Luby's, Inc.
Q1 2020 Earnings Call Transcript

Published: 3 Feb 2020

[Operator:]

Greetings and welcome to the Luby’s Fiscal 2020 First Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.It is now my pleasure to introduce your host, Steve Goodweather, Vice President of Finance and Investor Relations. Thank you Mr. Goodweather, you may begin.

[Steve Goodweather:]

Thank you. And again welcome everyone to Luby’s 2020 fiscal first quarter earnings conference call. This call is also being webcast and can be accessed through the audio link on Luby’s website lubysinc.com. Information recorded on this call speaks only as of today, February 3, 2020.Before we continue, I would like to remind you that the statements in this discussion may include forward-looking statements. Such statements include risks and uncertainties, including but not limited to, general business conditions, the impact of competition, success of operating initiatives, changes in commodity costs and supply of food and labor as well as seasonality of the Company’s business, taxes, inflation, governmental regulations and availability of credit as well as other risks and uncertainties disclosed in the Company’s periodic reports on Forms 10-K and Forms 10-Q.With that, I would now like to turn the call over to Luby’s President and CEO, Chris Pappas. Chris?

[Chris Pappas:]

Good morning and thank you Steve. Everyone thank you for joining us on today’s conference call. While our management team is focusing on initiatives that we've discussed on previous conference calls, I'm going to provide you with a brief update on the status of the company during the first quarter.Our financial results in the first quarter were far below levels we need to stabilize the company. These results are not acceptable. While the first quarter typically always represents our lowest sales quarter seasonally, we still must further rightsize, our cost structure to fit our smaller store base and the losses and reduce our debt and end the losses.A year ago, we spoke about changes we needed to make including management leadership, refreshment and improvement in guest traffic and sales and a significant reduction in our G&A expenses. These have all been priorities.Since then, we've changed out our COO added a new VP of information technology, and a new VP of Marketing, in addition to many restaurant and corporate level positions. At the board level in the past 12 months, three new independent directors were added, three directors retired.The board also appointed a new independent Chairman, and the Board of Directors formed a new special committee comprised of six independent directors to evaluate strategic alternatives to maximize shareholder value. The committee has engaged financial advisors to assist with this evaluation and is conducting a thorough strategic review process.In the first quarter, guest traffic increased at both brands with Luby's up 2% and Fudds up 2.7%. This increase in traffic led to growth in same-store sales also. Our same-store sales increased 1.7%. However, at the restaurant level, despite improving guest traffic and same-store sales, commodity and labor cost increases offset much of the benefit of traffic and sales growth.The cost of food commodities rose dramatically contributing to food costs increase of about 1.2% of restaurant sales and labor costs have gone up at the highest pace we have seen in years. In regard to SG&A, we're transitioning portions of our accounting, payroll, operational reporting, and other back office functions to a leading multi-unit restaurant outsourcing firm.We expect to complete that process by the end of March. After the implementation costs, we expect to realize cost savings and enhanced capabilities in future quarters. Overall SG&A expenses increased slightly in the quarter by $148,000, compared to last year.However, this included an increase of approximately $700,000 in marketing and advertising spend, reflecting our increased investment for various digital media advertising, increased advertising support, leading into Thanksgiving and other efforts to reach our guests in an effective manner, as compared to the first quarter last year, when marketing and advertising efforts were reduced 12 new approaches were developed.Also, first quarter last year were including an approximate $300,000 de-recognition of a bonus accrual. So, if you strip out those 2 items, our core general administrative expenses, that is the salaries and benefits outside of professional fees and service fees and travel and occupancy and other general overhead costs actually decreased by about $800,000.During the first quarter, our capital expenditures decreased to $700,000, compared to $1.1 million in the same quarter last year. While working to return to profitability, we expect CapEx to remain at recent low levels. We ended the first quarter on December 18, 2019 with net debt of approximately $38.6 million.We continue to manage our debt levels through asset sales. We reported a loss from continuing operation in the first quarter of $8.3 million compared to a loss of $7.5 million in the first quarter last year. However, we are managed the business to improve cash flow. On a cash flow basis, we used approximately $2.1 million in cash from operating activities.Of that amount approximately $2 million was used for restructuring expenses and other changes in working capital. We also spent another $700,000 for capital expenditures to maintain the restaurants. So in the quarter, we had a net cash flow of about $3 million and borrowing of about the same magnitude.It's this measure while it is keeping a real tight focus on. We continue to focus on initiatives that we began last year, including this restaurant focus on delivering a compelling, everyday value proposition to guess at both Luby's and Fuddruckers with less discounting, but clarifying each brand's value offerings in the marketplace, we intend to drive guest traffic and sales.Before ending the call today, I'd like to mention that while stabilizing the operations and financial performance of the company has been difficult. We recognize the outstanding quality, hard work and dedication of our entire organization from top to bottom, giving their all to improve the company.At the restaurant level, managers and restaurant team members are working hard to maintain and build value by consistently delivering great guest experiences. They are one of our greatest brand assets and I applaud their hard work. And likewise, our corporate employees are tirelessly working to implement cost saving measures and efficiencies.I believe we have the right team and leadership in place to continue to make progress on our plans to improve results. We'll be hosting our Annual Shareholder Meeting on February 5. And we look forward to seeing many of you at that meeting. I'd like to thank you for joining us today on the call.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.