Bandera Partners LLC is looking to shake up the board of Luby’s Inc., nominating a slate of candidates to address what it called “bloated corporate expenses” and the company’s sale of real estate.
New York-based Bandera Partners, which owns about 8.9 percent of Luby’s shares, sent a letter to the Houston-based company’s board this week, saying, “It is brutally painful to watch the company chisel away at its real estate portfolio to fund low-return investments into the business.”
Bandera’s candidates to the board of the Luby’s Inc. — parent to the Luby’s cafeteria and Fuddruckers brands — include Bandera managing partner Jeff Gramm and his father, former U.S. Sen. Phil Gramm (R-Texas).
“What’s happening at Luby’s is simply not working,” Jeff Gramm said in his letter to the board. “The Fuddruckers and Luby’s restaurant concepts do not generate a sufficient return on capital to justify the investments management is making, under your direction and supervision, into the business.”
Earlier this month, in releasing its earnings for the fiscal year ended Aug. 29, Luby’s Inc. said it had closed 30 restaurants, both in its cafeteria and burger brands, over the past two years.
Chris Pappas, Luby’s president and CEO, said “We are not satisfied with our overall financial results for the year,” adding that “the decline in profitability for the whole company is totally unacceptable.”
For the fourth quarter ended Aug. 29, Luby’s narrowed its loss to $1.9 million, or six cents a share, from $4.1 million, or 14 cents a share, in the same period a year ago. Sales were down 3.1 percent to $83.9 million from $86.6 million in the prior year quarter.
To stem losses, Luby’s announced an asset-sale program of $25 million in April and expanded it to $45 million in July, with the company selling 10 owned properties for $14.8 million in profit in the fiscal year.
The company also closed 21 underperforming company-owned restaurants in fiscal 2018 after closing nine in fiscal 2017. Luby’s said those restaurants had accounted for $21.6 million in restaurant sales in fiscal 2018 and $38.6 million in fiscal 2017.
In a statement, Peter Tropoli, Luby’s general counsel, said Wednesday: “Luby’s has received Bandera’s nomination notice, and consistent with its fiduciary duties, the board will review it carefully.”
“We are always open to good ideas regardless of their source and will carefully review and consider Bandera’s candidates as we would any other potential directors to assess their ability to add value to the board for the benefit of all shareholders,” Tropoli said.
Jeff Gramm, in his letter Tuesday, acknowledged that the activist investment group’s 8.9 percent holding in the company’s shares was eclipsed by the sitting directors, who hold about 38 percent of the common stock.
In its Schedule 14A on Dec. 15 of last year, the company said Chris Pappas owned 18.8 percent of the company’s shares and Harris Pappas, his brother and also a board member, owned 18 percent of the shares.
Gramm concluded his letter by writing, “I believe this is the outside shareholders’ last chance to salvage their investment in the company, and I feel a responsibility to take on this difficult battle on their behalf, rather than subject myself and other Luby’s shareholders to another year of value destruction.”
He said Luby’s capital expenditures since fiscal 2008 have totaled $235 million.
“The return on this investment has been dismal,” Gramm said, “and to pay down the debt you have accumulated in the process, Luby’s is liquidating the most valuable asset shareholders own, the company’s real estate.”
In setting up for a proxy fight, Gramm is nominating himself and the former senator to board along with: Stacy Hock, a Texas philanthropist and business owner; Savneet Singh, a partner at investment firm Coventure and board member at Par Technology; and Brian Wright, the CEO at Bertucci’s Restaurants.
The company’s nine board members are elected for one-year terms at the annual shareholder’s meeting, which has not yet been scheduled.
Bandera also owns a stake in Minnetonka, Minn.-based Famous Dave’s BBQ, a casual-dining chain that has been trying a number of initiatives in a “fight for survival.”
The total number of Luby’s company-owned restaurants fell from 167 at the end of last fiscal year to 146 as of Aug. 29. In addition to its owned restaurants, Luby’s franchises 105 Fuddruckers locations across the United States (including Puerto Rico), Canada, Mexico, Panama and Colombia. That number was down from 109 franchised locations at the end of third quarter on June 6.
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