Luby's 2Q sales 'disappointing'

Officials at Luby’s Inc., the cafeteria and multi-concept burger operator, called second-quarter sales “disappointing,” as the company integrates its recent Cheeseburger in Paradise acquisition into its portfolio.

Year-over-year sales for Cheeseburger in Paradise, which the company purchased for $11 million in a deal closed Dec. 6, fell about 12 percent.

Luby's expected some decline in the brand’s slower fall and winter months, although weather and other circumstances also attributed to the drop, said Luby’s president and chief executive Chris Pappas. “We’re mindful of this development,” Pappas said in a call with investors Thursday. “We attribute a portion of this decline in comp sales for Cheeseburger in Paradise in the quarter to some significant weather events, some prior-year promotions not repeated this year, as well as the overall industry negative trend in traffic in calendar 2013.”

Pappas said Luby’s, which also owns the Luby’s cafeteria chain and owns and franchises the Fuddruckers and Koo Koo Roo brands, saw opportunities in Cheeseburger in Paradise’s menu, with an improved burger, a better customer experience and the acquisition of good real estate leases.

“Our aim is to emphasize quality and product innovation with the brand and not resort to discounting these truly unique menu items,” Pappas said. He added that Cheeseburger in Paradise’s real estate was well located and had new buildings, and the company plans to invest in décor to help build sales in the slower fall and winter months.

K. Scott Gray, Luby’s chief financial officer, said Cheeseburger in Paradise units had generated $7.7 million in sales from the close of the deal on Dec. 6 to the end of Luby’s second quarter on Feb. 13.

“We expect this brand to contribute to profitability in the second half of the year,” Gray said.

Consumer spending drop impacts results

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Among its other brands, Pappas said the company saw challenges in the quarter.

“We saw a reduction in consumer discretionary spending,” Pappas said. “We attribute this to escalating gas prices, payroll taxes and [federal government] sequestration concerns.

“This soft demand has been reported by other retailers as well,” Pappas added. “As the quarter progressed, it became clear these factors were having a measurable impact on our business, and they were more than the usual week-to-week variability in our business.”

For the Feb. 13-ended second quarter, Luby’s reported net income of $203,000, or one cent per share, versus nearly $1.1 million, or four cents per share, in the same period a year ago. Revenue, including Luby’s culinary contract division, was $87.5 million in the second quarter, rising from $79.4 million in the prior-year period.

Systemwide same-store sales declined 0.6 percent in the second quarter, the company said, compared to an increase of 2.2 percent in the same period last year.

Luby’s adjusted its fiscal year earnings per share guidance down to a range of 21 cents to 25 cents, from 27 cents to 30 cents.

Because of the economic headwinds, Pappas said Luby’s is committed to building traffic and not raising prices. “We chose not to raise prices this quarter in light of the current economic environment, as we are more focused on maintaining the frequency of our guest visits,” he said.

The company is also continuing its remodeling program, with a target of 14 Luby’s and 14 Fuddruckers remodels by the end of fiscal 2013.

“So far this year, we’ve opened one Luby’s cafeteria and six Fuddruckers, including one property with a Luby’s cafeteria and Fuddruckers positioned side-by side,” Pappas said. “We’re quickly coming to the conclusion that this will be one of our vehicles for growth. We have two more of this type slated to break ground this calendar year.”

Fuddruckers’ international development will take the brand to Panama and Aruba in 2014, Pappas added.

So far this fiscal year, the company has opened one Luby's Cafeteria and six Fuddruckers. “We continue to build our new unit pipeline of locations,” he said in prepared remarks. “Our current pipeline includes locations for three Luby's cafeterias and five Fuddruckers. For the remainder of the fiscal year, we plan to substantially complete one Luby's/Fuddruckers combination location and one Fuddruckers end-cap location for opening in the fall 2013.”

The company also recently struck a Fuddruckers franchise deal for up to five units in North Dakota.

Luby's owns and operates 93 cafeterias, 64 Fuddruckers, 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 119 Fuddruckers across the United States, Puerto Rico, Canada and Mexico. Luby's Culinary Services manages foodservice at 20 health care, higher education and corporate dining locations.

Correction: March 22, 2013  Because of an editing error, an earlier version of this article misrepresented year-over-year sales at Cheeseburger in Paradise as same-store sales.

Contact Ron Ruggless at [email protected].
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