Luby’s Inc. has opened its sixth side-by-side cafeteria-Fuddruckers unit, the first outside Texas, and continues to see the dual-brand concept as a growth vehicle, executives said Monday.
“We continue to believe these combo units represent an attractive growth potential for the company,” Chris Pappas, president and CEO of Houston-based Luby’s, said during a call with analysts, after the company reported second-quarter earnings.
Pappas said the combo units perform well and “also strengthen both our individual brands and achieve stronger results together while reaching a broader cross-section of customers.”
The first combo unit opened in 2012, as a conversion in Houston. On Feb. 18, Luby’s debuted its sixth combo unit in Jackson, Miss. The 13,000-square-foot location allocates about 3,000 square feet to a 92-seat Fuddruckers and 10,000 square feet to a 220-seat Luby’s Cafeteria.
“The first day and first two weeks broke all sales records for a combo opening,” Pappas said. The company said combo units are showing a 19.1-percent profit margin.
Sales at combo units were $4.9 million in the second quarter, representing about 5.8 percent of Luby’s total revenue, an increase from 1.8 percent the previous year.
The first Houston combo unit entered Luby’s same-store sales comparisons in the second quarter, logging a 2.4-percent increase. Luby’s systemwide same-store sales rose 2.5 percent, reflecting a 3.1-percent increase at Luby’s and a 2.1-percent rise at Fuddrucker’s. Cheeseburger in Paradise same-store sales fell 4.8 percent.
Executives said Luby’s will continue to convert existing Cheeseburger in Paradise locations to Fuddruckers restaurants. In the second quarter, Luby’s opened a Fuddruckers in Newark, Del., that was a conversion. The company acquired 23 Cheeseburger in Paradise restaurants in 2012, for $11 million, and it ended the quarter with eight units of the brand.
Luby’s reported a net loss in the second quarter ended Feb. 11 of $1.4 million, or five cents a share, from a loss of $2.2 million, or eight cents a share, in the same quarter last year. Revenue increased 2.7 percent, to $91 million, from $88.6 million in the same quarter last year.
K. Scott Gray, Luby’s chief financial officer, said food costs, which increased 80 basis points from the same period a year ago, represented the “greatest cost pressure” in the second quarter.
The company implemented a 1-percent increase in menu prices late in the quarter to offset a 12-percent increase in commodity costs at Fuddruckers and a 7-percent increase at Luby’s. Beef costs posed the biggest commodity pressure in the quarter, Pappas said.
“We will continue to take measured price increases over time with some frequency going forward,” Gray said, though Pappas characterized them as “modest adjustments.”
Pappas said the company is also altering its marketing tactics.
“We’ve recently shifted to a greater use of email blasts and targeted short-term duration, limited-time email offers while reducing some of our direct-mail efforts,” he said, adding that new media channels “are particularly cost-effective.”
In addition to Luby's Cafeteria, Fuddruckers and Cheeseburger in Paradise, Luby’s Inc. provides foodservice management through its Culinary Contract Services division at 24 healthcare, higher education and corporate dining locations.
As of Feb. 11, Luby’s owned and operated 95 cafeterias, 72 Fuddruckers, eight full-service Cheeseburger in Paradise restaurants and one Bob Luby's Seafood Grill. The company franchises 107 Fuddruckers in the United States, Puerto Rico, Canada, Mexico, Italy, the Dominican Republic, Panama and Chile. A licensee operates 31 Fuddruckers in the Middle East, but the company said those have no royalty or revenue arrangements.
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