Credit rating agency Standard & Poor thinks the future looks bleak for Steak ‘n Shake.
S&P downgraded the burger chain’s debt to CCC- last week. That’s well below investment grade.
“The company has had such a significant negative operating performance here, with comparable store sales down about 5 percent in 2018. I mean, that kind of accelerated to 7 percent in the first quarter," said Mathew Christy, an analyst with S&P.
Christy says other burger chains like Wendy’s and McDonald’s are honing in on driving customer traffic from value, a long-time prerogative of Steak ‘n Shake. That's eating into the chain's bottom line - a situation not likely to let up anytime soon.
“We don’t see this hypercompetitive environment abating in the near future. Nor do we see any kind of abatement in the overall cost environment, as well. Labor costs continue to rise, and we think that will lead to margin pressures, as well," he said.
Christy said the company has a $5 million interest payment coming due this September, and an estimated negative cash flow of $15 to $25 million.
Christy said it’s unlikely Steak ‘n Shake's parent company, Biglari Holdings, will help bail them out. S&P predicts the company could undergo a distressed exchange or restructuring in the next six months as financial pressures bear down.
While unlikely, S&P said a refinancing of outstanding debt at par may help the company's bottom line.
In recent months, the company has closed numerous locations across the country as it seeks to reopen them under new third-party franchising agreements. While the startup costs to open a Steak 'n Shake franchise are lower than those many other chains set, many of the locations still remain closed. This includes a Steak 'n Shake at 7715 N. University which closed in January.
The Indianapolis-based Steak 'n Shake was founded in Normal in 1934.
