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Sardar Biglari takes Cracker Barrel to task

In letter filed with SEC, shareholder requests separate results for restaurant, retail operations

Editor's note: This story has been updated to include a statement from Cracker Barrel.

Activist investor Sardar Biglari, whose firm holds a 9.3-percent stake in Cracker Barrel Old Country Store Inc., called for the family-dining company to more clearly present its financials, separating its restaurant and retail operations.

In a letter filed Wednesday with securities regulators, Biglari, chairman of San Antonio, Texas-based Biglari Holdings Inc., and chief executive of Steak n Shake and Western Sizzlin’, said he was “deeply disturbed” that Cracker Barrel did not more fully disclose retail sector information. In the letter addressed to Cracker Barrel chairman and chief executive Michael A. Woodhouse, Biglari said he believes more information will help investors to better value the restaurant company.

“Failure to distinguish and divide segments privately and publicly could result in one side of the business subsidizing the other unbeknownst to management or to investors,” he wrote. “Plainly, how can we shareholders judge the performance of, say, the restaurant business, if you combine with it the operating expenses of the retail business that make up approximately 20 percent of the company’s total revenue?

“I believe you have taken the low road in accounting disclosure and have thereby set the wrong tone at the top,” Biglari wrote, “a demonstrable and clear marker of poor corporate governance.”

Lebanon, Tenn.-based Cracker Barrel, which operates 600 restaurants that hold retail operations selling food and goods, does report separated same-store sales and revenue results by segment.

“The facts are that Cracker Barrel’s financial reporting is appropriate and in compliance with Securities and Exchange Commission disclosure requirements, including the applicable guidance on segment reporting," Julie Davis, spokesman for Cracker Barrel, said in a statement Wednesday. "We view our restaurant and retail operations as two related and substantially integrated product lines that allow our stores to deliver a unique, integrated customer experience.”

Davis said Cracker Barrel's operating expenses are shared between the two segments and are "indistinguishable in many respects" -- facts that were discussed with Biglari during a meeting between the two parties earlier this month.

Davis added that the Securities & Exchange Commission raised the segment-reporting issue with Cracker Barrel in a comment letter in October 2003, but since then has not raised any issues.

“Cracker Barrel responded to this comment in early 2004, and the SEC later confirmed that it did not have any further comments,” Davis said. “We have since received three comment letters from the SEC (in 2006, 2009 and 2011), and the segment reporting issue was not raised in any of those.”

Read Biglari’s full letter to Cracker Barrel

Biglari purchased his stake in Cracker Barrel in June, and has a history of investing in restaurant companies and then pressuring management to increase shareholder value. He battled with management teams at Friendly’s, Steak n Shake and Applebee’s.

Bob Derrington, a restaurant securities analyst with Morgan Keegan Research, said he suspected the conflict between Biglari and Cracker Barrel to escalate, as recent Cracker Barrel share prices remain below Biglari Holding’s investment basis.

“While (as analysts) we always prefer more information to less, we recognize [Cracker Barrel] management’s view to not disclose information it may deem confidential to protect the integrity of its brands from competitive intrusion,” Derrington wrote in a note to investors.

Since Biglari’s June investment, Cracker Barrel has eliminated 60 management and staff positions in an effort to reduce corporate costs and earlier this month it named Sandra B. Cochran, the company’s current president and chief operating officer, as its new chief executive. Cochran will assume that role in September and replace Woodhouse, who will become executive chairman.

Biglari also said in his letter that in an Aug. 10 conversation with Woodhouse, he was offered the opportunity to review detailed information on the segments. He declined that offer, and said in his letter that insider information granted to one shareholder is not fair to all stakeholders.

“I declined your offer on the basis that I would possess the same advantage as insiders but leave all other stockholders at an informational disadvantage,” Biglari said. “Such is not the way we operate, and such is not the way we want the management of Cracker Barrel to operate.”

Biglari’s letter said he is scheduled to meet on Friday with Cochran and Larry Hyatt, Cracker Barrel’s chief financial officer.

Contact Ron Ruggless at [email protected].
Follow him on Twitter at: @RonRuggless

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