One of Luby’s messages throughout its recent proxy fight has centered on the notion that “we’ve been here before.” When the Pappas brothers began directing the company 18 years ago, they had to close underperforming stores and take decisive action for Luby’s debt and operations. Roughly six years later, the debt was paid off and Luby’s was profitable and growing again. Then came the financial crisis in 2008–09 and the company was forced to install a similar strategy. By 2013, its stock doubled.
After another troubling sales and traffic quarter to start fiscal 2019, Luby’s is preaching patience once more.
Chris Pappas, the company’s CEO who is earning just $1 until sales improve, said during a conference call Monday that Luby’s is dipping into its turnaround playbook. “Here are we today and some of that strategy is put in place and is needed again to get operations turned around,” he said. “To get the right people in positions, close underperforming locations, pay down our debt, right-size our overhead costs, and reestablish the foundation needed for future growth.”
In the first quarter of fiscal 2019, Luby’s same-store sales declined 5.5 percent systemwide. Loss from continuing operations was $7.5 million compared to a loss of $5.5 million in the year-ago period. Adjusted EBITDA also fell $800,000.
Broken down by brand, 84-unit Luby’s Q1 comps dropped 3 percent, year-over-year, as traffic fell 10.5 percent. Average check upped 8.4 percent to offset the guest count decline somewhat.
At 60-unit Fuddruckers, which shuttered three restaurants in the quarter (Luby’s had two closures), same-store sales plummeted 11.2 percent as traffic declined 17.1 percent. Average check rose 7.1 percent. Combo location sales also decreased $700,000, or 11.1 percent, year-over-year.
Cheeseburger in Paradise saw a sales decrease of $2.6 million as Luby’s brought the chain down to just one store compared to eight locations in the first quarter of fiscal 2018. Luby’s bought the brand in 2012 for $11 million when there were 23 restaurants scattered across 14 states. Pappas said in the call that the remaining location is profitable and not dragging the company’s P&L.
Even with all of these rough figures in tow, Pappas said, “we strongly believe that our future is bright. The story of Luby’s today is one of progress, especially when it comes to delighting our guests with the unique experience and delicious comfort food that has always made Luby’s Cafeteria and Fuddruckers great.”
What is Luby’s doing to correct the sales?
Luby’s is currently in a property asset sales program, which Pappas said has generated proceeds of $26.8 million to date, or about 60 percent of its previous target of $45 million. It also refinanced its debt, closing on $60 million worth of refinancing on December 13, which, at the same time, put about $20 million cash on the balance sheet.
Luby’s said it also plans to refranchise many of its company-owned Fuddruckers. It didn’t provide further details, only saying it expects to transition the chain “to a primarily franchise model while retaining company-owned stores in our core market of Houston.”
From a broader view, Pappas said, “Ultimately, our goal is to capitalize on what people love about the Luby’s brand. We are taking food and service to the friendly environment for lunch and dinner, while focusing on how to innovate the growing ways that connect with today’s consumer.”
This revolves around raising awareness of the brands; strengthening core operations; optimizing the business for the future; and maintaining strong corporate governance. “The reality is that our restaurants have adapted to a great number of changes over the decades and this leadership team has a successful track record of steering the company through previous difficult periods in the restaurant industry cycle,” Pappas said. “Through each of these shifts, Luby’s has maintained its purpose, culture, and vision.”
Todd Coutee, who came on board as COO in October, said Luby’s marketing team is working on using more measurable, digital campaigns in conjunction with traditional media outlets. “Our intention is to highlight the differentiation with respect to our competitors,” he said.
In respect to Luby’s, he added, the chain is going to work on connecting the brand back to Texas. “We are going to talk about our food in terms of being Texas comfort food,” Coutee said. “We are going to talk about all of our local partners in Texas. We are going to look at towns we have been in the past of course as a brand and used the normal medians of advertising billboards, potentially some television.”
Additionally, Luby’s plans to invest heavy in digital campaigns to talk about its legacy brands. For Fuddruckers, expect to see messages around building-your-own burgers as well as how the brand is working on more market trend burgers in different varieties.
The company is deploying technology and improving mobile ordering, and using third-party delivery platforms to “meet the modern needs/desires of our customers,” Coutee said.
A bright spot was Luby’s Culinary Contract Services. Revenues increased by $2.6 million to $9.5 million with 30 operating locations during the first quarter, the company said. New locations contributed about $2.5 million in revenue.