Luby's Results

Luby's Reports Third Quarter Fiscal 2017 Results

Same-store sales decreased 2.7% compared to third quarter fiscal 2016, which also represented an improvement sequentially compared to the second quarter fiscal 2017

Luby's

Luby's, Inc. (NYSE:  LUB) yesterday announced unaudited financial results for its twelve-week third quarter fiscal 2017, which ended on June 7, 2017. Comparisons in this earnings release for the third quarter fiscal 2017 are referred to as "third quarter."

Third Quarter Key Metrics

  • Same-store sales decreased 2.7% compared to third quarter fiscal 2016, which also represented an improvement sequentially compared to the second quarter fiscal 2017 
  • Culinary Contract Services opened three new locations contributing approximately $1.0 million of revenue in the third quarter 
  • Retail product sales generated approximately $0.4 million in revenue in the third quarter 
  • Fuddruckers opened its newest company-owned location with first self-order kiosks near The Woodlands, Texas
  • Capital expenditures decreased $1.2 million in the third quarter compared to the third quarter fiscal 2016 

Chris Pappas, President and CEO, commented, "In the third quarter, our team continued to exercise solid cost controls and reduce capital expenditures as previously planned, despite persistent economic and restaurant industry pressures that challenged same-store sales results. At our core brands, Luby's Cafeterias and Fuddruckers, same-store sales improved sequentially, but reported declines of 2.5% and 0.9%, respectively, for the third quarter compared to the same period last year. 

During the quarter, we were pleased with the addition of three new Culinary Contact Services locations which contributed over $1.0 million in revenue for this segment. In addition, retail product sales added $0.4 million in revenue in the third quarter. We also opened a new company-operated Fudduckers location near The Woodlands, Texas, with our first self-order kiosks."

Same-Store Sales Year-Over-Year Comparison

 

Quarter Ended

Three Quarters

Ended

December 21,

 2016

March 15,

 2017

June 7,

 2017

June 7,

 2017

Q1

2017(3)

Q2

2017(3)

Q3

2017(3)

YTD Q3

2017(3)

(16 weeks vs 16 weeks)

(12 weeks vs 12 weeks)

(12 weeks vs 12 weeks)

(40 weeks vs 40 weeks)

Luby's Cafeterias

(2.2)%

(4.4)%

(2.5)%

(2.9)%

Fuddruckers

(1.6)%

(1.1)%

(0.9)%

(1.2)%

Combo locations (1)

(2.3)%

(6.5)%

(5.5)%

(4.7)%

Cheeseburger in Paradise

(7.8)%

(7.3)%

(9.8)%

(8.4)%

Total same-store sales (2)

(2.3)%

(3.8)%

(2.7)%

(2.9)%

 

(1)

Combo locations consist of a side-by-side Luby's Cafeteria and Fuddruckers Restaurant at one property location.

(2)

Luby's includes a restaurant's sales results into the same-store sales calculation in the quarter after that store has been open for six complete consecutive quarters. In the third quarter, there were 84 Luby's Cafeterias locations, 62 Fuddruckers locations, all six Combo locations, and all eight Cheeseburger in Paradise locations that met the definition of same-stores. 

(3)

Q1 2017, Q2 2017, Q3 2017, and YTD Q3 Fiscal  2017 same-store sales reflect the change in restaurant sales for the locations included in the same-store grouping for each of the comparable periods.

Third Quarter Restaurant Sales: 

($ thousands)

 

Quarter Ended

Restaurant Brand

June 7,

 2017

June 1,

 2016

Change

($)

Change

(%)

(12 weeks)

(12 weeks)

(12 weeks vs 12 weeks)

Luby's Cafeterias

$

49,746

$

51,808

$

(2,062)

(4.0)%

Fuddruckers

23,713

24,790

(1,077)

(4.3)%

Combo locations

4,988

5,280

(292)

(5.5)%

Cheeseburger in Paradise

4,147

4,598

(451)

(9.8)%

Total Restaurant Sales

$

82,594

$

86,476

$

(3,882)

(4.5)%

 

  • Luby's Cafeterias sales decreased $2.1 million versus the third quarter fiscal 2016, due to the closure of three locations over the prior year and a 2.5% decrease in Luby's same-store sales. The decrease was the result of a 7.1% decrease in guest traffic partially offset by a 4.6% increase in average spend per guest primarily due to a modest price increase and reduced discounting. We made a tactical discounting decision last year to promote our brand through BOGO ("buy one get one free") offers, which we estimate increased guest traffic by approximately 2.9% in the third quarter fiscal 2016. 
  • Fuddruckers sales at company-owned restaurants decreased $1.1 million versus the third quarter fiscal 2016, due to five restaurant closings over the prior year and a 0.9% decrease in same-store sales, offset by the opening of one company-owned Fuddruckers location. The 0.9% decrease in same-store sales was the result of a 5.6% decrease in guest traffic offset by a 4.7% increase in average spend per guest. 
  • Combo location sales decreased $0.3 million and represented 6.0% of total restaurant sales in the third quarter. Approximately 70% of the decline in sales occurred at one Combo location. Two of the six Combo locations increased sales by 5.5% and 1.2%, respectively. 
  • Cheeseburger in Paradise sales decreased $0.5 million, or 9.8%. 
  • Store level profit, defined as restaurant sales plus vending revenue less cost of food, payroll and related costs, other operating expenses, and occupancy costs, was $11.6 million, or 14.0% of restaurant sales, in the third quarter compared to $13.0 million, or 15.0% of restaurant sales, during the third quarter fiscal 2016. While cost controls were more efficient in labor scheduling, food cost management and lower restaurant supplies costs, an increase in certain restaurant services costs and utilities expense with lower overall sales volumes, led to the decrease in store level profitability. Store level profit is a non-GAAP measure, and reconciliation to loss from continuing operations is presented after the financial statements. 
  • Culinary Contract Services revenues increased $0.6 million to $4.5 million with 25 operating locations during the third quarter. Culinary Contract Services benefited from the opening of four locations over the prior year, adding over $1.0 million in revenue in the third quarter, and from retail product sales that added $0.4 million in revenue in the third quarter. These new sources of revenue were partially offset by the closure of six locations over the prior year. Culinary Contract Services profit margin decreased to 7.1% of Culinary Contract Services sales in the third quarter compared to 9.2% in the third quarter fiscal 2016. 
  • Franchise revenue decreased $109 thousand, or 6.9%, in the third quarter compared to the third quarter fiscal 2016. In the third quarter, franchisees closed two locations (one in Maryland and one in the Dominican Republic). Domestic same-store Fuddruckers franchise sales decreased 4.0% in the third quarter compared to the third quarter fiscal 2016. 
  • Loss from continuing operations was $0.4 million, or a loss of $0.01 per diluted share, compared to a loss of $0.1 million, or a loss of $0.01 per diluted share, in the third quarter fiscal 2016. Excluding special non-cash items, loss from continuing operations was $0.7 million, or a loss of $0.02 per diluted share, in the third quarter compared to a loss of $6 thousand, or $0.00 per diluted share, in the third quarter fiscal 2016. Loss from continuing operations, excluding special items, is a non-GAAP measure, and reconciliation to loss from continuing operations is presented below.

Reconciliation of loss from continuing operations to loss from continuing operations, before special items (1,2):

 

Q3 FY2017

Q3 FY2016

Item

Amount ($000s)

Per Share

($)

Amount ($000s)

Per Share

($)

Loss from continuing operations

$

(377)

$

(0.01)

$

(147)

$

(0.01)

Net loss (gain) on disposition of property and equipment, and provision for asset impairments and restaurant closings, net

445

0.02

141

0.01

Fair value adjustment to performance awards liability

(772)

(0.03)

Loss from continuing operations, before special items

$

(704)

$

(0.02)

$

(6)

$

(0.00)

 

(1)

We use income (loss) from continuing operations, before special items, in analyzing results, which is a non-GAAP financial measure. This information should be considered in addition to the results presented in accordance with GAAP, and should not be considered a substitute for the GAAP results. Luby's has reconciled loss from continuing operations, before special items, to loss from continuing operations, the nearest GAAP measure in context.

(2)

Per share amounts are per diluted share after tax (adjustments assume an effective 34% tax rate).

Balance Sheet and Capital Expenditures

We ended the third quarter with a debt balance outstanding of $40.4 million, up from $37.0 million at the end of fiscal 2016. During the third quarter, our capital expenditures decreased to $2.2 million compared to $3.4 million in the third quarter fiscal 2016. At the end of the third quarter, we had $1.3 million in cash and $147.8 million in total shareholders' equity.

Restaurant Counts:

 

August 31,

2016

FY17 YTD Q3

Openings

FY17 YTD Q3

Closings

June 7,

 2017

Luby's Cafeterias(1)

91

(2)

89

Fuddruckers Restaurants(1)

75

1

(4)

72

Cheeseburger in Paradise

8

8

Other restaurants(2)

1

1

Total

175

1

(6)

170

 

(1)

Includes 6 restaurants that are part of Combo locations

(2)

Other restaurants include one Bob Luby's Seafood Grill

About Luby's

Luby's, Inc. (NYSE:  LUB) operates 169 restaurants nationally as of July 12, 2017: 89 Luby's Cafeterias, 71 Fuddruckers, eight Cheeseburger in Paradise and one Bob Luby's Seafood Grill. Luby's is the franchisor for 113 Fuddruckers franchise locations across the United States (including Puerto Rico), Canada, Mexico, Italy, the Dominican Republic, Panama, and Colombia. Additionally, a licensee operates 34 restaurants with the exclusive right to use the Fuddruckers proprietary marks, trade dress, and system in certain countries in the Middle East. The Company does not receive revenue or royalties from these Middle East restaurants. Luby's Culinary Contract Services provides food service management to 25 sites consisting of healthcare and corporate dining locations.

Luby's, Inc.

Consolidated Statements of Operations (unaudited)

(In thousands, except per share data)

Quarter Ended

Three Quarters Ended

June 7,

 2017

June 1,

 2016

June 7,

 2017

June 1,

 2016

(12 weeks)

(12 weeks)

(40 weeks)

(40 weeks)

SALES:

Restaurant sales

$

82,594

 

$

86,476

 

$

271,741

 

$

286,336

Culinary contract services

4,515

 

3,892

 

12,117

 

12,726

Franchise revenue

1,477

 

1,586

 

5,167

 

5,411

Vending revenue

133

 

143

 

417

 

437

TOTAL SALES

88,719

 

92,097

 

289,442

 

304,910

COSTS AND EXPENSES:

Cost of food

22,922

24,221

76,353

81,256

Payroll and related costs

29,519

30,748

97,486

100,007

Other operating expenses

13,796

13,572

47,207

45,728

Occupancy costs

4,923

5,065

16,720

17,242

Opening costs

134

117

431

688

Cost of culinary contract services

4,194

3,534

10,966

11,476

Cost of franchise operations

361

441

1,378

1,480

Depreciation and amortization

4,639

5,304

15,977

17,538

Selling, general and administrative expenses

6,764

9,227

29,531

32,312

Provision for asset impairments and restaurant closings

869

172

7,120

209

Net loss (gain) on disposition of property and equipment

(195)

42

219

(793)

Total costs and expenses

87,926

92,443

303,388

307,143

INCOME (LOSS) FROM OPERATIONS

793

(346)

(13,946)

(2,233)

Interest income

3

5

3

Interest expense

(569)

(482)

(1,898)

(1,674)

Other income (expense), net

(173)

88

(312)

(2)

Income (loss) before income taxes and discontinued operations

54

(740)

(16,151)

(3,906)

Provision (benefit) for income taxes

431

(593)

2,576

(1,438)

Loss from continuing operations

(377)

(147)

(18,727)

(2,468)

Income (loss) from discontinued operations, net of income taxes

(19)

13

(434)

(77)

NET LOSS

$

(396)

 

$

(134)

 

$

(19,161)

 

$

(2,545)

Loss per share from continuing operations:

Basic

$

(0.01)

 

$

(0.01)

 

$

(0.64)

 

$

(0.09)

Assuming dilution

$

(0.01)

 

$

(0.01)

 

$

(0.64)

 

$

(0.09)

Income (loss) per share from discontinued operations:

Basic

$

(0.00)

 

$

0.00

 

$

(0.01)

 

$

(0.00)

Assuming dilution

$

(0.00)

 

$

0.00

 

$

(0.01)

 

$

(0.00)

Net loss per share:

Basic

$

(0.01)

 

$

(0.01)

 

$

(0.65)

 

$

(0.09)

Assuming dilution

$

(0.01)

 

$

(0.01)

 

$

(0.65)

 

$

(0.09)

Weighted average shares outstanding:

Basic

29,536

29,259

29,453

29,207

Assuming dilution

29,536

29,259

29,453

29,207

The following table contains information derived from the Company's Consolidated Statements of Operations expressed as a percentage of sales. Percentages may not total due to rounding.

 

Three Quarters Ended

March 15,

 2017

March 9,

 2016

June 7,

 2017

June 1,

 2016

(12 weeks)

(12 weeks)

(40 weeks)

(40 weeks)

Restaurant sales

93.1

%

93.9

%

93.9

%

93.9

%

Culinary contract services

5.1

%

4.2

%

4.2

%

4.2

%

Franchise revenue

1.7

%

1.7

%

1.8

%

1.8

%

Vending revenue

0.1

%

0.2

%

0.1

%

0.1

%

TOTAL SALES

100.0

%

100.0

%

100.0

%

100.0

%

COSTS AND EXPENSES:

(As a percentage of restaurant sales)

Cost of food

27.8

%

28.0

%

28.1

%

28.4

%

Payroll and related costs

35.7

%

35.6

%

35.9

%

34.9

%

Other operating expenses

16.7

%

15.7

%

17.4

%

16.0

%

Occupancy costs

6.0

%

5.9

%

6.2

%

6.0

%

Vending revenue

(0.2)

%

(0.2)

%

(0.2)

%

(0.2)

%

Store level profit

14.0

%

15.0

%

12.7

%

14.9

%

(As a percentage of total sales)

Marketing and advertising expenses

0.9

%

1.2

%

1.6

%

1.4

%

General and administrative expenses

6.7

%

8.8

%

8.6

%

9.2

%

Selling, general and administrative expenses

7.6

%

10.0

%

10.2

%

10.6

%

INCOME (LOSS) FROM OPERATIONS

0.9

%

(0.4)

%

(4.8)

%

(0.7)

%

 

Luby's, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

June 7,

 2017

August 31,

 2016

(Unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

1,326

$

1,339

Trade accounts and other receivables, net

6,380

5,919

Food and supply inventories

4,528

4,596

Prepaid expenses

3,894

3,147

Assets related to discontinued operations

1

Deferred income taxes

176

540

   Total current assets

16,304

15,542

Property held for sale

3,614

5,522

Assets related to discontinued operations

2,817

3,192

Property and equipment, net

182,084

193,218

Intangible assets, net

19,968

21,074

Goodwill

1,068

1,605

Deferred income taxes

6,737

8,738

Other assets

2,623

3,334

Total assets

$

235,215

$

252,225

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Accounts payable

$

14,741

$

17,539

Liabilities related to discontinued operations

394

412

Current portion of credit facility debt

613

Accrued expenses and other liabilities

24,902

23,752

   Total current liabilities

40,650

41,703

Credit facility debt, less current portion

39,520

37,000

Liabilities related to discontinued operations

16

17

Other liabilities

7,234

7,752

   Total liabilities

$

87,420

$

86,472

Commitments and Contingencies

SHAREHOLDERS' EQUITY

Common stock, $0.32 par value; 100,000,000 shares authorized; shares issued were 29,591,836 and 29,440,041, respectively; shares outstanding were 29,091,836 and 28,940,041, respectively

9,469

9,421

Paid-in capital

31,503

30,348

Retained earnings

111,598

130,759

Less cost of treasury stock, 500,000 shares

(4,775

(4,775

   Total shareholders' equity

147,795

165,753

Total liabilities and shareholders' equity

$

235,215

$

252,225

 

Luby's, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

Three Quarters Ended

June 7,

 2017

June 1,

 2016

(40 weeks)

(40 weeks)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$

(19,161)

$

(2,545)

Adjustments to reconcile net loss to net cash provided by operating activities:

Provision for asset impairments and net (gains) on property sales

7,338

(609)

Depreciation and amortization

15,977

17,555

Amortization of debt issuance cost

316

255

Share-based compensation expense

1,203

1,143

Deferred tax provision (benefit)

2,922

(1,983

Cash provided by operating activities before changes in operating assets and liabilities

8,595

13,816

Changes in operating assets and liabilities:

Increase in trade accounts and other receivables

(460)

(967)

Decrease (Increase) in food and supply inventories

68

(516

Increase in prepaid expenses and other assets

(5)

(614)

Decrease in accounts payable, accrued expenses and other liabilities

(4,522)

(311)

Net cash provided by operating activities

3,676

11,408

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from disposal of assets and property held for sale

3,640

4,308

Decrease in notes receivable

17

Purchases of property and equipment

(10,114)

(14,358)

Net cash used in investing activities

(6,474)

(10,033)

CASH FLOWS FROM FINANCING ACTIVITIES:

Revolver borrowings

94,400

77,900

Revolver repayments

(122,900)

(79,400)

Proceeds from term loan

35,000

Term loan repayments

(3,063)

Debt issuance costs

(652)

(42)

Proceeds received on the exercise of employee stock options

75

Net cash provided by (used in) financing activities

2,785

(1,467)

Net decrease in cash and cash equivalents

(13)

(92)

Cash and cash equivalents at beginning of period

1,339

1,501

Cash and cash equivalents at end of period

$

1,326

$

1,409

Cash paid for:

Income taxes

$

$

Interest

1,228

1,368

Although store level profit, defined as restaurant sales plus vending revenue, less cost of food, payroll and related costs, other operating expenses, and occupancy costs is a non-GAAP measure, we believe its presentation is useful because it explicitly shows the results of our most significant reportable segment.   The following table reconciles between store level profit, a non-GAAP measure to loss from continuing operations, a GAAP measure:

 

Quarter Ended

Three Quarters Ended

June 7,

 2017

June 1,

 2016

June 7,

 2017

June 1,

 2016

(12 weeks)

(12 weeks)

(40 weeks)

(40 weeks)

Store level profit

$

11,567

 

$

13,013

 

$

34,392

 

$

42,540

Plus:

Sales from culinary contract services

4,515

3,892

12,117

12,726

Sales from franchise operations

1,477

1,586

5,167

5,411

Less:

Opening costs

134

117

431

688

Cost of culinary contract services

4,194

3,534

10,966

11,476

Cost of franchise operations

361

441

1,378

1,480

Depreciation and amortization

4,639

5,304

15,977

17,538

Selling, general and administrative expenses

6,764

9,227

29,531

32,312

Provision for asset impairments and restaurant closings

869

172

7,120

209

Net loss (gain) on disposition of property and equipment

(195)

42

219

(793)

Interest income

(3)

(5)

(3)

Interest expense

569

482

1,898

1,674

Other income (expense), net

173

(88)

312

2

Provision (benefit) for income taxes

431

(593)

2,576

(1,438)

Loss from continuing operations

$

(377)

 

$

(147)

 

$

(18,727)

 

$

(2,468)

Adjusted EBITDA

Adjusted EBITDA is defined as income (loss) from continuing operations before interest, provision (benefit) for income taxes and depreciation and amortization and excluding net gain (loss) on disposing of property and equipment, provision for asset impairments and restaurant closings, non-cash compensation expense, franchise taxes, and decrease / (increase) in fair value of derivatives.

Adjusted EBITDA is intended as a supplemental measure of our performance that is not required by, or presented in accordance with GAAP. We believe Adjusted EBITDA  provides useful information to management and investors in valuing the Company and evaluating ongoing operating results and trends and in comparing our results to other competitors. Our management uses Adjusted EBITDA in evaluating management's performance when determining incentive compensation.

Adjusted EBITDA, as defined, may not be comparable to other similarly titled measures as computed by other companies. These measures should be considered supplemental and not a substitute or superior to other GAAP performance measures.

 

($ thousands)

Quarter Ended

Three Quarters Ended

June 7,

 2017

June 1,

 2016

June 7,

 2017

June 1,

 2016

(12 weeks)

(12 weeks)

(40 weeks)

(40 weeks)

Loss from continuing operations

$

(377)

$

(147)

$

(18,727)

$

(2,468)

Depreciation and amortization

4,639

5,304

15,977

17,538

Provision (benefit) for income taxes

431

(593)

2,576

(1,438)

Interest expense

569

482

1,898

1,674

Interest income

(3)

(5)

(3)

Net loss (gain) on disposition of property and equipment

(195)

42

219

(793)

Provision for asset impairments and restaurant closings

869

172

7,120

209

Non-cash compensation expense (benefit)

(584)

425

874

1,594

Franchise Taxes

49

42

146

139

Decrease in Fair Value of Derivative

176

221

Adjusted EBITDA

$

5,574

$

5,727

$

10,299

$

16,452



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