Sardar Biglari (BH) v. Cracker Barrel (CBRL)

PACIFIC MANAGEMENT CONSULTING GROUP
chain restaurant analysis and advisory
Sardar Biglari (BH) v. Cracker Barrel (CBRL): Battle of Restaurant Analytics
by: John A. Gordon, Principal
We took a detailed look at the chain restaurant analytical topics raised by the ongoing Sardar Biglari attempt to
win a single seat on the Cracker Barrel Board of Directors. Biglari has claimed in the past (1) bad SEC disclosure
(2) poor performance by CBRL and former CEO and now senior Chair Michael Woodhouse, among other issues.
Monday, CBRL fired back, claiming Biglari used bad analytical benchmarks. Versus our selected peer, CBRL
restaurant profitability did underperform, but not by much. One difficulty is that all three companies in this
analysis—CBRL, BOBE and BH, don’t disclose restaurant concept profitability well.
Selection of the right peer group for benchmarking is critically important for this drill.
CBRL is a breakfast, lunch and dinner house, with a more limited highway site profile and a midpriced $9
approximate average check. Comparing CBRL to broader restaurant space indices and the likes of the worldwide
behemoth McDonald’s (MCD), and the fast growing, more runway for growth ( and ultra-nosebleed multiple)
Chip
Ch
ipot
ip
otle
ot
le ((CM
CMG)
CM
G),, Panera (PNRA) and BJ’s Brewhouse (BJ
G)
BJRI
BJ
RI)) do
RI
does
es n
not
ot ssee
eem right.
ee
Chipotle
(CMG),
(BJRI)
seem
CBRL
CB
RL iis not fa
fast
st ffoo
food,
ood,
oo
d, h
has
as ssto
store
tore C
CAP
CAPEX
APEX
AP
EX iinv
investment
nves
nv
estm
es
tmen
tm
entt cl
en
clos
close
osee to ttha
os
that
hatt of ccas
ha
casual
asua
as
uall di
ua
dini
dining
ning
ng ((ap
(app.
app.
ap
p. $$2.
$2.2
2.22 M pl
2.
plus
plus),
us),
us
), b
but
ut iiss no
nott
casual dining (no al
ca
alcoho
holi
licc se
serv
rvic
ice)
ic
e). It aals
e)
lso
ls
o ha
hass at
atta
tach
ta
ched
ch
ed rret
etai
et
aill gi
ai
gift
ft ssho
hops
ho
ps.
ps
alcoholic
service).
also
attached
retail
shops.
We think that Bo
Bob
b Evans (BOBE)
E), sp
E)
spec
ecifi
ec
ificcal
ally
al
ly tthe
he B
Bob
ob E
Eva
vans
va
ns R
Res
esta
es
taur
ta
uran
ur
antt co
comp
mpon
mp
onen
entt is tthe
he b
bes
estt peer. It also
es
(BOBE),
specifi
cally
Evans
Restaurant
component
best
has US Midwester
ha
ern roots and comp
er
mpetes iin
mp
n si
simi
mila
mi
lar da
la
dayp
ypar
yp
arts
ar
ts.. In
ts
Incl
clus
usio
us
ion
io
n of D
Den
enny
en
ny’s’s ((DE
ny
DENN
DE
NN)) an
NN
and
d IH
IHOP
OP (DINE) is
Midwestern
competes
similar
dayparts.
Inclusion
Denny’s
(DENN)
not righ
right
ght sinc
since
ncee th
those are more a 22424-hour
4-ho
hour coffee sh
shop
shop/pancake
op/p
op
/pan
/p
ancake
ke h
hou
house
ouse
ou
se orien
oriented.
ented.
en
d. A
And
nd tthe
they
heyy fr
he
fran
franchise.
anch
an
chis
ch
ise.
is
e. But
ut similar to
BH and CBRL,
L, B
BOB
BOBE
OBE
E do
does
es n
not
ot b
bre
breakout
reak
re
akou
ak
outt Bo
Bob
b Ev
Evan
Evans
anss an
an
and
d Mi
Mimi
Mimi’s
mi’s’s p
mi
pro
profi
rofi
ro
fita
tabi
tability.
bili
bi
lity
li
ty.
ty
Looking so
Lo
sole
solely
lely
le
ly at 2000/2
2000/2005/2010
/200
005/
00
5/2010 110K
5/
0K rrep
reported
epor
ep
orte
or
ted
te
d Re
Rest
Restaurant
stau
aurant
au
nt aann
annual
nnua
nn
ual av
aver
average
erag
er
agee vo
ag
volu
volume
lume
lu
me ((AU
(AUV)
AUV)
AU
V) aand restaur
restaurant
uran
ur
ant level
an
operatingg ma
margin
in ((CR
(CRM),
CRM)
CR
M), CBRL perce
M)
percentage
cent
ce
ntag
nt
agee an
ag
and
d do
doll
dollar
llar
ll
ar p
pro
profi
rofi
ro
fita
tabi
tability
bili
bi
lity
ty p
per
er ssto
store
tore u
to
und
underperforms
nder
nd
erpe
er
performs Bob Evans
pe
ns o
on
n a 10
compound
(CAGR
)basis.
year
ye
ar ccom
ompo
om
pound average annual growth rate
po
te ((CA
CAGR
CA
GR ))ba
basi
ba
sis.
si
s.
CBRL AUV,
AUV Restaurant Margin % Margin and $ per unit, vs. Bob Evans
Year
CBRL AUV
($000s)
CBRL Retail only
AUV ($000s)
CBRL CRM, %
BOBE AUV (Bob
Evans) $000s)
BOBE CRM
2000
$4152
$1005
12.3%
$1569K
21.1%
2005
$3291
$876K
13.1%
$1731K
19.4%
2010
$3226
$832K
12.9%
$1726K
17.6%
AUV CAGR.
2010 v. 2000
-2.49%
-1.87%
NM
+.96%
NM
CAGR CRM Profit
$ per unit
-2.04%
-.88%
Source: SEC 10K reporting, with AUV and CRM calculated from text. CBRL FY-00 and BOBE FY-10 CRM estimated. BOBE acquired Mimi’s in 2004
which are not separately broken out in 2005 and 2010.
5980 Mission Center Road, Unit A | San Diego, CA 92123 | (619) 379-5561
[email protected]
www.pacificmanagementconsultinggroup.com
PACIFIC MANAGEMENT CONSULTING GROUP
chain restaurant analysis and advisory
CBRL1990s-2000s M&A resulted in tangled display
When Mr. Biglari and group were researching the CBRL trends, we bet they did have trouble with CBRL displays
back in the late 1990s to 2007. CBRL acquired Logan’s Roadhouse in 1999 and sold it at about a $307M profit in
2006 to PE firm Bruckman Rosser. CBRL’s Cracker Barrel and Logan’s separate 10Q/10K segment displays in
that time period were difficult, almost impossible to track to separate concept profitability, now. In fact, the face
of the displays violated the guideline noted in 1998 by the then CBRL founder and then Chair, Dan Evins, to run
Logan’s as a standalone entity.
Interestingly, Logan’s was growing rapidly in the early-mid 2000s and had positive same store sales results, which
CBRL did not.
Biglari claimed tangled CBRL restaurant/retail displays, but we always saw retail and restaurant sales separated,
and an inventory dollar breakout. Retail sales (and any profits) were a subset of restaurant profitability. Retail
gross profit was not disclosed.
Toda
To
day,
da
y, the
the C
CBR
BRL
BR
L we
webs
bsit
bs
ite features minimal managem
it
emen
em
entt di
en
disp
spla
sp
lays
la
ys o
oth
ther
th
er ttha
han routine SEC disclosu
ha
sure
su
re,, pe
re
perh
rhap
rh
apss in
ap
Today,
CBRL
website
management
displays
other
than
disclosure,
perhaps
reaction tto
re
o Mr
Mr.. Bi
Bigl
glar
gl
ari.i. Its 2201
010/
01
0/20
0/
2011
20
11 discl
clos
cl
osur
os
uree is ccle
ur
learer
le
er,, bu
butt no
now
w it h
has
as o
onl
nlyy on
nl
onee co
conc
ncep
nc
ept.
ep
t.
Biglari.
2010/2011
disclosure
clearer,
only
concept.
BH R
Restaurant Ma
Margin Dis
iscl
clos
osur
uree Al
ur
Also
so P
Poo
oorr
Disclosure
Poor
Interestingly, BH’
H’ss own 10K (and
H’
nd ann
nnua
uall ma
mana
nage
geme
ment
me
nt let
ette
ter)
r) d
dis
iscl
is
clos
cl
osur
os
uree fo
ur
format
at h
has
as the
he ssam
amee pr
am
prob
oble
ob
lem as did
le
BH’s
annual
management
letter)
disclosure
same
problem
CBRL
RL, gi
givi
ving
ng p
poo
oor visibility to it
oo
itss two restaurant
nt cconce
cept
ce
pts,
pt
s, SSte
teak
te
ak N Sha
hake
ha
ke and
nd W
Wes
este
es
tern
te
rn SSiz
izzl
iz
zlin
zl
in. It iss im
in
impossible
CBRL,
giving
poor
concepts,
Steak
Shake
Western
Sizzlin.
to breakout re
rest
restaurant
stau
st
aura
rant ope
operating
perating
ng m
margi
margin
gin
n or E
EBITD
EBITDA,
TDA,
TD
A, o
orr even
en ffre
free
reee ca
cash
sh flo
ow
w by ind
individual
ndiv
nd
ivid
iv
idua
id
uall co
ua
conc
concept.
ncep
nc
ept.
ep
t. A
AUV
AUVs
UVs are not
immediately vi
im
view
viewable,
ewab
ew
able
ab
le, no
norr of ccou
course
ours
ou
rsee fr
rs
franchisee
ee rres
results
esul
es
ults
ul
ts o
off an
anyy ki
kind
kind.
nd. A
nd
Att ye
year
ar eend
end,
nd,, BH o
nd
ope
operated
pera
pe
rate
ra
ted
te
d 41
4122 St
Stea
Steak
eakk N Shake
ea
units,
franchises
operates
Western
Sizzlin
franchises
unit
its,
s, ffra
ranc
ra
nchi
nc
hise
hi
sess 71
se
71, and op
oper
erates
er
es 5 W
Wes
este
es
tern
te
rn SSiz
izzl
iz
zlin
zl
in and fra
ranc
ra
nchi
nc
hisess 91
hi
91.
BH does no
not do quarterly earnings calls bu
butt ha
hass an aann
annual
nnua
nn
uall me
ua
meet
meeting
etin
et
ingg an
in
and
d is
issu
issues
sues
su
es aan
n an
annual letter to stockho
stockholders.
hold
ho
lders.
ld
More analysis is required: because of the disclosure probl
problems,
blem
bl
ems, sep
em
separation
eparation to separate concept CAPEX from
CBRL and BOBE is required so that free cash flow for each concept can be calculated. Use of proper benchmarks
all areas of the analysis, including stock price, is needed.
John A. Gordon
Pacific Management Consulting Group
Chain restaurant analysis and advisory
www.pacificmanagementconsultinggroup.com
5980 Mission Center Road, Unit A | San Diego, CA 92123 | (619) 379-5561
[email protected]
www.pacificmanagementconsultinggroup.com