Executive Summary / Key Takeaways

• Biglari Holdings Inc. (NYSE:BH.A) operates as a diversified holding company, strategically allocating capital across restaurants (Steak n Shake, Western Sizzlin), insurance, oil and gas, and brand licensing, with centralized financial decision-making under Chairman and CEO Sardar Biglari, who holds a significant voting interest.
• The company's restaurant segment, historically a core asset, is undergoing operational revitalization through targeted promotions, menu innovation, and technology upgrades like an improved milkshake fountain system, aiming to enhance customer experience and drive same-store sales growth.
• Recent financial performance for the first nine months of 2025 shows increased net earnings, primarily driven by investment partnership gains and improved restaurant sales, though oil and gas revenues faced headwinds from lower commodity prices.
• Biglari Holdings maintains significant liquidity, bolstered by distributions from investment partnerships and a recent $225 million loan to Steak n Shake, providing capital for strategic initiatives and general corporate purposes.
• Key risks include volatility in investment partnership gains, commodity price fluctuations impacting oil and gas and restaurant food costs, and ongoing challenges in internal control over financial reporting, which the company is actively addressing.

A Conglomerate's Strategic Evolution and Market Positioning

Biglari Holdings Inc. (NYSE:BH.A) stands as a unique entity in the public markets, having evolved from its origins as The Steak n Shake Company, founded in 1934, to a diversified holding company under the leadership of Chairman and CEO Sardar Biglari. This transformation, marked by the name change in April 2010, reflects a deliberate strategy of centralized capital allocation across a varied portfolio that includes property and casualty insurance and reinsurance, licensing and media (through Maxim Inc.), restaurants (Steak n Shake and Western Sizzlin), and oil and gas operations. Mr. Biglari's substantial beneficial ownership of approximately 74.30% of the voting interest as of September 30, 2025, underpins this centralized financial decision-making model, where operating units maintain decentralized management.

The company's strategic positioning in the competitive landscape is multifaceted, reflecting its diverse business segments. In the restaurant sector, Steak n Shake and Western Sizzlin compete with established players like Darden Restaurants (DRI), Yum! Brands (YUM), and McDonald's (MCD). While Darden focuses on a broad portfolio of casual dining, and Yum! and McDonald's dominate quick-service and global franchising, Biglari Holdings' restaurant brands emphasize a value-driven, classic American cuisine with a nostalgic appeal. This niche focus aims to differentiate it from larger, more technologically advanced rivals. Similarly, in the insurance sector, Biglari Holdings' First Guard and Southern Pioneer compete with specialists like Progressive (PGR), offering tailored coverage, particularly in commercial trucking.

Biglari Holdings' approach to technological differentiation is primarily focused on operational enhancements within its restaurant segment and digital initiatives in brand licensing. For instance, the company is testing upgrades to its milkshake fountain process, which automates milk and syrup dispensing, aiming to improve mixing speed by a third and enhance temperature control. This innovation is designed to reduce production time variation and food waste, offering a high return on invested capital given the significant contribution of milkshakes to overall sales. The investment per store for this upgrade is approximately $7,500. Additionally, the company is in the final stages of selecting a new Point of Sale (POS) software vendor, with full implementation expected by early fiscal year 2008, which is anticipated to yield numerous benefits for the guest experience and menu optimization. A new menu design is also being test-marketed to improve guest navigation, prominently feature core items, and clearly delineate meal combinations, aiming for a "casual dine look" that aligns with Steak n Shake's "cut above" positioning. These operational technology improvements are crucial for enhancing efficiency, consistency, and customer satisfaction, thereby strengthening the restaurant segment's competitive moat against rivals that may boast superior scale or broader digital platforms. In brand licensing, Maxim's increased revenue and media costs in the first nine months of 2025 were attributed to the launch of various new digital contests, indicating a focus on digital engagement within that segment.

Financial Performance and Operational Dynamics

Biglari Holdings' recent financial performance reflects a mixed but improving picture across its diversified segments. For the first nine months of 2025, net earnings rose to $12,365 thousand, a notable increase from $6,514 thousand in the same period of 2024. This improvement was significantly influenced by investment partnership gains, which, while volatile, contributed $5,708 thousand to net earnings in the first nine months of 2025.

The restaurant segment, encompassing Steak n Shake and Western Sizzlin, demonstrated robust growth. Net sales for the third quarter and first nine months of 2025 increased by 19.70% and 14%, respectively, compared to the prior year. This was primarily driven by a 15.60% increase in Steak n Shake's same-store sales for domestic company-operated units during the third quarter of 2025. Franchise partner fees also saw an uplift, largely due to a 14.80% increase in franchise partner same-store sales in the third quarter of 2025. However, traditional franchise royalties and fees experienced a decrease, mainly due to a lower unit count. Operational costs in restaurants saw some shifts; the cost of food as a percentage of net sales increased in the third quarter of 2025, attributed to improvements in product quality, while labor costs as a percentage of net sales decreased, primarily due to reduced management labor. Marketing expenses also rose, driven by promotions for new products and payment methods.

The insurance operations, comprising First Guard, Southern Pioneer, and Biglari Reinsurance, reported a 6.8% increase in revenues for the first nine months of 2025, reaching $57,351 thousand, and an 18.8% increase in earnings before income taxes to $8,577 thousand. This segment provides a steady, albeit less dynamic, revenue stream.

Conversely, the oil and gas segment, including Southern Oil and Abraxas Petroleum, faced headwinds. Revenues for the first nine months of 2025 decreased by 10.7% to $24,800 thousand, with earnings before income taxes declining by 36.3% to $12,431 thousand. Abraxas Petroleum's revenue decline was primarily due to lower sales prices of crude oil and natural gas. Southern Oil's revenue remained consistent, as increased production from repaired wells was offset by lower crude oil sales prices. The brand licensing segment, Maxim, showed significant revenue growth, with revenues for the first nine months of 2025 surging to $5,140 thousand from $715 thousand in the prior year, largely due to new digital contests.

From a liquidity standpoint, Biglari Holdings maintains a strong position. Consolidated cash and investments totaled $1.12 million as of September 30, 2025, a substantial increase from $789,950 thousand at December 31, 2024. Net cash provided by operating activities increased significantly by $57,523 thousand in the first nine months of 2025, primarily due to $54,000 thousand in distributions from investment partnerships. Financing activities also provided a substantial boost, with a $225,000 thousand loan obtained by Steak n Shake on September 30, 2025, at a fixed interest rate of 8.80% per annum, with proceeds distributed to Biglari Holdings. This debt is secured by Steak n Shake's real estate. The company's balance sheet reflects significant liquidity, further supported by an amended line of credit for Biglari Holdings, with a $15,000 thousand balance as of September 30, 2025.

Strategic Initiatives and Outlook

Biglari Holdings' strategic initiatives are designed to enhance value across its diverse portfolio, with a particular focus on revitalizing its restaurant operations and optimizing capital allocation. The company aims to deliver an improved customer value proposition through strategic promotions and innovation. This includes testing new product offerings like Steakburger wraps and a "1934 Steakburger," which are designed to reinforce core brand equities while offering new price points and appealing to evolving consumer preferences. Efforts to significantly improve the customer service experience, such as the "personalized service" program and enhanced cleanliness audits, are critical to addressing the guest value equation and boosting satisfaction scores.

The company is also critically reviewing underperforming restaurant units and markets to maximize return on invested capital, considering turnarounds, franchising, or closures. This disciplined approach extends to new unit development, with a focus on testing a new prototype design that aims to reduce construction costs by at least $200,000 and offer an economic remodel option in the $250,000 to $350,000 range. Acceleration of new unit growth is contingent on a proven new prototype with improved unit economics.

Looking ahead, management anticipates a challenging near-term consumer environment, potentially worsening with rising gasoline prices and intensifying competitive promotional activity. Despite this, the company is on track to achieve $8.1 million in general and administrative cost savings for fiscal year 2008. Food cost percentages are expected to improve throughout the remainder of the year due to targeted control efforts. The "One Big Beautiful Bill Act," signed on July 4, 2025, which makes permanent certain tax provisions and restores favorable tax treatment, is currently being evaluated for its impact on financial results.

Risks and Competitive Dynamics

Biglari Holdings faces several key risks inherent in its diversified operations. The volatility of investment partnership gains and losses has historically caused, and is expected to continue to cause, significant fluctuations in periodic earnings. The oil and gas segment is highly susceptible to commodity price fluctuations, which could lead to asset impairments and adversely impact production, reserves, and cash flows if prices decline. In the restaurant sector, intense competition, aggressive promotional activity from rivals, and a challenging consumer economic environment pose ongoing threats to sales and profitability.

From a competitive standpoint, Biglari Holdings' diversified model offers some resilience but also presents challenges in achieving deep market penetration or rapid innovation in any single segment compared to more focused competitors. In restaurants, while Steak n Shake differentiates with its heritage and value, it competes with the scale and technological prowess of McDonald's, the brand diversification of Yum! Brands, and the casual dining expertise of Darden Restaurants. McDonald's, for instance, excels in speed and accessibility, areas where Steak n Shake, with its sit-down focus, may lag. Similarly, in insurance, Biglari Holdings' offerings compete with the digital efficiency and market penetration of Progressive. The company's smaller scale compared to these larger rivals can lead to higher operational costs and slower adoption of new technologies.

Furthermore, the company has identified material weaknesses in its internal control over financial reporting as of September 30, 2025, with remediation efforts ongoing. This highlights an operational risk that could impact financial reporting accuracy and investor confidence. The absence of a permanent CEO during a challenging period in 2008 was also noted as a concern by a shareholder, emphasizing the importance of strong leadership in a dynamic environment.

Conclusion

Biglari Holdings Inc. presents an intriguing investment narrative centered on its diversified conglomerate structure and the strategic capital allocation overseen by Sardar Biglari. The company's recent financial performance, particularly the growth in its restaurant segment's same-store sales and the contributions from investment partnerships, suggests a positive trajectory despite headwinds in oil and gas. Operational improvements in the restaurant division, including technological upgrades to milkshake production and a focus on customer service, are vital for enhancing efficiency and competitive standing.

While the company demonstrates a commitment to improving its core operations and maintaining a strong liquidity position, investors must weigh the inherent volatility of its investment portfolio and commodity price exposure. The ongoing efforts to address internal control weaknesses and the competitive pressures across its various segments underscore the need for continued strategic execution. Biglari Holdings' ability to leverage its diversified assets, optimize its restaurant operations through innovation, and effectively manage its capital will be critical in realizing its long-term value potential amidst a dynamic market landscape.