News from earlier this week that home meal kit provider Blue Apron (APRN) is planning to undertake a reverse stock split is just the latest indicator of trouble for the stock.
The plan would split shares somewhere between 1-for-5 and 1-for-15, allowing it to regain compliance with the NYSE, but also "lift" the share price out on penny stock land. Of course, such a move also reduces shares outstanding, so shareholders would theoretically end up with the same economic value of shares held previously.
Unfortunately, that's not how things typically work in reality. I've seen many cases where post reverse split shares continue the downward trajectory that forced the split in the first place.
Blue Apron went public less than two years ago at $10 a share, hit $11 briefly, but it's been downhill ever since. It's the classic case of a seemingly good idea -- delivering ready-to-cook, high-quality meal kits to busy consumers -- that simply has too many hurdles to success.
When you have to attract new customers via discounts (that led to our own Blue Apron trial), lose many of those customers when the discounts no longer apply, and have to continue to spend in order to make the product "sticky," the odds of success grow longer.
I still believe that Blue Apron's way out is if some bigger fish sees enough value in the brand to acquire the company.
On another food-related note, back in January, I wrote about my attempt to have a burger at a newly opened local Steak 'n Shake location, the only one anywhere near me. The store opening had been delayed for months, it finally opened in January, and closed after less than one day due to a fire.
That location just reopened, eight months since the originally scheduled open date, and with much anticipation, I placed my order. I was thoroughly disappointed, enough to call Steak 'n Shake customer service -- something I've never done before (still waiting for one of the higher-ups to call me back, as I was told would happen).
A very dry and tasteless burger, along with a flavorless and icy milkshake made for an awful meal. Perhaps they have not worked the kinks out yet at this location. I've been to others around the country where the burgers were great.
Steak 'n Shake is going through a transition, as parent Biglari Holdings (BH) , (BH.A) deals with a string of poor recent results. Biglari had seemingly turned the company around several years ago, but same-store sales have been in negative territory recently, and operating earnings were negative in 2018 for the first time since 2008.
The company has adopted a radical strategy to try and right the ship, which involves selling Steak 'n Shake franchises to "qualified" franchisees for $10,000, plus up to 15% of revenue and 50% of store profits. The fact that franchisees will be limited to just one store, in my view, decreases the odds that this scheme will be successful, especially in light of the very steep sales/profit share with the parent company.
Parent Biglari Holdings continues its terrible performance run, and the market cap has fallen to just $331 million. To put that into perspective, the company still owns about 14.7% of Cracker Barrel Old Country Store (CBRL) , a stake alone worth nearly $600 million. That effectively places no value, or even a negative value on the company's other holdings.
In addition, Biglari has been on the warpath again with Cracker Barrel, demanding that company pay another special dividend this year in a letter to CBRL's board of directors, threatening yet another proxy contest, which Biglari has failed at several times in the past.
Biglari has railed at Cracker Barrel in the past for the way it has operated what has turned out to be a very successful business, one that has handsomely rewarded its own shareholders. Meanwhile, Biglari's own Steak 'n Shake is not performing well, and it is seemingly failing at this point to turn that business around.
Ironically, I've never had a bad meal at Cracker Barrel, in several dozen visits over many years. Wish I could say the same about Steak 'n Shake, in the handful of times I've eaten there.
