Luby's Reports Second Quarter Fiscal 2010 Results

Chris Pappas, President and CEO, made the following remarks: "During the second quarter, we continued to focus our attention on building customer frequency and on cost controls as part of our Cash Flow Improvement and Capital Redeployment Plan that we put in place at the beginning of this fiscal year. That plan and the determination and efforts of our team have put us on the right path to weather this challenging environment. We have strengthened our core store base, streamlined our operations and are continuing to find better and more efficient ways to serve our customers."  

"Consumers continue to spend their income judiciously. In order to encourage them to return to Luby's more often, we have launched and expanded numerous value promotions. Many of these promotions have been instituted on a market-by-market basis, specifically targeted at the customers in each specific area. This has also given us the opportunity to test the results of the various local initiatives, allowing us to expand the most successful ones."  

"The second quarter is seasonally our strongest quarter. For many families, Thanksgiving in Texas means a fresh cooked meal from Luby's. Due to tough economic conditions we lowered our prices this year and, once again, we served over a quarter-of-a-million pounds of turkey, one-hundred thousand quarts of corn bread dressing, and over eighty-thousand pumpkin and pecan pies.  Due to the success of our Thanksgiving offerings, we made the decision to open 15 of our restaurants on Christmas. We served over 15,000 meals on that day and, more importantly, continued to build our enduring ties with our customers."

In concluding his remarks, Pappas said, "As always, we are focused on maintaining a strong balance sheet. We ended the second quarter with no debt on our balance sheet, over $750,000 in cash and $18.4 million in availability under our credit facility. "

Operating Expense Review

Food costs decreased approximately $2.2 million in the second quarter fiscal 2010 compared to the same quarter last year, due primarily to a reduction in sales volumes. Food costs as a percentage of restaurant sales declined to 27.4% in the second quarter fiscal 2010 from 27.6% in the comparable quarter last year primarily due to lower commodity costs and operational improvements in food production and menu management, partially offset by lower menu prices.  

Payroll and related costs decreased $2.0 million in the second quarter fiscal 2010 compared to the same quarter last year, primarily due to increased efficiencies in crew scheduling, lower crew overtime, and a reduction in management costs partially offset by higher average wages paid to crew employees. As a percentage of restaurant sales, payroll and related costs increased to 35.6% in the second quarter fiscal 2010 from 34.4% in the same quarter last year primarily due to the decline in restaurant sales.

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 $0.8 million compared to the same quarter last year, due primarily to an approximate $0.8 million reduction in utility expense and an approximate $0.3 million reduction in supplies and other operating expenses. These savings were partially offset by approximately $0.3 million higher repairs and maintenance expenses. As a percentage of restaurant sales, other operating expenses increased to 21.2% compared to 19.8% in the same quarter last year.

Depreciation and amortization expense declined approximately $0.1 million in the second quarter fiscal 2010 compared to the same quarter last year, due to a slightly lower depreciable asset base reflecting reduced capital spending and certain assets reaching the end of their depreciable lives.

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 $0.6 million in the second quarter of fiscal 2010 compared to the same quarter last year primarily due to a $0.8 million decrease in corporate salary and benefit expense as a result of reductions in corporate support headcount, partially offset by higher professional fees.  

Fiscal Year-to-Date Review

• Same-store sales declined 12.9%.
• Total sales declined 13.2% to $105.5 million in the first two quarters of fiscal 2010, compared to $121.5 million in the comparable period of fiscal 2009.
• Luby's Culinary Contract Services business, included in Total sales, generated $6.3 million in sales during the first two quarters of fiscal 2010 compared to $6.0 million in sales during the comparable period of fiscal 2009, a 3.6% increase.
• Loss from continuing operations for the first two quarters of fiscal 2010 was $2.8 million, compared to a loss of $0.3 million in fiscal 2009.
• Pre-tax loss from continuing operations for first two quarters of fiscal 2010 was $3.4 million, compared to a loss of $0.4 million in fiscal 2009.
• Store level profit decreased to 13.3% in the first two quarters of fiscal 2010 compared to 15.3% in the comparable period of fiscal 2009.

Outlook

The Company has not changed its outlook for its 2010 fiscal year since it released its first quarter results on December 17, 2009. It continues to anticipate that any improvement in restaurant sales will lag the broader economic recovery that is 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 significant profit improvements are probable without significant guest traffic increases in fiscal 2010 at most retail units.  Thus a net loss from continuing operations is expected in 2010 at this time.

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