Luby’s to explore 'strategic alternatives,' including possible sale

Luby's is considering several "strategic alternatives" to maximize shareholder value, which could include a possible sale of the iconic Texas cafeteria chain.

The Houston company late Tuesday said its board has formed a special committee of six independent members tasked with identifying and examining "a range of strategic alternatives available to the Company with the objective of maximizing shareholder value."

The company did not specify the strategic alternatives under consideration, but said the board has not made any decision to sell the company at this time and that there is no guarantee the special committee will recommend a sale.

"The steps we are taking represent our commitment to maximizing value to our shareholders over the long term," Luby's Chairman Gerald Bodzy, an independent member of the special committee, said in a statement.

The special committee comes less than a month after Luby's announced a new chairman and two independent members to its board, a concession it made earlier this year as it won a contentious proxy fight brought on by one of its investors who pushed for leadership changes amid lagging sales.

"This reconstituted board is under the gun to do something to prove to the public and to stockholders that they're trying to make some changes," said David Littwitz, a Houston restaurant consultant and broker. "One would have to assume a sale is one of the alternatives under consideration."

Other alternatives that Luby's special committee could consider include finding more profitable tenants for its real estate and continuing its current strategy of selling its real estate to fund operations, Littwitz said.

Luby's, known for its cafeteria-style comfort meals such as the LuAnn Platter, has struggled to draw diners in recent years amid growing competition from fast-casual restaurants and changing consumer tastes.

The company reported a $5.3 million loss on $65.6 million in revenue during the third quarter ended June 5. Sales fell 15.7 percent from the prior year while same-store sales fell by 4 percent. Guest traffic during that quarter fell 1.2 percent year over year at Luby's Cafeterias and 8.7 percent at its Fuddruckers restaurants.

Chris Pappas, Luby's longtime chief executive and the company's largest shareholder, said he supports the special committee's work and said there is no timeline for a decision. Any decision regarding a potential sale of the company will be put to a shareholder vote. Pappas and his brother Harris Pappas together own 33 percent of the company, a sizable voting bloc.

"One of the things this special committee wanted to do was let the market know that we're looking at shareholder value and if there's anything here that makes sense internally or externally," Pappas said. "At this point, there's been nothing decided."

Pappas declined to say whether Luby's had been approached in the past by prospective buyers, nor would he speculate on what kinds of buyers might be interested in the company.

"The company always had a possibility that some suitor might come here with an offer," Pappas said. "We have very good assets and good brands."

After Chicago investment firm BDT Capital announced it was acquiring a majority stake in Whataburger -- a Texas fast-food icon -- the sale triggered an outpouring of reactions on social media, including Texas-themed memes decrying the sale of the Lone Star brand to an outsider.

Pappas said he wouldn't compare Luby's and Whataburger, but said whatever is decided, Luby's will continue to retain its Texas connection.

"I think Luby's will always be an iconic Texas brand and keep its Texas roots," Pappas said. "I think brands that start here tend to have their Texas connection forever."

Luby's plans to continue its turnaround efforts as it considers strategic alternatives.

The company eliminated most of its discounts in favor of straight-forward pricing, with meals starting from $7 to $9. The chain also increased its marketing spending by $600,000, running online ads that emphasized the company's Texas roots and guests' memories of dining at the cafeteria chain over the decades.

Luby's over the past two years also closed 39 underperforming restaurants and sold its real estate to fund operations. The company earlier this year cut its general and administrative expenses by more than 10 percent and is currently selling its company-owned Fuddruckers restaurants to franchisees.

Luby's operates 125 restaurants nationally, including 79 Luby's Cafeterias, 45 Fuddruckers and one Cheeseburger in Paradise. The company also is the franchiser for 102 Fuddruckers locations across the U.S., Canada, Mexico, Columbia and Panama. The company also operates a culinary services division, which provides food to hospitals, corporate cafeterias, sports stadiums and grocery stores.