Luby’s Inc. is expanding its plan to close and sell more restaurants beyond the 14 that it had identified earlier this year, company executives said Monday.
Last quarter, Houston-based Luby’s began executing a plan to sell 14 properties and use an estimated $25 million in proceeds to pay down debt, said Chris Pappas, Luby’s CEO and president, on a third-quarter earnings call.
“We’ve added an additional $20 million in assets to be sold,” Pappas said, adding that one of those locations had been sold and two are under contract. Pappas did not identify how many restaurant units were in this second tranche of sales.
As of the third quarter ended June 6, Luby’s owned and operated 160 restaurants, including 86 Luby’s Cafeterias, 67 Fuddruckers and seven Cheeseburger in Paradise units.
In the fiscal year through June 6, the company said has closed seven units, including four Fuddruckers, two Luby’s and one Cheseeburger in Paradise.
Pappas said Luby’s owns much of its real estate.
“Within our current restaurant portfolio, there are a number of units not achieving the necessary financial success due to any number of factors: market changes, residential and population shifts, over-built areas, etc.,” he said.
The restaurant industry going through a streamlining process, he said. “We are certainly not immune to this,” Pappas added.
“We have identified additional owned properties to sell,” said K. Scott Gray, Luby’s chief financial officer, “which will be used to reduce our outstanding debt to near zero.”
As the company works to pay down debt, Gray said Luby’s had retained investment banking firm Cowen Inc. to help in refinancing its debt. The company is currently working under a credit facility from 2016.
For the third quarter, Luby’s net loss widened to $14.6 million, or 49 cents a share, from $396,000, or 1 cent a share, in the prior-year period. Luby’s reported sales in the quarter were down 3.1 percent, to $86 million, from $88.7 million in the same period last year.
Luby’s systemwide same-store sales declined 0.9 percent in the quarter, with the Luby’s Cafeterias up 2.4 percent and the other brands posting declines. Same-store sales were down 5.8 percent at Fuddrucks, 3.3 percent at combo Luby’s-Fuddruckers locations and 11.7 percent at Cheeseburger in Paradise. The company’s Culinary Contract Services division saw sales increased $2.1 million, the company said.
“While we have been intensely focused on delivering superior service, excellent food quality and a variety of compelling values, our cost increases have exceeded our ability to grow our overall restaurant sales quickly enough through menu pricing and increased guest traffic,” Pappas said.
Pappas added that mature brands like Luby’s, which was founded in 1947 in San Antonio, Texas, face increased competition.
“The current competitive restaurant environment is making it difficult for our brand, and the mature brands of many others, to gain significant traction,” Pappas said. “We’ve been faced with the environment for quite some time, which has been a large drag on our financial results and our company valuation.”
Peter Tripoli, Luby’s chief operating officer, said the company, which the announced closures, intended to turn around sales trends.
“As we streamline by closing underperforming locations,” Tripoli told analysts, “we will be able to concentrate all of our energies on rebuilding and elevating operations and guest experiences at the remaining stores in the future.”
In addition to its owned restaurants, Luby’s franchises 109 Fuddruckers locations across the United States (including Puerto Rico), Canada, Mexico, the Dominican Republic, Panama and Colombia. A licensee operates another 36 Fuddruckers.
Luby's Culinary Contract Services division provides foodservice management to 25 sites, including healthcare, corporate dining locations and sports stadiums.
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