Steak n Shake profit falls as franchised restaurants grow

Steak n Shake’s profit shrank in fiscal 2014 as the company spent more to grow its number of franchised restaurants.

The Indianapolis-based burger chain reported profit for the year ended Sept. 30 of $26.5 million, down from $28.4 million in fiscal 2013 and $45.6 million in 2012, according to the Nov. 22 annual report from Steak n Shake’s parent, San Antonio-based Biglari Holdings Inc.

Steak n Shake had 124 franchised restaurants as of Sept. 30, an increase of 20 from the previous fiscal year. Overall, the chain has 544 locations, the vast majority of which are company-owned.

"Steak n Shake's earnings were materially higher in 2012," said Sardar Biglari, chairman of parent company Biglari Holdings, in a letter to shareholders. "The major factor for the recent downturn has been our aggressive spending to stoke our franchise business."

Other indicators for the burger chain appeared more robust. Revenue in fiscal 2014 grew 3.9 percent, to $765.6 million, while customer traffic increased 1 percent, to 114 million.

Same-store sales in the fourth quarter increased 3.4 percent, marking 23 straight quarters of same-store sales growth since Biglari Holdings took control of Steak n Shake in August 2008.

Steak n Shake’s $4-meal strategy is steeped in a philosophy of offering menu items at the lowest possible prices to increase customer traffic, even as beef costs at company-owned restaurants have risen $19 million since 2009, Biglari said.

“To remain successful, we must persist within a culture of thrift, squeezing out expenses and applying methods to lower our cost structure,” he said in his letter. “Naturally, cutting expenses is like cutting grass, a never-ending task.”

But the strategy has prompted lawsuits from some franchisees upset that they’re unable to set their own prices. One of those franchisees, St. Louis-based Druco Restaurants, owner of two Missouri Steak n Shakes, reached a settlement with the chain earlier this month.

Steak n Shake also is attempting to grow sales by licensing its products to sell in supermarkets, Biglari said. IBJ in August reported the chain’s efforts to take its iconic steakburger from the grill to the grocery. It and other Steak n Shake products now are available in the frozen-food aisles of 2,400 Walmart stores.

Meanwhile, the chain is becoming an international brand. Steak n Shake has two company-operated restaurants along the Mediterranean Sea—one on the island of Ibiza, Spain, and the other in Cannes, Frances. It’s about to open a franchised location in Marseille, France, with other franchised locations to follow in Madrid, Spain; Kuwait City, Kuwait; and Riyadh, Saudi Arabia.