HOUSTON Luby’s Inc. said it would close 25 underperforming cafeterias by month’s end to help stem growing losses, which in its latest quarter totaled $23.3 million, more than seven times its loss in the same quarter a year ago.
The company said one store was closed during its fourth quarter ended Aug. 25, five stores already were closed during the company’s current first quarter, and 19 more are scheduled to close in the next two weeks. Luby’s will then operate 95 restaurant locations and 15 culinary-contract locations. The Houston-based company added that it may close another five to 10 additional stores during the next two years, depending on future cash flow performance and lease terminations.
Luby’s said all but three of the 25 closed stores are on property it owns, and that it will be selling the real estate over the next three years. Once sold, the company said it planned to redeploy the capital to continue upgrades to its restaurants, expand its culinary contract services division and position itself for future growth. In the short term, some of the proceeds may be used to support operations in order to maintain minimal debt levels, the company said.
“Continuing to generate negative cash flow from operations obviously cannot be tolerated,” said Chris Pappas, president and chief executive of Luby’s. “We will be addressing any negative contributors as the current fiscal year unfolds. Hopefully our internal efforts will be bolstered by improving general economic conditions, including employment levels in the company’s markets.”
Luby’s loss of $23.3 million, or 83 cents a share, for the quarter ended Aug. 25, compares with a loss of $3.7 million, or 13 cents a share, in the same quarter last year. In conjunction with the store closings, Luby’s incurred a non-cash, pre-tax impairment charge of $19 million in the latest quarter.
Fourth-quarter sales fell 13.2 percent, to $84.2 million.
Same-store sales fell 13.6 percent in the fourth quarter, which the company said was because of a combination of slowed guest traffic, lower menu prices and value promotions, which together decreased average sales per person by 1.2 percent from a year ago.
“We believe that in the long run this focus on value will lead to increased customer frequency, as well as enhanced customer goodwill, although bringing down prices negatively impacted our same store sales,” Pappas said.
He also said that Luby’s “customers continued to be impacted by the challenging economic environment, including the unemployment rate rising to its highest level in over 20 years.”
In guidance for 2010, Luby’s said “any improvement in restaurant sales will lag the broader economic recovery that economists project to begin taking place in calendar year 2010.” It expects a net loss for 2010.
For fiscal 2009, Luby’s posted a net loss of $26.4 million, or 94 cents per share, versus earnings of $2.3 million, or 8 cents per share, in fiscal 2008. Latest annual sales fell 9.5 percent to $292.9 million.