Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
LUB > SEC Filings for LUB > Form 10-Q on 28-Mar-2014All Recent SEC Filings

Show all filings for LUBYS INC

Form 10-Q for LUBYS INC


28-Mar-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's discussion and analysis of financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and footnotes for the period ended November 20, 2013 included in Item1 of Part I of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended August 28, 2013.

The following presents an analysis of the results and financial condition of our continuing operations. Except where indicated otherwise, the results of discontinued operations are excluded from this discussion.

Overview

Luby's, Inc. is a multi-branded company operating in the restaurant industry and the contract food services industry. Our primary brands include Luby's Cafeteria, Fuddruckers, Cheeseburger in Paradise and Luby's Culinary Contract Services. Also included in our brands are Luby's, Etc., Koo Koo Roo Chicken Bistro ("Koo Koo Roo") and Bob Luby's Seafood. We purchased substantially all of the assets of Fuddruckers, Inc., Magic Brands, LLC and certain of their affiliates (collectively known as, "Fuddruckers") in July 2010. We purchased all of the Membership Units of Paradise Restaurant Group, LLC and certain of their affiliates (collectively known as, "Cheeseburger in Paradise") effective December 5, 2012.

As of February 12, 2014, we owned and operated 181 restaurants, of which 94 are traditional cafeterias, 66 are gourmet hamburger restaurants, 19 are casual dining restaurants and bars, one is an upscale fast serve chicken restaurant, and one primarily serves seafood. These establishments are located in close proximity to retail centers, business developments and residential areas mostly throughout the United States.

Also as of February 12, 2014, we operated 22 Culinary Contract Services facilities. These facilities service healthcare, higher education and corporate dining clients in Texas and Louisiana. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service and retail dining. Culinary Contract Services has contracts with long-term acute care hospitals, business and industry clients and higher education institutions.

Also as of February 12, 2014, we are a franchisor for a network of 114 franchised Fuddruckers restaurants. The owners of these franchise units pay royalty revenue to us as a franchisor.

Accounting Periods

Our fiscal year ends on the last Wednesday in August. As such, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. Each of the first three quarters of each fiscal year consists of three four-week periods, while the fourth quarter normally consists of four four-week periods. Comparability between quarters may be affected by varying lengths of the quarters, as well as the seasonality associated with the restaurant business.

Same-Store Sales

The restaurant business is highly competitive with respect to food quality, concept, location, price, and service, all of which may have an effect on same-store sales. Our same-store sales calculation measures the relative performance of a certain group of restaurants. To qualify for inclusion in this group, a store must have been in operation for 18 consecutive accounting periods. Our Fuddruckers units were included in this measurement beginning with the fiscal quarter ended May 9, 2012. Stores that close on a permanent basis are removed from the group in the fiscal quarter when operations cease at the restaurant, but remain in the same-store group for previously reported fiscal quarters. Although management believes this approach leads to more effective year-over-year comparisons, neither the time frame nor the exact practice may be similar to those used by other restaurant companies.


RESULTS OF OPERATIONS

For the Second Quarter and Year-to-Date Fiscal 2014 versus the Second Quarter and Year-to-Date Fiscal 2013

Sales

Total sales increased approximately $2.5 million, or 2.9%, in the quarter ended February 12, 2014 compared to the quarter ended February 13, 2013, consisting primarily of a $2.2 million increase in restaurant sales and a $0.3 million increase in Culinary Contract Sales. The other components of total sales are franchise revenue and vending income.

Total sales increased approximately $9.9 million, or 6.0%, in the two quarters ended February 12, 2014 compared to the two quarters ended February 13, 2013, consisting primarily of a $9.2 million increase in restaurant sales and a $0.7 million increase in Culinary Contract Sales.

The other components of total sales are franchise revenue and vending income The company operates with three reportable operating segments: Company-owned restaurants, franchise operations, and Culinary Contract Services.

Company-Owned Restaurants

Restaurant Sales

Restaurant sales increased $2.2 million in the quarter ended February 12, 2014, compared to the quarter ended February 13, 2013. The increase in restaurant sales included a $2.6 million increase in sales at Luby's Cafeteria-branded restaurants, a $0.8 million decrease in sales from Fuddruckers-branded restaurants and a $0.4 million increase in sales at locations where we have introduced a Luby's cafeteria and Fuddruckers side-by-side configuration. The increase in sales at our side-by-side configured locations is related to the addition of our second such location during the quarter ended February 12, 2014. On a same-store basis, our Luby's Cafeteria-branded restaurants increased 4.4% and our Fuddruckers-branded restaurants decreased 2.7%; total same store sales increased 2.5%.

The increase in restaurant sales and same store sales at our Cafeteria-branded restaurants was due, in part, to a favorable calendar shift; the high sales volume period in the days leading up to Thanksgiving and Thanksgiving itself were included in the quarter ended February 12, 2014 whereas only the day of Thanksgiving was included in the quarter ended February 13, 2013. Removing the impact of this favorable calendar shift, Luby's Cafeteria sales increased 1.2% as guest traffic increased 1.0% and average spend per guest increased 0.2% in the quarter ended February 12, 2014 compared to the quarter ended February 13, 2013. In addition, we estimate that unusual winter weather events reduced same stores sales by approximately 70 basis points at our Luby's Cafeteria-branded restaurants. The decline in sales at our Fuddruckers restaurants resulted from the same store sales decrease of 2.7% partially offset by the contribution in sales from new Fuddruckers restaurants. There was no calendar shift impact at our Fuddruckers restaurant, but we estimate that unusual winter weather events reduced same-stores sales by 1.5%. The decrease in same store sales at our Fuddruckers-branded restaurants was due to a 3.9% decline in guest traffic partially offset by a 1.3% increase in the per person average spend. The increase in per person average spend at our Fuddruckers restaurants, was a result of altering the mix of menu items offered and selected by our customers and by motivating the purchase of additional items on the customer ticket.

Restaurant sales increased $9.2 million in the two quarters ended February 12, 2014, compared to the quarter ended February 13, 2013. The increase in restaurant sales included, a $2.5 million increase in sales at Luby's Cafeteria-branded restaurants, a $1.4 million decrease in sales from Fuddruckers-branded restaurant, a $0.2 million decrease in sales at locations where we have introduced a Luby's Cafeteria and Fuddruckers side-by-side configuration, and an $8.3 million higher sales contribution from our Cheeseburger in Paradise restaurants. The $2.5 million increase in sales at our Luby's Cafeteria-branded restaurants was due primarily to a 1.8% increase in same store sales for the two quarters ended February 12, 2014 compared to the two quarters ended February 13, 2013. The $1.4 million decrease in restaurant sales at our Fuddruckers- branded restaurants was due primarily to a 2.5% decrease in same store sales for the quarters ended February 12, 2014 compared to the quarters ended February 13, 2013, partially offset by the contribution in sales from new Fuddruckers restaurants. The $0.2 million decrease in sales at locations where we have a Luby's Cafeteria and Fuddruckers side-by-side configuration is primarily due to comparison with the prior year where our first such location experienced a higher than typical sales volume at opening and for a sustained period afterwards, offset by the contribution from our second Luby's and Fuddruckers side-by-side configured location. The $8.3 million higher sales contribution from our Cheeseburger in Paradise restaurants reflects operating this brand for the full 24 weeks in the two quarters ended February 12, 2014 compared to operating for only 10 weeks in the two quarters ended February 13, 2013.


Cost of Food

Food costs increased approximately $0.7 million, or 3.0%, in the quarter ended February 12, 2014, compared to the quarter ended February 13, 2013 due primarily to an overall increase in guest traffic. Food commodity prices for our basket of food commodity purchases were higher by approximately 1% at both our core Luby's Cafeteria-branded restaurants and Fuddruckers-branded restaurants. As a percentage of restaurant sales, food cost increased 0.1% to 29.0% in the quarter ended February 12, 2014, compared to 28.9% in the quarter ended February 13, 2013. Removing the impact of Cheeseburger in Paradise, food costs as a percent of sales were 28.8% in the quarter ended February 12, 2014 and in the quarter ended February 13, 2013.

Food costs increased approximately $3.1 million, or 6.9%, in the two quarters ended February 12, 2014, compared to the two quarters ended February 13, 2013, due primarily to the addition of the Cheeseburger in Paradise-branded stores. Removing the impact of Cheeseburger in Paradise, food costs increased $0.2, million, or 0.5% for the two quarters ended February 12, 2014, compared to the two quarters ended February 13, 2013. For the two quarters ended February 12, 2014, food commodity prices for our basket of food commodity purchases were higher due to a 2% increase for our Luby's Cafeteria-branded restaurants and a 3% increase for our Fuddruckers-branded restaurants. As a percentage of restaurant sales, food cost increased 0.2% to 28.8% in the two quarters ended February 12, 2014, compared to 28.6% in the two quarters ended February 13, 2013. Removing the impact of Cheeseburger in Paradise, food costs as a percentage of sales were 28.4% in the two quarters ended February 12, 2014 compared to 28.5% in the two quarters ended February 13, 2013.

Payroll and Related Costs

Payroll and related costs increased approximately $0.6 million in the quarter ended February 12, 2014 compared to the quarter ended February 13, 2013, primarily due to (1) the addition of new restaurants, including the 23 Cheeseburger in Paradise locations acquired on December 5, 2012; (2) higher variable compensation at our Luby's cafeteria restaurants; (3) higher restaurant management medical benefits expense at each of our restaurant brands; (4) all partially offset by lower workers compensation expense. As a percentage of restaurant sales, payroll and related decreased 0.2%, to 35.4% in the quarter ended February 12, 2014, compared to 35.6% in the quarter ended February 13, 2013 due to the ability to leverage these costs on higher overall sales volumes and lower workers compensation expense. Excluding Cheeseburger in Paradise, payroll and related costs, as a percentage of sales, were 34.5% in the quarter ended February 12, 2014 compared to 35.2% in the quarter ended February 13, 2013.

Payroll and related costs increased approximately $3.2 million in the two quarters ended February 12, 2014, compared to the two quarters ended February 13, 2013, primarily due to (1) the addition of new restaurants, including the 23 Cheeseburger in Paradise locations acquired on December 5, 2012; (2) all partially offset by lower workers compensation expense. As a percentage of restaurant sales, payroll and related costs was 35.4% in the two quarters ended February 12, 2014 and in the two quarters ended February 13, 2013. Excluding the impact of Cheeseburger in Paradise, payroll and related costs, as a percent of restaurant sales, was 34.4% in the two quarters ended February 12, 2014 compared to 35.2% in the two quarters ended February 13, 2013.

Other Operating Expenses

Other operating expenses primarily include restaurant-related expenses for utilities, repairs and maintenance, advertising, insurance, services and supplies. Other operating expenses increased by approximately $1.6 million, or 11.5%, in the quarter ended February 12, 2014 compared to the quarter ended February 13, 2013, primarily due to (1) an approximate $0.6 million increase in marketing and advertising expense; (2) an approximate $0.4 million increase in restaurant supply and services expense; and (3) an approximate $0.4 million increase in utility and property insurance expense; and (4) and approximate $0.2 million increase in repairs and maintenance expense. As a percentage of restaurant sales, other operating expenses increased 1.4%, to 18.6%, in the quarter ended February 12, 2014 compared to 17.2% in the quarter ended February 13, 2013, due to (1) the cost increases enumerated above and (2) the typically higher operating costs for the four to eight weeks after opening a new restaurant. Operating expenses as a percent of restaurant sales increased 1.4% to 18.6% in the quarter ended February 12, 2014 compared to 17.2% in the quarter ended February 13, 2013. Excluding the impact of Cheeseburger in Paradise, other operating expenses costs as a percentage of sales were 17.9% in the quarter ended February 12, 2014 compared to 16.8% in the quarter ended February 13, 2013.

Other operating expenses increased by approximately $3.7 million, or 13.4%, in the two quarters ended February 12, 2014, compared to the two quarters ended February 13, 2013, primarily due to a $2.5 million increase from the addition of 23 Cheeseburger in Paradise-branded stores and a $1.2 million increase in expenses at our core Luby's Cafeteria and Fuddruckers brands. The $1.2 million increase in expenses at our Luby's Cafeteria and Fuddruckers brands was primarily due to (1) an approximate $0.5 million increase in marketing and advertising expense; (2) an approximate $0.3 million increase in utility and property insurance expense; (3) an approximate $0.3 million increase in restaurant supply and services expense; and (4) an approximate $0.1 million increase in repairs and maintenance expenses. Operating expenses as a percent of restaurant sales increased 1.2% to 18.8% in the two quarters ended February 12, 2014, compared to 17.6% in the two quarters ended February 13, 2013. Excluding the impact of Cheeseburger in Paradise, other operating expenses costs as a percentage of sales were 18.0% in the quarter ended February 12, 2014 compared to 17.4% in the quarter ended February 13, 2013.


Occupancy Costs

Occupancy costs include property lease expense, property taxes, common area maintenance charges and permits and licenses. Occupancy cost increased $0.1 million to $5.0 million in the quarter ended February 12, 2014 compared to the quarter ended February 13, 2013. Occupancy cost increased $0.8 million to $9.8 million in the two quarters ended February 12, 2014 compared to the two quarters ended February 13, 2013.

Franchise Operations

We only offer franchises for the Fuddruckers brand. Franchises are sold in markets where expansion is deemed advantageous to the development of the Fuddruckers concept and system of restaurants. Franchise revenue includes royalties paid to us as the franchisor for the Fuddruckers brand and franchise fees paid to us when franchise development agreements are executed and when franchise units are opened for business or transferred to new owners. Franchise revenue increased $6 thousand in the quarter ended February 12, 2014 compared to the quarter ended February 13, 2013. The $6 thousand increase in franchise revenue includes a $13 thousand increase in franchise fees offset by a $7 thousand decrease in franchise royalties.

Franchise revenue decreased $2 thousand for the two quarters ended February 12, 2014 compared to the two quarters ended February 13, 2013. The $2 thousand decrease in franchise revenue includes a $30 thousand increase in franchise fees offset by a $32 thousand decrease in franchise royalties.

At the quarter ended February 12, 2014, there were 114 Fuddruckers franchise units in the system. Over the prior one year period ended February 12, 2014 our franchisees have opened 3 units. Over the prior one year period ended February 12, 2014 there were also 8 franchise units that closed on a permanent basis. Of the 8 franchise units that closed, we acquired one unit in the quarter ended February 12, 2014. We plan to open this acquired unit and operate it as a Fuddruckers before the end of fiscal 2014.

Culinary Contract Services

Culinary Contract Services is a business line servicing healthcare, higher education, and corporate dining clients. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service and retail dining. This business line operated 22 client locations at the quarter ended February 12, 2014 and 18 at the quarter ended February 13, 2013. In fiscal 2012, we refined our operating model by concentrating on clients able to enter into agreements where all operating costs are reimbursed to us and we generally charge a fixed fee. These agreements typically present lower financial risk to the company.

Culinary Contract Services Revenue

Culinary Contract Services revenue increased $0.3 million, or 8.5% in the quarter ended February 12, 2014 compared to the quarter ended February 13, 2013. The increase in revenue was primarily due to increase in the number of locations where we operate.

Culinary Contract Services revenue increased $0.7 million, or 9.9% in the two quarters ended February 12, 2014 compared to the two quarters ended February 13, 2013. The increase in revenue was primarily due to the increase in the number of locations where we operate.

Cost of Culinary Contract Services

Cost of Culinary Contract Services includes the food, payroll and related costs, and other direct operating expenses associated with generating culinary contract sales. Cost of Culinary Contract Services increased approximately $0.2 million, or 4.6%, in the quarter ended February 12, 2014 compared to the quarter ended February 13, 2013, due to a commensurate increase in culinary contract sales volume. We expanded our profit margin in this business segment to 12.1% of culinary contract services revenue in the quarter ended February 12, 2014 from 8.9% in the quarter ended February 13, 2013.


Cost of Culinary Contract Services increased approximately $0.4 million, or 5.3%, in the two quarters ended February 12, 2014 compared to the two quarters ended February 13, 2013, due to a commensurate increase in Culinary Contract Services sales volume. We expanded our profit margin in this business segment to 13.1% of culinary contract services revenue in the two quarters ended February 12, 2014 from 9.3% on the two quarters ended February 13, 2013.

Company-wide Expenses

Opening Costs

Opening costs include labor, supplies, occupancy, and other costs necessary to support the restaurant through its opening period. Opening costs were approximately $0.7 million in the quarter ended February 12, 2014 compared to approximately $0.3 million in the quarter ended February 13, 2013. The quarter ended February 12, 2014 and the quarter ended February 13, 2013 included carrying costs of locations to be developed for future restaurant openings. The quarter ended February 12, 2014 also included the labor, supplies, and other costs necessary to support the opening of four Fuddruckers restaurants and one Luby's Cafeteria restaurant. In addition, opening costs for an additional Luby's Cafeteria and Fuddruckers restaurant were incurred in the quarter ended February 12, 2014 for restaurants that opened after this date. One of the Fuddruckers restaurants that opened in the quarter ended February 12, 2014 previously operated as a Cheeseburger in Paradise restaurant. The quarter ended February 13, 2013 also included the labor, supplies, and other costs necessary to support the opening of two Fuddruckers restaurants.

Opening costs were approximately 1.0 million in the two quarters ended February 12, 2014, compared to approximately $0.5 million in the two quarters ended February 13, 2013. The two quarters ended February 12, 2014 and the two quarters ended February 13, 2013, included carrying costs of locations to be developed for future restaurant openings. The two quarters ended February 12, 2014, also included the labor, supplies, and other costs necessary to support the opening of four Fuddruckers restaurants and two Luby's Cafeterias. In addition, opening costs for an additional Luby's Cafeteria and Fuddruckers restaurant were incurred in the quarter ended February 12, 2014 for restaurants that opened after this date. One of the Fuddruckers restaurants that opened in the two quarters ended February 12, 2014 previously operated as a Cheeseburger in Paradise restaurant. The two quarters ended February 13, 2013 also included the labor, supplies, and other costs necessary to support the opening of three Fuddruckers restaurants.

Depreciation and Amortization

Depreciation and amortization expense increased by approximately $0.2 million, or 4.3%, in the quarter ended February 12, 2014, compared to the quarter ended February 13, 2013, due to capital expenditures for new construction and remodel activity partially offset by certain assets reaching the end of their depreciable lives.

Depreciation and amortization expense increased by approximately $0.4 million, or 4.9% in the two quarters ended February 12, 2014, compared to the two quarters ended February 13, 2013, due to the addition of depreciation related to Cheeseburger in Paradise, and capital expenditures for new construction and remodel activity partially offset by certain assets reaching the end of their depreciable lives.

General and Administrative Expenses

General and administrative expenses include corporate salaries and benefits-related costs, including restaurant area leaders, share-based compensation, professional fees, travel and recruiting expenses and other office expenses. General and administrative expenses increased by approximately $0.5 million, or 6.1%, in the quarter ended February 12, 2014 compared to the quarter ended February 13, 2013. The increase was due primarily to an increase in outside professional services costs, technology infrastructure costs, corporate travel expenses and penalties related to income and payroll taxes. As a percentage of total revenue, general and administrative expenses increased to 9.1% in the quarter ended February 12, 2014, compared to 8.8% in the quarter ended February 13, 2013.

General and administrative expenses increased by approximately $1.1 million, or 7.4%, in the two quarters ended February 12, 2014, compared to the two quarters ended February 13, 2013. The increase was due primarily to an increase in outside professional services costs, technology infrastructure costs, corporate travel expenses and penalties related to income and payroll taxes. As a percentage of total revenue, general and administrative expenses increased to 9.2% in the two quarters ended February 12, 2014, compared to 9.1% in the two quarters ended February 13, 2013.


Provision for asset impairments, net

The asset impairment of $1.6 million in the quarter ended February 12, 2014 reflects the impairment of one leased Fuddruckers location and five Cheeseburger in Paradise locations including goodwill related to Cheeseburger in Paradise.

The asset impairment of $1.8 million in the two quarters ended February 12, 2014, reflects the impairment of one owned Fuddruckers location, one leased Fuddruckers location and five Cheeseburger in Paradise locations including goodwill related to Cheeseburger in Paradise.

An impairment charge of $0.1 million in the two quarters ended February 13, 2013, was related to one leased Fuddruckers location where the projected future cash flows were not expected to support the value of the assets at the location.

Net Loss (Gain) on Disposition of Property and Equipment

The loss on disposition of property and equipment was approximately $16 thousand in the quarter ended February 12, 2014. The gain of $1.3 million in the quarter ended February 13, 2013 related primarily to the disposition of a portion of our parking lot at one restaurant location offset by normal asset retirement activity in our restaurant units.

The loss on dispositions of property and equipment for the two quarters ended February 12, 2014 was approximately $0.1 million. The gain of $1.5 million in the two quarters ended February 12, 2014 was related primarily to the disposition of a portion of our parking lot at one restaurant location and the gain on disposal of assets at a Koo Koo Roo leased location, offset by normal asset retirement activity.

Interest Income

Interest income was $1 thousand in the quarter ended February 12, 2014, compared to $2 thousand in the quarter ended February 13, 2013

Interest income was $3 thousand in the two quarters ended February 12, 2014, compared to $4 thousand in the two quarters ended February 13, 2013.

Interest Expense

Interest expense in the quarter ended February 12, 2014 was $0.3 million, compared to $0.2 million in the quarter ended February 13, 2013. The increase was due to higher average debt balances.

Interest expense in the two quarters ended February 12, 2014 was $0.5 million, compared to $0.4 million in the two quarters ended February 13, 2013. The increase was due to higher average debt balances.

Other Income, Net

Other income, net consisted primarily of the following components: net rental property income and expenses relating to property for which we are the landlord; prepaid sales tax discounts earned through our participation in state tax prepayment programs; and oil and gas royalty income. Other income, net in the quarter ended February 12, 2014 increased approximately $0.1 million compared to the quarter ended February 13, 2013. The increase was primarily due to higher net rental income on properties that we lease to third parties and due to higher sales tax discounts.

Other income, net in the two quarters ended February 12, 2014 increased approximately $0.1 million compared to the two quarters ended February 13, 2013. The increase was primarily due to higher net rental income on properties that we lease to third parties and due to the higher sales tax discounts.

.


Taxes

For the quarter ended February 12, 2014, the income taxes related to continuing operations resulted in a tax benefit of $1.5 million compared to a tax provision of $0.5 million for the quarter ended February 13, 2013.

For the two quarters ended February 12, 2014, the income taxes related to continuing operations resulted in a tax benefit of $2.5 million compared to a tax provision of $0.5 million for the two quarters ended February 13, 2013.

Discontinued Operations

The loss from discontinued operations was $0.1 million in the quarter ended . . .

  Add LUB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for LUB - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.