Steak n Shake sees shaky 2008, posts lackluster Q4
Shares of The Steak n Shake Co. (NYSE: SNS) are veering lower today after the casual dining restaurant reported a gloomy fourth quarter and issued 2008 guidance below Wall Street’s expectations.
For the three months ended Sept. 26, the Indianapolis, In.-based company recorded net earnings of $1.5 million, or $0.05 per diluted share, compared with $0.10 six analysts were polled by Thomson Financial were on average expecting, and $7.5 million, or $0.27 per diluted share earned in the fourth quarter of 2006.
The small cap noted that it incurred a $1.1 million pre-tax charge ($0.7 million, or $0.02 per share net of tax) during the quarter for non-operating expenses related to “evolution of the organization.” Higher commodity costs and minimum wage increases, took a toll on the company’s bottom-line during the quarter.
Total revenues were $151.1 million, compared with $152 million in the same quarter last year. Five analysts polled by Thomson Financial were on average projecting revenues of $152.97 million.
Same store sales declined by 3.9% due to languishing guest traffic on account of store level execution and tighter consumer purse strings as a result of the feeble housing market and rising gas prices.
“The sharp earnings decline reflected continuation of weak comps and margin compression,” Robert W. Baird analyst David Tarantino wrote in a research note today. “Their near-term strategy involves emphasis on refining concept, improving operations, and cutting costs. Expect turnaround initiatives under new leadership to take time to gain traction.”
According to Tarantino, for 2008, management discussed a set of initiatives focused on refining its business operations, including testing a new prototype design in 2008, enhancing branding efforts, improving operations and cutting costs.
During 2008, the company said it plans to open approximately nine company-owned and six franchised stores. Additionally, Steak n Shake said it will rebuild two older units and remodel four to six units. According to the company, as of Sept. 26, 2007, there were 491 Steak n Shake restaurants operating in 21 states, including 435 company-owned restaurants and 56 franchised units.
Guiding ahead for 2008, Steak n Shake anticipates full-year earnings of $0.32 to $0.42 per share, a 31% to 47% decline from the $0.61 per share six analysts polled by Thomson Financial were expecting. The company said the guidance is based on a decline of 1% to 5% in annual same store sales on account of a continued difficult.
Steak n Shake, however, noted that it expects same store sales to improve throughout the year with the first quarter characterized by the current challenging business environment and an impact of an incremental coupon value event in fiscal 2007 that was not repeated in the current year, partially offset by a November fiscal 2008 price increase.
The company did not provide an update on its previously announced decision to explore strategic options with Merrill Lynch & Co., Inc. (NYSE: MER) except to say that “any future decisions that may arise from this work will be shared at the appropriate time.”
“Given operational challenges and emergence of shareholder activists, we cannot rule out the possibility of a buyout, particularly if credit markets improve,” Tarantino wrote.
Tarantino is lowering his estimates and price target; but retaining a “neutral” rating on the stock. The analyst lowered his 2008 EPS estimate $0.29 to $0.36 and tagged a price target of $12 per share.
“Factors that may support the stock in the short term include hopes for better results under a new CEO, speculation related to a leveraged buyout, and prospects for SNS to pursue non-operating initiatives (sale-leasebacks) that could create short-term value,” Tarantino wrote.
Shares of Steak n Shake (SNS) sunk 9.78%, or $1.26, to $11.63 at 11:50 a.m. ET. Shares of Steak n Shake have been trading in the range of $12.75 to $18.10 for the past 52 weeks.
