Luby’s Inc. (NYSE: LUB) announced the result for the second quarter of 2020 on 3rd June 2020. Period of this quarter ended on 11th March 2020. Company has been reporting weaker financial result even before the impact of COVID-19. In Q2 2020, Luby’s has reported net loss of $3,803 thousand.
Financial Highlights of Q2 2020 Results:
- Revenue: In Q2 2020, revenue generated by the company was $68,561 thousand, down by 7.8% from $74,423 thousand generated in Q2 2019.
- Total Cost and Expenses: Total cost and expenses occurred in Q2 2020 was $70,976 thousand, increased by 7.1% from $66,210 thousand occurred in same period of 2019.
- Selling, general and administrative Expense: Selling, general and administrative expense occurred by the company in second quarter of 2020 was $6,816 thousand, declined by 12% from $7,753 thousand in Q2 2019.
- Cost of Franchise operation: Luby’s cost of franchise operation in Q2 2020 was $409 thousand, increased by 65.5% from $247 thousand in Q2 2019.
- Operating Income: Company’s operating income in second quarter of 2020 was $(2,527) thousand, declined by 130.7% from $8,213 thousand reported in the same period year ago.
- EBIT: EBIT of Luby’s in Q2 2020 was $(2,262) thousand, declined by 127.2% compared to $8,287 thousand reported in Q2 2019.
- Cash and Cash Equivalents: Cash and Cash Equivalents at the end of second quarter of 2020 was $7,080 thousand.
- Net Income: Laby’s net income in Q2 2020 was $(3,803) thousand, down by 157.3% from $6,632 thousand earned in second quarter of 2019.
- Diluted EPS: Diluted EPS of the company in Q2 2020 was $(0.13) compared to $0.22 in Q2 2019.
Luby’s on 17th March 2019 started suspending all the dinning in the restaurant and all the employees were given furlough. Finally, on 31st March 2020, on premise dinning at all the 118 restaurants were suspended along with operations at 50 Luby’s Cafeteria’s, 36 Fuddruckers restaurants and our one Cheeseburger in Paradise restaurant. 3 Fuddruckers restaurants and 28 Luby’s Cafeterias were functioning with reduced working hours and limited staff and was having only curbside pickup, and delivery facility.
50 percent of Luby’s general and administrative staff has been placed at furlough and for the remaining staff, salary has been cut by 50% for general administrative staff, salaried employees including all the senior management. Most of the franchise owners have also suspended their operation in this crisis, only 37 franchise was operational during the crisis compared to 90 before the crisis.
From May 2020, company gradually started opening in restaurants in different location with respect to ease in lockdown norms. As on 3rd June 2020, 31 Luby’s Cafeteria’s and 8 Fuddruckers restaurants were operational. After becoming operation from May 2020, weekly sales of these restaurants have decline by 25% with respect to weekly sales of pre COVID-19. Till 3rd June 2020, 59 franchise are operational.
Luby’s has taken action to reduce the impact of COVID-19 in its business. Company has obtained loan of $10 million under payroll protection program which will be used for funding operation. Company has also identified the real estate property which can sell to generate funds for operation.
As pandemic started impacting US from Mid-March and second quarter of 2020 ended on 11th March 2020, so the impact of COVID-19 on Luby’s business will be visible in third quarter 2020.
Luby’s operate business in three different segments. Cheeseburger in Paradise segment reported positive revenue growth while remaining two segment reported negative revenue growth.
- Luby’s cafeteria: Revenue generated by this segment in Q2 2020 was $47,955 thousand, declined by 1.4% from $48,621 thousand reported in Q2 2019. This segment represents 79.4% of the total revenue generated by the company. Total 78 Luby’s cafeteria were operational by the end Q2 2020 compared to 84 at the start of Q2 2019.
- Fuddruckers restaurants: Total revenue reported by this segment second quarter of 2020 was $11,789 thousand, down by 27% from $16,156 thousand earned in second Quarter of 2020. This segment has contributed 19.5% of the total revenue in second quarter of 2020. Total 39 Fuddruckers restaurants were operation by the end of second quarter of 2020 compared to 57 at the start of second quarter of 2020.
- Cheeseburger in Paradise: This segment was able to earn revenue of $647 thousand in Q2 2020, increased by 9.3% from $592 thousand in Q2 2019. This segment has contributed just 1% of the total revenue. Only 1 restaurant in segment is operation in second quarter of 2020 and 2019.
Sale of operation and assets
On 3rd June 2020, Luby’s announced the sale operation division and assets including real estate asset. Company will use the net proceed to repay the debt, other obligation and remaining amount will be distributed to its shareholders. This decision has been taken after special committee of board of director conducted comprehensive review including the impact of COVID-19 which can help to boost value of shareholder.
In this announcement company has stated that variety of transaction will be carried out such as selling the operation division of Luby’s Cafeteria, Fuddruckers, and Culinary Contract Services, its real estate, or selling the Company in its entirety. Company has not provided timeline for the start of this transaction. This Kind of plan requires approval of shareholder before being adopted by the board of directors. Duff & Phelps Securities has been retained by the special committee to assist for the sale of Luby’s Cafeteria and Culinary Contract Services and Brookwood Associates has been retained for the sale of Fuddruckers.
Luby’s has not provided guidance for the next quarter. In April comapny was in risk of getting delisted from New York Stock Exchange due to its lower price. Company is having week financials and COVID-19 has impacted the business, it will be challenging for Luby’s to report strong financial results in upcoming quarters.