Biglari Holdings Inc. has acquired a 9.7-percent stake in Cracker Barrel Old Country Story Inc., the parent of 601 restaurant-and-retail locations, the company said in regulatory filings Monday.
Biglari, which owns the Steak n Shake and Western Sizzlin chains, bought more than 2.2 million shares of Lebanon-Tenn.-based Cracker Barrel for more than $100 million, the San Antonio, Texas-based company said in a Securities and Exchange Commission filing.
Analysts said they were expecting chief executive Sardar Biglari to assume an activist role. A message left at Biglari’s headquarters had not been returned by press time.
Steve West, an analyst for Stifel Nicolaus, in a research note Tuesday said, “Given Sardar Biglari’s past of hostile takeovers (Steak n Shake) and success of turning around underperforming and under-valued restaurants, we believe the likelihood of an activist role is likely.”
Some of what West called “levers for extracting value” could include a demand for a seat on the board, the sale or lease-back of what Stifel said is about $700 million in real estate holdings, the slowing or halting of unit growth, and the outsourcing of the retail sales at the Cracker Barrel units, which Stifel estimated could free up about $100 million in working capital.
Robert Derrington, an analyst with Morgan Keegan Research, added that Biglari’s “affiliates typically seek strong cash-generating businesses, whose cash can be redirected from growth, dividends or share repurchase activity, to any business he so chooses.”
Derrington said Biglari had “successfully boosted restaurant shareholder value” Western Sizzlin and Steak n Shake and exercised past holdings at drive-in chain Sonic, burger chain Red Robin and Friendly’s Ice Cream Corp.
“We believe Biglari may have interest in Cracker Barrel’s strong cash flow and large portfolio of 400 fee-simple restaurant properties, which could be valued in the $1 [billion to] $1.2 billion range,” Derrington wrote, adding that he estimated fiscal year 2012 free cash flow to be in the mid-15-percent range exclusive of growth.
Stephen Anderson of Miller Tabak and Co. LLC, contrasted Cracker Barrel’s current performance with Steak n Shake’s before Biglari’s 2008 acquisition. “Unlike the Steak n Shake of 2007-2008, the CBRL of 2011 suffers from neither a fundamentally broken business model nor a lackluster management team, in our view,” he said.
For the third quarter ended April 29, Cracker Barrel recorded net income of $15.2 million, or 64 cents per share, an increase of 5.2 percent from earnings of $14.4 million, or 61 cents per share in the same quarter a year ago. Latest quarter net income included a $1.5 million, or 6 cents per share, gain on the sale of property, the company said.
Third-quarter revenue rose 0.7 percent to $582.5 million. Same-store restaurant sales fell 0.3 percent, reflecting a 2.3-percent increase in average check and a 2.6-percent decline in traffic. Same-store retail sales rose 0.1 percent.
Biglari Holdings reported profit of $5.6 million for the second quarter ended April 13, up about 2 percent from $5.5 million in the same period last year. The company posted revenue of $211.3 million, up 6 percent from $199.1 million in the prior year. For the quarter, the company reported same-store sales increased 4.3 percent from a year ago.
Biglari Holdings owns 418 Steak n Shake and Western Sizzlin restaurants and had 165 franchised locations between the two chains.