Iu scoops marketing presentation february 12 2004
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IU Scoops Marketing Presentation February 12, 2004. The Steak n Shake Story. Annual Report Cover. 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.

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IU Scoops Marketing Presentation February 12, 2004

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Iu scoops marketing presentation february 12 2004

IU ScoopsMarketing PresentationFebruary 12, 2004


The steak n shake story

The Steak n Shake Story


Annual report cover

AnnualReportCover


The steak n shake story1

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)


50 s sns

50’s SNS


Restaurant

Restaurant


In store

In-store


Customers

Customers


Overview

Overview

The Emerging

Strategic

Direction

An

Introduction to the

Steak n Shake

Story


Iu scoops marketing presentation february 12 2004

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


Iu scoops marketing presentation february 12 2004

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


We will be best in the world at

We will be best in the world at …

Guest Mission

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.


The steak n shake shareholder mission

We recognize that our primary financial responsibility is to provide shareholders with strong returns and growth

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.


Steak n shake store economics provide an excellent return on investment

Steak n Shake store economics provide an excellent return on investment

Typical Unit Economics

$

Development 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

$ 475,000 +/- 150,000

Restaurant Operations

ROI

18-28%


Iu scoops marketing presentation february 12 2004

We have continued to grow the number of stores in our system

413

404

284


Iu scoops marketing presentation february 12 2004

Steak n Shake has many opportunities to back-fill in existing DMAs and expand to new DMAs in the future


Iu scoops marketing presentation february 12 2004

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


Steak n shake has clear economic engines that drive our success

Steak n Shake has clear economic engines that drive our success

We recognize that our economic engine consists of:

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


Based on a careful review of dmas a winning formula has emerged that we will bring to each dma

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


The result of this outstanding business model has been the source of major value creation

The result of this outstanding business model has been the source of major value creation

  • Steak n Shake has steadily grown sales and earnings

Systemwide Sales – Steak n Shake

Adjusted Net Earnings (Non-GAAP)


Adjusted net earnings is a non gaap measure that excludes the provision for restaurant closings

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:


Iu scoops marketing presentation february 12 2004

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.


Earnings improved consistently over the last 3 years with growing momentum

Earnings improved consistently over the last 3 years with growing momentum

Diluted Earnings Per Share (adjusted)


Fy 2004 update

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%


As a result of this performance steak n shake has received national recognition

As a result of this performance Steak n Shake has received national recognition

From 1997 to October 2002 -

Forbes Best 200 Small Companies


Iu scoops marketing presentation february 12 2004

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


Iu scoops marketing presentation february 12 2004

We will continue to build on the strong foundation of Steak n Shake which has proven to be successful since 1934

Expanding Our Reach

Steak n Shake

Heritage

Steak n Shake

Heritage

Base

Building a Stronger Foundation


Iu scoops marketing presentation february 12 2004

We will strengthen that foundation by building on the four key elements of the virtuous cycle


Iu scoops marketing presentation february 12 2004

We can build and strengthen the company by developing leaders who are capable of energizing associates in service of guests and shareholders

  • Reducing management turnover can provide savings of $1-2 million/year

  • Building GM bench strength will enable future expansion

Reaching more

people with stores

and franchises

Expanding Our Reach

Steak n Shake

Heritage

Effective, empowering leaders - energizing associates

Creating Greater

associate

satisfaction

and growth...

… Creating

more,

satisfied

guests

…with

enhanced

margins and

profits for shareholders

Steak n Shake

Heritage

Base

Base

Base

Base

Base

Building a Stronger Foundation


Iu scoops marketing presentation february 12 2004

The field management staffing level at the end of Period 13 has improved to 102%, exceeding the Goal of 100%.


We have made progress reducing management turnover

We have made progress reducing management turnover


We can build and strengthen the company by improving associate satisfaction and reducing turnover

We can build and strengthen the company by improving associate satisfaction and reducing turnover

  • Reducing associate turnover can provide savings of $2-4 million/year

  • Longer retention and better training results in more satisfied guests

Reaching more

people with stores

and franchises

Expanding Our Reach

Steak n Shake

Heritage

Steak n Shake

Heritage

Base

Effective, empowering leaders - energizing associates

Base

Creating Greater

associate

satisfaction

and growth...

Base

… Creating

more,

satisfied

guests

Base

…with

enhanced

margins and

profits for shareholders

Base

Building a Stronger Foundation


Iu scoops marketing presentation february 12 2004

We have made some progress but crew turnover is still a large opportunity. It will be a major focus in 2004.

.


Company wide eyw scores have improved to over 90

Company-wide EYW scores have improved to over 90%


We are focused on bringing more guests to our stores and having them leave more satisfied

We are focused on bringing more guests to our stores and having them leave more satisfied

  • 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

Reaching more

people with stores

and franchises

Expanding Our Reach

Steak n Shake

Heritage

Steak n Shake

Heritage

Base

Effective, empowering leaders - energizing associates

Base

Creating Greater

associate

satisfaction

and growth...

Base

… Creating

more,

satisfied

guests

Base

…with

enhanced

margins and

profits for shareholders

Base

Building a Stronger Foundation


Iu scoops marketing presentation february 12 2004

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


Iu scoops marketing presentation february 12 2004

We have recently proven that putting new markets on television provides significant upside potential


Television penetration

Television Penetration


Iu scoops marketing presentation february 12 2004

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


Iu scoops marketing presentation february 12 2004

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.


Iu scoops marketing presentation february 12 2004

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


Iu scoops marketing presentation february 12 2004

As a result of the shake promotion in June, shake sales increased 32.5% from prior year and 45.9% from the previous period.


Guest satisfaction continue to improve as measured by mystery shops

Guest satisfaction continue to improve as measured by Mystery Shops

Mystery Shop ScoresOverall Performance

86.0

83.5

81.2


Iu scoops marketing presentation february 12 2004

After a difficult period ending in Q1 of ‘03, and in spite of negative industry trends same store sales trends have improved substantially


During non coupon weeks same store sales have grown and each time have increased at a greater rate

Comparable Gross Sales Percent Change

During Non-Coupon Weeks '03

14

12

10

8

6

4

2

0

-2

-4

10/7 - 12/27

2/8 - 3/16

4/19 - 6/8

7/13 - 8/9

9/21-11/5

During non-coupon weeks same store sales have grown and each time have increased at a greater rate.

Comparable

Gross Sales

+12.03

+11.7

Change

verses

prior year

+4.9

+0.8

-2.21

= Coupon Period


We intend to translate growing sales into improved margins driven also by becoming more efficient

We intend to translate growing sales into improved margins, driven also by becoming more efficient

  • Purchasing efficiencies, labor optimization, pricing and G&A improvements can drive another $3-5 million of profit over time

Reaching more

people with stores

and franchises

Expanding Our Reach

Steak n Shake

Heritage

Steak n Shake

Heritage

Base

Effective, empowering leaders - energizing associates

Base

Creating Greater

associate

satisfaction

and growth...

Base

… Creating

more,

satisfied

guests

Base

…with

enhanced

margins and

profits for shareholders

Base

Building a Stronger Foundation


Revenue trends have been strong and are accelerating

Revenue trends have been strong and are accelerating


Iu scoops marketing presentation february 12 2004

Labor has also begun to improve vs. last year based on stronger volume and increased focus on the Labor Scheduling System


Iu scoops marketing presentation february 12 2004

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


Steak n shake has delivered strong earnings improvement in the past three quarters

Steak n Shake has delivered strong earnings improvement in the past three quarters


Earnings per share has demonstrated solid progress over time and in the most recent quarter

Earnings per share has demonstrated solid progress over time and in the most recent quarter

Diluted Earnings Per Share (adjusted)


Earnings per share have shown steady progress and are expected to be in the range of 98 to 1 02

Earnings per share have shown steady progress and are expected to be in the range of $.98 to $1.02

.98 -1.02

.90

.83


Questions

Questions?


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