Welcome to Beacon Equity Research. Today is Friday, 21 December 2007  
 Home     Covered Companies     News and Commentary     Our Team     Ratings     Contact Us     Charity     Affiliates    
   
Santa Fe Holding Company (OTC: SFHD)
Santa Fe Holding Company (OTCPK: SFHD), headquartered in Brentwood, Tennessee, is a restaurant holding company which currently owns and operates a chain of 18 Santa Fe Cattle Co. “roadhouse” steak restaurants and 1 licensed store. Its restaurants, located in Alabama, Georgia, Mississippi, Indiana, Tennessee, Kentucky and Oklahoma, are differentiated from competing Western-themed chains by the high quality of the menu, which includes an exclusive blend of aged USDA Choice steaks and Chuck Wagon favorites, developed exclusively for Santa Fe Cattle Co. The menu offers a melting pot of Texas Hill Country influences, from south of the border enchiladas and fajitas to hearty sausage and authentic flavored sauces and dressings.

Restaurant veterans Danny York and David Wachtel founded Santa Fe Cattle Co. in 1996. The Company’s Chairman/CEO, Danny York, brings over 20 years of restaurant chain management experience to the operation. In 2003, when Mr. York regained ownership of the Santa Fe Cattle Company chain, only six restaurants were operating and annual sales were only about $1.5 million. Within two years, he had revitalized the concept and increased average sales per restaurant to more than $2.6 million.

Under Mr. York’s guidance, another company, Restaurant Management Group, grew from eight restaurants and four different concepts to 37 restaurants generating over $100 million in annual sales. Mr. York was also a multi-unit franchisee of Western Sizzlin Steakhouse and participated actively in the development of the Logan’s Roadhouse concept. This chain was purchased by a private equity firm for over $480 million.
Business model based on differentiation and original operating concept

The Company’s business model centers on developing a network of casual dining steakhouse restaurants across the US that provide customers with quality food, exceptional service and a fun dining experience, all at a reasonable price. Santa Fe has adopted a strict standard of service, convenience, atmosphere, management and, pricing to set its restaurants apart from the competition. It is the only casual steakhouse restaurant chain that offers quality Southwestern fare and mid-priced steaks. Its goal is to dominate the underserved, $10-12 dining niche of the steakhouse restaurant segment.
Concept has proven appeal for consumers

The Company’s differentiation strategy is based on factors that have proven successful in the past and are likely to drive further expansion: (1) The family concept with an appealing atmosphere and interior design reminiscent of the Old West and featuring the signature “big ass ceiling fan”, similar to the fans found in turn-of-the-century cattle yards; (2) Quality Southwestern fare and a traditional steak menu; (3) Salsa, marinates and dressings which are made in-house from original recipes; and (4) hand-cut and aged-to-perfection steaks.
An impressive turnaround under Mr. York’s management

Veteran entrepreneurs and restaurateurs, David Wachtel and Danny York founded Santa Fe Cattle Co. in 1996. After growing the concept to 16 units, Mr. York sold his equity interest in the chain in 2000 to pursue other restaurant ventures. The unexpected death of Mr. Wachtel in 2001 led to a disruption in growth and the near demise of the chain. After several years of struggling under different management teams, Mr. York re-purchased the remaining Santa Fe stores and rights to the concept, recipes, logo and name in May, 2003, and began to resurrect the concept. At that time, only six restaurants remained and annual sales averaged less than $1.5 million per store. Within two years and under Mr. York’s leadership, average sales increased to more than $2.6 million per store. All of these stores were restored to the original concept. The concept and the Company have been successfully tested and are poised for future expansion and accelerating growth.
Positive growth outlook

Santa Fe’s revenues increased 32.4% in 2006 to a record $21.6 million and were 286% higher than 2003 revenues. This growth reflects an increase in the chain from 6 units in 2003 to 12 units at year-end 2006 as well as higher average sales per restaurant. The Company is well-positioned to achieve its 2007 revenue goal of $33 million. In the first six months of 2007, Santa Fe generated revenues of $13.5 million and expanded its chain to 18 locations. By year-end 2009, Santa Fe management expects to operate at least 40 restaurants and generate annual per store sales of approximately $3 million. Given the results already achieved under Mr. York’s leadership, we think these projections are reasonable and expect the Company to produce revenues approaching $100 million by year-end 2009. Our 2009 revenue target is based on sales of $2.6 million per store and 40 restaurant locations. However, according to management, Santa Fe’s annualized sales per store already exceed $2.6 million and are expected to approach $3 million by 2009.
A management team with a solid track record

Santa Fe’s management team has over 100 years combined experience in the restaurant business. Danny York was one of the originators of the mid-priced casual family (peanuts-on-the-floor) steak house experience. In fact, he developed the concept and was largely responsible for Santa Fe’s initial successes. Mr. York and David Wachtel also developed the highly successful Logan’s Roadhouse chain. This chain went public in 1995 and, after numerous stock splits, was acquired by Cracker Barrel Restaurants in 1999 for a purchase price exceeding $180 million. Mr. York also served as Chief Operating Officer of another major restaurant chain company, Restaurant Management Group (RMG) in Nashville, TN.
Internal controls to monitor profitability and quickly address problem areas

The Company uses a “Weekly Sheet” to track weekly store costs. The weekly sheet is produced by the General Manager of each store, is compared with the sheets produced by the chain’s other General Managers, and reviewed by senior management during weekly meetings. Each restaurant also produces a monthly profit and loss statement which is shared among the stores. This sharing of financial results fosters friendly competition among managers; exceptional performances are rewarded with bonuses. The management team of each restaurant consists of a General Manager, Kitchen Manager, Bar Manager and two Floor Managers. Each manager must complete an intensive 12-week, hands-on management course, and is cross-trained to handle both front- and back-of-the-house responsibilities. The management team is incentivized with a very generous bonuses system based on performance.
The average American is dining out more frequently

Consumers are spending more food dollars on dining out. The average US household spends nearly $2,500 per year on dining out, and this figure has been growing faster than inflation since 1991. According to the National Restaurant Association (NRA) there are more than 935,000 restaurants in the US, which generated 2006 sales of $511 billion, up 5.1% from the prior year, and are on track to generate sales exceeding $537 billion in 2007, representing 4% of US GDP.
 

Fill out the form to
get regular FREE
information updates
on this and other stocks.
 
name

lastname

address

city

state

zip

phone
email



 
Copyright 2007 Beacon Equity Research