Luby’s Inc. is moving forward with more of its side-by-side Luby’s-Fuddruckers units and working to stem slipping sales at its recently acquired Cheeseburger in Paradise units, company executives said this week.

Houston-based Luby’s discussed company initiatives Thursday with analysts after releasing earnings for the third quarter, which ended May 8. Net income rose in the quarter to nearly $2.5 million from $2.4 million in the prior-year period. Revenue increased to $97.5 million from $84.1 million in the same period last year.

Luby’s chief executive Chris Pappas said a second side-by-side Luby’s-Fuddruckers unit is under construction, similar to one opened last year in Pearland, Texas. The company’s pipeline calls for three more of the side-by-side locations by the end of fiscal 2014, Pappas said.

“We currently believe the side-by-side configuration is a vehicle for a good portion of our near-term growth,” he said. “We see excellent opportunity to expand our brands, and now we have built some momentum to deliver more units each year.”

Sales at the 23-unit Cheeseburger in Paradise division, which Luby’s acquired late last year in an $11 million deal, “have been challenged and below expectations so far,” Pappas told analysts. Same-store sales fell 13 percent from those logged by the prior owner, Pappas said.

“We attribute a portion – a large portion – of this decline in comp sales for Cheeseburger in Paradise in the quarter to prior year promotions not fully repeated this year for the whole quarter,” Pappas said. “But as you know, integrations take time. As we launch new restaurant processes, our teams will move up the learning curve. Sometimes, those curves are steep. But as we gain traction, we believe that the changes we're making will result in significant improvements and pay off in the long term.”

Pappas said the company has introduced a new hamburger patty and baked-on-premise buns at Cheeseburger in Paradise and brought buying into Luby’s distribution network. “Our processes should begin yielding enhanced product consistency and a better cost as we move forward,” he said.

Pappas said the brand has launched or relaunched such marketing programs as a happy hour, family nights with free kids’ meals, sporting event promotions and a brand ambassador program.

“This program, which is similar to what we are now doing at Luby’s and Fuddruckers, identifies individuals in the restaurant who have strong customer engagement skills,” Pappas said of the brand ambassador program. “These individuals are then able to devote a portion of their workweek getting feedback from customers and also to get outside the restaurant in its local community to generate interest and knowledge about all the offerings and excitement of their nearby Cheeseburger in Paradise restaurant.”

Cheeseburger in Paradise’s unit-level profit dragged on the system profit, the company said, shaving it down to 14.8 percent in the quarter from 17.2 percent in the same period of 2012. Excluding Cheeseburger in Paradise, the store-level profit margin would have been 16.6 percent, the company said.

Systemwide same-store sales at company-owned units declined 0.1 percent. At the company’s 93 Luby’s, same-store sales in the quarter fell 0.1 percent; they rose 0.5 percent at the 55 company-owned 55 Fuddruckers. The company added that “excluding the sales declines at the two Koo Koo Roo locations, same-store sales were flat with the prior year.”

Besides the restaurant operations, Luby’s provides onsite foodservice management at 19 sites through its Luby's Culinary Services division. Company-owned and -operated restaurants include 93 Luby's cafeterias, 63 Fuddruckers restaurants, 23 Cheeseburger in Paradise full-service restaurants and bars, two Koo Koo Roo Chicken Bistros and one Bob Luby's Seafood Grill. The company also franchises 116 Fuddruckers.

Contact Ron Ruggless at ronald.ruggless@penton.com.
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