Press release·03/03/2025 20:42:40

Biglari Holdings: A Diverse Conglomerate Navigating Challenges

Biglari Holdings Inc. is a holding company with diverse business operations spanning restaurants, insurance, oil and gas, and brand licensing. Led by Chairman and CEO Sardar Biglari, the company follows a decentralized management approach, allowing individual subsidiaries to make operational decisions while Biglari oversees major strategic and financial matters.

Financial Performance Overview

In 2024, Biglari Holdings reported a net loss of $3,759, a significant decline from the $54,948 in net earnings recorded in 2023. This volatility was largely driven by the company’s investment partnership activities, which generated losses of $28,119 in 2024 compared to gains of $14,646 the prior year.

Excluding the impact of investment partnership gains and losses, the company’s operating businesses contributed $24,121 to net earnings in 2024, down from $39,162 in 2023. This decline was primarily due to weaker performance in the restaurant and oil and gas segments.

Restaurants: Navigating Transition

Biglari’s restaurant operations, which include the Steak n Shake and Western Sizzlin brands, comprise 458 company-operated and franchise restaurants as of the end of 2024. The segment’s contribution to net earnings decreased from $21,831 in 2023 to $15,470 in 2024.

Key trends in the restaurant business include:

• Steak n Shake’s same-store sales increased 6.4% at company-operated units in 2024, but revenue from franchise partner fees declined 2.7% due to higher food costs for franchisees.
• The traditional franchise business saw a decrease in royalties and fees as several locations were closed, with 136 traditional units open at the end of 2024 compared to 160 in 2023.
• Cost inflation pressures were evident, with the cost of food rising to 30.1% of net sales in 2024 from 29.5% in 2023. Labor costs also increased as a percentage of sales.
• General and administrative expenses grew, driven by higher legal fees, prototype development costs, and other contractual services at Steak n Shake.

To provide more transparency, the report includes a table showing the underlying sales, costs, and profitability of the franchise partner units, which have a direct impact on Steak n Shake’s profitability.

Insurance: Underwriting Volatility

Biglari’s insurance operations, consisting of First Guard, Southern Pioneer, and Biglari Reinsurance, contributed $7,169 to net earnings in 2024, down from $10,262 in 2023.

The insurance segment’s performance is divided into two main components: underwriting and investing. Underwriting results were mixed, with First Guard experiencing a 57.5% decline in underwriting gain due to higher claim severity, while Southern Pioneer returned to profitability.

Investment income from the insurance operations’ investment portfolios grew from $3,074 in 2023 to $3,928 in 2024, providing a stable source of earnings.

Oil and Gas: Volatile but Profitable

Biglari’s oil and gas operations, primarily through its Abraxas Petroleum and Southern Oil subsidiaries, contributed $15,458 to net earnings in 2024, down from $25,406 in 2023. This segment’s performance is highly dependent on fluctuations in oil and gas prices.

Key highlights include:

• Abraxas Petroleum’s revenue declined 18.1% in 2024 as it reduced production due to lower natural gas prices, but it recorded a $16,700 gain from selling undeveloped reserves.
• Southern Oil’s revenue decreased 17.9% in 2024 as it worked to repair several nonperforming wells, leading to higher depletion costs.
• No impairments were recorded in 2024, but the company noted the potential for future impairments if oil and gas prices remain depressed.

Brand Licensing: Underperformance

Biglari’s Maxim brand licensing and media business generated a loss of $884 in 2024, compared to a small profit of $8 in 2023. This was primarily due to the poor performance of a key licensing arrangement.

Investment Gains and Losses: Significant Volatility

Biglari Holdings’ investment activities, including its investments in equity securities and investment partnerships, have caused significant volatility in the company’s reported earnings. In 2024, investment partnership losses of $28,119 were a major drag on overall performance, compared to gains of $14,646 in 2023.

The company views these investment gains and losses as non-operating in nature and not reflective of the underlying performance of its business segments. It encourages investors to focus on the operating results of the various subsidiaries.

Financial Condition and Liquidity

Biglari Holdings maintains a strong financial position, with consolidated shareholders’ equity of $572,961 as of the end of 2024. The company’s balance sheet includes $335,411 in cash, investments, and the fair value of its interest in investment partnerships, offset by $454,539 in treasury stock held by the investment partnerships.

The company has access to $110,000 in total credit facilities, with $35,000 drawn on one line of credit and $10,000 drawn on another as of the end of 2024. These credit facilities provide additional financial flexibility to support the company’s operations and investment activities.

Cash flow from operating activities decreased from $73,002 in 2023 to $49,660 in 2024, primarily due to lower cash generation from the business operations and a decrease in distributions from the investment partnerships. Net cash used in investing activities increased by $21,308, driven by higher capital expenditures in the oil and gas segment and increased purchases of limited partnership interests.

Outlook and Risks

Biglari Holdings faces several key risks and challenges going forward:

1. Volatility in investment partnership gains and losses: The company’s reported earnings will likely continue to experience significant swings due to the performance of its investment portfolio, which it views as non-operating in nature.

2. Inflationary pressures in the restaurant segment: Rising costs for food, labor, and other expenses could continue to pressure margins in the restaurant business.

3. Commodity price fluctuations in oil and gas: The profitability of the oil and gas operations is highly dependent on the volatile prices of crude oil and natural gas, which could lead to impairments or reduced production.

4. Underwriting performance in the insurance segment: The insurance businesses face the inherent volatility of the underwriting cycle, which could impact their profitability.

5. Execution of the franchise transition strategy: Steak n Shake’s shift from company-operated to franchise-operated units could present operational and financial challenges.

Despite these risks, Biglari Holdings’ diversified business model, strong liquidity position, and experienced management team provide a foundation for navigating the challenges ahead. The company’s ability to allocate capital effectively and adapt to changing market conditions will be crucial in driving long-term shareholder value.