Luby’s closed 27 restaurants in the past year as it continues a challenging turnaround effort. Chief executive Chris Pappas said during an April 22 conference call that the “business of operating mature brands in a highly competitive market” is a tough task for Luby’s and its portfolio. While the company has been here before, notably 18 years ago when the Pappas brothers began directing the company and during the financial crisis in 2008-09, the task ahead has several layers. But Luby’s won’t go at it alone.
Inside the aggressive turnaround of Luby’s
Despite sales dip, Luby’s sees a bright future
The company announced Monday that it’s hired restructuring firm Alvarez & Marsal to help identify cost-saving initiatives and improve store-level profit and growth. The firm is the same where Jonathan Tibus, the current CEO of Kona Grill and former leader of Real Mex Restaurants and formerly Ignite Restaurant Group, serves as managing director. Tibus also has experience with Last Call Opearting Co, Quiznos, and Max & Erma’s—all brands that filed for bankruptcy protection at one time.
“We believe we know, and we have the experienced and dedicated people, to operate our company to the highest standards and involve the business to return to profitability and ultimately growth,” Pappas said.
The company, which now runs 81 Luby’s (three have closed year to date), 54 Fuddruckers (six have shuttered), and one Cheeseburger in Paradise (there were 23 back in 2012 when Luby’s bought the chain for $11 million), reported blended same-store sales declines of 3.3 percent in the second quarter.
Restaurant sales had revenue of $65.4 million, a decline of 12.1 percent year-over-year, while franchise revenue upped 1.4 percent to $1.4 million, and culinary contract services—the shining element for Luby’s—increased 33.9 percent year-over-year to $7.5 million.
Broken down, Fuddruckers took the biggest quarterly hit with same-store sales dropping 5.3 percent versus the comparable period. They fell 11.2 percent in Q1. Luby’s Cafeteria units saw comps decrease 2.2 percent after declining 3 percent to start the calendar year. Year to date, the chains are tracking negative 9.9 percent and 2.6 percent, respectively. Combo stores are also down 9.5 percent, while Cheeseburger in Paradise slipped 1.6 percent.
Traffic fell 4 percent at Luby’s and 9.3 percent at Fuddruckers in the quarter. Luby’s had Q2 net debt of $29.6 million.
Pappas said the company generated proceeds of $34.7 million through its $45 million asset sales program that began last year. And the company continues to refranchise Fuddruckers as it moves to a primarily franchised model. Five were recently converted and Luby’s is working on additional refranchising opportunities outside of its home market in Houston.
Pappas said the company’s store-level profit as a percentage of restaurants sales improved in Q2 to 10.7 percent versus 7.7 percent in the year-ago period, due “primarily to effective cost controls to reduce food and supply expenses, efficient hourly labor scheduling, and reductions in repairs and maintenance expense.”
Todd Coutee, Luby’s chief operating officer who joined the company last fall, said Luby’s is focused on new everyday value voices, Texas comfort food, and the dinner daypart. Specifically, how convenience can play a leading role.
However, the company is also reintroducing breakfast at Luby’s, which Coutee said was a “natural extension” for the brand,
“Within our Luby's cafeteria business we continue to provide our guests with convenient great tasting home-style meals at an excellent value in a comfortable environment,” he said.
The culinary services added four new facilities year to date and contributed about $1.4 million in revenue from new locations this past quarter. Its profit margin is healthy at 11 percent, above the company’s long-term target of 8–10 percent.
These contract foodservice opportunities, which operate via healthcare, senior living communities, corporate dining facilities, stadium venues, retail grocery outlets, and more, have become a “huge asset” to Luby’s, Pappas said. “… we custom tailor solutions that meet the unique requirement and preferences of our very clients and that is both the appeal to our client and our competitive advantage in this business segment.”
In addition, Luby’s is working on building awareness, Coutee said with a targeted marketing campaign that’s also measurable. “Our campaign includes video content with authentic testimonials from our guest, early team members and restaurant managers. Our intention is to clearly differentiate our brands from competitors by sharing the emotional connection so many people have with our brands. We believe we not only offer great value for our guest, but also a certain familiarity that our guests cherish,” he said.