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Luby's Muddles Through Restaurant Malayonnaise

Lately, the restaurant industry has been in the doldrums, so Luby's (NYSE: LUB  ) relatively lackluster quarter should be taken with a grain of salt. Even industry darlings such as Cheesecake Factory (Nasdaq: CAKE  ) and P.F. Chang's (Nasdaq: PFCB  ) are each down about 30% on the year. Luby's quarter wasn't much to write home about, but it wasn't all that bad, either.

Company snapshot
Luby's operates 128 restaurants, almost all of which are in Texas. The company, which has been in business for 60 years, operates cafeteria-style restaurants catering to frequent diners and business diners who view its restaurants as the company cafeteria.

For the first quarter of fiscal 2007, the company increased same-store sales for the 12th consecutive quarter, albeit at a modest 1.7%. Total sales were $73.7 million for the quarter, and net income decreased to $1.9 million from $2.2 million. Much of the decrease was because Luby's booked a regular 35% tax rate this year, but didn't have to book any taxes last year.

On a positive note, Luby's continued to leverage its payroll costs. Luby's has been upgrading its technology infrastructure with monitors to improve cook times and recipe consistency and to cut down on waste -- management reported that the monitors "strengthen their ability to cook less food more frequently." Tastes -- I mean, sounds -- good to me.

Luby's has also been upping its repair and maintenance expenditures with new furniture, carpeting, and wallpaper for its restaurants. These costs added $120,000 to the expense line for the quarter, but should provide value that customers appreciate.

Looking forward
Luby's has designed and plans to open two new prototype cafeterias in Texas. In the past, Luby's used to open 4-8 stores per year, and management expressed a desire to eventually get back up to this growth rate. Although the company had a comfortable $18.6 million in cash and investments and no long-term debt, management wasn't enthusiastic about buyback suggestions. The company plans instead to use the cash for property and federal income taxes, maintenance capital expenditures, and property purchases.

At 15 times trailing earnings and roughly 1.6 times book value, I don't see enough growth prospects in Luby's to do any further due diligence. However, Luby's relatively good performance in a bad environment is impressive. If the company could once again roll out 4-8 new stores per year (profitably, of course), it might be worth a look.

For more on Luby's and other restaurants:

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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. The Motley Fool has adisclosure policy. Emil appreciates comments, concerns, and complaints.

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