Business Overview and History
Biglari Holdings Inc. (BH-A) is a diversified holding company with a unique management approach and a portfolio of businesses spanning various industries. The company's history, financial performance, and strategic initiatives highlight its ability to navigate challenges and capitalize on opportunities in an evolving market.
Biglari Holdings was founded in 1934 as Steak 'n Shake, a classic American burger and milkshake restaurant chain. Over the years, the company has expanded its footprint and diversified its operations, acquiring and integrating various businesses, including Western Sizzlin, a steak and buffet concept, as well as insurance, oil and gas, and media operations.
Under the leadership of Chairman and CEO Sardar Biglari, the company has adopted a decentralized management approach, allowing its subsidiaries to make operational decisions while Biglari focuses on strategic capital allocation and investment decisions. This unique model has enabled Biglari Holdings to navigate industry changes and capitalize on emerging opportunities.
In 2008, Sardar Biglari acquired a controlling stake in Steak 'n Shake and became the company's Chairman and CEO, marking a significant turning point in the company's history. This acquisition led to a period of diversification and expansion beyond the restaurant industry. In 2010, Biglari Holdings acquired Western Sizzlin, further solidifying its presence in the restaurant sector.
The company faced significant challenges during the Great Recession in the late 2000s, with Steak 'n Shake experiencing declining sales and profitability. In response, Biglari implemented cost-cutting measures and transformed the company's business model, including the introduction of a franchise partnership program. These strategic moves helped Steak 'n Shake weather the recession and return to growth in the early 2010s.
In 2014, Biglari Holdings made a notable acquisition by purchasing Maxim magazine, diversifying its portfolio into the media and licensing space. This move represented a significant departure from the company's traditional focus on the restaurant industry. However, the Maxim brand has faced challenges in the highly competitive publishing industry, with declining licensing revenues.
Throughout its history, Biglari Holdings has been characterized by Sardar Biglari's centralized management approach and investment strategies. The company has made substantial investments in its own stock through affiliated investment partnerships, which has been a defining characteristic of its operations.
Financial Performance and Liquidity
Biglari Holdings' financial performance has been marked by both successes and challenges in recent years. In 2024, the company reported total revenue of $362.11 million, down slightly from $365.32 million in 2023. Net income attributable to Biglari Holdings shareholders was a loss of $3.76 million in 2024, compared to a profit of $54.95 million in 2023. This significant decrease in net income was primarily due to lower operating results across several segments and decreased investment partnership gains.
The company's most recent quarter (Q4 2024) showed revenue of $91.11 million and a net income loss of $10.27 million. Year-over-year, revenue decreased 0.32% and net income decreased 287.36%, primarily due to higher costs and lower investment partnership gains.
Biglari Holdings' liquidity position remains relatively strong, with cash and cash equivalents of $30.71 million as of December 31, 2024. The company has access to a $35 million revolving credit facility and a $75 million revolving credit facility, both of which were partially drawn as of December 31, 2024. Biglari Holdings' debt-to-equity ratio of 0.26 suggests a conservative capital structure, providing financial flexibility to pursue growth initiatives. The company's current ratio of 1.16 and quick ratio of 1.13 as of December 31, 2024, indicate a solid short-term liquidity position.
In terms of cash flow, Biglari Holdings generated annual operating cash flow of $49.66 million and annual free cash flow of $19.07 million in 2024. These figures demonstrate the company's ability to generate cash from its operations, which can be used for reinvestment, debt reduction, or shareholder returns.
Operational Highlights and Diversification
Biglari Holdings' diversified business model has been both a strength and a challenge in recent years. The company operates in several sectors, including restaurant operations, insurance, oil and gas, and brand licensing.
Restaurant Operations:
The company's restaurant operations, which include Steak 'n Shake and Western Sizzlin, have faced intense competition and economic headwinds. As of December 31, 2024, Steak 'n Shake had 146 company-operated restaurants, 173 franchise partner units, and 107 traditional franchise units. Western Sizzlin had 3 company-operated restaurants and 29 franchise units.
Net sales from company-operated stores were $159.21 million in 2024, up from $152.54 million in 2023. Franchise partner fees, which are up to 15% of sales as well as 50% of profits, were $70.62 million in 2024 compared to $72.55 million in 2023. Franchise royalties and fees from Steak 'n Shake and Western Sizzlin franchisees were $13.63 million in 2024, down from $16.44 million in 2023, primarily due to the closing of certain traditional franchise stores.
The cost of food at company-operated units increased to 30.1% of net sales in 2024, up from 29.5% in 2023, mainly due to cost inflation. Labor costs also increased to 31.7% of net sales in 2024 from 30.9% in 2023, primarily attributable to higher store-level manager headcount. General and administrative expenses for the restaurant segment rose to 18.7% of total revenue in 2024 from 17.6% in 2023, mainly due to higher legal fees, prototype development costs, and contractual services.
Insurance Operations:
Biglari Holdings' insurance operations, which include First Guard, Southern Pioneer, and Biglari Reinsurance, have provided some stability and growth opportunities. First Guard, the company's commercial truck insurance business, produced an underwriting gain of $4.04 million in 2024, down 57.5% from $9.49 million in 2023, reflecting significant increases in average claim severity due to cost inflation in physical damage claims. Southern Pioneer, the property and casualty insurance subsidiary, had an underwriting gain of $0.4 million in 2024 compared to $1.04 million in 2023.
The company's pre-tax underwriting gain across the insurance operations was $4.44 million in 2024, down from $8.45 million in 2023. Net investment income attributable to the insurance operations increased to $3.93 million in 2024 from $3.07 million in 2023.
Oil and Gas Operations: Biglari Holdings' oil and gas operations, conducted through Southern Oil Company and Abraxas Petroleum Corporation, generated $36.95 million in revenue in 2024, down from $45.07 million in 2023. This decrease was primarily due to Abraxas Petroleum reducing production by shutting in wells during 2024 due to lower natural gas prices. Oil and gas production costs were $16.64 million in 2024 compared to $17.36 million in 2023.
Abraxas Petroleum recorded a gain of $16.70 million in 2024 from selling undeveloped reserves to an unaffiliated party. Southern Oil's earnings before income taxes were $81,000 in 2024 compared to $3.36 million in 2023. Overall, the company's oil and gas segment contributed $19.77 million in earnings before income taxes in 2024, down from $25.77 million in 2023.
Brand Licensing:
The company's media and licensing business, Maxim, has faced challenges in the highly competitive publishing industry. Licensing and media revenue decreased to $1.03 million in 2024 from $2.12 million in 2023, primarily due to the poor performance of an important licensing arrangement. Licensing and media costs were $2.04 million in 2024 compared to $1.84 million in 2023. Despite these challenges, the brand licensing segment contributed $884,000 to net earnings in 2024, up from $8,000 in 2023.
Navigating Challenges and Exploring New Opportunities
Biglari Holdings' management team has demonstrated its ability to navigate challenging industry conditions and explore new avenues for growth. The company's decentralized structure has allowed it to respond quickly to changing market dynamics and implement tailored strategies for its various business segments.
In 2024, the company announced plans to sell or lease six of the 10 closed Steak 'n Shake locations and refranchise the remaining four. This strategic move aims to optimize the restaurant operations and improve profitability.
Additionally, Biglari Holdings continued to invest in its insurance and oil and gas businesses, leveraging their expertise and market positions to drive growth. The company also explored new licensing opportunities for the Maxim brand, though the results have been mixed.
Risks and Outlook
Biglari Holdings faces several risks that could impact its future performance, including intense competition in the restaurant industry, volatility in commodity prices affecting its oil and gas operations, and the ongoing challenges in the publishing and media landscape.
The company's heavy reliance on the investment partnerships managed by Sardar Biglari also presents a risk, as the performance of these investments can significantly impact Biglari Holdings' overall financial results.
Despite these challenges, the company's diversified business model and experienced management team suggest a cautiously optimistic outlook. Biglari Holdings' focus on cost optimization, strategic portfolio management, and prudent capital allocation could help the company navigate the changing market conditions and capitalize on new opportunities in the years ahead.
Geographic Markets and Global Presence
Biglari Holdings operates primarily in the United States, with its various business segments focused on the domestic market. This concentration in the U.S. market allows the company to leverage its deep understanding of local consumer preferences and market dynamics. However, it also exposes the company to risks associated with economic fluctuations and regulatory changes within the United States.
Conclusion
Biglari Holdings' journey has been marked by both successes and challenges, as the company has navigated the complexities of a diversified business model. While the recent financial performance has been mixed, with declining revenues and net income, the company's ability to adapt, its strong liquidity position, and its experienced leadership team suggest that Biglari Holdings is well-positioned to continue exploring new avenues for growth and creating value for its shareholders.
The company's diverse portfolio of businesses, spanning restaurants, insurance, oil and gas, and media, provides a degree of resilience against sector-specific downturns. However, each segment faces its own unique challenges, from rising food and labor costs in the restaurant industry to volatile commodity prices in the oil and gas sector.
As Biglari Holdings moves forward, its success will likely depend on its ability to optimize operations across its various business segments, capitalize on synergies within its portfolio, and identify new opportunities for growth and value creation. The company's conservative financial approach, evidenced by its low debt-to-equity ratio and solid liquidity position, provides a stable foundation from which to pursue these strategic initiatives.
In the face of ongoing market uncertainties and industry-specific challenges, Biglari Holdings' diversified model and adaptable strategy position it to navigate the complex business landscape and work towards long-term value creation for its shareholders.