Q3 2019 Earnings Call

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Yes.

The target.

Presenter may have a name please.

Michael Mckellar rich.

When you say last name please.

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L E V I C H.

And your company.

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Spilt <unk> yeah right.

And you are going to lose correct.

Lubys earnings call.

Our journey there.

Lance.

Our fuddruckers franchise system as previously reported during the quarter five locations in the San Antonio market transition from company operated restaurants to franchise operated locations. We continue to seek additional refranchising opportunities outside of our home market Houston, Texas.

We also continue to actively market properties for sale in our asset sales program since the beginning of store third quarter last year. We closed 25 underperforming stores six of those were Lubys cafeterias 13, Evan bug reference and six of them are cheeseburger in Paradise restaurants, plus.

We transitioned five stores to franchisees as I described earlier.

Through our $45 million asset sales program that began last year, we generated proceeds of 35.9 million.

Finally, I'd like to acknowledge the strong progress our team has achieved in our culinary contract services business. Our culinary contract service business saw a net increase of seven locations euro per year, which are generating incremental sales and profit. This continues to be an excellent segment of our business with growth potential and we are actively pursuing new clients for our signature offerings.

The past two quarters progress in our turnaround efforts have been.

Like.

A lot of work and we continue to work on that area.

Its turnaround efforts, we're putting all the pieces in place so that when we turn the corner and return to sales growth will be better positions for future profitability.

And with that.

I'd like to thank our more than 6000 talent and dedicated employees for their hard work to make this a reality at this time I'd like to turn call over to Todd for a few comments Todd.

Thank you, Chris and good morning on pleased to join the call today.

As Chris mentioned, we're excited to welcome two new highly qualified and deepening experienced leaders to our team.

We've hired David Greenberg, Vice President of marketing and John Oldham, Vice President of information technology.

David Greenberg, Vice President of marketing brings more than 30 years of restaurant and consumer product marketing, including product innovation.

Brand management and sales campaign experience to Lubys.

David has a demonstrated record of successful restaurant marketing campaigns across numerous national brands.

Walt the fast food and casual dining category.

Over the span of his impressive marketing clear.

He has worked with multiple national brands, such as Bob Evans restaurants, Jack in the box.

When these TG I Fridays and Burger King the name a few.

John Wholesome as our new Vice President of information technology.

He's an experienced IP foodservice executive.

Specializes in leveraging technology and driving operational efficiencies with process improvements John comes with a long tenure of over 30 years of experience at Sysco Corporation.

Where he most recently where he was most recently vice president of business technology.

David and John are both seasoned industry leaders in their respective areas of expertise and they are uniquely qualified to add value to our iconic movies and focus brands.

Now for an update on our right people in the light positions initiative that Chris mentioned.

By realigning our organization and provided team members with the tools and coaching there need to be successful.

We are better positioned to succeed with the new sales marketing and operational initiatives put in place in each brand to enhance sales.

Our teams are focused on growing guest traffic to our value orientation.

Where where we're offering everyday value choices.

We're also focusing on the dinner meal part and specifically how the convenience factor plays an important role in off premise dining.

As I mentioned last quarter, we have introduced weakened breakfast as an option at Lubys.

Which is a natural extension of our cafeterias.

As of the end of the quarter, we are now offering breakfast on the weekends at 33 locations.

Within our Lubys cafeteria business, we continue to provide guests with convenient great tasting homestyle meals at an excellent value in a comfortable environment.

Q our approach in the third quarter was the removal of substantially all discounts.

Our goal is to have a consistent pricing structure that provides everyday value.

We believe this is what our most loyal and frequent guests appreciate and expect.

We see that this is the right approach because almost days when we're comparing a prior year to date that was not heavily discounted which I'd call a normal date.

Our guest counts are generally higher this year.

Our cafeteria is already touches born brand and we are speaking to that proud heritage with our local marketing in a way that speaks directly to the demographics within our various Texas markets.

Fuddruckers remains a strong brand that is widely known and well regarded.

Similar to the value orientation at our cafeteria restaurants.

We are promoting our seven eight and nine dollar Burger combo options.

Along with higher price specialty chef inspired premium offerings, such as our Angus truffle infuse Burger and our amazing Nashville Hot Chicken sandwich.

While we strive to distinguish ourselves in the crowded hyper competitive Burger segment is with offerings that are imaginative and craveable and with differentiation using our new topic really theres fresh produce bar and complimentary melt achieves no one else does it that way.

Movies culinary services, our contract Foodservice plan continues to be an amenity to the healthcare senior living communities and corporate dining facilities, along with stadium venues and sales to retail grocery shelves.

Deliveries brand is a huge asset to growing this business with new account opportunities that known appreciate the quality and variety of food our brand represents.

We custom tailored solutions that meet the unique requirements and preference preferences of our value very clients.

This provides us with a competitive advantage in this business that business segment.

We have a net increase of seven facilities when compared to this time last year.

In addition, within our culinary services business segment, our packaged goods offerings have expanded with the addition of chicken Tetra Xen in the freezer section of HCV supermarkets in Texas.

This complements our existing offerings of the two varieties of macaroni and cheese and movies famous fried fish, but we've been selling for about two years now.

So the package. Good line continues to be nice area of opportunity for us to extend our offering offerings beyond the restaurants.

Lastly from a marketing perspective, we have ramped up our advertising efforts in the digital space.

The responses confirmed the value we offer and the comfortable familiarity of our brands that our guest chairs.

We are unique in this and we'll use to our advantage.

We'll move these has in Texas than histology Bon people have with thoughts were culturally ingrained favorite that inspires community with friends and family.

While producing memories I go back to generations.

Everyone has alluded to is our third story.

That emotional connection with each of our guests is powerful.

We discovered it and now we're going to reinforce that connection through our digital channels.

This includes paid social directory, such as Yelp.

In App and banner ads and much more.

We will no longer be out of sight out a mine were intelligently, bringing our brands to the forefront.

We are making our brands relevant again from the Golden response has shown we really do have loyal and passionate guests.

We're going to engage with them getting man and then coming back.

With our superior product and our outstanding team members that are mastering the all the hospitality.

And this is just the beginning.

We still have a lot to learn about the diversity of our guests.

Going forward, we will leverage technology and market intelligence to specifically identify our guests and Taylor relevant messages and offers that speak directly to them.

I'm excited about the good work that we are seeing throughout our operations teams and thankful to work alongside so many dedicated colleagues as we all focus on the goal of delighting our guests everyday.

Which we know will result in positive outcomes for our company.

With that I'd like to turn the call over to our CFO Scott Drake Scott.

Thank you Todd I'll quickly touch upon a third quarter financial results.

This quarter, we cut our reported loss from continuing operations before income taxes to $5.2 million compared to a loss of $10 million in the third quarter last year.

However, if you remove the asset impairment and gains and losses are property sale. The comparison is a slight improvement year over year.

A pre tax loss of 4.9, this year compared to a pre tax loss of 5.4 last year.

Adjusted EBITDA decreased 300000 from essentially zero in the third quarter last year on total company sales decline on a total company sales decline of $11.2 million.

Our restaurant business segment same store sales decreased 44% in the quarter. However, as Chris mentioned due to the improved cost management restaurant store level profit was up.

To 10.2%.

Up from 8.5%, that's a 170 basis point improvement so while topline restaurant sales were down $12.2 million year over year store level profit on the restaurants increased.

By 0.1 million to $6.7 million in the quarter.

The important takeaway here is that we are pruning our restaurant portfolio of underperforming units.

And are aggressively managing costs, despite declines and general inflation.

The improvement in restaurant store level profit. Despite a decline in same store sales as a result of cost management in several areas.

Food cost as a percentage of restaurant sales decreased as we focused on a return to classic favorites were favorable food cost.

We also continue to manage our hourly labor cost on a per store basis through AFFO I focus on restaurant team members staffing.

Our restaurant supplies expense and repairs and maintenance expense continued to experience a difficult reductions and expense over the prior year as these areas remained areas of opportunity for cost management.

Both the culinary contract service and franchise business segments increased segment level profit in the quarter by 0.3 million combined year over year driven by increases in revenues.

Selling general and administrative expenses increased zero point $9 million or 900000.

Included in this net increase is it additional marketing and advertising spending.

600000, or zero point $6 million as we committed to investments in our digital media efforts as outlined by Todd.

Also included in the net increase is the $1.2 million increase in restructuring and professional fees related to IP accounting and other functions do determinations.

Of the $1.2 million increase 700000 relates to onetime restructuring related consulting fees surrounding software upgrades and third party evaluations of our cost structure and revenue enhancing priorities.

Partially offsetting these expenses was a zero point $8 million a decrease in corporate salaries and other DNA expenses in the quarter.

During the third quarter, our capital expenditures also decreased to $1.1 million compared to $3.7 million in the same quarter last year.

While we previously estimated to spend up to $6 million and primarily recurring capital expense in fiscal 2019, we now project Capex spend for 2019 at approximately $4.5 million.

Based on current year to date EBITDA results, the pace of our turnaround and considering past and expected restructuring cost onetime items, we now expect our adjusted EBITDA to be.

Below the five band that we previously were targeting.

This estimate remains sensitive to our restaurant sales levels.

Now turning to our balance sheet, we ended the third quarter with a net debt of 32.6 million.

That is that is to say total debt term and revolving revolver less cash on the balance sheet.

This is a decrease from 35.8 million and net debt at the end of the last fiscal year fiscal 2018.

The $32.6 million in debt at the end of the third quarter breaks out as $45.4 million and credit agreement debt, which is 43.4 term debt and $2 million on the revolver less the $12.8 million in cash, which includes our cash and cash equivalents and restricted cash.

The property held for sale locations with a book value of 16.8 enterprise value of over $30 million will provide for future amortization and reduction of our outstanding debt along with a corresponding reduction in our debt service cash interest requirements.

The asset sales plan has already resulted in a significant 27% reduction in the $60 million funded debt at the closing of our 2019 credit agreement in December of 2018.

In addition, the company has off already met the $10 million debt amortization requirement for the current fiscal year 2019, as well as 6.6 million of the $10 million required principal amortization next year and fiscal 2020.

Management.

Continues to evaluate its portfolio for improvements and the allocation of capital.

And with that I'd like to turn the call back over to the operator.

Thank you, we'll now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone or indicate your line is in the question queue. You May press start to issue that you have a question from the queue for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys, one moment, please pull for questions.

Yeah.

There are no questions at this time I would like to turn the call back over to Mr. Pappas for any closing remarks.

Thank you operator.

At Lubys and Fuddruckers and our color contract service business. We believe we have the right team.

And members in place and leadership to continue to make progress on our turnaround plans to improve our results and.

We look forward to speaking with all our investors again during the next quarter. Thank you and have a very good summer the rest of the summer. Thank you.

Thank you ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.