A "go slow" approach can be a wise decision for many companies. After all, numerous promising companies have ultimately destroyed themselves by expanding too far too fast -- stretching management thin and either burdening themselves with debt and expenses or diluting shareholders. But there's a difference between "go slow" and "going nowhere fast," and that brings us to Steak n Shake
Simply put, there's not a lot in the way of growth at this value-priced dining concept. Same-store sales for the second quarter were down 0.3%, and what's more troubling to me is that the decline was made up of a 5% lower guest count offset by 4.7% higher pricing.
Now, management tried to use the energy excuse, but I don't think I'm buying it. Although Red Robin
In part because of rising costs, the restaurant's earnings are barely keeping pace with the growth in revenue. Consequently, net income and cash flow are going nowhere fast.
Contrary to most of my buddies at Fool HQ, I actually like the food at Steak n Shake. But as we at The Motley Fool have said numerous times, liking a company's product doesn't automatically make the stock a great buy. And such would seem to be the case here.
I do support the company's decision to pursue expansion in a controlled fashion and I think this concept can work if it's presented (i.e., marketed) in the right way. In the meantime, though, there just simply aren't enough rear ends filling its booths. And for an industry that historically relies far more on traffic than on rising menu prices, that's a problem. Whatever the root cause of the poor traffic, things are looking shaky to me until more folks start walking through the door.
For more Foolish food for thought:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
