Luby's, Inc.
Q1 2019 Earnings Call Transcript

Published: 28 Jan 2019

[Operator:]

Greetings and welcome to Luby’s Fiscal 2019 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Goodweather, Vice President, Financial Planning and Analysis. Thank you, sir. You may begin.

[Steve Goodweather:]

Thank you and again welcome everyone to Luby’s 2019 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, January 28, 2019. Before we continue, I would like to remind you that the statements in this discussion, including statements made during the question-and-answer session regarding Luby’s future financial and operating results are forward-looking statements. Those 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 like to now turn the call over to Luby’s President and CEO, Chris Pappas.

[Chris Pappas:]

Thanks, Steve. Good morning, everyone and thank you all for joining us on today’s conference call. I will begin with an update on the quarter and our turnaround plan followed by a recap of our annual shareholder meeting that was held on Friday. I will then turn the call over to our COO, Todd Coutee followed by remarks of our CFO, Scott Gray. We continue to navigate through a challenging competitive environment during the first quarter and experienced pressure on the top line with a 3% same-store sales decline at our Cafeteria brand and a 5.5% same-store sales decline in total company sales. However, our Culinary Contract Service business remained strong and we increased sales in the first quarter by $2.6 million to $9.5 million, which represents a 10.4% of sales in the first quarter of 2018 versus 6.6% in the prior year quarter. From an expense perspective, we reduced our food and operating cost at a greater percentage than the sales declined. In addition, we have taken substantial actions to restructure our corporate overhead that will result in more than a $3 million savings in selling, G&A, administrative costs. We know we have a lot of work to do. While sales pressures persist, we continue to make progress on a turnaround plan to generate consistent and sustainable same-store sales growth and improve store profitability, all with a goal of increasing strong shareholder value. The four pillars of our strategic plan include

[Todd Coutee:]

Thank you, Chris. I am pleased to join the call today. Since I last spoke with you, I have been hard at work realigning our organization by getting the right people in the right positions, coaching our restaurant managers and inspiring our frontline employees by setting the right tone and leading by example. In just a few months, I have witnessed positive changes in all aspects of our operations, but particularly with staff engagement with our guests. As we work on repositioning our brands, our marketing team is utilizing more measurable, digital marketing campaigns in conjunction with traditional media outlets. Our intention is to highlight the differentiation with respect to our competitors. Within our Luby’s Cafeteria business, we continue to provide guests convenient, great tasting, home style meals at an excellent value in a comfortable environment. We have an intense focus on product execution and menu innovation in order to keep our Texas comfort food up on trends. Luby’s Culinary Services, our contract food service brand continues to be an amenity to healthcare, senior living communities and corporate dining facilities along with sales through our retail grocery outlets. Fuddruckers remains a strong brand. We plan to re-franchise many of our company-owned Fuddruckers as we transition to a primarily franchise model, while retaining company-owned stores in our core market of Houston. I am excited to be working alongside Chris with our executive team and most importantly, our dedicated team members and loyal guests. With that, I would like to turn the call over to our CFO, Scott Gray. Scott?

[Scott Gray:]

Thank you, Todd. And before I begin, I just want to give extended thanks to all of our employees who we serve and who represent our team here at Luby’s Inc. for their dedication, their efforts and their trust. Just prior to the end of our first fiscal quarter 12/19/2018, we completed our debt refinancing that Chris mentioned. This funding provides the company the necessary liquidity as we execute on our turnaround plans to enhance our operating performance. The new debt agreement with MSD Partners, which is Michael Dell Partners, is comprised of three elements

[Chris Pappas:]

Thank you, Scott. Here at Luby’s we believe that right team and leadership is in place to grow our sales and margin, improve our corporate costs, reduce our debt and enhance our returns. Each step we are taking is with the goal of returning to profitability. With that, operator, we are now open for questions. Thank you.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from George Green, a Private Investor. Please proceed with your question.

[George Green:]

In the $80 million credit facility with MSD Partners, what was the evaluation that MSD used of Luby’s real estate?

[Chris Pappas:]

In regard to that, I am not sure where they were showing that in the credit facility. I don’t think it’s not disclosed in the credit facility and it’s something that we don’t disclose to the public.

[George Green:]

In what way would it harm Luby’s or Luby’s shareholders if the estimate of Luby’s real estate valuation either by Luby’s or by MSD Partners was made available to Luby’s shareholders?

[Chris Pappas:]

It’s just a practice that we have chosen over the years. We are running the business as a operating company and such and we believe the value is driven and looked at oftentimes that the value is looking at is how we are operating as a company.

[George Green:]

No further questions. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Soraya Benitez with Cougar Capital. Please proceed with your question.

[Soraya Benitez:]

Hi. Thanks for taking the question. Just two quick ones from me. One on the maintenance CapEx that you say you plan to leave at sort of the $1 million level. I am just curious how many of the Luby’s Cafeteria or any of the other brands need remodeling? How old is that sort of remodel life? And at what point might you need to sort of raise it from that level? How much flexibility do you have is my first question?

[Chris Pappas:]

Thank you for your call today. The maintenance CapEx that we show, I believe it’s…

[Scott Gray:]

It’s $1.1 million a quarter.

[Chris Pappas:]

$1.1 million and we have an amount that’s kind of estimate for the year. We have estimated that $8 million – to be less than $8 million in the high side and that would be going towards just the normal repairs that are capitalized and such air conditioners and things that are multiyear write-off that have to be capitalized. Over and above that, we have the right to go ahead and do some remodeling and such like that if we need to and those steps would raise that number up above…

[Scott Gray:]

Yes, we are primarily focused on trying to increase the operating – the cash flows from operations where we then we can start remodeling it.

[Chris Pappas:]

Right, right. And over the years, we have attended to a lot of that updating as well that we felt like was just purely necessary to being over and above the normal run-rate of things that needed to get repaired that were capitalized. So we have done a lot of that over the years. And it would be nice to do some more of it, but at this time, current situation, we are going to focus on maintaining a little more level that would just take care of most of the day-to-day capital, but normal capital expenditures that fall in this range that we have described.

[Soraya Benitez:]

Thank you. And then just on the marketing, I think you said it in your comments a little bit earlier as you were talking about these pretty mature brands in a pretty competitive environment. I am just curious to know, what specifically are you doing in marketing, I mean, it sounds to me you are doing a lot of controlling, a lot of the controllables within your P&L. My question would be just to sort of stem the hemorrhaging and the decreases in traffic, what exactly – how do you exactly plan to stop that hemorrhaging?

[Chris Pappas:]

Thank you. Todd who wants to speak to our marketing side?

[Todd Coutee:]

Yes. In respect to Luby’s, we are going to work on connecting the brand back to Texans. We are going to talk about our food in terms of being Texas comfort food. We are going to talk about all of our local partners in Texas. We are going to look at towns we have been in the past of course as a brand and used the normal medians of advertising billboards, potentially some television. We are also looking heavy at digital campaigns to talk about Luby’s and Fuddruckers in regards to how we differentiate ourselves with the guests ability to build their own special burger as well as we are working on some more market trend burgers in different varieties.

[Soraya Benitez:]

Okay. One last one from me, so you have this one outlying Cheeseburger in Paradise sort of chain, is it the drag on the P&L? What do you plan to do with that sort of standalone I mean you have been negative comping there for quite some time?

[Chris Pappas:]

We have gotten it down to just one location that is profitable and so we have taken the actions this last year to go ahead and get down to this level and where it’s not going to be a drag on us. So thank you. That was very good.

[Soraya Benitez:]

Thanks.

[Operator:]

Our next question comes from the line of Sandra McDaniel, a Private Investor. Please proceed with your question. It appears we have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

[Chris Pappas:]

Thank you all for joining us today and we look forward to speaking with you again next quarter. We are going to be working hard to maintain your confidence in us and we look forward to visiting with you again next quarter in regard to our Luby’s brands. Thank you.

[Operator:]

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