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Biglari Holdings Takes Nearly 10% Stake in Cracker Barrel!


Parsad
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I hand it to this guy, he is always fun to watch. I like the buy here. We've seen a drop in BH stock in recent weeks. BH holds $50 million of BH stock through the Lion Fund, I wonder if maybe they have been liquidating their BH stock to fund Cracker Barrel, CCA and Penns Miller in addition to their existing cash on hand. Should be interesting.

 

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Somewhat related;

Never having had the opportunity to experience 'Stake and Shake' fare and based on past messages I have been waiting for the chance. I was at the WSOP last week. I dropped in to the S&S in the South Point. The place was packed, both the 'eat in' and 'take out' had small line ups. I opted for a counter seat rather than wait 5 or 10 minutes for a table or booth. The unmoveable counter seat was very uncomfortable. I normally would have just slipped out but had to try their classic burger and milkshake. The 'shake was sugar ice milk,

the 2 patty cheeze burger was greasy and tasteless, no wonder its $3.99, the fries were strips of ???.  I feel sorry for anyone that eats this junk on any regular basis. The food and experience was respectively, CRAP and CRAPPY!

I glad this experience is in my past.  :P

 

p.s. I outlasted 1625 of 2175 players in my 1st WSOP tournament which was not too bad for having few playable starting hands.

      There are a lot of good players as well as pros.

      It was great fun!  ;D

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Yes, NLHE.

I didn't see Phil, but seen his good buddy Antonio Esfandiari, and others such as Greg Raymer, Scotty Nguyen, Huck Seed, Kathy Liebert, etc.

The Convention Center at the Rio is quite large and then the Amazon Ballroom (and maybe others, there are many ballrooms) are used as the various events wind down. There is literally thousands of players active. There are lots of side games going on at all levels. You could easily bypass the pros unless you are methodically checking for them.

Later I was in a cash game at The Wynn (1-3 NL) and a young guy from Canada sat down pulled out a block of 100's 3-4 inches deep (had to be $30-$40,000) and bought in for $500. He was telling us about a cash game he saw at the Rio, 10 players each with over $500,000.00 in cash and chips in front of them. One guy had so much in front of him he was having trouble reaching his cards.

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It looks like he sold puts rather than shorted.

 

Additionally the lion fund presently owns over $75 million in BH stock... it's in the treasury stock section; they own something like 207K shares, which are presently valued on the market at $371/share. It is carried at cost, though, since it is part of the fund, I believe. Additionally, they didn't make a filing that they sold shares, which, I am under the impression they have to do, though, there could have been enough lag in the required filing dates.

 

As of the last quarterly filing, the company had enough cash to have holdings in Penn, Fremont, CCA and CBRL... but almost nothing else. I talk about the specifics of it here: http://ragnarisapirate.blogspot.com/2011/06/biglari-holdings-takes-crack-at-cracker_13.html

 

These issues pretty much exemplify why I wouldn't own BH unless it was trading at something like 1/2 what it is presently trading at. It is just a bit too hard to understand.

 

If anyone sees anything too factually horrendous in anything that I say in the post, please feel free to shoot me an email so that I can correct it.

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That's one scary balance sheet.  Current liab outway current assets?  Am I reading that right?  Over 600 million in debt though I suppose they have 3 times coverage.  I suppose it's a low multiple but man there's no room to screw up on this one. 

 

DW

 

the long term debt consists of a lot of capital lease obligations... the company actually has very little outstanding debt.

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Somewhat related;

Never having had the opportunity to experience 'Stake and Shake' fare and based on past messages I have been waiting for the chance. I was at the WSOP last week. I dropped in to the S&S in the South Point. The place was packed, both the 'eat in' and 'take out' had small line ups. I opted for a counter seat rather than wait 5 or 10 minutes for a table or booth. The unmoveable counter seat was very uncomfortable. I normally would have just slipped out but had to try their classic burger and milkshake. The 'shake was sugar ice milk,

the 2 patty cheeze burger was greasy and tasteless, no wonder its $3.99, the fries were strips of .  I feel sorry for anyone that eats this junk on any regular basis. The food and experience was respectively, CRAP and CRAPPY!

I glad this experience is in my past. 

 

p.s. I outlasted 1625 of 2175 players in my 1st WSOP tournament which was not too bad for having few playable starting hands.

      There are a lot of good players as well as pros.

      It was great fun!

 

Congratulations on where you finished!  I was actually there during the first weekend as well...June 2nd to 5th, but not to play in the WSOP.  I did visit the Rio where it was held.

 

I didn't get a chance to go to the Steak'n Shake at Southpoint, but I have been to several Steak'n Shakes in the Chicago area.  I have to disagree with you.  Their burgers are as good as In & Out's, and not that far off of Five Guys.  Especially when you consider the value proposition offered relative to most competitors. 

 

Are there areas that need work...sure...the chilli sucks, but apparently is very popular, so I guess its a regional thing.  I thought the shakes were very good, as was the chicken burger.  All in all, I think the business is excellent for franchising.  The problem may be the relationship between franchisees and franchisor!  Cheers!

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Looks like this is a typical activist project for Sardar.  Lots of company owned restaurants...good cash flows...mangement is overpaid...he is now the largest shareholder.  He's going to make a run for it, get control, sell restaurants, pay down debt, redistribute cash flows and make it as efficient as possible.  Cheers!

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Ragnar

 

Thanks for the post. One question, on the 13d there are parenthesis around share numbers above 50 which denotes sales and they are removed below 50. Does this mean Biglari sold short above 50 and changed his mind and started buying around 48 (and lower)?

 

Thanks!

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Ragnar

 

Thanks for the post. One question, on the 13d there are parenthesis around share numbers above 50 which denotes sales and they are removed below 50. Does this mean Biglari sold short above 50 and changed his mind and started buying around 48 (and lower)?

 

Thanks!

 

I don't think that he sold short above 50, just that he sold... He certainly didn't build his entire position in the last 60 days (which is what was reported), thought.

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Cracker Barrel has always been rather mysterious with its refusal to break out restaurant/retail margins. There is a lot of square footage devoted to the retail space.

 

It would be interesting to see what the footprint of the respective parts have done throughout the years... Did a Cracker Barrel in 1980 have the same retail space, as a percentage of the store, as they do in a newly constructed one?

 

Regardless, would tweaking the formula really make that much of a difference? Part of the great thing about cracker barrel, is that they are about the only restaurant that I can think of that is able to monetize the time in which a hungry customer is waiting on a table... Furthermore, since they almost always sit on interstate exits, they are selling "souvenir crap" to people who are already expecting to spend money on stuff they don't need- as they are often, on a trip of some nature.

 

Really, I would be most interested (and not necessarily from an investment perspective) in seeing how much of their revenue comes from people that live outside, say, a 20 mile radius of the store in which they eat at... that, or some metric along those lines would probably give the best indication of how much of their revenue (for both retail and rest. segments) comes from locals or people on the road looking for a hearty meal... Though, this may be a personal bias, since as a kid, I ate there only when we were taking long trips, even though we had one within driving distance from home.

 

Given that they almost always sit on interstate exits, a metric like this could help determine how effectively they are allocating capital with their building of new restaurants.

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So are the retail stores meant to attract to tourists to the restaurant, and the restaurant to attract diners to the kitsch? If retail brings more people to restaurant, then wouldn't they show above average gross margins, or higher restaurant sales per square foot? Has management discussed the metrics they use to evaluate the hybrid model vs. standalone?

 

I've never been to a Cracker Barrel so I don't have a feel for the customer experience.

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So are the retail stores meant to attract to tourists to the restaurant, and the restaurant to attract diners to the kitsch? If retail brings more people to restaurant, then wouldn't they show above average gross margins, or higher restaurant sales per square foot? Has management discussed the metrics they use to evaluate the hybrid model vs. standalone?

 

I've never been to a Cracker Barrel so I don't have a feel for the customer experience.

 

Oh, no... I can't imagine that anyone would ever go to cracker barrel for anything but the food... The retail stuff is just a way for them to make extra money; kind of a marketing gimmick of such (playing on the "old time country store" vibe).

 

With this said, it isn't like the store part is an actual store... I would describe a cracker barrel as a big cabin, with a wall in the middle (an open door separating the 2 sides). On 1 side, is the restaurant. On the other, is the retail store, where you have a ton of touristy crap for sale.

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Cracker Barrel's retail side also operates a sort of books-on-tape library / rental service, where road tripping people can rent a book-on-tape (CD) at one Cracker Barrel and return it however many miles later at another.  Little stuff like this has a cult following with some road trippers, which helps drive some incremental traffic to the restaurant.  Also, a competitor in much of the US South is Waffle House, which allows smoking - giving Cracker Barrel a leg up with families.

 

I mean, with that audio book rental model, they should get NFLX's multiple - NO?

 

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Cracker Barrel's retail side also operates a sort of books-on-tape library / rental service, where road tripping people can rent a book-on-tape (CD) at one Cracker Barrel and return it however many miles later at another.  Little stuff like this has a cult following with some road trippers, which helps drive some incremental traffic to the restaurant.  Also, a competitor in much of the US South is Waffle House, which allows smoking - giving Cracker Barrel a leg up with families.

 

I mean, with that audio book rental model, they should get NFLX's multiple - NO?

 

 

Yeah, but, smoking is on the way out... In may cities here, we have banned smoking in public places, it is even illegal to have a designated smoking section indoors, and you often can't smoke within a certain distance of an entrance to a building. Heck, there are also universities here (University of Kentucky) which has banned smoking on any property that it owns- even the sidewalks. Right now, we are even considering a state wide smoking ban.

 

Keep in mind. This is in freaking Kentucky. We grow tobacco like it's our business or something!

 

Anyway, I would imagine that smoking legislation would eventually help out CBRL (as well as any other family restaurant).

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