Growth on the Menu at Luby's?

If you're not from Texas, you probably don't get it. Luby's (NYSE: LUB  ) cafeterias are a Texas tradition -- right up there with SeaWorld and the Alamo. Where else can you go to get premium chicken-fried steak smothered in gravy, served up in a cafeteria-style setting where you can visit with all your neighbors on Sunday after church?

Fresh off a stunning proxy fight victory in which Texas natives gave the hook to the IRS slicksters, the company says it's poised for a growth surge. Yes, after gradually closing 14% of its restaurants over the past five years, the company believes it is newly energized and ready to take on the big boys in the cafeteria-dining space. 

Still, though, fourth-quarter results looked a lot like they have for the past few years. Sales inched up 0.6%, with comparable-restaurant sales down about 1.6%. Those comps are pretty much in line with soft results we've seen over the past year from trendier casual-dining chains like Brinker (NYSE: EAT  ) , Ruby Tuesday (NYSE: RT  ) , and Darden (NYSE: DRI  ) .

Operating earnings tumbled 84%, though part of the decline owed to expenses used to fight the proxy battle. Plus, rising food costs from skyrocketing commodity and energy prices were only partially offset by menu-price increases, and thus negatively impacted the gross margin. The bottom line came in at $0.01 per share. I won't bother to compare this to analyst expectations, since only one firm follows the stock, and it was apparently out trying on cowboy boots instead of accurately forecasting earnings.

In all seriousness, though, the company is run by one of the Pappas brothers. The family has done pretty well with the privately owned Pappasito's and Pappadeaux concepts. There are not a lot of restaurants in those chains, but the lines are long, and the food is outstanding. 

I certainly don't expect Luby's to be the next Buffalo Wild Wings (Nasdaq: BWLD  ) , and neither does Wall Street. Growth projections for the next five years are only 7%, and I also just don't see the demand there for that many new cafeterias. The company is valued at a market cap of $200 million -- slightly higher than the book value of its facilities, since Luby's owns a significant portion of the land and buildings it occupies. However, the company is selling at a hefty 18 times trailing earnings, which may not be justifiable given its growth outlook.

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  • Report this Comment On March 24, 2008, at 8:58 PM, bb295axy wrote:

    There is no arguing that the Pappas Brothers have done a terrific job in turning this failing Restaurant Chain around in the last five years, focusing on execution and the consistent production of good quality foods. However, they routinely do not report Customer Counts and information regarding Price Increases; the later which may very well be the reason for their recent success at minimizing the impact felt throughout the casual and family dining segments. The big question is can they continue to pass along the price increase at the rate they have been doing so as the economy continues to tighten. Key to understanding the true potential of the Stock is trends in Customer Counts.

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