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Luby's to test combined Fuddruckers and Luby's Cafeteria unit

Executives say combined units, along with remodeled stores, could be key to the company's growth strategy

Luby’s Inc. has opened two new smaller-sized Fuddruckers and will open a new cafeteria-burger combo unit later this year, executives said Thursday.

The company will be evaluating performance at these locations, which take up about 2,500 to 3,000 square feet, before determining future development, executives said on an analyst conference call Thursday to discuss Houston-based Luby’s third-quarter earnings.

Chris Pappas, president and chief executive of Luby’s, said the company opened two new company-owned Fuddruckers in San Antonio and Houston in the third quarter and plans in August to open in Houston a third unit that will be a Luby’s Cafeteria combined with Fuddruckers in a 2,500-square-foot space. The inaugural combo unit, Pappas said, will have a shared 500-square-foot patio space.

Older Luby's Cafeteria units take up to 10,000 square feet alone, while older Fuddruckers units take up about 5,000 square feet.

“We look forward to evaluating the results of this endeavor against our expectations,” Pappas said. “This smaller format could be a key component of our growth strategy. We also have our eye on end caps at various shopping centers where this new prototype would fit perfectly.”

Meanwhile, franchisees continue to open more traditional units. As of the end of the third quarter, Fuddruckers franchisees had opened four new units during fiscal 2012. In mid-June, two more franchised stores were opened — one in Palmetto, Fla., and another in Puerto Rico. Luby’s also has a joint venture project in Mexico and the first unit opened in May in Villahermosa, the capital of the Mexican state of Tabasco.

Pappas said the company is also in the process of remodeling units to help increase sales at both chains.

“Year to date, we’ve completed seven major remodels at various Luby’s Cafeteria locations,” he said. “We’ve seen a sales lift at these locations and believe the investments we are making will achieve our hurdle rate of 3 percent increase in sales at these stores.”

The company is also upgrading finishes in other Luby's Cafeterias and refurbished 15 company-owned Fuddruckers. The higher-volume Luby’s units will be finished first, executives said, and the company-owned Fuddruckers should all be remodeled by the end of 2013.

Luby's on Wednesday reported that its fiscal third-quarter profit increased 43 percent to $2.4 million, or 9 cents a share, in the quarter ending May 9 compared to $1.7 million, or 7 cents per share, in the year-earlier period. Revenue rose to $84.1 million from $83.4 million.

Fuddruckers' same-store sales rose 4.6 percent, with customer spending up 3.8 percent and traffic growing by 0.7 percent. Luby’s same-store sales were nearly flat at 0.1 percent, with customer spending up 3.2 percent and traffic falling 3 percent. Systemwide, the company reported same-store sales increases of 1.1 percent, said Scott Gray, Luby’s chief financial officer.

Fuddruckers restaurant sales rose 4.8 percent over last year’s quarter, to $23.3 million, and Luby’s Cafeteria sales fell 2.2 percent to $54.6 million, Gray said.

Houston-based Luby's owns and operates 92 Luby's Cafeteria units and 58 Fuddruckers locations, and franchises 128 additional Fuddruckers units. It also owns three Koo Koo Roo Chicken Bistros. The company’s Luby’s Culinary Services division provides foodservice management to 18 healthcare, higher education and corporate dining locations.

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

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