Red Robin Burgers

[OracleofCarolina]

http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000093859&owner=exclude&count=40

 

Biglari's new purchase

[elltel]

interesting... not heard of them before so did a search on this message board. Seems this burger chain was discussed some time ago and the comments were fairly positive....

[Parsad]

I can't avoid this guy if I try!  ;D  We've been buying Red Robin for about a month and a half now.  It's our third largest position.  There is also another hedge fund who controls a significant amount of Red Robin.  The founder of Glass Lewis is also on the board and is working for the hedge fund.  Now Sardar is there.  They are already searching for a new CEO. 

 

Red Robin generates tremendous cash flows, but some of their expansion was too rapid.  They've subsequently had to take back a number of franchisee stores.  This is pretty much a Steak'n Shake turnaround again for Sardar, but one in much better shape than SNS was when he took over.  He'll also find alot of support from some of the current owners, but hopefully they won't be put off by his compensation proposal at BH.

 

Refranchise stores, close the underperforming ones, sell those assets, generate increased traffic and refunnel cash flows into better ideas while expanding intelligently through franchising.  He's a big fan of Red Robin, so this doesn't surprise me.  Cheers!

[ragnarisapirate]

notice that it is a 13G: this is the first time that Biglari has gone with a "G" instead of a "D" for a block of stock this large.

[Myth465]

Interesting. I may have to take a look.

 

Thanks for the insight Parsad. This has been on the board a few times.

[opihiman2]

 

He'll also find alot of support from some of the current owners, but hopefully they won't be put off by his compensation proposal at BH.

 

 

I don't understand this statement in the context of what has been going on.  Are you saying that you want Biglari on board at Red Robin?

[Ballinvarosig Investors]

I don't understand this statement in the context of what has been going on.  Are you saying that you want Biglari on board at Red Robin?

As ragnar states, Biglari has filed a 13G , therefore he will not be allowed to sit on or influence the board.

[Parsad]

I don't understand this statement in the context of what has been going on.  Are you saying that you want Biglari on board at Red Robin?

 

I don't care if Sardar is on a board, as long as he's not compensated any differently than anyone else.  Whether I agree or not with Sardar on compensation, he will be an agent for change in the way the company allocates their cash flows. 

 

As ragnar states, Biglari has filed a 13G , therefore he will not be allowed to sit on or influence the board.

 

While he hasn't filed a 13D, there is no reason why he cannot make a tender offer for the company at some point, or file an amendment to his 13G converting to a 13D.  Cheers!   

[Ballinvarosig Investors]

While he hasn't filed a 13D, there is no reason why he cannot make a tender offer for the company at some point, or file an amendment to his 13G converting to a 13D.  Cheers!   

True, but I'm only going by past behaviour. With Fremont Michigan and Steak n' Shake, he filed a 13D from the outset.

[txlaw]

I used to own RRGB and discussed why I liked the business at the price it was trading in a post.  I bought RRGB stock and sold most of it at a very nice profit, though I would have made even more had I sold it all after the huge run up in the first half of the year.  I completely sold out a couple of months ago.

 

The reason I sold out of RRGB is because it became apparent that although they seemed to know how to grow their brand and create a great customer service experience, they didn't have good capital allocators at the helm.  I actually called their IR department (outsourced to an IR firm) at one point, which I have never done before for a company that I own, and suggested in a voice mail that they buy back some stock and pay off their maturing debt instead of investing in too many new restaurants.  My criticism was directed at focusing on ROIC, though I understood that with a growing franchise company, you do sometimes sacrifice some return in order to build out a brand.  I think this is particularly the case when you want to eventually refranchise your company owned restaurants.

 

In any case, I was sort of turned off by the inability to get someone on the phone, and I ended up selling out and moving on to bigger and better ideas.  I kept an eye on it and was intrigued by the Clinton Group and Spotlight activity, but that was not enough to get me very interested in reentering.

 

However, now that Mr. Parsad and Mr. Biglari have entered the picture, I am interested again.  Bought a bit on Friday.  

[txlaw]

While he hasn't filed a 13D, there is no reason why he cannot make a tender offer for the company at some point, or file an amendment to his 13G converting to a 13D.  Cheers!   

True, but I'm only going by past behaviour. With Fremont Michigan and Steak n' Shake, he filed a 13D from the outset.

 

Another thing is that he could be trying to establish himself as a friendly acquirer at the right price, in which case he probably wouldn't file a 13D.

[Parsad]

I know Sardar really likes the Red Robin brand.  In fact, he used Red Robin and Chik-Fil-A as two examples of what he thought SNS could be like.  With the Clinton Group in there, and Sardar owning 6.1%, and the search on for a CEO, there should be some progress in how capital is allocated. 

 

I agree with you Txlaw, I can't understand why CEO's and boards focus on rapid growth rather than the highest return on equity...probably because many of them get fat bonuses on rapid revenue and earnings growth.  We see this happen all the time with good companies.  Most recently it was Starbucks, and Howard Schultz had to come back to rein in growth.  Cheers!

[ragnarisapirate]

I know Sardar really likes the Red Robin brand.  In fact, he used Red Robin and Chik-Fil-A as two examples of what he thought SNS could be like.  With the Clinton Group in there, and Sardar owning 6.1%, and the search on for a CEO, there should be some progress in how capital is allocated. 

 

I agree with you Txlaw, I can't understand why CEO's and boards focus on rapid growth rather than the highest return on equity...probably because many of them get fat bonuses on rapid revenue and earnings growth.  We see this happen all the time with good companies.  Most recently it was Starbucks, and Howard Schultz had to come back to rein in growth.  Cheers!

 

Unfortunately, there is also a great amount of ego boost, if they can say " I grew this company from 5,000 to 80,000 employees!" or "I tripled revenues!" or "I made this into a billion dollar company!"

[DCG]

In fact, he used Red Robin and Chik-Fil-A as two examples of what he thought SNS could be like.  

 

I don't really see Red Robin as having the same type of brand loyalty os Chik-Fil-A. While I'm not the biggest fan of Chic-Fil-A's food, they do have a bit of a 'cult' type following, similar to In-and-Out Burger. I just don't see that with Red Robin.

 

What are the main things you like about Red Robin? With only a 6% stake from biglari, what type of role will he be able to play in any turnaround?

[Parsad]

I don't really see Red Robin as having the same type of brand loyalty os Chik-Fil-A. While I'm not the biggest fan of Chic-Fil-A's food, they do have a bit of a 'cult' type following, similar to In-and-Out Burger. I just don't see that with Red Robin.

 

I think Sardar's comments about Red Robin had to do with their sit-down style of burger restaurant and the execution on the customer service side.  I would presume that he felt SNS could develop a cult-like following like Chik-Fil-A or In & Out, and the price-point was closer to where SNS would be.  From everything I've seen, SNS does have a cult-following, but probably not as well-known or widespread as Chik or In & Out.  

 

What are the main things you like about Red Robin? With only a 6% stake from biglari, what type of role will he be able to play in any turnaround?

 

I don't want to say too much about what I like about it, because everyone has to do their own homework on it.  I think you should start with their cash flows...they are tremendous.  The risks are that they have overexpanded, and unless someone starts cutting back and redirecting cash flows, you could see diminishing returns from those cash flows on the bottom line.  We are already seeing that, and in this type of economic environment, Red Robin will have a tougher time since their price point isn't in the discount restaurant range.  They also need to drive traffic back to their stores.  I don't think they can do this with price increases and they actually need to go the other way.  Cheers!

[enoch01]

What are the main things you like about Red Robin?

 

Check out the investor presentation on their website from June.  In there they break down CapEx for the current year.

[Guest Bronco]

Txlaw - I have read many of your posts and you seem intelligent - can you give 5 - 10 CEO's / management teams that you feel are good capital allocators. 

 

In my investing career and work career, I have been challenged to find management teams that both 1) run a business well and 2) allocate capital well (or give it back to shareholders if that option is unavailable).

 

Of course, Buffett has been the best.  As mentioned on another thread, I like the Tisch gang.  However, I am always looking for ideas...

[txlaw]

Txlaw - I have read many of your posts and you seem intelligent - can you give 5 - 10 CEO's / management teams that you feel are good capital allocators. 

 

In my investing career and work career, I have been challenged to find management teams that both 1) run a business well and 2) allocate capital well (or give it back to shareholders if that option is unavailable).

 

Of course, Buffett has been the best.  As mentioned on another thread, I like the Tisch gang.  However, I am always looking for ideas...

 

Boy, that's an interesting question.  I guess it depends on the mandate of the management team.  Holding companies like L have a mandate to allocate capital to all sorts of disparate high return (on a risk adjusted basis) ideas, whereas most public companies have a mandate to invest in ideas within the sphere of their current businesses, while also thinking about share buybacks, dividends, and M&A as alternatives. 

 

------

 

Buffett/Munger are the bomb, of course.

 

The Tisch's are interesting -- I really need to look into Lowe's more to figure out how skillful they are.

 

Li Ka Shing of Cheung Kong Holdings fame is really good, from what I've seen of his various controlled businesses.

 

The Brookfield guys are really great.  BAM is starting to get interesting at current prices.

 

Brian Roberts and the rest of the Comcast team I think is very good.  Comcast seems to be doing a really good job of optimizing their assets and preparing for a future where they could have substantially less ARPU.  Unlike some value investors, I actually think that the NBC deal is a good one.

 

Despite the pay package, Biglari will do a good job of allocating capital at BH, I think.

 

Eddie Lampert will do a good job at SHLD as well over time.

 

I like the guys who run NRG.  They focus on ROIC and I kind of view them as a merchant generation focused private equity fund.

 

The guys at XOM seem to do a good job of allocating capital, although they can only do so much being such a gigantic company.

 

Muhtar Kent and the KO guys are really good.

 

That's all I can think of at the moment.

[Dorsia1]

I am sure I will get some people who disagree with this but how about the guys at Philip Morris. The past two years they have given back over $20B in dividends and share buybacks since they were spun off from Altria. I guess you can't call them "value guys" but  you can't argue with the returns they have generated.

[Guest Bronco]

Thanks, great post.  I am a big fan of bam as well.  I will be moving in heavier under 20.  

 

I am still wait and see on shld, but it looks cheap right now.

 

Loews is great, but I feel cursed.  First cna and next do.  I guess that is why it is cheap.

[ExpectedValue]

I think the team at McDonalds has done a phenomenal job in returning cash to shareholders and turning things around after hitting lows back in 2003.

 

Imagine you purchased one share of McDonalds back in 2003 for $13. What's happened since then?

 

As a shareholder, you've received about $8.90 in dividends. Buybacks have reduced outstanding share count from 1.262M to 1.077M. And operating income has come up from $2,835 to $6,841. Plus, the mix of company owned / franchise stories ratio has declined from 36% to 24% (improving ROIC).

 

Oh yeah - and now your share price is now at $66.

[hyten1]

EAT vs RRGB

 

what does people think of EAT vs RRGB?

 

one major diff, EAT doesn't have any activist investor

[DCG]

 I think you should start with their cash flows...they are tremendous.  

 

What are they using their cash flow for, or what are they planning on doing with it in the future? They don't seem be plowing it back into the business to open new stores, correct? At a somewhat quick glance, their cash flow has been real strong for the last couple years, but real inconsistent prior to that.

[DCG]

EAT vs RRGB

 

what does people think of EAT vs RRGB?

 

I like what Brinker has been doing. The company (and department specifically) I work for has practically every restaurant chain in the country as clients so I am in frequent contact with managers from many of these companies. I've been impressed with management at most of the Brinker locations I've communicated with. I like the fact they they've sold off (most of their holdings of) Macaroni Grill, On The Border and underperforming businesses to focus on Chili's and Maggianos. I think Maggiano's has huge growth potential. The locations by me are huge, and are yet completely packed and have a long wait every time I go there.

 

Brinker's earnings have been real inconsistent over the last decade, and they've had a rough couple of years recently, but I think they're heading in the right direction.

 

I do not currently own any EAT shares.

[txlaw]

I just thought of another company that seems to do a great job at operations and allocating capital.

 

The other Lowe's (LOW).

 

I'll also second Tariq's MCD suggestion.

 

Anybody else have other businesses to add into the mix?