Luby’s to shut more restaurants
Fewer customers and rising costs mean additional locations must go
Luby’s plans to shutter more restaurants to shore up its balance sheet amid falling sales and mounting costs.
The Houston-based chain on Monday reported $86 million in sales during the third quarter, down 3.1 percent from the same period last year.
Same-store sales across the chain’s three restaurant brands fell by 0.9 percent.
Chris Pappas, Luby’s president and CEO, cited declining guest traffic and rising food and labor costs. The company, which earlier this year announced plans to close and sell 14 low-performing restaurants, said it will close more of its real estate to pay down $44.2 million in outstanding debt.
The restaurant closures come as Luby’s has struggled to attract patrons, who are increasingly flocking to fast-casual restaurants that have grown in popularity, especially among young adults.
Luby’s, founded in San Anto-
nio in 1947 and led by the Pappas brothers since 2001, previously announced plans to offer more discounts, invest in training programs for employees and managers, and launch a new loyalty app to lift customer traffic.
“The current competitive restaurant environment is making it difficult for our brand and the mature brands of many others to gain significant traction,” Pappas said in a conference call with analysts. “We’ve been faced with this environment for quite some time, which has been a large drag on our financial results and company evaluations.”
Luby’s did not disclose how many additional restaurants would close, their locations or a timeline for the closures. The chain operates 160 Luby’s Cafeterias, Fuddruckers and Cheeseburger in Paradise restaurants nationally. It owns most of its restaurants and will be putting its closed properties up for sale.
Luby’s so far has closed and sold one restaurant, and has two others under contract, Pappas said. The 14 restaurant closures and sales announced earlier this year would raise an estimated $25 million. The additional closures would raise another $20 million, Pappas said.
Sale of the shuttered properties would eliminate the company’s outstanding debt, Pappas said. Luby’s is working with investment advisory firm Cowen to refinance its debt.
“We believe positioning our company to have lower debt, improved same-store sales and a lower overall cost structure will enhance our financial performance as we move forward,” Pappas said.
David Littwitz, a restaurant broker with Houston-based Littwitz Investments, said restaurant chains that own real estate have an advantage over those that lease space.
Chains that own restaurants are more attractive to institutional investors like banks because they can use their properties as collateral. They also can control overhead costs through a fixed-rate mortgage, and they can sell low-performing restaurants to raise cash and reinvest into their business, he said.
“This is a strategy of survival,” Littwitz said of Luby’s plans to close restaurants. “It’s a good strategy, but at the end of the day, you have to look at how much company do I have left? You don’t want to prune too deep.”