Sonic (Nasdaq: SONC  ) , which offers half-priced drinks during its Happy Hour from 2 p.m. to 4 p.m. daily, Steak n Shake now has its own weekday Happy Hour promo for $1.99 milkshakes.

The deals may sound great to you as a penny-pinching diner, but they're margin killers when you consider rising food costs.

The company also teamed up with Seattle's Best Coffee to drum up breakfast sales at its 24-hour restaurants, offering items like bagel sandwiches and breakfast smoothies. It was a hit, with breakfast sales up 17% during the typically moribund morning hours, but breakfast items still account for just 4% of overall sales.

So just imagine how bad the comps would have turned out if it weren't for the breakfast initiatives and the margin-munching promotional pushes. Yes, Steak n Shake has problems.

Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 16, 2008, at 1:51 PM, chitownjester wrote:

    SNS is trading at less than the value of the land its restaurants sit on, so who cares how bad the quarter, economy, burgers, whatever. It is undervalued.

  • Report this Comment On May 16, 2008, at 2:33 PM, ski1947 wrote:

    Breakfast cannabilizes the lunch business. This was true for Burger King and Wendy's when they introduced their respective breakfast programs. Store-level execution is the problem with SNS. Slow and uninspired service.

  • Report this Comment On May 17, 2008, at 6:47 PM, collateralestopp wrote:

    SNS has a great product. The problem is it is neither fast food nor casual dining. It falls somewhere in between. The perception is that it offers no more value than a BK or MCD but costs a premium over those, and that it offers less than a traditional sit down place with the cost savings being small.

    The customers don't feel they are getting value after paying $10 or so per person (with tip).

    Lowering prices, as we have seen, kills their margins. Raising prices puts them even closer to the casual dining places.

    Asset-wise they are cheap here. Their operations, however, are going to erode the assets if this keeps up.

    I don't know what the answer is for this company, but I hope they make it. I don't have one near me today, but I grew up with them and whenever I am traveling in an area with a SNS I try to make it there.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 646902, ~/Articles/ArticleHandler.aspx, 8/26/2016 3:01:44 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 5 hours ago Sponsored by:
DOW 18,448.41 -33.07 -0.18%
S&P 500 2,172.47 -2.97 -0.14%
NASD 5,212.20 -5.49 -0.11%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/25/2016 4:02 PM
BH $455.00 Up +8.91 +2.00%
Biglari Holdings CAPS Rating: ***
BKC.DL $0.00 Down +0.00 +0.00%
Burger King Holdin… CAPS Rating: **
CKR.DL2 $12.55 Down +0.00 +0.00%
CKE Restaurants, I… CAPS Rating: ***
JBX $20.04 Down +0.00 +0.00%
Jack in the Box CAPS Rating: ***
MCD $115.43 Up +0.56 +0.49%
McDonald's CAPS Rating: ***
SONC $28.68 Down -0.06 -0.21%
Sonic CAPS Rating: **
WEN $9.93 Down -0.01 -0.10%
Wendy's CAPS Rating: ***