The two-fold turnaround plan at Luby’s remains a work in progress, chief executive Chris Pappas said during Monday’s third-quarter review. In addition to establishing appropriate cost structures and growing traffic and sales, the multi-concept operator is trimming its footprint at well.
The operator of Luby’s Cafeteria, Fuddruckers Restaurants, and a lone Cheeseburger in Paradise, revealed Monday its trimmed its corporate restaurant count by 16 units year to date (four Luby’s, 11 Fuddruckers, and one Cheeseburger in Paradise), to bring the respective store counts to 80, 49, and one.
But if you track back further this isn’t a recent shift.
Here’s how the brands have moved:
Cheeseburger in Paradise
Some trends: Since the third quarter of 2018, the company has shuttered 13 Fuddruckers (and refranchised five others), six Luby’s, and six Cheeseburger in Paradise units. Luby’s acquired Fuddruckers for about $61 million in cash in 2010. At the time, there were 60 stores and three Koo-Koo-Roo locations.
Franchisees operated another 138 restaurants (currently Luby’s is the franchisor for 107 Fuddruckers stores across the U.S., Canada, Mexico, Colombia, and Panama). The brand filed for chapter 11 bankruptcy protection on April 21, 2010. Luby’s purchased substantially all of Fuddruckers assets out of the auction.
Luby’s overall financial picture reflected a brand in the midst of a transition. Blended same-store sales declined 4 percent. Loss from continuing operators was $5.3 million compared to a loss of $14.1 million in the prior-year period.
Along with cutting loss, the company’s store-level profit as a percent of restaurant sales was 10.2 percent, up 170 basis points, year-over-year, from 8.5 percent.
“We continue to make progress in efficiently managing restaurant-level costs, resulting in a store level profit improvement, despite the decline in same-store sales in the third quarter,” Pappas said in a statement.
He added that guest traffic at Luby’s eponymous brand “has continually trended better throughout the current fiscal year.”
At Luby’s and Fuddruckers, the company pushed compelling everyday value starting in the $7–$9 price range. The brands balanced that with additional premium, more expensive items.
COO Todd Coutee said during a conference call that Luby’s is focused on the dinner daypart and specifically how convenience plays a key role in off-premises. The company’s namesake brand introduced weekend breakfast and is now offering the option at 33 locations.
In the third quarter, Luby's removed “substantially all discounts,” Coutee said.
“Our goal is to have a consistent pricing structure that provides everyday value. We believe this is what our most loyal and frequent guests appreciate and expect," he said.
“We see that this is the right approach because on those days when we're comparing a prior year day that was not heavily discounted, which I call a normal day, our guest counts are generally higher this year,” he added.
Similar to the value orientation at Luby’s units, Fuddruckers is promoting $7, $8, and $9 burger combo options along with higher-price specialty, chef-inspired premium offerings, such as an Angus truffle-infused burger.
"While we still have considerable work to do, we see that both our core brands are trending toward the right way," Pappas said.
Coutee also noted that Luby’s would turn to digital to market the company’s emotional connection with guests, an effort that comes with additional marketing and advertising spending of $600,000. “We’ve discovered it and now we’re going to reinforce that connection through our digital channels. This includes paid social, directory such as Yelp, InApp and Banner Ads and much more. We will no longer be out of sight, out of mind. We are intelligently bringing our brands to the forefront. We are making our brands relevant again and the growing response has shown we really do have loyal and passionate guests,” he said.
Luby’s continued to refranchise Fuddruckers, completing five deals. The company plans to transition to a primarily franchised model outside its core Houston market. The five corporate stores that turned over were in San Antonio.
Pappas said Luby’s is actively marketing properties for sale in an asset sales program. Through a $45 million initiative that began last year, Luby’s has generated proceeds of $35.9 million.
“Through the leadership of our chief operating officer, Todd Coutee, the re-alignment of team members into the right positions is substantially complete in restaurant operations,” Pappas added. “The restaurant leadership team and the entire organization are fully focused on increasing guest traffic by driving restaurant and guest service initiatives to delight our guests. We are putting all the pieces in place so that when we turn the corner and return to sales growth, we are better positioned for future profitability."
Luby’s announced two recent hires Monday. David Greenberg joined the brand as VP of marketing and John Holzem was appointed VP of information technology. Greenberg’s past stops include Bob Evans Restaurants, Jack in the Box, Wendy's, TGI Fridays, and Burger King. Holzem spent more than 30 years at Sysco Corporation, where he was most recently Vice President of Business Technology.
On a brand-by-brand basis, the same-store sales picture was challenged. That’s been the case all year.
Cheeseburger in Paradise
Combo stores (Luby’s side-by-side with Fuddruckers at one property)
Luby’s Q3 restaurant sales saw some steep falls as well, although it’s important to factor in the drop in unit count. Luby’s store count reduced from 80 at Q3 2018 start to 74 at Q3 2019 end. Fuddruckers dropped from 61 to 43 in that same span. Cheeseburger in Paradise went from seven locations to one.
The company’s revenue declined 13 percent to $74.8 million.
By brand, Luby’s sales decreased $4 million (8 percent down from Q3 2018). That included a 1.2 percent fall in guest traffic and a 2 percent decrease in average spend per guest.
Fuddruckers’ company-run sales declined $5.43 million (25.7 percent drop, year-over-year) thanks to the closures and 6.1 percent same-store sales hit. The comps comprised of an 8.7 percent slide in traffic partially offset by a 2.8 percent increase in check.
Luby’s credited its improvement in store-level profit to “effective cost management in several areas.”
The brand decreased its food costs as a percent of restaurant sales thanks to a return to “classic favorites’ with favorable figures. Store level profit, defined as restaurant sales plus vending revenue less cost of food, payroll and related costs, other operating expenses, and occupancy costs, was $6.7 million, or 10.2 percent of restaurant sales, in Q3 compared to $6.6 million, or 8.5 percent of restaurant sales, in Q3 2018.
So while top-line restaurant sales were down $12.2 million year-over-year, store-level profit from the restaurants increased by $100,000 to $6.7 million in the quarter.
Pappas added, in addition to streamlining operational expenses, Luby’s has steadily right-sized its corporate support structure and has constrained some of its capital expenditures to more of a maintenance level at times. During Q3, capital expenditures decreased to $1.1 million compared to $3.7 million in the same period last year.
A bright spot for Luby’s, as has been the case in recent quarters, was its Culinary Contract Services. Sales in the sector increased by 14 percent to $7.6 million, up from $6.6 million. Segment profit also upped $200,000, with margins above 10 percent.
“Our culinary contract services business added seven net new locations compared to last year, which are generating incremental sales and profit. This continues to be a terrific segment of our business with significant growth potential,” Pappas said. “We continue to pursue new clients for our signature offering.”