Steak n Shake losses spark concerns for future: report

Steak 'n Shake is struggling, reporting a $18.9 million operating loss in the first quarter, following a $10.7 million loss for all of 2018. Investors are apparently contemptuous of CEO Sundar Biglari, with the Indianapolis Business Journal reporting that insiders are questioning his turnaround plan. Biglari has closed dozens of company-owned locations to reopen under franchisee control and reportedly plans to invent a new way of making milkshakes. The CEO has also reportedly said he would love to save $1 million by no longer putting cherries on the chain's iconic milkshakes. Visit Business Insider's homepage for more stories.Steak 'n Shake could be in its final days, as insiders reportedly worry about massive losses and the CEO's turnaround strategy. The Indianapolis Business Journal published an article last week, diving into the problems plaguing the struggling chain. In the first quarter, Steak 'n Shake reported an $18.9 million operating loss, after reporting a $10.7 million loss for all of 2018. Investors are “contemptuous of both [CEO Sundar] Biglari and his doormat board,” IBJ reported following the annual meeting of parent company Biglari Holdings in late April. In addition to Steak 'n Shake, Biglari owns Maxim magazine, steakhouse chain Western Sizzling, and insurance brand First Guard. “It resembles a museum — not of art but of businesses,” CEO Sundar Biglari wrote in the company's 2018 annual letter.“Rather than collecting Monets, we collect money from productive assets.” However, Steak 'n Shake is far from a restaurant industry leader. Biglari acquired the company in 2008 and pulled off a short-term turnaround. However, in recent years, the company has been struggling. IBJ reports customer traffic counts dropped 13% over the last three years and a whopping 7.7% in the first quarter.Investors are skeptical of Biglari's turnaround plan, IBJ reports. The brand has temporarily closed 60 company-owned restaurants this year, with Biglari reportedly saying in the annual meeting that there could be more closures to come. Biglari plans to reopen the company-owned stores as franchised locations. Biglari Holdings also plans to roll out a new milkshake making process, with the CEO himself reportedly planning to invent the new way to make shakes. Then, there's the issue of the cherries.According to IBJ: “Sardar Biglari said at one point that Steak n Shake spends $1 million per year on cherries for milkshakes and that he would love to get rid of that $1 million,” according to the post, a comment verified by another shareholder in attendance.“Three different shareholders pointed out, in conversations, how ridiculous that sentiment is. … Given all [the dubious expenses], shareholders were pointing out that maybe there is a better way to save $1 million rather than eliminating cherries from Steak n Shake's milkshakes.”Steak 'n Shake did not immediately respond to Business Insider's request for comment. Biglari touched on issues in his annual letter, promising changes related to speed and operations. “To be a market leader in the fast food business, we should have paid greater heed to becoming, well, fast,” Biglari wrote. “We are in the process of addressing this misstep. To do so, we are overhauling and streamlining production — that is, developing a sophisticated operating and delivery system — in order to gain volume through speed. This principle can be summed up in the dictum of Benjamin Franklin: 'Time is money.'”Steak 'n Shake's problems are no secret to many investors. In 2018, the chain made S&P Global Markets' list of 19 retailers that are most at risk of defaulting next.Read the Indianapolis Business Journal's full report on the future of Steak 'n Shake here.