Luby’s plans to outsource key staff
Luby’s, an iconic Texas cafeteria chain known for comfort foods such as the LuAnn Platter, is outsourcing some of its administrative staff in its latest cost-cutting move to turn around its struggling restaurants.
The publicly traded Houston company said Tuesday it would outsource 15 accounting, payroll and operational reporting staff to a “leading multi-unit restaurant outsourcing firm” by the first quarter of 2020. Luby’s executives did not disclose to
which company it would outsource those positions.
“We still have a lot of work to match up our corporate overhead and other costs to the size of our organization,” Chief Executive Chris Pappas said in a conference call with analysts Tuesday morning. “We hope to realize additional cost savings over time moving forward.”
The outsourcing comes as Luby’s reported a net loss of $15.2 million on revenue of $324 million for the fiscal year ended Aug. 28. Although revenue fell by 11.4 percent year over year, the company was able to cut its net loss by more than half from the year earlier.
Luby’s culinary division; which provides meals to hospitals, offices, senior living facilities, stadiums and grocers; saw its revenue grow by 24 percent year over year to $31.9 million.
However, overall samestore restaurant sales fell by 4.2 percent year over year as the company continued to struggle to draw diners into its restaurants amid growing competition from fast-casual restaurants and changing consumer tastes.
Same-store sales fell 2.9 percent at Luby’s Cafeterias and by 7.5 percent at Fuddruckers year over year. Guest traffic fell 1.1 percent at Luby’s Cafeterias and by 3.8 percent at Fuddruckers during the fourth quarter.
“We are not pleased with our same-store sales or guest traffic results,” Pappas said.
Trimming the fat
Luby’s has cut costs over
the past year to fund operations and pay down debt. The company is carrying $35.9 million in debt, and reported unrestricted cash on hand of $20.7 million.
In addition to outsourcing some of its administrative staff, Luby’s slashed its selling, general and administrative expenses by $4.6 million in 2019, or approximately 12 percent year over year, and reduced its capital expenditures to $1.2 million, down from $1.5 million last year.
Luby’s, which owns most of its restaurants, closed 17 underperforming locations and sold five Fuddruckers to an Austin-based franchisee in fiscal 2019. The company attributed $2.3 million in net losses on revenue of $19.1 million in fiscal 2019 to the 22 units.
During the past two fiscal years, Luby’s has closed 39 underperforming restaurants and sold properties, generating $35.9 million from real estate sales.
The company is planning to offload all of its nonHouston-based Fuddruckers restaurants to franchisees, and it has set a target of generating a total of $45 million through the sale of shuttered restaurants.
Luby’s operates 119 restaurants, including 78 Luby’s Cafeterias, 40 Fuddruckers and one Cheeseburger in Paradise restaurant. The company also oversees 98 Fuddruckers franchise locations across North America.
Considering options
Luby’s last month formed a special committee of six independent board members and tasked it with considering several “strategic alternatives” to
maximize shareholder value, which could include a possible sale of the company. Pappas on Tuesday said the committee is still considering strategic alternatives, and he did not elaborate.
The restaurant chain plans to continue its turnaround efforts as it considers strategic alternatives. It is now focused on training and developing its restaurant employees, eliminated most of its coupons and email discounts in favor of straight-forward pricing, and has increased its marketing budget to run online ads that emphasized the company’s Texas roots.
“Our goal is the grow guest traffic through everyday value proposition,” said Todd Coutee, Luby’s chief operating officer.
Luby’s also is increasingly focused on online ordering, third-party delivery and curbside pick-up to drive sales.
The company recently partnered with Austinbased Favor Delivery, an HE-B subsidiary, to offer ondemand delivery from nearly 80 Luby’s Cafeterias across Texas and 16 Fuddruckers restaurants in the Houston area. Customers can order online using Favor’s website or mobile app, and have their meals delivered to their door in under an hour.
“We must now meet guests where they are,” Coutee said. “We will continue to strive to deliver an outstanding product that our guests can enjoy at home or at work with little to no impact to their hectic schedules.”