Chris Pappas has stepped down as president and CEO of Luby’s as part of the company’s “plan of monetizing its assets for the benefit of shareholders,” the brand announced. Pappas remains a member of Luby’s board and its largest shareholder.
John Garilli, a member of Winthrop Capital Advisors LLC, was appointed interim president and CEO, a role that took effect January 27. Garilli is currently Winthrop Capital’s COO, and has served as CEO, CFO, treasurer, and secretary of New York REIT Liquidating LLC since November 2018. He also held the CEO title at its predecessor, New York REIT, a NYSE-listed real estate investment trust.
“With Luby's planned liquidation under way, including its Luby's operations, the franchisor of Fuddruckers, its Culinary Contract operations, and extensive real estate holdings, the time has come for me to step aside as CEO,” Pappas said in a statement. “I am pleased John Garilli is joining the company, for he brings extensive executive experience in real estate transactions as well as management of corporate liquidations. I have great admiration and gratitude for the guests, dedicated employees, and stakeholders I have had the privilege to serve and work with over the past two decades. I will remain on the Board and continue to be a shareholder of the company and regular Luby's customer."
Luby’s and Winthrop Capital entered into an agreement where the company will pay WCA a one-time fee of $50,000 and a monthly fee of $20,000 for as long as Garilli serves Luby’s. The company also entered into an Indemnity Agreement with Garilli and WCA. Luby’s and WCA previously struck a consulting agreement, pursuant to which WCA provided services related to the company’s adoption of the liquidation basis of accounting.
The company continues to operate 58 Luby’s Cafeterias and 24 Fuddruckers, as well as Culinary Contract Services at 26 locations. It’s actively pursuing sales of these businesses as part of a previously outlined liquidation. Operationally, “it is business as usual as we progress through this plan to find new stewards for these iconic brands,” the company said.
Shareholders approved Luby’s plan on November 17. Based on the liquidation basis of accounting, net assets in liquidation as of December 16, 2020, were estimated to result in future distributions of roughly $3.82 per common share based on the number of common shares outstanding on that date. Or $117,305 (in thousands).
The company reported current total assets (in thousands) of $235,601 in December, and cash and cash equivalents of $14,307. Total liabilities (also in thousands) amounted to $118,296.
In the 12-week period ending November 18, the company swung a net loss in cash flows from operating activities, in thousands, of $3,019.
Luby’s liquidation plan provides for a sale of the businesses, operations, and real estate, payment of liabilities and other obligations, and a wind down of any remaining operations and dissolution of the company. Luby’s said it intends to attempt to convert all of its assets into cash, satisfy or resolve remaining liabilities and obligations, including contingent liabilities, claims and costs associated with the liquidation of the company, and then file a certificate of dissolution with the state of Delaware.
Prior to the onset of COVID-19, the company operated 118 restaurants. As of December 16, 2020, it directed 83 restaurants (59 Luby’s cafeterias and 24 Fuddruckers restaurants). Additionally, Fuddruckers franchisees ran 90 locations pre-coronavirus and 71 restaurants as of December 16, 2020.
A few days after the initial liquidation announcement, Pappas revealed he was considering submitting an offer for the restaurant brand.
The company and Pappas, in his own capacity, entered into a confidential agreement that allowed Pappas and his team to have access to confidential information to assist with his evaluation of whether to submit an offer. According to a securities filing, Pappas had not decided if he or a group will submit an offer. If he did submit a proposal, Luby’s said there’s no guarantee that the offer would be accepted.
The SEC filing was filed jointly by Pappas and his brother, Harrison, who served as COO until his retirement in 2011. Individually, Pappas controls 4.6 million shares while Harrison owns 4.4 million. The two also jointly own Pappas Restaurants Inc., which controls 1.1 million shares. Combined, the brothers have a roughly 36 percent stake in the company.
Luby’s, founded in San Antonio in 1947 by Bob Luby, has been led by Pappas since 2001.
He remains CEO of Pappas Restaurant Group, which runs multiple full-service concepts, including Pappadeaux Seafood Kitchen.
In excess of 99 percent of shareholders approved Luby’s plan of liquidation and dissolution in November.
Previously, the company estimated proceeds from the plan to be between $92 million and $123 million, which would be distributed to shareholders.
Luby’s began a strategic review over the summer. It then announced in June it was looking into a sale of its assets.
Beginning March 17, Luby’s started closing dining rooms and furloughing employees due to COVID-19. By March 31, dining rooms were closed at all 118 company-run units and 50 Luby’s, 36 Fuddruckers, and a Cheeseburger in Paradise were temporarily shut down while 28 Luby’s and three Fuddruckers remained open for takeout, drive-thru, curbside pickup, and delivery. More than half of the corporate staff was furloughed and salaries for non-furloughed employees were cut 50 percent. Franchise owners reduced the number of operating locations from 90 pre-COVID to 37 by early April.
Later in April, the chain announced it tapped a $10 million Paycheck Protection Program loan and received a delisting warning from the New York Stock Exchange because its stock price fell below $1 per share for 30 straight days.
Dining rooms started to reopen in May. And despite sales not reaching pre-COVID levels, Luby’s said in July it achieved a profit at its open stores in the final month of the third quarter.