Luby's, Inc.
Q4 2019 Earnings Call Transcript

Published: 26 Nov 2019

[Operator:]

Greetings and welcome to the Luby’s Fiscal 2019 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.It is now my pleasure to introduce your host, Steve Goodweather, VP of Finance and Investor Relations. Thank you Mr. Goodweather, you may begin.

[Steve Goodweather:]

Thank you. And again welcome everyone to Luby’s 2019 fiscal fourth 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, November 26, 2019.Before we continue, I would like to remind you that the statements in this discussion, 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?

[Chris Pappas:]

Thanks Steve. Good morning everyone and thank you for joining us on today’s conference call. I will begin with an update on our turnaround progress and comments about the fourth quarter. I will then turn the call over to our COO, Todd Coutee followed by remarks from our CFO, Scott Gray.In the fourth quarter, we were not pleased with our same-store sales or guest traffic results. Same-store sales decreased 3.7% and total sales decreased 14.9% to 71.4 million due in large part to us operating 22 fewer stores, and while we did reduce our G&A expenses in the fourth quarter by 1.2 million or about 12.7% compared to the fourth quarter last year, we still have a lot of work to do to match up our corporate overhead and our other cost to the size of our organization now.As I discussed with you last quarter, our plans in turning around the Company include a number of initiatives that we began in late 2019 to improve our restaurant sales, reduce our expenses and improve our overall financial performance. Operationally, our whole team is working diligently and we are making progress on a number of these turnaround efforts. Already in fiscal 2020, we are seeing some improved guest traffic and sales trends.Additionally, we're transitioning portions of our accounting, payroll, operational reporting and other back office functions to a leading multiunit restaurant outsourcing firm. We hope to be completing the transition in the first calendar quarter of 2020 on some of these changes, and we hope to realize additional cost savings going forward from this transition over time going forward.In September, we announced that the Company's Board of Directors formed a new Board special committee comprised of our independent directors with the purpose of establishing a strategic review process that would identify, examine and consider a range of strategic alternatives that are available to the Company with our objective of maximizing shareholder value. The special committee has the support of the entire Board of Directors and management and they continue their work.Turning now to an update on our initiatives to transition certain company-owned Fuddruckers restaurants to franchises, in September, two Fuddruckers locations in Austin were transitioned to one of our franchise operators that has also signed a new development agreement to open additional restaurants in the future. And since April of 2019, the Company has transitioned a total of seven Fuddruckers restaurants to the same franchisee operator. We will continue to work on additional transition opportunities in markets outside of our home market of Houston.In fiscal 2019, Luby's entered into a new five-year credit agreement to improve our financial liquidity and to aid our efforts to reduce our costs and improve our sales results. We're also very active in making significant enhancements to our leadership team as we have in fiscal 2019 with the appointment of Todd Coutee as our Chief Operating Officer. We hired a new Vice President of Marketing and new Vice President of Information Technology. These critical senior management leaders are highly qualified and extremely talented industry veterans.At our Board level, we replaced three retiring directors during fiscal 2019 with three new independent directors adding significant public Board and restaurant industry experience to our Board. In addition Gerald Bodzy assumed the role of independent chairman in August. In regard to our asset divestitures program that began in fiscal 2018, we sold property generating 35.9 million in proceeds. In addition, over the last two fiscal years, we closed 39 underperforming restaurants, 10 were Luby's cafeterias, 22 were Fuddruckers and 7 were Cheeseburger in Paradise restaurants.While we still have considerable work to do, we see that both our core brands are trending the right way. We're working hard to serve our guests every day and increase same-store sales and guest traffic and improve our operating leverage created from a lower cost structure, hopefully to increase our cash flow to the bottom line as well. And while this is obviously a process, our goal remains clear, turning around our company to enhance profitability and drive shareholder value.Finally, entering our fiscal 2020, we remain focused on improving operational same-store sales and guest traffic and store level profit and margin to drive our financial performance of the Company, and we are confident, our team has the ability to continue to make significant progress on our turnaround plans. At the restaurant level, our managers and restaurant team members are working to maintain and build value by consistently delivering great guest experiences. Our team is our greatest brand asset and I applaud their hard work and dedication to showcasing our brands value.I'd now like to turn the call over to Todd Coutee for few comments. Todd?

[Todd Coutee:]

Thank you, Chris. I’m pleased to join the call today. As Chris mentioned, our entire team is working diligently as we're making progress on these turnaround efforts. Already in fiscal 20, we have realized positive guest traffic and positive sales trends versus the same period last fiscal year. Strategic initiatives launched in late fiscal year 2019 are gaining traction as we work to support our transformation to a more positive culture, increase traffic and sales, and eventually improve profitability. Here are some updates on those initiatives.This past February, our team made the commitment to invest in our people in order to drive our initiatives. We focus on putting the right people in the right places as well as enhancing our training and developing team members at all levels. Our goal is to have our brands represented through our people to provide our guests with a remarkable experience. By realigning our organization and providing team members with the tools and coaching needed for success, we're better positioned to succeed with the new sales, marketing and service initiatives at each brand.We are also discontinued discounting through coupon and email offers. The goal is to grow traffic with an everyday value proposition for our guests. In addition, our culinary and marketing teams created fan favorites that are positioned as a daily value option. Some menu items were iconic recipes and some were new, but all have become choices that our guests crave. By analyzing current economic, social and technological trends, our team has been focused on off-premise dining as the emerging factor in traffic and sales growth.Understanding that we must now meet guests where they are, online ordering, third-party deliveries and curbside service is becoming a bigger part of our strategy and recent growth results. Convenience, more so at the dinner meal, has become the most important component in executing this strategy. [Indiscernible] testing product, packaging and pricing that will maintain the integrity of our product and support our endeavors to compete in this segment.We will continue to strive to deliver an outstanding product that our guest can enjoy at home or work with little to no impact to their hectic schedules. Within our Luby's cafeteria business, we continue to provide guest with convenient great tasting, home style meals at an excellent value in a comfortable environment. We continue to see great results as we maintain a consistent pricing structure that allows the value minded guest an opportunity to dine with us multiple times per week. As we continue to grow traffic, our marketing effort focuses on our heavy users who are loyal to the brand.Our cafeterias are a Texas born brand and we're speaking to that proud heritage in a way that resonates to the demographics within our various Texas markets. Fuddruckers remains a strong brand that is widely known and well-regarded. While our same-store sales fall short of expectations in 2019, we believe we are on the right plan and place to improve those results in 2020, a primary focus at Fudds similar to the value orientation in our cafeteria restaurants is promoting our $7, $8 and $9 burger combo options along with higher price specialty chef-inspired premium offerings, such as our Angle Triple Infuse Burger and our amazing Nashville Hot chicken sandwich.We strive to distinguish ourselves in the crowded and hypercompetitive burger segment with offerings that are imaginative and cravable and with differentiation using our 'you top it your way' fresh produce bar and free melted cheese. No one else does it that way. Luby’s culinary services, our contract food service brand continues to be an amenity to the healthcare, senior living communities and corporate dining facilities along with stadium venues as well as sales through retail grocery outlets. We customize tailored solutions that meet the unique requirements and preferences of our valued clients. This not only appeals to our clients, but also provides us with a competitive advantage in this business segment.We've added two new healthcare facilities so far this fiscal year and have plans to increase locations with a current client in the long-term acute care segment. In addition, within our culinary services business segment, our packaged goods in retail continues to be a focus as our culinary team is testing new items to include with our Texas partner H-E-B Supermarkets. Our existing offerings Luby's iconic Mac 'n' Cheese and Squared Fried Fish as well as Chicken Tetrazzini and Broccoli & Rice Casserole continues to sell well above expectations. This line of business is a nice area of opportunity for us to extend our offerings beyond the restaurant locations.I'm excited about the work in progress that we're seeing throughout our organization. I'm grateful to work alongside dedicated colleagues as we focus on our people and developing them into leaders, which we know will result in positive outcomes for our company. As mentioned earlier, we're pleased to see positive year-over-year traffic and sales comps so far in fiscal 2020. We are focused and determined a gross our store-level cash flow for the long-term by teaching and working shoulder-to-shoulder with our teams in the field.With that, I'd like to turn the call over to our CFO, Scott Gray. Scott?

[Scott Gray:]

Thank you, Todd. I'll quickly touch upon a few elements of the fourth quarter results. We've reported a loss from continuing operations of $9.1 million, which compared to loss last year in the fourth quarter of approximately $2 million. That was primarily due to a $5.6 million decline in gain on asset sales and a $3.9 million decline store-level profit, partially offset by $1.1 million in lower depreciation expense and $1.2 million reduction in SG&A expenses in the quarter.The year-over-year decrease in SG&A resulted from reduced headcount, partially offset by increased marketing and advertising spending related to our digital media efforts. Note also that, we have added a separate line on our income statement to break out other charges. These other charges include costs related to the 2019 proxy contest as well as costs related to our restructuring efforts. These other charges amounted to approximately $0.5 million in the fourth quarter and 4.3 million for the full fiscal year 2019. We believe separating these cost out gives a clear picture of our ongoing G&A costs.For the fiscal year SG&A expenses were down 4.6 million or approximately 12% compared to last year as a result of efforts to reduce expenses. We expect our G&A run rate to continue to decline as our outsourcing changes are more fully realized. During the fourth quarter, our capital expenditures decreased 1.2 million, compared to 1.5 million in the same quarter last year. They decreased to 1.2 million compared to 1.5 million in the same quarter last year. For the full year, we came in under our fiscal year CapEx projection of 4 million in fiscal 2019. 2019 CapEx was down 9.2 million, compared to fiscal 2018. As we continue to rationalize the portfolio of locations, we expect CapEx to remain at historically low levels.Turning to our balance sheet, we ended the fourth quarter on August 28, 2019 with a net debt that is to say debt less cash on the balance sheet of 35.9 million and we had property held for sale with an appraised value of 34.8 million. Our liquidity was 20.7 million in unrestricted cash and available borrowings and our asset coverage ratio was 4.23 to 1, as defined per our 2018 credit agreement. For the full year, our adjusted EBITDA was a positive 3.7 million, and then excluding closed stores with negative SLP or store level profit adjusted EBITDA for fiscal 2019 was a positive 6 million.And with that, I would like to turn the call back to our CEO, Chris Pappas.

[Chris Pappas:]

Thanks Scott. I will wrap up. As a shareholder and a CEO and member of management we believe we have the right team and leadership in place to continue to make progress on our plans to improve our results.In closing, we would like to wish everyone a happy Thanksgiving and a wonderful holiday season as we head into 2020. Thank you again for your participation and your shareholder investment in Luby's, and we look forward to speaking to you again on our first fiscal quarter conference call early next year. Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.