Luby's Reports Fiscal Fourth Quarter 2009 Results and Announces Cash Flow Improvement and Capital Redeployment Plan

Luby's, Inc. (NYSE:LUB) announced its unaudited financial results for the fourth quarter fiscal 2009, a sixteen-week period, which ended on August 26, 2009. Additionally, the Company announced that it has launched a Cash Flow Improvement and Capital Redeployment Plan focused on improving cash flow from operations, which includes closing 25 underperforming stores, of which 5 stores have already closed in the first quarter of fiscal 2010 and one store was closed in the fourth quarter of 2009; 19 will be closed within the next two weeks After these closures, the Company will operate 95 restaurant locations and 15 culinary contract service locations and have 28 owned properties held for sale. The Company anticipates that approximately 5 to 10 additional locations may be added to the Plan and closed within the next 24 months depending on future cash flow performance and lease terminations.

  Fourth Quarter Review



  --  Restaurant sales were $80.2 million, a decrease of $13.8 million

      compared to the same quarter last year.  This decrease included a $2.1

      million net decline in sales related to closed stores, partially

      offset by new restaurant sales.

  --  Same-store sales, from 117 restaurants, decreased approximately 13.6%

      primarily due to a decline in guest traffic and partially a result of

      lower menu prices and value promotions which decreased average sales

      per person by 1.2% compared to the prior year.

  --  Culinary Contract Services revenue increased 33.8% to $4.0 million in

      the fourth quarter compared to $3.0 million in the fourth quarter of

      2008. The increase was due to Culinary Contract Services operating 15

      facilities as of August 26, 2009 compared to 10 facilities as of

      August 27, 2008.



  --  Store level profit, defined as restaurant sales less food costs,

      payroll and related costs, and other operating expenses, declined to

      $4.0 million in fourth quarter fiscal 2009 compared to $8.6 million in

      fourth quarter fiscal 2008. As a percentage of restaurant sales, store

      level profit was 5.0% in fourth quarter fiscal 2009 compared to 9.0%

      in the same quarter last year. Despite cost control initiatives, the

      decline in same store sales resulted in deleveraging the Company's

      store level expenses, primarily payroll and related costs, and other

      operating expenses.









  Same-Store Sales (117 stores)



               Q1FY09      Q2FY09      Q3FY09      Q4FY09     FY09

  Reported     (6.7%)      (3.2%)      (8.9%)      (13.6%)   (8.6%)

  Adjusted     (3.8%)(a)   (5.0%)(b)   (9.4%)(c)   (13.6%)   (8.4%)(a, b, c)

  Continuing

   Same

   Stores (d)  (6.0%)      (2.4%)      (8.2%)      (12.7%)   (7.8%)



  (a) The first quarter fiscal 2009 was adversely affected by the

  unfavorable timing of Thanksgiving, which occurred after quarter-end, and

  by the closure of stores related to Hurricane Ike.

  (b) The second quarter fiscal 2009 benefited from the favorable timing of

  Thanksgiving at the beginning of the quarter and, to a lesser extent, was

  adversely affected by the unfavorable timing of Lent, which began after

  quarter-end.

  (c) The third quarter fiscal 2009 partially benefited from the favorable

  timing of Lent.

  (d) 95 remaining restaurants (93 same store), unadjusted for footnotes a,

  b and c.

Chris Pappas, President and CEO, made the following remarks, "During the fourth quarter, our customers continued to be impacted by the challenging economic environment, including the unemployment rate rising to its highest level in over twenty years. In order to compete for market share we responded by launching innovative value offerings at attractive price points during the fourth quarter. We believe that in the long run this focus on value will lead to increased customer frequency, as well as enhanced customer goodwill, although bringing down prices negatively impacted our same store sales. As we moved through our fiscal 2010 budgeting process, we evaluated each of our stores and assessed each location's near-term and long-term value potential. As a result, we have made the decision to close certain locations. As you might imagine, this was a difficult decision for us. I would like to personally thank each of our employees affected by this decision for their dedicated service to Luby's. We would also like to express our sincere appreciation for our customers that have frequented these locations, and we hope they will continue to visit our other nearby locations."

In fourth quarter fiscal 2009, the affected locations reported a net loss of approximately $2.5 million and a store-level cash flow loss of approximately $1.5 million. For the entire fiscal year 2009, these affected locations reported a net loss of approximately $5.5 million and store-level cash flow loss of approximately $2.2 million. All but three of the affected units are located on sites owned by the Company. Luby's is in the process of marketing these sites and anticipates they will be sold in an orderly manner over the next 36 months. Once sold, the Company plans to redeploy the capital to continue upgrades to its core base of stores, expand its Culinary Contract Services and position itself for future store growth. In the short term, some of the proceeds from the sale of the closed units may be used to support near-term negative cash flow from operations in order to maintain minimal debt levels.

"By strengthening our core operations, we believe that over time we will be better positioned to return to positive cash flow generation, and thereby grow by redeploying our capital into projects with more attractive rates of return, which will improve our earnings potential," said Pappas.

In concluding his remarks, Pappas said, "Continuing to generate negative cash flow from operations obviously cannot be tolerated. We will be addressing any negative contributors as the current fiscal year unfolds. Hopefully our internal efforts will be bolstered by improving general economic conditions, including employment levels in the Company's markets."

In conjunction with these store closings, Luby's incurred a non-cash, pre-tax $19.0 million impairment charge in the fourth quarter of 2009, related to existing properties, including properties scheduled to close. The closure of these locations will eliminate negative cash flow incurred from their operations, and is estimated to generate approximately $25.0 to $30.0 million in cash from the sale of the properties based on current estimates of individual property values.

During fiscal 2010, the Company also estimates that it will incur approximately $4.0 to 4.6 million in cash expenditures related to the Plan, including: employee severance payments, payment of remaining accounts payable and other liabilities, and other store closure-related costs. Beginning in the first quarter of fiscal 2010, the results of operations from the closed stores will be reclassified to discontinued operations in the statements of operations for all periods presented.

As a result of the asset impairment charge, the Company now has a three-year cumulative pretax loss. Although the Company expects to return to profitability, the Company established a valuation allowance for the portion of its deferred tax assets that it deemed potentially unrealizable. This determination was based on current facts and circumstances and considered the current economic conditions and the inherent uncertainty with long-term projections in such an environment. Going forward the Company will continue to evaluate realization of its deferred tax assets.

In fourth quarter fiscal 2009, Luby's reported a loss from continuing operations of $23.3 million, or $0.83 per share, compared to a loss from continuing operations of $3.7 million, or $0.13 per share, in the same quarter last year. Included in the loss from continuing operations in fiscal 2009 is $0.45 per share due to the non-cash after-tax asset impairment charge and a non-cash charge of $5.1 million, or $0.18 per share, related to a valuation allowance on the Company's deferred tax assets.

Operating Expense Review

Food costs decreased approximately $3.7 million in the fourth quarter fiscal 2009 compared to the same quarter last year, due to a reduction in sales volumes. Food costs as a percentage of restaurant sales increased to 28.8% in the fourth quarter fiscal 2009 from 28.5% in the fourth quarter last year due to lower menu prices primarily as a result of promotional prices ($5.99 LuAnn - 10 of 16 weeks) and discount offerings (Luby's Price Rewind / Buy-one combo get one combo half-off at dinner - 5 of 16 weeks) in this quarter compared to the same quarter last year

Payroll and related costs decreased $2.6 million in the fourth quarter fiscal 2009 compared to the same quarter last year, primarily due to reduced staffing as well as from a reduction in hourly overtime expense. As a percentage of restaurant sales, payroll and related costs increased to 39.2% in the fourth quarter fiscal 2009 from 36.3% in the same quarter last year.

Other operating expenses primarily include restaurant-related expenses for utilities, repairs and maintenance, advertising, insurance, supplies, services, and occupancy costs. Other operating expenses decreased by approximately $3.0 million compared to the same quarter last year, due primarily to: (1) $2.8 million decline in utilities expense, (2) $1.0 million decline in supplies expense and (3) $0.8 million decline in repair and maintenance expense partially offset by $1.0 million increase in advertising expenses and $0.6 million increase in other operating expenses. As a percentage of restaurant sales, other operating expenses increased to 27.0% compared to 26.2% in the same quarter last year, as Luby's continued to invest a greater percentage of sales in advertising and marketing in an effort to increase customer traffic and to enhance brand awareness.

Depreciation and amortization expense increased approximately $0.2 million in the fourth quarter fiscal 2009 compared to the same quarter last year, due to a higher depreciable asset base.

General and administrative expenses include corporate salaries and benefits-related costs, including restaurant area leaders, share-based compensation, professional fees, travel and recruiting expenses and other office expenses. General and administrative expenses decreased by approximately $0.5 million in the fourth quarter of fiscal 2009, compared to the same quarter last year, due to an approximate $0.5 million reduction in corporate salary expense related to lower corporate staffing levels. Further reductions in travel expenses and supplies expense were offset by increases in professional fees and other general and administrative expenses.

Fiscal 2009 Review



  --  Same-store sales declined 8.6% primarily due to declining traffic and

      dining frequency as a result of the challenging economic environment

      and partially due to promotional prices and offerings in the second

      half of the year.

  --  Total Sales declined 7.8% to $292.9 million in fiscal 2009, compared

      to $317.7 million in fiscal 2008.

  --  Luby's Culinary Contract Services business, included in Total Sales,

      generated $13.0 million in sales during fiscal 2009 compared to $8.2

      million in sales during fiscal 2008, a 58.1% increase. During the

      fiscal year, the company added four new facilities to its operations.

  --  Cash flow from operations was $6.2 million in fiscal 2009 compared to

      $17.6 million in fiscal 2008.

  --  Capital expenditures were $12.3 million in fiscal 2009 compared to

      $40.2 million in fiscal 2008, and were primarily for upgrades at

      existing stores and the expansion of our Culinary Contract Services.

      Luby's significantly reduced its capital outlays in fiscal 2009 in

      response to the challenging economic environment.

  --  Income (loss) from continuing operations was a loss of $26.2 million

      in fiscal 2009, compared to income of $2.5 million in fiscal 2008. 

      Included in income (loss) from continuing operations is $19.3 million

      ($12.7 million after-tax) in asset impairment charges in fiscal 2009

      compared to $1.8 million ($1.2 million after-tax) in asset impairment

      charges in the prior year and a non-cash charge of $5.1 million

      related to a valuation allowance on the Company's deferred tax assets.

      As a result of the asset impairment charge, the Company now has a

      three-year cumulative pretax loss. Although the Company expects to

      return to profitability, the Company established a valuation allowance

      for the portion of its deferred tax assets that it deemed was not more

      likely than to be realized.  This determination was based on current

      facts and circumstances and considered the current economic conditions

      and the inherent uncertainty with long-term projections in such an

      environment.  Going forward the Company will continue to evaluate

      realization of its deferred tax assets..



  --  Store level profit, defined as restaurant sales minus costs of food,

      payroll and related costs and other operating expenses, decreased to

      10.7% in fiscal 2009 compared to 13.5% in fiscal 2008.

Outlook

The Company anticipates that any improvement in restaurant sales will lag the broader economic recovery that economists project to begin taking place in calendar year 2010. For Luby's to see any material improvements in its same store sales at its retail units, it will take a change in consumer confidence in its areas of operation. The Company currently does not see any signs of improvement in that trend for the 2010 fiscal year. Luby's will continue to offer customers competitive price points to promote customer frequency, however, it does not anticipate that profit improvements are probable in our fiscal 2010 at most units, thus a net loss from continuing operations is expected in 2010.

The Company's 25 unit closure plan includes the following components: (1) the closure and sale of a number of the company's under-performing assets as well as assets for relocation; (2) focus on sales development, labor productivity, as well as food and operating cost management at the remaining core locations; (3) increase emphasis on the expansion of Luby's Culinary Contract Services. All components of this action plan are designed to position the Company to operate more effectively in the current restaurant and food service management environment.

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