Luby’s Reports Second Quarter Fiscal 2019 Results

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Second Quarter Key Metrics

  • Same-store sales decreased 3.3%
  • Culinary Contract Services sales increased by 28% to $7.5 million, up from $5.9 million
  • Income from continuing operations of $6.6 million (including $12.7 million in gains on sales of property) compared to loss of $11.5 million in the second quarter fiscal 2018
  • Store level profit was 10.7%, up from 7.7% — a 300 basis points improvement (see non-GAAP reconciliation below)
  • Adjusted EBITDA increased $2.9 million (see non-GAAP reconciliation below)

Chris Pappas, President and CEO, commented, “We continue to make positive progress through our turn-around efforts to reduce costs while repositioning our brands for improved sales and increased store-level profit efficiencies to drive better financial results in 2019 and beyond. Since the beginning of the second quarter last year, we have closed 27 underperforming units and through our $45.0 million asset sales program that began last year, we have generated proceeds of $34.7 million.

“Cost management remains a primary focus throughout our organization and even after adjusting for the number of closed stores, our cost run-rate came down in the second quarter. Store-level profit as a percentage of restaurant sales improved in the second quarter to 10.7% compared to 7.7% in the same quarter last year due primarily to effective cost controls to reduce food and supply expenses, efficient hourly labor scheduling, and reductions in repairs and maintenance expense.

“While our same-store sale results for the quarter are below our expectations for the full year, they improved sequentially at both our Luby’s Cafeteria and Fuddruckers brands. Our chief operating officer, Todd Coutee, continues to realign our organization by putting the right people in the right positions. Todd and the team are also hard at work at several initiatives to enhance sales at each brand with new everyday value choices, focus on  convenience and the dinner meal part, and re-introducing a breakfast service option at several Luby’s locations.

“Lastly, as we transition to primarily a franchise model for Fuddruckers, we converted five company-operated Fuddruckers restaurants to franchise-operated restaurants.  These restaurants are in the San Antonio market and were transferred in early April to a new franchise operator with prior Fuddruckers experience. We continue to work on additional re-franchising opportunities in markets outside of our home market in Houston, Texas.”

  • Luby’s Cafeterias sales decreased $2.9 million versus the second quarter fiscal 2018, due to the closure of seven locations over the prior year and a 2.2% decrease in Luby’s same-store sales. The decrease in same-store sales was the result of a 4.0% decrease in guest traffic, partially offset by a 1.9% increase in average spend per guest.
  • Fuddruckers sales at company-owned restaurants decreased $3.8 million versus the second quarter fiscal 2018, due to 14 restaurant closings and a 5.3% decrease in same-store sales. The decrease in same-store sales was the result of a 9.3% decrease in guest traffic, partially offset by a 4.4% increase in average spend per guest.
  • Combo location sales decreased $0.3 million, or 7.0%, versus second quarter fiscal 2018.
  • Cheeseburger in Paradise sales decreased $1.9 million. The decrease in sales is related to reducing operations to a single store compared to operating seven locations in the second quarter fiscal 2018.
  • Income from continuing operations was $6.6 million, or $0.22 per diluted share, compared to a loss of $11.5 million, or $0.38 per diluted share, in the second quarter fiscal 2018.
  • 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 $7.0 million, or 10.7% of restaurant sales, in the second quarter compared to $5.7 million, or 7.7% of restaurant sales, in the second quarter fiscal 2018. The improvement in store level profit, despite a decline in same-store sales, was the result of effective cost management in several areas. Food costs as percent of restaurant sales decreased as we focused on on a return to “classic favorites” with favorable food costs as well as an overall higher average spend per guest. Our restaurant supplies expense and repairs and maintenance expense each experienced significant reductions over prior year as these expenses continued to be opportunities of focus. We also managed to reduce our hourly labor costs on a per store basis through efficient restaurant staffing. Store level profit is a non-GAAP measure, and reconciliation to loss from continuing operations is presented after the financial statements.
  • Culinary Contract Services revenues increased by $1.7 million to $7.5 million with 33 operating locations during the second quarter. New locations contributed approximately $1.4 million in revenue and locations continually operated over the prior full year increased revenue approximately $0.3 million. Culinary Contract Services profit margin increased to 11.0% of Culinary Contract Services sales in the second quarter compared to 3.6% in the second quarter fiscal 2018.
  • Selling, general and administrative expenses decreased $0.2 million. Removing one-time proxy-solicitation and communication costs of approximately $1.0 million, selling, general and administrative expenses decreased $1.2 million. The decrease reflects reductions in corporate staff and related costs as well as reductions in other overhead expenses, including general liability claims expense, corporate travel, and corporate supplies expense. Included in selling, general, and administrative expenses was approximately $0.8 million in marketing and advertising expense which represents 1.0% of total sales.

Balance Sheet and Capital Expenditures

We ended the second quarter with net debt (total debt less cash) of $29.6 million, a decrease from $35.8 million at the end of fiscal 2018. During the second quarter, our capital expenditures decreased to $0.7 million compared to $3.7 million in the second quarter fiscal 2018. At the end of the second quarter, we had $3.9 million in available cash, $10.8 million in restricted cash, and $115.1 million in total shareholders’ equity.

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