Luby’s announced Wednesday that it plans to sell its assets as part of a strategic alternative to maximize stockholder value.
The company will explore several potential transactions including the sale of its operating divisions—Luby’s, Fuddruckers, and Culinary Contract Services—as well as its real estate, or selling the company as a whole.
The decision was made after review by a special committee consisting of independent board members along with financial and legal advisors. Luby’s does not have a timeline to complete the process, but the brand noted that it will be conducted in “a disciplined, expeditious and cost-effective manner.”
After satisfying debt and other obligations, net proceeds would be distributed to stockholders. A formal plan of sale and proceeds distribution must be adopted by the board and that plan would have to be approved by stockholders.
“After a careful and thorough review of the company’s operations [including the impact of COVID-19] and the company’s strategic options, the Board concluded a monetization process will likely unlock more value more quickly and with greater certainty for the benefit of all Luby’s stockholders than the other alternatives considered by the Special Committee,” the company said in a statement. “A number of stockholders have expressed their support for seeking alternatives to continuing operating the company’s restaurants in their current form in the present environment and this monetization program will seek to accomplish that task in the most efficient manner.”
Beginning March 17, the brand started closing dining rooms and furloughing employees. 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 by 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 that it received a $10 million Paycheck Protection Program loan and that it had received a delisting warning from the New York Stock Exchange because its stock price fell below $1 per share for 30 straight days.
In May, the brand started to reopen dining rooms. As of Wednesday, 31 Luby’s and eight Fuddruckers are operating with limited dining rooms. Sales are roughly 75 percent of pre-pandemic weekly sales levels. In addition, 59 franchised locations are open.
More than a year ago, Luby’s outlined changes that included management refreshment, guest traffic goals, and a significant reduction in G&A expenses. By September, Luby’s announced the formation of a special committee and pursuit of strategic alternatives.
In the months after that, the brand’s performance was labeled as “not acceptable” by CEO Chris Pappas. In Q1, the company hit a net loss of $8.3 million compared to negative $7.5 million in the year-ago period, and revenue dropped 7.5 percent to $95.1 million due to fewer restaurants.
In Q2, which ended prior to the effects of the COVID outbreak, same-stores sales rose 1.6 percent. Total restaurant sales dropped by 7.6 percent due to year-over-year reduction in restaurants.
“We believe that proceeding with this sale process followed by distributions contemplated under a proceeds distribution plan will maximize value for our stockholders, while also preserving the flexibility to pursue a sale of the company should a compelling offer that delivers superior value be made,” Pappas said. “This path also provides for the potential to place the restaurant operations with well-capitalized owners moving forward.”
Luby’s, founded in San Antonio in 1947, has been led by the Pappas brothers since 2001.
Chris and Harris Pappas have co-founded and run more than 90 restaurants during their careers, including the Pappadeaux Seafood Kitchen, Pappasitos Cantina, and Pappas Bros. Steakhouse brands.
