Thursday, January 1, 2009

Steak 'N Shake fiscal 2009 Q1 owner earnings: A guesstimate

From the most recently filed 8-K, same store sales were off 1.4% as compared to fiscal 2008 Q1. Assuming this translates to a similar decline in overall sales, we can project revenues of $134.4865 million for Q1.

G&A expenses for fiscal 2007 were $57.525 million. Sardar had mentioned in his first letter to shareholders as CEO of SNS that G&A would likely be $20 million lower than fiscal 2007 levels. This implies G&A expenses for fiscal 2009 of $37.525 million, giving us a quarterly estimate of $9.3813 million.

I will assume that other expenses remain at 2008 levels (except that there will be no pre-opening costs given the moratorium on new store openings by the company). This might overstate expenses as my understanding is that commodity costs have eased up a bit from 2008 levels. I also expect restaurant operating costs to be lower than 2008 levels given the initiatives there, but since I don't have an estimate we'll stick to using 2008 numbers.

Excluding depreciation, other costs and expenses(cost of sales, restaurant operating costs, marketing, interest and rent) add up to 90% of sales. Given that there will be no new store openings, all capex will be maintenance. 

To get an estimate of maintenance capex in 2008: Total capex was $31.443 million. 9 new stores were opened at an estimated cost of $2-2.5 million per store. If we assumed an average of $2.25 million per new store opened, growth capex works out to $20.25 million. This gives us a maintenance capex estimate of $11.193 million. The quarterly number works out to $2.7983 million.

So, total costs and expenses work out to: G&A expenses + 90% of sales + maintenance capex

= $9.3813 million + 90% of $134.4865 million + $2.7983 million
= $133.2175 million

There's also this pesky little line item, Other Income, net that has shown a loss of .3% of sales for the last couple of years. Assuming this continues to be the case, we'll see a loss of about $.4035 million for this quarter. There is no explanation of what this line item represents(as far as I can tell). I hope the forthcoming 10-Q contains an explanation.

So, owner earnings estimate for Q1 2009 comes in at $1.2691 million. There's one other adjustment we'd need to consider. Remember that SNS essentially swapped one type of debt(line of credit) for another with the sale-leaseback of 11 properties for $14.817 million with the interest rate going from 4.94% to 8.27%. This causes an additional expense of $.7198 million compared to fiscal 2008(roughly). Revised owner earnings estimate is now $.5493 million. 

Given that this calculation doesn't include the effects of easing commodity costs and the effects of cost cutting initiatives in restaurant operations, I'd suggest that there is a reasonable possibility of SNS being in the black on an owner earnings basis for Q1. 

Often wrong but seldom in doubt,
Ragu

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