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Luby’s closes more Cheeseburger in Paradise units in 3Q

Company converts restaurants to Fuddruckers brand

Luby's Inc. continued to close Cheeseburger in Paradise units and convert them to Fuddruckers restaurants in the third quarter ended May 6, the company said Wednesday.

"We continue to execute on our strategic plan to convert certain Cheeseburger in Paradise restaurants to Fuddruckers restaurants,” Chris Pappas, Luby’s president and CEO, said in a third-quarter earnings release.

“We have completed four restaurant conversions this year, with up to three additional conversions set to re-open in the fourth quarter,” Pappas said.

The Houston-based operator continues to expand its combo locations of shared Luby’s Cafeteria and Fuddruckers restaurants, he said. The company is also in the process of selling two closed Cheeseburger in Paradise locations to a Fuddruckers franchisee.

Luby’s acquired the 23-unit Cheeseburger in Paradise brand in late 2012, for $11 million. Since then, it has closed or converted locations, leaving eight Cheeseburger in Paradise units as of the end of the third quarter.

The island-themed, casual-dining restaurant was developed in partnership with musician Jimmy Buffett and OSI Restaurant Partners, now Bloomin’ Brands Inc., in 2002, and was named for one of Buffett’s most popular songs. In September 2009, OSI sold Cheeseburger in Paradise to an investor group led by chain president Steve Overholt.

In its third-quarter earnings, Luby’s said sales declined $3.2 million at its Cheeseburger in Paradise restaurants because of “locations closed for future conversions.” In the third quarter of last year, Luby’s had 19 Cheeseburger in Paradise units.

“Partially offsetting the $3.2 million sales decline was $1.2 million in sales recaptured at the four locations that were converted from Cheeseburger in Paradise to Fuddruckers,” the company said.

Pappas said that over the next two years, Luby’s expects to sell excess real estate and redeploy more than $15 million in estimated net proceeds into a remodeling program, new units and debt reduction.

“Our strategy to enhance growth through the opening of new combo locations remains on track,” Pappas added. “We are actively looking for the next combo site in the Southern U.S. in new markets where we do not already operate with our Luby's Cafeteria brand.”

Sales at the company’s six combo restaurants, which feature side-by-side cafeterias and fast-casual Fuddruckers restaurants, were $6.4 million, or about 7.2 percent of Luby’s total restaurant sales during the quarter. In the second quarter, combo sales represented 5.8 percent of the company’s total.

“Our combo location in Jackson, Miss., that opened Feb. 19 continues to outperform sales expectations, which supports our interest in opening combo locations in new markets,” Pappas said. “Combo locations are performing well and continue to represent a strategic growth driver for our company.”

Luby’s, which started the concept with a Houston-area conversion, opened the first new-build unit in August 2012, in the Houston suburb of Pearland, Texas.

In more recent versions, the two brands share a 13,000-square-foot building. Fuddruckers, which has its own entrance and patio, covers 3,000 square feet and seats 92 customers. The Luby's Cafeteria occupies 9,900 square feet and seats 220 customers. The concepts share restroom facilities, which are positioned between the two brands.

Pappas told analysts that the total combo investment, including land, is about $5.5 million, and the company expects about $1 million in annual cash flow for the store-level operations.

Pappas noted that store-level profit at the combo units was strong in the quarter.

“The five combo units that we’re operating for the entire quarter achieved an average store-level profit margin of 19.4 percent, well above the store-level profit margin achieved by our legacy standalone restaurants,” he said.

Luby’s reported Wednesday that third-quarter net income rose 36.1 percent, to $2.4 million, or eight cents per share, from $1.7 million, or six cents per share, the previous year. Revenue fell 2.3 percent, to $94.1 million, from $96.4 million the previous year.

Total same-store sales decreased 1.1 percent during the quarter. Same-store sales rose 0.2 percent at Fuddruckers, declined 1 percent at Luby’s, fell 3.7 percent at combo locations, and dropped 7.2 percent at Cheeseburger in Paradise, the company reported.

“While we are pleased with the improved profitability in the quarter, we remain focused on improving restaurant sales,” Pappas said.

Luby's operates 175 restaurants and provides onsite food service management through its Luby's Culinary Contract Services division. The company-owned restaurants include 94 Luby's Cafeteria units, 72 Fuddruckers locations, eight Cheeseburger in Paradise restaurants and one Bob Luby's Seafood Grill unit.  The company franchises 105 Fuddruckers locations, and a licensee operates 31 restaurants.

Contact Ron Ruggless at [email protected].
Follow him on Twitter: @RonRuggless

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