Struggling Steak ‘n Shake could declare bankruptcy as soon as this week, according to a report in Bloomberg. The 1934-founded burger chain is considering filing for Chapter 11 to address upcoming debt maturities as it continues to grapple with COVID-19 downturns.
Bloomberg said Steak ‘n Shake tapped FTI Consulting Inc. and law firm Latham & Watkins as advisers. Sources, however, added potential bankruptcy plans were apt to change, and the company has discussed out-of-court solutions as well.
In mid-January, The Wall Street Journal reported Steak ‘n Shake was exploring a possible financial restructuring and hired FTI to evaluate options and plot future strategy.
Central to Steak ‘n Shake’s concern was a $153 million loan coming due in March, which parent company Biglari Holdings would not guarantee maturing in a November filing. It admitted it would struggle to pay off or refinance the debt.
Per the Indianapolis Business Journal, citing data on debt trades, Steak ‘n Shake’s $153 million outstanding was trading at a 48 percent discount at the end of Q3, meaning it carried a fair market value of roughly $80 million.
Steak ‘n Shake hoped to invest back in its business in 2020 and flip service models. Weighed down by rising labor costs, the company said last February it intended to reopen stores as quick-service units. A combination of labor-intensive, slow production with high-cost table service pushed overall labor costs 6–8 percentage points higher than competitors, it said.
Steak ‘n Shake was a full-service chain for its first 78 years. It introduced a counter-service outlet in 2012 and had 87 by the end of 2018, including international.
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In Q3, Steak ‘n Shake said it needed to generate capital to complete these conversions. Lenders blocked it from accessing funding, the WSJ said at the time. Biglari Holdings noted in a securities filing “funds for capital expenditures” were “limited under its current debt agreement.”
Most of the expense was expected to go toward equipment, and Steak ‘n Shake planned to raise funds by selling owned real estate via auction. It put 15 venues up for sale in August.
This stirred issue as well. Lenders argued proceeds from the sale must pay down debt and not be reinvested. Steak ‘n Shake then sued the lenders’ trustee, Wilmington Trust NA, in New York federal court in August but dropped the complaint in January, the WSJ said.
The brand engaged FTI and began considering potential financial restructuring. Sources in January said Steak ‘n Shake was exploring a possible out-of-court restructuring of its debt and lease obligations or a bankruptcy filing.
Steak ‘n Shake’s performance woes predated COVID. And it has closed stores throughout the fiscal calendar.
It exited Q3 with 260 corporate units, 69 franchise-partner stores (a single-unit model that made headlines for its $10,000 price tag for operators), and 199 traditional franchises.
Right before 2020, the brand had 368 corporate restaurants, 29 franchise partner, and 213 traditional franchises. Over that span, it transitioned 41 locations to franchises and closed a net of 67 restaurants. Forty of those transitions became franchise-partner stores. One became a traditional franchise. Fifteen franchises net closed.
Steak ‘n Shake touted 411 corporate venues on December 31, 2018, two franchise-partner units, and 214 traditional franchises.
The company reported $78.3 million in revenue in Q3, down from $141.4 million in the year-ago period. Over the first nine months of the year, the figure was $267.64 million compared to $467.5 million. Net sales in Q3 and the first nine months of 2020 were $67,617 and $241,832, respectively, representing a decrease of $69,034 (50.5 percent) and $214,512 (46.8 percent).
Steak ‘n Shake, like many restaurant chains, shuttered most of its dining rooms by mid-March. Closures began March 17 and covered the entire system by the end of Q1. This after the previous year was defined by temporary closures related to the chain’s decision to refranchise corporate units to single-store operators in an attempt to foster an entrepreneurial-led system.
It had 106 of 282 corporate venues temporarily shuttered in September 2019.
