Luby's reports fiscal Q1 net loss of US$1.5M, compared to year-ago earnings of US$129,000; total sales at US$87.3M, compared to year-ago sales of US$79.5M

Nevin Barich

HOUSTON , December 20, 2013 (press release) – Luby's, Inc. (NYSE: LUB) ("Luby's") today announced unaudited financial results for its twelve-week first quarter fiscal 2014, which ended on November 20, 2013. Due to a year-over-year calendar shift, the first quarter fiscal 2014 did not include the Thanksgiving holiday, whereas in fiscal 2013, the quarter ended on the day before Thanksgiving when many of our guests picked up their holiday meal packages.

Chris Pappas, President and CEO, remarked, "Our first quarter fiscal 2014 demonstrated solid operational performance at our core concept restaurants, Luby's Cafeterias and Fuddruckers, resulting in total same-store sales growth of 1.1%, adjusted for the Thanksgiving calendar shift, compared to the first quarter of 2013. Both core brands maintained or improved their profit margins, driven primarily from improved year-over-year labor deployment. We are proud of the work our team continues to achieve in satisfying our guests and improving our brands."

"New restaurant development continues to gain traction both through new restaurant openings and development pipeline activity. During the quarter, we opened one new Luby's Cafeteria in Eagle Pass, Texas and we exited one of the two remaining Koo Koo Roo locations in California. Two new Fuddruckers franchise locations opened during the quarter, one in North Dakota, and one in California. One franchise location in West Texas closed. After the end of the quarter, we also ceased operations at two unprofitable Cheeseburger in Paradise restaurants. In addition, we recently converted a Cheeseburger in Paradise location in Illinois into a Fuddruckers."

2014 First Fiscal Quarter Review

Total company same-store sales decreased 1.3%. Adjusting for the calendar shift relating to the timing of Thanksgiving, total company same-store sales rose 1.1%. Same-store sales at Luby's Cafeterias declined 0.9%. Excluding the impact of the calendar shift, same-store sales increased 2.4% at Luby's Cafeterias as customer traffic grew 1.6% and the average spend per customer increased 0.7%. Fuddruckers same-store sales declined 2.3%, as a 4.8% decline in customer traffic was partially offset by an average spend per customer increase of 2.7%.

Restaurant sales rose to $81.4 million, compared to $74.0 million in the prior fiscal year's first quarter, due to the $8.8 million in sales generated at Cheeseburger in Paradise, which was acquired on December 6, 2012, offset primarily by the lower sales associated with the year-over-year calendar shift. Ten new Luby's cafeterias and Fuddruckers restaurants that have been open less than 18 accounting periods contributed an additional $1.1 million in restaurant sales, offset by a decline of $1.5 million from closed stores over the prior year and $0.9 million in fiscal quarter same-store sales decline.

First quarter fiscal 2014 franchise revenue of $1.5 million was approximately level with the first quarter fiscal 2013.

Revenue from Culinary Contract Services increased to $4.3 million in the first quarter fiscal 2014 compared to $3.8 million in the same fiscal quarter last year. We ended the first quarter
fiscal 2014 operating 21 facilities, an increase from 18 facilities at the end of the first quarter fiscal 2013. We now operate with a stronger mix of clients and are generating higher operating margins in this line of business.

Store level profit, defined as restaurant sales less food costs, payroll and related costs, other operating expenses, and occupancy costs, was $8.7 million, or 10.7% of restaurant sales. Removing the impact of Cheeseburger in Paradise, store level profit was $10.1 million, or 13.9% of restaurant sales. In the prior fiscal year's first quarter, store level profit was $9.8 million, or 13.2% of restaurant sales. Store level profit is a non-GAAP measure and reconciliation to income from continuing operations is presented after the financial statements.

In the first quarter fiscal 2014, we produced a loss from continuing operations of $1.4 million, or a loss of $0.05 per share compared to income from continuing operations of $0.2 million in the same quarter last year, or $0.01 per diluted share. Results in fiscal 2014 and 2013 included various special items. Excluding special items and the loss from Cheeseburger in Paradise, first quarter fiscal 2014 income from continuing operations was $0.4 million, or $0.01 per share, compared to $0.1 million, or $0.00 per share in the first quarter fiscal 2013.
Reconciliation of income (loss) from continuing operations to income from continuing operations, before special items (1,2)

Fiscal First Quarter Operating Expense Review

Food costs as a percentage of restaurant sales increased to 28.7% in the first quarter fiscal 2014 from 28.2% in the comparable quarter last year, primarily due to higher food and beverage costs at Cheeseburger in Paradise. Excluding the impact of Cheeseburger in Paradise, our food cost as a percentage of restaurant sales declined 0.1% to 28.1% in the first quarter fiscal 2014. The slight decline in food cost as a percentage of sales in the first quarter fiscal 2014 compared to the first quarter fiscal 2013 is the result of careful food cost management and commodity price increases that were partially offset by menu price increases.

In the first quarter fiscal 2014, payroll and related costs as a percentage of restaurant sales increased to 35.4% from 35.1% in last year's first fiscal quarter. Excluding the impact of Cheeseburger in Paradise, payroll and related costs as a percentage of restaurant sales decreased 0.8% to 34.2% in the first quarter fiscal 2014. This decline was primarily due to improved labor deployment management, including the ability to react more quickly to changes in customer traffic. Payroll and related costs decreased in dollar terms and as percentage of sales at each of our core Luby's Cafeteria and Fuddruckers brands. With the inclusion of Cheeseburger in Paradise, our total payroll and related cost in the first quarter fiscal 2014 increased approximately $2.9 million, to $28.8 million, compared to $25.9 million in the same fiscal quarter last year.

Other operating expenses include restaurant-related expenses for utilities, repairs and maintenance, advertising, insurance, supplies, and services. As a percentage of restaurant sales, other operating expenses were 19.1% compared to 18.1% in the same fiscal quarter last year, due primarily to the addition of Cheeseburger in Paradise. Excluding Cheeseburger in Paradise, other operating expenses as a percent of restaurant sales were 18.2% in the first quarter fiscal 2014, a slight increase from 18.1% the same quarter last year. Increases in restaurant supplies and other expenses were mostly offset by a reduction in repairs and maintenance expenses as a percentage of restaurant sales. During the quarter, we invested 30% more dollars this year than last year in marketing to more efficiently promote our brands with our customers. Marketing as a percentage of sales was 1.1% of total restaurant sales with Cheeseburger in Paradise in the current year compared to 0.9% last year without Cheeseburger in Paradise. Other operating expenses in the first quarter fiscal 2014, including the addition of Cheeseburger in Paradise, increased approximately $2.2 million to $15.5 million, compared to the same quarter last year.

Occupancy costs include property lease expense, property taxes, and common area maintenance charges. Occupancy costs increased $1.0 million to $5.0 million primarily due to the inclusion of the acquired 23 Cheeseburger in Paradise leased locations.

Depreciation and amortization expense increased $0.3 million to $4.4 million in the first quarter fiscal 2014 compared to the same quarter last year primarily due to the acquisition of Cheeseburger in Paradise. Investments in new locations, as well as the capital used for remodeling existing locations, was mostly offset by the reduction in depreciation from certain assets reaching the end of their depreciable lives.

General and administrative expenses increased to $8.0 million in the first quarter fiscal 2014 from $7.4 million in the first quarter fiscal 2013. As a percentage of total revenues, general and administrative expenses declined to 9.2%, compared to 9.3% in the same fiscal quarter last year.

Capital Expenditures and Balance Sheet

At the end of the first quarter fiscal 2014, we had $1.8 million in cash, and $176.4 million in shareholders' equity. During the first quarter, we generated $3.9 million in cash from operating activities. We ended the quarter with a $24.3 million outstanding debt balance and $41.0 million available under our credit facility.

During the first quarter, our capital expenditures totaled $9.2 million, and included investments of $4.2 million on new unit development, $1.3 million for the purchase of land, $1.5 million on remodeling of existing restaurants, and $2.1 million in recurring maintenance capital spend.

2014 Outlook

We are reiterating the sales guidance that was provided in our fiscal fourth quarter 2013 earnings press release, including same-store sales growth of up to 1% in fiscal 2014 from fiscal 2013 levels. Total restaurant sales, including same-store sales plus the contribution from new store openings, offset by store closings, are expected to be in the range of $375 million to $385 million. New stores opening in fiscal 2014 are expected to contribute $8 million to $10 million to total restaurant sales. We believe the 20 Cheeseburger in Paradise locations currently operating will continue to put pressure on total company sales and earnings over the next 12 months while we continue to apply changes to the concept including some conversions and remodels. This outlook is sensitive to changes in economic conditions and the effects of other risks and uncertainties described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 12, 2013.

During the remaining three quarters of fiscal 2014, we expect to achieve the following restaurant development milestones:

3 location openings with a side-by-side Luby's Cafeteria and Fuddruckers for a total of 6 new restaurants, an increase from a previously estimated 4 restaurants and 2 locations.

2 to 3 stand-alone or in-line Fuddruckers locations openings.

At least two additional restaurant construction starts for fiscal 2015 openings.

7 - 12 remodels.

We anticipate investing approximately $35 million to $40 million in capital expenditures in fiscal 2014, including $14 million for restaurant openings and beginning construction in fiscal 2014, up to $6 million in restaurant remodels, and $10 million to purchase parcels of land for new restaurant development.

Conference Call

Luby's will host a conference call tomorrow, December 20, 2013, at 10:00 a.m., Central Time, to discuss further its first quarter 2014 fiscal results. To access the call live, dial (480) 629-9835 and ask for the Luby's conference call at least 10 minutes prior to the start time, or listen live over the Internet by visiting the events page in the investor relations section of www.lubysinc.com. For those who cannot listen to the live call, a telephonic replay will be available through December 27, 2013 and may be accessed by calling (303) 590-3030 and using the pass code 4650101#. Also, an archive of the webcast will be available after the call for a period of 90 days on the "Investors" section of the Company's website.

About Luby's

Luby's, Inc. operates restaurants under the brands Luby's Cafeteria and Fuddruckers and provides food service management through its Luby's Culinary Services division. The company-operated restaurants include 93 Luby's Cafeterias, 63 Fuddruckers restaurants, 20 Cheeseburger in Paradise full service restaurants and bars, one Koo Koo Roo Chicken Bistro, and one Bob Luby's Seafood Grill. Its 93 Luby's cafeterias are located primarily in Texas. In addition to the 63 company-operated Fuddruckers locations, the Company has 117 Fuddruckers franchises locations across the United States (including Puerto Rico), Canada, and Mexico. Luby's Culinary Services provides food service management to 21 sites consisting of healthcare, higher education and corporate dining locations.

Industry Intelligence editor's note: In an omitted table, the company reported fiscal first-quarter 2014 net loss of US$1.5 million and total sales of $87.3 million compared to fiscal first-quarter 2013 net income of $129,000 and total sales of $79.5 million.

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