IU Scoops Marketing Presentation February 12, 2004
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Transcript of IU Scoops Marketing Presentation February 12, 2004
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IU ScoopsMarketing Presentation
February 12, 2004
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The Steak n Shake Story
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AnnualReportCover
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The Steak n Shake Story
Uniquely positioned 413 unit* restaurant chain operating in 19 states.
Founded in 1934, one of the oldest and proudest restaurant chains in the United States.
Full service, conveniently located, 24 hour restaurant with full menu (core product focus of Steakburgers and Milkshakes) delivered to your table
or provided for take out and almost all units have a drive-thru
* (of which 57 are franchised)
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50’s SNS
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Restaurant
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In-store
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Customers
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The Emerging
Strategic
Direction
Overview
An
Introduction to the
Steak n Shake
Story
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Steak n Shake is an institution with a strong heritage of successful execution with the opportunity to strengthen our
foundation and expand our reach
• Steak n Shake will continue to build on the values and economic engines that have fueled our progress
• We will strengthen the foundation by improving leadership, guest service, associate satisfaction and margins, and then leverage this foundation into increased expansion
• We are optimistic that these opportunities can translate into substantial earnings growth over time
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The virtuous cycle on which we focus is based on the HBS Value Profit Chain, which may be the best demonstrated
practice for service company leadership
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We will be best in the world at …
We are dedicated to becoming the BEST in the world at providing our guests
a genuine, classic community diner experience with Steakburgers and hand-dipped Milk Shakes served fast by friendly and attentive associates
whose mission is to create always more enthusiastic and loyal guests.
Guest Mission
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The Steak n Shake Shareholder Mission
We are committed to serving our shareholders well by providing a financial return which exceeds the cost of
capital on every investment,
made possible through a constant focus on building and operating each Steak n Shake restaurant well,
and by being a long-term source of growth by bringing our restaurants to an ever-expanding circle of raving fans.
We recognize that our primary financial responsibility is to provide shareholders with strong
returns and growth
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Steak n Shake store economics provide an excellent return on investment
Typical Unit EconomicsDevelopment Cost $
Land $ 600,000 Site Improvements $ 300,000 Building $ 450,000 Equipment $ 400,000
$1,750,000 Pre-Opening Cost $ 130,000
$1,880,000
Net Sales $1,700,000 +/- 300,000
Cash Flow From Restaurant Operations
$ 475,000 +/- 150,000
ROI 18-28%
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050
100150200250300350400450
FY'98 FY '02 FY '03
Company-Owned Franchised
284
404 413
We have continued to grow the number of stores in our system
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Steak n Shake has many opportunities to back-fill in existing DMAs and expand to new DMAs in the future
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Steak n Shake has been a public company since 1945, is traded on the NYSE, and has a strong cash
flow that can be used to support future growth
Strong Balance Sheet
• Cash Flow from operations of $51 million in fiscal 2003
• Capital expenditures of $31 million in Fiscal 2003 - mostly on store expansion
• Excess cash was used to repurchase nearly 99,000 shares of the Company’s stock bringing repurchased shares to 3.4 million or 84% of the 4 million shares authorized
• Borrowing capacity of $105M in place
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Steak n Shake has clear economic engines that drive our success
Stores which have the economies of scale to serve guests and associates well, (typically $1.4 + million dollar stores) while providing more than enough
profits to pay for the cost of capital
DMAs (marketing areas that support television) with more than enough operating contribution to provide the critical mass of marketing and overhead to support quality
leadership, growing guest counts, and provide returns that exceed the cost of capital
Expert Steak n Shake franchisees with a stake who use dedication, great service, and local marketing to make their stores successful to the point
that they provide enough profits that they exceed the opportunity cost of Steak n Shake managing these stores
We recognize that our economic engine consists of:
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Based on a careful review of DMAs a winning formula has emerged that we will bring to each DMA
Good leadership with high operating standards
Plus
Solid locations
Plus
A critical mass of stores in DMA
Plus
Television
Equals
Almost Universal Success for Steak n Shake
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The result of this outstanding business model has been the source of major value creation
• Steak n Shake has steadily grown sales and earnings
$425.3
$489.0$531.6 $547.8
$592.6
1999 2000 2001 2002 2003
Systemwide Sales – Steak n Shake Adjusted Net Earnings (Non-GAAP)
$17.5
$21.5 $20.8
$23.1$24.3
1999 2000 2001 2002 2003
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Adjusted net earnings is a non-GAAP measure that excludes the provision for restaurant closings.
• Net earnings in accordance with GAAP is adjusted for the $5.2 million ($3.4 million after tax or $.13 per diluted share) provision for restaurant closings recorded in the fourth quarter of fiscal year 2003.
• Steak n Shake believes the provision is unusual in nature and would not be indicative of ongoing operating results.
A reconciliation of net earnings in accordance with GAAP to adjusted net earnings is as follows:
(Amounts in thousands) Q1 Q2 Q3 Q4 2003Net earnings $3,402 $6,839 $7,089 $3,609 $20,939Provision for restaurant closings, net of income taxes 3,360 3,360Adjusted net earnings $3,402 $6,839 $7,089 $6,969 $24,299
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In the reporting of Fiscal 2003 results, we announced the decision to record provision for nine restaurant closures of $5.2M
($3.36M net of taxes - or $.13 per Diluted Share).
• During 2003 we completed a review of all restaurants, identified problem stores and identified actions to maximize value from each store.
• We determined that the best way to maximize shareholder value was to exit nine locations and secure the value from the sale of the property.
• Most of these locations were in remote areas without the local critical mass of support to succeed. We have changed our real estate investment practices to address the underlying lessons learned.
• By facing these issues, we have improved cash flow, future earnings and management focus on stores with true potential.
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Earnings improved consistently over the last 3 years with growing momentum
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Fiscal 2001
Fiscal 2002
Fiscal 2003
Diluted Earnings Per Share (adjusted)
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FY 2004 Update
First Quarter
% Chance
Net Earnings $4,590,141 +35%
EPS $0.17 +31%
System-wide Sales $136,299,158 +12.3%
Revenues $114,,472,813 +12.2%
Same Store Sales +11.2%
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As a result of this performance Steak n Shake has received national recognition
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• Steak n Shake will continue to build on the values and economic engines that have fueled our progress
• We will strengthen the foundation by improving leadership, guest service, associate satisfaction and margins, and then leverage this foundation into increased expansion
• We are optimistic that these opportunities can translate into substantial earnings growth over time
Steak n Shake is an institution with a strong heritage of successful execution with the opportunity to strengthen our
foundation and expand our reach
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We will continue to build on the strong foundation of Steak n Shake which has proven to be successful since 1934
Exp
andi
ng O
ur R
each
Building a Stronger Foundation
BaseSteak n Shake
Heritage
Steak n ShakeHeritage
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We will strengthen that foundation by building on the four key elements of the virtuous cycle
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We can build and strengthen the company by developing leaders who are capable of energizing associates in service of guests and
shareholdersE
xpan
ding
Our
Rea
ch
Building a Stronger Foundation
BaseSteak n Shake
Heritage
Reaching morepeople with stores
and franchises
Base Base Base BaseEffective,
empowering leaders -
energizing associates
Steak n ShakeHeritage
Creating Greaterassociate
satisfactionand growth...
… Creatingmore,
satisfiedguests
…with enhanced
margins andprofits for
shareholders
• Reducing management turnover can provide savings of $1-2 million/year
• Building GM bench strength will enable future expansion
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The field management staffing level at the end of Period 13 has improved to 102%, exceeding the Goal of 100%.
Manager Staffing Level
94%
96%
98%
100%
102%
104%
1 2 3 4 5 6 7 8 9 10 11 12 13
Staff ing Level
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We have made progress reducing management turnover
0%
10%
20%
30%
40%
50%
2001 2002 2003
Management Turnover
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We can build and strengthen the company by improving associate satisfaction and reducing turnover
Exp
andi
ng O
ur R
each
Building a Stronger Foundation
BaseSteak n Shake
Heritage
Reaching morepeople with stores
and franchises
Base Base Base BaseEffective, empowering
leaders - energizing associates
Steak n ShakeHeritage
Creating Greaterassociate
satisfactionand growth...
… Creatingmore,
satisfiedguests
…with enhanced
margins andprofits for
shareholders
• Reducing associate turnover can provide savings of $2-4 million/year
• Longer retention and better training results in more satisfied guests
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We have made some progress but crew turnover is still a large opportunity. It will be a major focus in 2004.
. Crew Turnover
213% 202% 188%192%
0%
50%
100%
150%
200%
250%
Q1 Q2 Q3 Q4
Quarter
% C
rew
Tu
rno
ve
r
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Company-wide EYW scores have improved to over 90%
Company-Wide EYW Scores
82%
92%
84%
94%93%
76%
78%
80%
82%
84%
86%
88%
90%
92%
94%
96%
Q 4 FY 02 Q1 FY 03 Q2 FY 03 Q3 FY 03 Q4 FY 03
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We are focused on bringing more guests to our stores and having them leave more satisfied
Exp
andi
ng O
ur R
each
Building a Stronger Foundation
BaseSteak n Shake
Heritage
Reaching morepeople with stores
and franchises
Base Base Base BaseEffective, empowering
leaders - energizing associates
Steak n ShakeHeritage
Creating Greaterassociate
satisfactionand growth...
… Creatingmore,
satisfiedguests
…with enhanced
margins andprofits for
shareholders
• Improving same store sales by 3% annually through fast ‘n friendly service, value and innovation can drive $4-6 million more profits each year
• Bringing more guests to our our stores, especially in struggling DMAs which can drive at least $3-4 million of profit
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The acceptance of credit cards at all Steak n Shake restaurants has helped improve sales trends with larger guest checks and
is also likely to support growing guest counts
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We have recently proven that putting new markets on television provides significant upside potential
3.5%
14.2%
6.8%
20.7%
2.4%
10.0%
1.3%
9.8%
-9.0%
22.0%
-13.0%
14.0%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Jacksonville Mobile Lexington Zanesville Cleveland Kansas City
Sales Trend Comparison - Before and After TV
Trend Going in to TV Trend with TV
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Television Penetration
# of TV Markets Total Markets # MarketsNot Advertised
34 64 30
# of TV Restaurants Total Restaurants # Restaurants Not YetAdvertised
338 413 75
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We have created a new officer level position as VP of Consumer Insight & Innovation, initiated extensive consumer research and
introduced 3 new shakes in June
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In November, we introduced the new Takhomacard, our branded gift card, to all locations to help our guests purchase the two new
Holiday Milk Shakes - Chocolate Mint and Eggnog.
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We have also created a cause-related marketing event with America’s Second Harvest to encourage people to purchase
larger dollar amounts on their gift cards
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As a result of the shake promotion in June, shake sales increased 32.5% from prior year and 45.9% from the previous period.
Total Shake Sales (000)
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
1 2 3 4 5 6 7 8 9 10 11 12 13Period
Sal
es
FY 02
FY 03
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Guest satisfaction continue to improve as measured by Mystery Shops
7072747678808284868890
April June October
81.2
83.5
86.0
Mystery Shop ScoresOverall Performance
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After a difficult period ending in Q1 of ‘03, and in spite of negative industry trends same store sales trends have
improved substantially
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03
Same Store Sales % Change
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During non-coupon weeks same store sales have grown and each time have increased at a greater rate.
Comparable Gross Sales Changeverses prior year
-4
-2
0
2
4
6
8
10
12
14
10/7 - 12/27 2/8 - 3/16 4/19 - 6/8 7/13 - 8/9 9/21-11/5
Comparable Gross Sales Percent ChangeDuring Non-Coupon Weeks '03
-2.21
+4.9
+11.7 +12.03
= Coupon Period
+0.8
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We intend to translate growing sales into improved margins, driven also by becoming more efficient
Exp
andi
ng O
ur R
each
Building a Stronger Foundation
BaseSteak n Shake
Heritage
Reaching morepeople with stores
and franchises
Base Base Base BaseEffective, empowering
leaders - energizing associates
Steak n ShakeHeritage
Creating Greaterassociate
satisfactionand growth...
… Creatingmore,
satisfiedguests
…with enhanced
margins andprofits for
shareholders
• Purchasing efficiencies, labor optimization, pricing and G&A improvements can drive another $3-5 million of profit over time
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Revenue trends have been strong and are accelerating
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03
Revenue % Change
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Labor has also begun to improve vs. last year based on stronger volume and increased focus on the Labor
Scheduling System
FY 03 Total Hrly/Mgmt %
25.0%
26.0%
27.0%
28.0%
29.0%
30.0%
31.0%
P1
P2
P3
P4
P5
P6
P7
P8
P9
P10
P11
P12
P13
Pla
n Y
TD
%
CY
YT
D%
PY
YT
D%
Plan YTD% CY YTD% PY YTD%
Plan% CY% PY%
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A combination of favorable markets and effective negotiations has resulted in an improvement in food cost, which is reversing in late
‘03 and early ‘04
FY 03 Cost of Sales %
18.0%
18.5%
19.0%
19.5%
20.0%
20.5%
21.0%
21.5%
22.0%
P1
P2
P3
P4
P5
P6
P7
P8
P9
P10
P11
P12
P13
Pla
n Y
TD
%
CY
YT
D%
PY
YT
D%
Plan YTD% CY YTD% PY YTD%
Plan% CY% PY%
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Steak n Shake has delivered strong earnings improvement in the past three quarters
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03
Adjusted Earnings % Change
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$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Fiscal 2001
Fiscal 2002
Fiscal 2003
Earnings per share has demonstrated solid progress over time and in the most recent quarter
Diluted Earnings Per Share (adjusted)
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Earnings per share have shown steady progress and are expected to be in the range of $.98 to $1.02
Earnings Per Share (adjusted)
0.600.650.700.750.800.850.900.951.001.05
2002 2003 2004
.83
.90
.98 -1.02
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Questions?