Biglari Holdings Inc. paid a $34.4 million incentive fee last year to Biglari Capital Corp., the hedge fund controlled by the company’s chairman and CEO, Sardar Biglari, according to Biglari Holdings’ latest earnings report.
The fee was based on $166.2 million that Biglari Holdings recorded in investment gains made through the hedge fund in 2014.
The payment was noted during a report in which the company reported earnings growth of 381 percent in the last three months of 2014. The company recorded net earnings of $91.1 million, or $48.49 per share, an increase from $18.95 million, or $11.05 per share, in the same three months the previous year.
The earnings growth was due entirely to a $121.2 million increase in investment gains during the three-month period.
The three months of 2014 is being called a “transition period” because Biglari Holdings is converting its fiscal year to a calendar fiscal year. The fiscal year had previously ended on Sept. 24.
Incentive payments made to Biglari and his hedge fund, Biglari Capital, have been the subject of increasing scrutiny of late, as the company faces a proxy fight from an investor, Groveland Capital. Groveland has nominated people for all six seats on the Biglari Holdings board of directors and has called for the ouster of Biglari as CEO.
Biglari Capital invests on behalf of Biglari Holdings and is owned by Biglari. It is paid an incentive fee equal to 25 percent of investment gains above a 6-percent increase. Critics say this leads to outsized payments to Biglari himself, particularly as stock in the company’s biggest investment, Cracker Barrel, has skyrocketed. Cracker Barrel stock rose 29 percent last year.
Biglari Holdings, however, argues that investing in the company is a bet on Biglari’s ability to bring in those investment gains. Biglari himself has called his company a “jockey stock,” because investors place a bet on Biglari, the jockey.
Biglari Capital has received incentive payments totaling $49.1 million in the past two years, including a $14.7 million bonus in 2013. Sardar Biglari receives a $900,000 base salary as CEO of Biglari Holdings.
Operating earnings for Biglari Holdings decreased 39 percent in the transition period, to $4.2 million, from $6.5 million, due largely to a $3.5 million loss at the company’s recently acquired magazine, Maxim, which lost $10 million in the previous fiscal year.
For the restaurants, including 545-unit Steak ’n Shake and 72-unit Western Sizzlin’, net earnings rose 4.8 percent, to $6.9 million, from $6.5 million.
Same-store sales at Steak ’n Shake, which have increased in each of the past 24 quarters, rose 4.8 percent from October through December. Traffic rose 2.7 percent for the period.
Restaurant revenue in the quarter rose 5.5 percent, to $215.6 million, from $204.4 million, due to higher restaurant sales and increased franchise revenue. But food costs rose to $64.6 million, or 30.7 percent of revenue, from $58.8 million, or 29.4 percent of revenue.
Contact Jonathan Maze at [email protected].
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