Luby's, Inc.
Q4 2015 Earnings Call Transcript

Published: 31 Oct 2015

[Operator:]

Greetings, and welcome to the Luby's Fiscal 2015 Fourth 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’s now my pleasure to introduce your host Mr. Steve Goodweather. Thank you sir, you may now begin.

[Steve Goodweather:]

Thank you and again, welcome everyone to Luby's 2015 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, October 29, 2015. 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, as well as plans for expansion of the company’s business, including the expected financial performance of the company’s prototype restaurants and future openings 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 and 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. I will now turn the call over to Luby's President and CEO, Chris Pappas.

[Chris Pappas:]

Thanks, Steve. Good morning, everyone and thank you for joining us on our fourth quarter earnings conference call for fiscal 2015. With me today are Scott Gray, our Chief Financial Officer; and Peter Tropoli, our Chief Operating Officer. We are pleased with the positive momentum we had in the fourth quarter. We improved EBITDA $700,000 to $18.4 million or fiscal 2014. Same store sales comps for the year were positive at Luby's Cafeteria and Fuddruckers. In the fourth quarter total restaurant same store sales grew by 17 of a percent led by continued strength at our core brands. Fuddruckers was up 1.7% and Luby's Cafeteria was up 0.2%. In addition Cheeseburger in Paradise was up 2.8%. As we discuss before we believe that our focus on store level performance across all our brands drives profitability. Throughout the past year we worked hard to strengthen enhance our company culture and operational performance through the final process of investing, coaching, training and building our leadership throughout the organization. To complement just focus on our people, we’ve continued to enhance our product offerings in order to drive frequency and loyalty. These efforts combined with our ongoing remolding of our restaurants or improving our customer satisfaction our same store sales and store level efficiency and profitability. We continued to view our company and our established brands and popular segments of the restaurant industry with a long term focus in that. We concentrate on value driven, primarily driven by store level profit, efficient cost management and EBITDA growth overtime. I would now like to turn the call over to our CFO, Scott Gray to review our key financial metrics from the fourth quarter and year end. Scott?

[K. Scott Gray:]

Thanks Chris. Before I get started please note as we always do we posted in an Investor presentation on a website at lubysinc.com under investor relations in the event section. We think this presentation contains an information that’s useful. Please take a look. I will begin by discussing changes we made to our income statement line items and for the year and on the go forward. We reclass marketing expenses and other certain non-store specific restaurant expenses in a restaurant business segment into general and administrative expenses which we renamed selling and general administrative expenses. We’ve also are now including vending income or vending revenue in our store level profit measure performance. We believe this enhances our comparability for our peers for store level profit with this change. We also updated a reporting on Culinary Contract Services business segment by moving general and administrative expenses directly associated with our Culinary Contract Services business segment to cost of Culinary Contract Services. And finally on our third business segment, franchise operations we added a new expenses like labeled cost to franchise operations on our consolidated statement of operations which is composed of all the direct cost associated with our franchise business segment which we historically reported in G&A. We believe these changes will better facilitate measurement, performance of these business segments. Cost in all comparable periods presented in our press release and are same to filed Form 10-K have been reclassified to conform with this new presentation. Now turning it over to our overall financial results for the fourth quarter. Total sales declined $1.5 million to a $122.1 million primarily driven by a slight decline in Culinary Contract Service revenue. Adjusted EBITDA grew by $1.8 million in the fourth quarter to $6.2 million compared to $4.4 million in the fourth quarter last year up 41%. For the year we grew adjusted EBITDA by $0.7 million to $18.4 million compared to 17.7 last year. This net $0.7 million increase is a result of a decline in the first half of the fiscal year $1.7 million and EBITDA and an increase in the second half of year of $2.4 million and EBITDA. Store level profit was $16.4 million or 14.2% of restaurant sales in the fourth quarter compared to $15 million or 13% in the fourth quarter last year up 120 basis points. Our store level profit is a non-GAAP measure in a reconciliation to income continuing operation is presented after our financial statements in our in yesterday’s press release. Lower overall food cost as well as reduced payroll related expenses led to this increase in store level profitability. Food cost as a percentage of restaurant sales was held by higher average menu prices and moderating food commodity price cost in the fourth quarter as well as continued detention to managing ways portion sized and inventory. Labor cost benefits will realize by an increase in same store sales and continued efficiencies in scheduling our restaurant team members. In our Culinary Contract Services segment we ended the fourth quarter operating 23 locations up from 21 locations last quarter and down from 25 at the end of the fourth quarter last year. Revenue in this segment decreased by $1.4 million due to operating fewer location year-over-year however profit margin in this business line increased by 90 basis points to end the quarter at 9.8% above the 7% to 9% target margin that we set for this biggest segment. We continued to pursue new business development and have an encouraging pipeline of anticipated future and new contract services agreements. In our Fuddruckers franchise business segment revenue totaled $2.2 million pretty consistent with the prior year on fewer net franchise locations. As we have continued to add development agreements to our pipeline of future Fuddruckers franchise locations our balance sheet reflects $1.8 million in deferred franchise revenues outstanding as a fiscal year end August 26, 2015. We expect to recognize this amount as a new franchise and its open over the coming years as franchise fee revenues in accordance with the respected franchise development agreements are earned. See page 18 in our investor relations page, where we have the full list of the approximately little over 80, 82 remain in our development pipeline of franchise, Fuddruckers franchise units to be opened in the future. Moving on to the balance sheet in the fourth quarter we paid down $10.5 million of our revolving credit facility and ended the year with the debt balance of $37.5 million compared to $42 million of beginning of the year. During the fiscal year 2015 we sold seven real estate locations and other assets for a total of $13.3 million in proceeds which we utilized with these debt and fund our capital expenditures. We ended fiscal 2015 having spent $20.4 million in capital expenditures which was within our estimated range for the year of $20 million to $22 million and in line with our plan to reduce capital expenditures and lower our outstanding debt. We will continue to closely manage our capital expenditures in fiscal 2016 and expect to spend below $20 million for the fiscal year excluding any land purchases for future development. We were also actively looking for new combo sites for potential development in the Southern U.S. markets where we do not already operate Luby's Cafeterias. In our franchise pipeline we estimate at least 10 new Fuddruckers restaurant location openings in fiscal 2016 in both domestic and international markets. To conclude our long term investment in capital allocation strategy remains focused on balancing the capital, intensive investments of new restaurant development. The continued necessity to remodel our existing restaurant locations to maintain comparativeness, investments and technology infrastructure and the lower capital intensive Culinary and franchise business segments along with remaining focused on improving our profitability which we now drives EBITDA and GAAP income leading to increase shareholder value. And with that I’d like to turn the call back over to Chris.

[Chris Pappas:]

Thank you, Scott. Today we focused more than ever on training and developing our team members on consistently delivering a great guest experience and to be valuable part of our guest daily like for lunch and dinner. As an example we continually hear stories from guest about their personal traditions and regular group gatherings at Luby’s from routine Sunday family lunches to regular business lunches, meetings and long standing appointments with friends meeting on certain days in on in on. Just last week an event in Colorado of several generations of one family shared their personal experiences with my son at a rehearsal dinner of all places about how much they love Luby’s and share regular family meeting times throughout the month and the years and gatherings at Luby’s. Many, many families share the same similar experiences. We also believe that our price and value positioning within popular sectors of the market allows our brands to grow. As I mentioned earlier we focused on the long term value of our company which includes sustainable growth of our mature brands, developing our franchisers and franchisees and Culinary Contract Service segments and tightly managing cost, companywide to enhance profitability. During the past two fiscal years we’ve achieved a number of growth initiatives. We’ve finally believe, we’ve integrated the Cheeseburger in Paradise acquisitions into our company in a better format which involved a number of operation initiatives. Some closures which we planned on, some conversions of other certain locations to our Fuddruckers restaurants which continues even into 2016. We relocated two Luby's Cafeterias and closed a few underperforming restaurants as well. We built an open six combo units consisting up two restaurants each a Luby's and Fuddruckers and our franchise pipelines has grown significantly during this time and Fuddruckers has truly become an international brand. We understand that the underline value of our brands and products is driven by the hard work and dedication of our employees and we remain focused on providing them with the support resources and training to be the best they can. Our current initiatives are aimed towards enhancing our product offerings, improving the guest experience and refining our operational performance and profitability. We also have reduced our SG&A cost and enhance our cost controls companywide to improve our profitability. Today we believe our company and brand portfolio is in a better operational condition and is better position for sustainable growth going forward then we work just a few years ago. As a company’s CEO and shareholder I’m confident that the strategic decisions, operational initiatives, expense control measures and hardworking employees at level of our organization will drive our company’s value proposition and our EBITDA growth. With that operator, we’re ready for questions.

[Operator:]

Thank you. Ladies and gentlemen we will now be conducting a question-and-answer session. [Operator Instructions] Ladies and gentlemen we have no questions in the queue at this time. I would like to turn the floor back over Chris Pappas for closing remarks. Q -

[Chris Pappas:]

Thank you operator and thank you all for joining us today and we look forward to speaking with you again in the next quarter in January of 2016. Thank you.

[Operator:]

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