Financing

How Luby's turned a profit at its restaurants during the pandemic

Sales and profits plunged last quarter and many restaurants remain closed, but cost cuts led to improved margins at open locations.
Luby's profit
Photo courtesy of Luby's Kitchen

Widespread closures of its restaurants hammered sales and profits at Luby’s last quarter, yet the owner of Luby’s Cafeteria and Fuddruckers has been able to make enough changes to turn a profit at restaurants that are open.

The Houston-based company, which is selling itself off in pieces, saw sales plunge 79% in the its fiscal third quarter ended June 3, to $13.8 million from $65.6 million. The company recorded a net loss of $25 million in the quarter.

Yet Luby’s had been losing money even before the virus led to a shutdown of its restaurants—it had a net loss of $5.3 million in the same quarter a year ago, for instance, and a $4 million operating loss.

With dine-in forbidden at many of its locations and the company’s model not necessarily favorable to the takeout that consumers are relying upon, the pandemic led to numerous closures.

Luby’s has permanently closed 13 Fuddruckers locations so far this fiscal year, and another three Luby’s locations. Yet as of this week just 63 of the company’s 108 locations are currently operating, with the rest temporarily closed.

The company said that it began opening dining rooms in May, with limits on customer capacity. By early June, the opened Luby’s restaurants were able to generate about 80% of their pre-coronavirus levels, while Fuddruckers’ sales were at 70%. About 40% of the company’s restaurant sales were takeout.

To help those restaurants, Luby’s revamped its restaurant operations to improve efficiency, “resulting in higher restaurant operating margins even while sales levels have not returned to pre-COVID-19 pandemic levels,” the company said.

The company cut staff and culled the menu to only the top-selling items, which led to lower food costs.

Luby’s also said it reevaluated service and supplier costs and noted that it generated $1 million in restaurant-level profit by the end of the quarter.

Luby’s also said it restructured corporate overhead earlier in the year, shifting to a third party for accounting and payroll functions. The company said it took further steps to cut overhead in April, leading to a 50% decline in general and administration spending.

But Luby’s also sold $7.2 million worth of property through the third quarter. It also sold another $10.7 million worth of property in June and expects to sell another $9.2 million in property in August.

Luby’s earlier this month regained compliance with the New York Stock Exchange minimum price listing requirements, which put the company in danger of losing its listing. Stock in the company rose 9% in morning trading on Tuesday.

Luby’s last month said it planned to sell itself off in parts, including its chains, its real estate and its culinary services operation, with plans to distribute the proceeds to shareholders.

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