1 Luby’s: Where do they go from here?1 In 2015, Luby’s Inc. had completed a decade of dramatic change. The changes really began in 2000, when Luby’s stock price had fallen from $33.00 per share in 1986 to $4.00 per share. At that time, Texas restaurateurs Christopher and Harris Pappas announced that they had purchased six percent of Luby’s stock and were considering additional investments. The brothers had a long history of success in the casual dining segment of the restaurant industry. They owned Pappas Restaurants, Inc., a privately held firm with 60 restaurants operating in the casual dining segment under the names Pappas Seafood House, Pappasito’s Cantina, Pappadeaux, Pappas Bar-B-Que, and Pappas Brothers Steak House. The Pappas brothers joined Luby’s as CEO/President and COO in March of 2001 and by mid-2001, both the officers and directors of the firm had changed substantially. Cost cutting and other operational changes to the firm helped raised the stock price, but profits remained low. While Harris focused on the Pappas Restaurants, Inc. business, Christopher took over as President and CEO of Luby’s. The brothers recognized that Luby’s faced a number of challenges. As CEO Chris Pappas stated when they invested in the firm, “The road to improved financial performance will not be easy, but Harris Pappas and I are investing significant effort and resources in Luby’s in a concerted effort to reach this objective” (Ruggless, 2001, p. 11). The firm continued to focus exclusively on its cafeterias until 2007, when they brought the firm’s made-from-scratch food to institutional cafeterias (hospitals, schools, etc.) expanding into the culinary services business, but profitability remained elusive. The stock dropped below $4.00 again in 2009 when the firm reported a net loss of $26.4 million—more than 10% of total sales. More drastic change appeared to be necessary. 1 This case was created by the author as a teaching tool. It is not meant to demonstrate either effective or ineffective management. The material used in this case was collected from publicly available documents filed by the company and other sources. Any errors in the material are the fault of the author and not of the company. 2 The next year brought a more change, when the firm acquired gourmet hamburger chain Fuddruckers, Inc. for $63.1 million in cash following the bankruptcy of Fuddruckers’ parent company. The acquisition added 56 Fuddruckers locations, three KooKooRoo Chicken Bistro locations, and Luby’s become the franchisor for an additional 130 Fuddruckers franchise locations. The firm followed this diversification in 2012, with the acquisition of all 23 Cheeseburger in Paradise locations for $10.3 million in cash. Whether those changes will resolve the profitability issue, though, remained to be seen. Table 1 summarizes some ...

1. 1
Luby’s: Where do they go from here?1
In 2015, Luby’s Inc. had completed a decade of dramatic
change. The changes really
began in 2000, when Luby’s stock price had fallen from $33.00
per share in 1986 to $4.00 per
share. At that time, Texas restaurateurs Christopher and Harris
Pappas announced that they had
purchased six percent of Luby’s stock and were considering
additional investments. The
brothers had a long history of success in the casual dining
segment of the restaurant industry.
They owned Pappas Restaurants, Inc., a privately held firm with
60 restaurants operating in the
casual dining segment under the names Pappas Seafood House,
Pappasito’s Cantina,
Pappadeaux, Pappas Bar-B-Que, and Pappas Brothers Steak
House. The Pappas brothers joined
Luby’s as CEO/President and COO in March of 2001 and by
mid-2001, both the officers and

2. directors of the firm had changed substantially. Cost cutting
and other operational changes to the
firm helped raised the stock price, but profits remained low.
While Harris focused on the Pappas Restaurants, Inc. business,
Christopher took over as
President and CEO of Luby’s. The brothers recognized that
Luby’s faced a number of
challenges. As CEO Chris Pappas stated when they invested in
the firm, “The road to improved
financial performance will not be easy, but Harris Pappas and I
are investing significant effort
and resources in Luby’s in a concerted effort to reach this
objective” (Ruggless, 2001, p. 11).
The firm continued to focus exclusively on its cafeterias until
2007, when they brought
the firm’s made-from-scratch food to institutional cafeterias
(hospitals, schools, etc.) expanding
into the culinary services business, but profitability remained
elusive. The stock dropped below
$4.00 again in 2009 when the firm reported a net loss of $26.4
million—more than 10% of total
sales. More drastic change appeared to be necessary.
1

3. This case was created by the author as a teaching tool. It is not
meant to demonstrate either effective or ineffective
management.
The material used in this case was collected from publicly
available documents filed by the company and other sources.
Any
errors in the material are the fault of the author and not of the
company.
2
The next year brought a more change, when the firm acquired
gourmet hamburger chain
Fuddruckers, Inc. for $63.1 million in cash following the
bankruptcy of Fuddruckers’ parent
company. The acquisition added 56 Fuddruckers locations,
three KooKooRoo Chicken Bistro
locations, and Luby’s become the franchisor for an additional
130 Fuddruckers franchise
locations. The firm followed this diversification in 2012, with
the acquisition of all 23
Cheeseburger in Paradise locations for $10.3 million in cash.
Whether those changes will
resolve the profitability issue, though, remained to be seen.
Table 1 summarizes some of the

4. changes to Luby’s over the last dozen years.
Table 1: Changes in Luby’s (2002-2014)
Category 2014 2002
Number of Cafeterias 96 193
Fuddruckers (Company-operated) 71 0
Fuddruckers (Franchises) 110 0
Culinary Contract Service Locations 21 0
Cheeseburger in Paradise 8 0
KooKooRoo Chicken Bistro 2 (closed after fiscal year-end) 0
Number of States 36 10
Owned Locations 92 124
Leased Locations 82 69
Number of Employees 8490 11,000
Store Managers ( including Sr., Assoc.,
and Asst. Managers) 739 600
Executive/Administrative Staff 142 200
The Industry

5. Luby’s competed primarily in the Family Dining and Casual
Dining sectors of the
Restaurant industry (SIC 5812, NAICS 722212). Luby’s closest
competitors in the cafeteria
business were Furr’s cafeterias and Piccadilly cafeterias, but
they also viewed other “family
dining” restaurants to be close competitors. The addition of
Fuddruckers and Cheeseburger in
Paradise expanded the scope of the firm’s competitors to
include firms like Ruby Tuesday and
Red Robin Gourmet Burgers.
3
The restaurant industry had four major segments: Quick
Service (McDonald’s, Long
John Silver), Casual Dining (Applebees, Outback Steakhouse),
Family Dining (Luby’s, Ryan’s,
Cracker Barrel), and Specialty Dining (Starbucks, Krispy
Kreme), with cafeterias included in the
family dining segment. No single firm had a significant share
of industry sales. The Family
Dining segment was further subdivided between Full service
and Limited service formats. Full

6. service restaurants offered table service and price meals by the
dish, often preparing the meals to
order. Buffet concept restaurants (Limited service) were self-
service and usually all-you-can-eat
with a single price for all. Cafeterias combined self-service
with pricing by the dish. Both
cafeterias and buffets generally used batch preparation rather
than single meal preparation.
Cafeteria chains had taken a beating, largely from increased
competition with casual
dining and buffet concept restaurants, but were also being
squeezed by rising utility and food
costs. Most chains have brought in CEOs from the casual
dining sector, as well as attempting
new concepts and horizontal integration, but with limited
success. Furr’s Restaurant Group, of
Richardson, TX, filed for chapter 11 bankruptcy in January of
2003 and again in 2014, when its
assets were sold to creditors. Furr’s still operates cafeterias
under the Furr’s and Bishop’s
names. Piccadilly, headquartered in Baton Rouge, LA,
purchased Morrison’s Restaurants (a
rival cafeteria chain) in 1998 for $46 million, bringing it to over
200 units. Piccadilly also filed

7. for bankruptcy in 2012 and was sold to creditors in 2014 though
it still operates 60 locations.
The main customers for cafeterias tend to be at or near
retirement age, brand loyal, and price-
sensitive. As stock analyst Preston Silvey noted, “It’s a
generational concept, viewed in the
younger people’s eyes as a place their parents or grandparents
went. For them to survive, they
have to develop some concepts to bring in the younger crowd”
(Ruggless, 2001).
4
The outlook for restaurants as a whole is more positive than for
cafeterias. Per capita
spending on meals away from home has increased with each
generation. In 1955, 25 percent of
meals were eaten away from home. By 1996, that percentage
had risen to 44 percent. U.S.
restaurant revenues, which in 1970 totaled $42.8 billion in
current U.S. dollars, had risen to
$683.4 billion by 2014. These trends among U. S. consumers
are attributed to faster-paced
lifestyles, an increase in the percentage of women working
outside the home, and a rise in the

8. number of single-parent households. Table 2 presents sales and
growth forecasts for the industry
by format.
Table 2: Projected Food and Drink Sales, 2014, by Type of
Outlet
Type of Outlet Sales (percent of Total) Growth Rate
Full Service Restaurants 49.2 2.6%
Limited Service Restaurants 39.0 4.4%
Buffets and Cafeterias 0.7 2.5%
Social Caterers 1.3 4.6%
Snack and nonalcoholic beverage
bars
5 5.0%
Bars and Taverns 4 3.4%
Total Eating and Drinking Places 100 3.6%
Source: National Restaurant Association Forecast
(www.restaurant.org)
The National Restaurant Association’s Restaurant Trends Study,
2013, found locally
sourced food, gluten-free items, and healthful kids’ meals to be

9. the top menu trends for both full
and limited service restaurants. The top challenges noted by
restaurant managers in the survey
were healthcare reform, government regulation, the economy,
and recruiting and retaining
employees. The restaurant business is notorious for high
employee turnover and is extremely
labor intensive, with sales per full time employee running at
less than $73,000 per year—notably
lower than for most industries.
The industry is also highly fragmented. With more than
990,000 competitors in the U.S.,
more than 90 percent employ less than 50 employees and seven
out of every 10 firms in the
restaurant industry are single-unit independents with less than
20 employees. Sales per unit in
http://www.restaurant.org/
5
full service restaurants average $874,000 per year—slightly
higher than the $777,000 average for
a limited table service restaurant. Table 3 presents industry
averages for the Restaurant industry.

10. Table 3: Industry Financial Information
Full Service Restaurants
(NAICS 722210) N = 2,587
Limited Table Service Restaurants
(NAICS 722211) N = 187
Inc. Stmt. Data % of Sales $/Seat % of Sales $/Seat
Total Sales 100% $5295 100% $8,456
Cost of Food 33.3 $1,776 32.5 $2,397
Payroll & Benefits 33.9 $1,758 27.5 $1,964
Direct Operating Exp. 5.7 $307 4.8 $317
Marketing 1.9% $90 3.3 $248
Utilities 3.2 $175 2.9 $236
Gen. & Admin. Exp. 3.0 $156 2.6 $171
Occupancy Expense (Rent,
Ins. & Taxes)
7.0 $366 7.5 $532
Balance Sheet Data % of Assets % of Assets
Cash 12.4 13.2
Accounts Recvble .9 2.6

11. Inventory 3.3 6.0
Other Current Assets 2.6 3.3
Fixed Assets 57.0 54.8
Intangibles 14.2 9.8
Other L. T. Assets 9.6 10.3
Current Liabilities 36.1 40.0
L.T. Debt 45.6 37.9
Other L. T. Liabilities 8.5 10.4
Net Worth 9.9 11.7
Selected Fin. Ratios
Current .6 1.4
Quick .4 .4
Fixed Assets/Worth 16.2 3.9
Debt/Worth 26.7 5.6
NS/Fixed Assets 5.5 6.5
NS/Total Assets 3.0 3.2
Sources: National Restaurant Association Industry Operations
Report
Risk Management Associates Key Financial Ratios

12. The Company
Luby’s can trace its roots to a San Antonio, TX cafeteria which
originally opened in
1947. The company went public in 1973, with shares listed on
the New York Stock Exchange
6
(symbol LUB). In 1987 the firm had opened its 100
th
location and hit the 200 mark 10 years
later. By 2014, the firm was operating four separate business
units as detailed below.
Restaurant Operations
From its headquarters in Houston, TX, Luby’s operated
restaurants under several brand
names as discussed below. In November of 2014, Luby’s
operated 174 restaurants at 169
property locations, of which 92 were located on property owned
by the firm and 82 on leased
premises. Five of the operating locations were Combo locations
but considered two restaurants

13. (Luby’s and Fuddruckers side-by-side). Two operating locations
were primarily Luby’s
Cafeterias, but also served Fuddruckers hamburgers. One
operating location was a Bob Luby’s
Seafood Grill. Luby’s Cafeterias have seating capacity for 250
to 300 customers at each location
while Fuddruckers locations generally seat 125 to 200
customers and Cheeseburger in Paradise
locations generally seat between 180 and 220. See Table 4
below for a list of locations in
November of 2014.
Table 4: Company owned and operated locations
State Locations
Texas
Houston Metro 54
San Antonio Metro 18
Rio Grande Valley 13
Dallas/Fort Worth Metro 14
Austin 11
Other Texas Markets 17

14. California 9
Illinois 6
Arizona 5
Maryland 5
Virginia 3
Georgia 3
Oklahoma 3
Other States 13
Total 174
7
Luby’s Cafeteria
Following the acquisitions, the Luby’s brand still accounted for
63% of the firm’s total
revenues. In its 96 cafeteria locations (92 in Texas, 2 in
Oklahoma, 1 in Arkansas and 1 in
Louisiana), the firm emphasized made-from-scratch food from a
serving line including 15 to 22
entrées, 12 to 14 vegetable dishes, 8 to 10 salads, and 10 to 12

15. varieties of desserts daily. Each
dish was available a-la-carte or as part of several combination
meals like the popular LuAnn
Platter.
Scratch preparation was integral to the Luby’s vision—the firm
even made its own
mayonnaise. Luby’s recipes have been featured in a number of
publications and the firm
received several awards for its 60
th
anniversary recipe book in 2008. Most cafeterias were open
for lunch and dinner seven days a week and for breakfast on the
weekend. All locations sold
food-to-go orders, which accounted for 13.0% of restaurant
sales in fiscal year 2013 and 2014.
Luby’s staff regularly reviewed menus and introduced new and
seasonal food
preferences. Each restaurant was operated as a separate unit
under a general manager who has
responsibility for day-to-day operations, including food
production and personnel selection and
supervision. In addition to the general manager, each location
had one associate manager and

16. one to two assistant managers who oversaw the restaurant’s
full-time and part-time associates
working in overlapping shifts.
An area leader supervised each general manager. Each area
leader was responsible for
approximately 7 to 10 units, depending on location. Quality
control teams visited each location
to work with staff on maintaining consistency in the firm’s
recipes, train personnel in new
techniques, and implement new procedures within the company.
8
In fiscal year 2013, the company opened a new Luby’s cafeteria
and a new Fuddruckers
on the same property with a common wall but separate kitchens
and dining areas. In 2014, four
more of these combination locations were added. These Combo
locations shared a general
manager.
Fuddruckers
Most of the remaining sales came from the Fuddruckers brand.
Luby’s owned and

17. operated 71 Fuddruckers restaurants three of which were
converted from Cheeseburger in
Paradise locations in 2014. Boasting that they serve the
“World’s Greatest Hamburgers,”
Fuddruckers locations featured an open kitchen where guests
could see burgers freshly prepared
from scratch all day.
Fuddruckers served “fresh, never frozen, 100% USDA All-
American premium-cut beef”
with no fillers or artificial ingredients added. Fuddruckers
sesame-topped buns were baked from
scratch all day in each restaurant’s bakery. As in the cafeterias,
guests at Fuddruckers ordered
and paid as they enter the restaurant. They then take the
cooked-to-order burger to Fuddruckers’
Build Your Own® produce bar where they added their choice of
fresh veggies and signature
Fuddruckers condiments.
While Fuddruckers’ signature burger accounts for
approximately 47.0% of Fuddruckers
restaurant sales, the menu also included exotic burgers such as
buffalo, steak sandwiches,
chicken breast sandwiches, hot dogs, a variety of salads, fish
sandwiches, wedge-cut French

18. fries, onion rings, soft drinks, handmade milkshakes, and
bakery items. Beer and wine were
served but account for less than 2% of restaurant sales.
Fuddruckers’ decor had a casual,
Americana theme.
9
Each Fuddruckers was staffed by a general manager, two or
three assistant managers, and
25 to 45 other associates, including full-time and part-time
associates working in overlapping
shifts. With Fuddruckers’ self-service concept, the restaurants
do not employ waitstaff.
Fuddruckers restaurant operations were divided into three
geographic regions, each
supervised by an area vice president. The three regions were
further divided into a total of eight
areas, each supervised by an area leader who oversaw 7 to 8
restaurants.
Franchising
In addition to the company-owned locations, Luby’s had 51
franchisees operating another

19. 110 Fuddruckers restaurants in locations across the U.S. and in
several other countries, four of
which were added in 2014. Eighteen franchise owners each
owned from two to twelve
restaurants. The thirty-three remaining franchise owners owned
one restaurant each. The
Fuddruckers acquisition came with 130 franchise locations,
some of which were later closed or
purchased as company-owned restaurants, but Luby’s continues
to seek new franchising
opportunities. Table Five details those locations.
A standard franchise agreement generally has an initial term of
20 years. Franchise
agreements typically grant franchisees an exclusive territorial
license to operate a single
restaurant within a specified area, usually a four-mile radius
surrounding the franchised
restaurant. Franchisees pay an initial franchise fee and annual
royalty payments (based on
franchise location profits). In return, Fuddruckers provided
franchise assistance for: site
selection, prototypical architectural plans, interior and exterior
design and layout, training,
marketing and sales techniques, assistance by a Fuddruckers

20. “opening team” at the time a
franchised restaurant opens, and operations and accounting
guidelines set forth in various
10
policies and procedures manuals. Franchisees were responsible
for all direct costs for the
development, construction and operation of their restaurants.
Table 5: Fuddruckers Franchise Locations
State/Country Franchises
Texas
Houston Metro 1
Dallas/Fort Worth Metro 10
Other Texas Markets 13
California 8
Florida 7
Georgia 3
Idaho 1

21. Louisiana 3
Maryland 2
Massachusetts 5
Michigan 5
Missouri 3
Montana 5
Nebraska 1
Nevada 2
New Jersey 2
New Mexico 3
North Carolina 2
Oregon 1
Pennsylvania 4
South Carolina 7
South Dakota 2
Tennessee 3
Virginia 3
Wisconsin 2

22. Other States 2
Canada 1
Chile 1
Dominican Republic 1
Italy 2
Mexico 1
Panama 1
Puerto Rico 5
Total 110
11
All franchisees were required to operate their restaurants in
accordance with Fuddruckers
standards and specifications, including controls over menu
items, food quality and preparation.
At least three managers per restaurant must successfully
complete the firm’s training program.
Franchised restaurants were evaluated regularly for compliance
with franchise agreements and

23. company standards during periodic, unannounced, on-site
inspections and standards evaluation
reports.
Cheeseburger in Paradise
Developed in collaboration with singer Jimmy Buffet and based
on one of his most
popular songs, Cheeseburger in Paradise was a casual, full-
service restaurant and bar with a
tropical theme. The acquisition was a disappointment. Only
eight of the purchased 23
Cheeseburger in Paradise locations still operated under that
name at the end of 2014. Other
locations were closed or converted to the Fuddruckers format.
The remaining locations were
located in high traffic areas near successful malls and tourist
attractions.
Culinary Contract Services
In November 2014, Luby’s operated culinary contract services
at 25 locations; 18 in the
Houston, Texas area, three in Louisiana, two in Austin, Texas,
and one each in Florida and
Oklahoma. Luby’s Culinary Contract Services provided food
service management to healthcare,

24. educational, and corporate dining facilities.
The healthcare accounts were full service and typically included
in-room delivery,
catering, vending, coffee service, and retail dining. In fiscal
year 2014, the firm had servicing
contracts for 13 long-term acute care hospitals, one acute care
medical center, one ambulatory
surgical center, one behavioral hospital, two business and
industry clients, three higher education
institutions, one Children’s Hospital, two Medical office
buildings, and one freestanding coffee
12
shop located inside an office building. Luby’s managers
believed they had a unique ability to
deliver culinary services including facility design and
procurement as well as nutrition and
branded food services to business clients.
Properties
Luby’s owned the underlying land and buildings on which 71 of
the Luby’s Cafeterias
and 22 Fuddruckers restaurants were located. Five of these
restaurant properties contained excess

25. building space or an extra building on the property which had
ten tenants unaffiliated with
Luby’s, Inc. In addition to the owned locations, 25 Luby’s
Cafeteria restaurants, 48 Fuddruckers
restaurants, and 8 Cheeseburger in Paradise restaurants were
operated on leased property. Most
of the leases were fixed-dollar rentals, but required the firm to
pay additional amounts related to
property taxes, hazard insurance, and maintenance of common
areas.
Table 6: Property and Equipment, Intangible Assets and
Goodwill (net of impairment and
accumulated depreciation )
August 27,
2014
August 28,
2013
Estimated
Useful Lives
(years)
(In thousands)
Land

26. $ 69,767
$ 62,191
—

27. Restaurant equipment and
furnishings
131,932 116,664 3 to 15
Buildings 181,535 172,342 20 to 33
Leasehold and leasehold
improvements
40,835 39,108
Office furniture and equipment 7,537 7,444 3 to 10
Construction in progress 10,313 7,814 —
441,919 405,563
Less accumulated depreciation
and amortization
(228,427) (215,066)
Property and equipment, net $ 213,492 $ 190,497
Intangible assets, net $ 24,014 $ 25,517 21

28. Goodwill $ 1,681 $ 2,169
The firm also retained three owned properties and seven leased
properties to develop for
future use as well as one owned non-operating property held for
resale and valued at $1.0
13
million. The firm owned four other properties. One location
was used as a bakeshop supporting
the baked products for operating restaurants. One location was
leased to third party tenants
utilizing the entire building and two were leased to Fuddruckers
franchisees.
Marketing
Luby’s historically relied on word-of-mouth marketing. Prior to
1991, the firm averaged
less than 0.5% of sales for its marketing budget. During the
1990s, the firm toyed with a more
aggressive advertising strategy--gradually increasing its
marketing budget to a high in 1999 of
about 2.5% of sales. More recently, the firm has spent
approximately 1.1% of restaurant sales on

29. marketing, across radio and television advertising, billboards,
direct mailings, movie theater
advertising, and social media. Total advertising expense
(included in other operating expenses)
was $4.6 million, $3.9 million, and $2.4 million in fiscal 2014,
2013, and 2012, respectively.
The firm’s market research indicated several major customer
groups frequent Luby’s
cafeterias: families with small children, seniors, shoppers,
travelers, and business people. These
groups appreciated the opportunity to select a more balanced
meal than those offered by most
quick service and casual dining establishments. The firm would
like to emphasize more targeted
marketing to families but seniors were still a significantly
higher percentage of the customer base
for Luby’s than for non-cafeteria competitors. Younger
generations still tended to view Luby’s
as the place their grandparents (or great grandparents) eat. By
contrast, the Cheeseburger in
Paradise customer was younger, while the customers for
Fuddruckers included a wider range of
ages.
Purchasing and Distribution

30. Purchasing had the most radical change in recent years. Prior to
1998, local cafeteria
managers conducted almost all their own buying. In 1999, the
firm centralized purchasing to
14
obtain quantity discounts. For each of its three major
purchasing regions, the firm contracted
with a competitively selected prime supplier. Centralizing
purchasing and distribution was
intended to allow Luby’s to reduce costs through volume buying
and by minimizing suppliers’
distribution costs. In keeping with its commitment to fresh,
made-from-scratch food, the firm
purchased locally sourced ingredients whenever practical.
Human Resources
Luby’s enjoyed generally good labor relations. None of the
firm’s employees were
unionized and many employees had been with Luby’s for
years—a rarity in an industry
characterized by high employee turnover. Hourly employees
earned between $7.81 and $13.00

31. an hour depending on length of service. In dramatic contrast to
other firms in the restaurant
industry, substantially all of the employees received group life,
health and disability insurance, a
two-week paid vacation (three weeks following five years of
service), free meals, and optional
dental, vision, and prescription drug coverage. All were
covered by insurance and retirement
plans. The voluntary 401(k) plan voluntary was available for
any employee over the age of 21
with at least one year of continuous employment with the
company. The firm matched 25
percent of each employee’s contributions to a maximum of four
percent of salary, which cost the
firm just over $500,000 in 2014.
Luby’s had long emphasized in-house training. New managers
attended a several-month-
long program before moving to a restaurant as an Assistant
Manager where training continued in
all aspects of the food service business. Once promoted to
Associate Manager, they were
eligible for profit sharing based on store sales and profitability.
For Senior Managers, profit
sharing can more than double their salaries. The majority of the

32. firm’s senior managers had been
15
with the firm for 10 or more years. Low turnover was of
particular interest since management
tenure in the restaurant industry was strongly tied to store
performance.
Technology and Support Services
The firm leased a service facility in Houston, TX from the
Pappas brothers. The facility
had 21,000 square feet of warehouse space plus 5,644 square
feet of office space. From this
facility, the firm dispatched repair and service teams to
restaurants having equipment problems.
The facility also fabricated proprietary equipment for its
restaurants. These systems had higher
performance and longer life than comparable products generally
available on the market.
The firm also maintained an active social media presence and
several websites which
provided restaurant locations, daily menus, and other
information about the firm. The websites
offered customers the option of ordering Luby’s-to-go meals by

33. phone, fax, or online. A similar
Fuddruckers application was in development. The information
system at Luby’s also allowed
the firm to move much of its training online.
Conclusion
Despite the changes Luby’s had made, the stock had
underperformed all comparison
groups including the S&P SmallCap 600 Index and an industry
peer group consisting of Bob
Evans Farms, Inc., CBRL Group, Inc., Denny’s Corporation,
Frisch Restaurant Group, Red
Robin Gourmet Burgers and Ruby Tuesday Inc. These
companies were multi-unit family and
casual dining restaurant operators in the mid-price range (Table
7).
Table 7: Comparison of stock price
2008 2009 2010 2011 2012 2013
Luby’s, Inc. 100.00 61.33 69.07 64.15 88.96 102.21
S&P 500 Index—Total Return 100.00 78.89 82.76 98.08 116.03
137.51
S&P 500 Restaurant Index 100.00 98.65 128.73 173.19 188.78
225.69

34. Peer Group Index Only 100.00 102.59 114.98 132.66 167.20
238.64
Peer Group Index + Luby’s Inc. 100.00 99.80 111.76 127.71
161.55 228.71
16
Other measures of performance had been similarly
disappointing. Same store sales
company-wide were flat in 2014, but differed across brands.
While same store sales declined
3.5% at the Fuddruckers restaurants, they were offset by
increases at Luby’s locations and at the
single Combo location which had been open more than two
years. Total revenues were up,
mostly from the Luby’s, CCS, and Combo locations. Despite
the sales increase, the firm again
reported a net loss of $1.6 million for 2014. While some
segments of the company reported
profits, they were more than offset by a $2.4 million loss from
the Cheeseburger in Paradise
brand and expenses related to a dozen store openings.

35. While the firm has been discounted by many analysts, CEO
Christopher Pappas began
aggressively buying the company’s stock in early 2015. In
January, he purchased 43,254 shares
for $203,884.79 and followed those purchases with an
additional $386,836.00 investment,
acquiring another 78,381 shares during the first week of
February. Those purchases raised his
total ownership to 3,586,124 shares valued at approximately
$18,181,648.68. Whether that
investment was a wise one depends on the firm’s strategy in the
coming years.
17
References
Brewer, Jim (Feb 9th, 2015). Luby's CEO Purchases
$115,737.96 in Stock (LUB). WKRB
News.
Fuddruckers website, (www.Fuddruckers.com).
Koo Koo Roo website, (www.kookooroo.com).

36. Luby’s, Inc. SEC filing forms 10-K (1998-2014)
Luby’s company website, (www.Lubys.com).
Luby’s Culinary Services website, (www.Lubyscs.com).
National Restaurant Association, Restaurant Spending, July,
2002, available at
www.restaurant.org
National Restaurant Association, Restaurant Industry Forecast,
2014, available at
www.restaurant.org
National Restaurant Association, Industry at a glance, 2014,
available at www.restaurant.org
National Restaurant Association, Restaurant Trend Study, 2013,
available at www.restaurant.org
Risk Management Associates (2014). Annual Statement Studies
and Key Financial Ratios.
Ruggless, Ron (2001). Luby’s woes likely to continue, but

37. management is optimistic. Nation’s
Restaurant News July 9, 2001.
Ruggless, Ron (2001). Struggling cafeteria chains draft casual
dining vets in recovery bids.
Nation’s Restaurant News January 20, 2001.
Ruggless, Ron (2003). Cafeterias face plate full of pressures.
Nation’s Restaurant News
January 20, 2003.
Siskos, Catherine (2002). Shareholders Unite!, Kiplinger’s
Personal Finance, available at
www.kiplinger.com
U. S. Census Bureau, 1997 Economic Census: Accommodation
and Food Services,
(www.census.gov).
http://www.fuddruckers.com/
http://www.kookooroo.com/
http://www.lubys.com/
http://www.lubyscs.com/

38. http://www.restaurant.org/
http://www.restaurant.org/
http://www.restaurant.org/
http://www.restaurant.org/
http://www.kiplinger.com/
http://www.census.gov/
18
LUBY’S, INC. Consolidated Statements of
Operations (USD $)
In Thousands, except Per Share data, unless
otherwise specified
12 Months Ended
Aug. 27, 2014 Aug. 28, 2013 Aug. 29, 2012
SALES:
Restaurant sales $ 368,267 $ 360,001 $ 324,536
Culinary contract services 18,555 16,693 17,711
Franchise revenue 7,027 6,937 7,232
Vending revenue 532 565 618
TOTAL SALES 394,381 384,196 350,097
COSTS AND EXPENSES:

39. Cost of food 106,284 103,070 90,416
Payroll and related costs 127,792 123,864 112,279
Other operating expenses 68,820 64,918 54,007
Occupancy costs 21,060 21,012 18,097
Opening costs 2,164 783 395
Cost of culinary contract services 16,177 14,874 16,545
Depreciation and amortization 20,062 18,376 17,894
General and administrative expenses 35,038 32,217 30,808
Provision for asset impairments, net 2,498 615 451
Net loss (gain) on disposition of property and equipment
(2,357) (1,723) 278
Total costs and expenses 397,538 378,006 341,170
INCOME FROM OPERATIONS (3,157) 6,190 8,927
Interest expense (1,247) (920) (942)
Other income, net 1,131 1,052 1,067
Income (loss) before income taxes and discontinued
operations
(3,273) 6,322 9,052
Provision (benefit) for income taxes, net (1,660) 1,775 1,654

40. Income (loss) from continuing operations (1,613) 4,547 7,398
Income (loss) from discontinued operations, net of
income taxes
(1,834) (1,386) (645)
NET INCOME (LOSS) $ (3,447) $ 3,161 $ 6,753
Income (loss) per share from continuing operations:
Basic (in Dollars per share) $ (0.06) $ 0.16 $ 0.26
Assuming dilution (in Dollars per share) $ (0.06) $ 0.16 $ 0.26
Income (loss) per share from discontinued
operations:
Basic (in Dollars per share) $ (0.06) $ (0.05) $ (0.02)
Assuming dilution (in Dollars per share) $ (0.06) $ (0.05) $
(0.02)
Net income (loss) per share:
Basic (in Dollars per share) $ (0.12) $ 0.11 $ 0.24
Assuming dilution (in Dollars per share) $ (0.12) $ 0.11 $ 0.24
Weighted-average shares outstanding:
Basic (in Shares) 28,812 28,618 28,351

41. Assuming dilution (in Shares) 28,812 28,866 28,429
19
Luby’s, Inc.
Consolidated Balance Sheets
(USD $) In Thousands, unless otherwise specified
Aug. 27, 2014 Aug. 28, 2013
Current Assets:
Cash and cash equivalents $ 2,788 $ 1,528
Trade accounts and other receivables, net 4,112 4,083
Food and supply inventories 5,556 4,908
Prepaid expenses 2,815 3,267
Assets related to discontinued operations 52 196
Deferred income taxes 587 1,635
Total current assets 15,910 15,617
Property held for sale 991 449
Assets related to discontinued operations 4,204 4,218
Property and equipment, net 213,492 190,497

42. Intangible assets, net 24,014 25,517
Goodwill 1,681 2,169
Deferred income taxes 11,294 7,923
Other assets 3,849 4,255
Total assets 275,435 250,645
Current Liabilities:
Accounts payable 26,269 23,655
Liabilities related to discontinued operations 590 527
Accrued expenses and other liabilities 23,107 21,817
Total current liabilities 49,966 45,999
Credit facility debt 42,000 19,200
Liabilities related to discontinued operations 278 448
Other liabilities 8,167 7,865
Total liabilities 100,411 73,512
SHAREHOLDERS’ EQUITY
Common stock, $0.32 par value; 100,000,000 shares authorized;
Shares
issued were 28,949,523 and 28,804,344, respectively; Shares

43. outstanding were 28,449,523 and 28,304,344, respectively
9,264 9,217
Paid-in capital 27,356 26,065
Retained earnings 143,179 146,626
Less cost of treasury stock, 500,000 shares (4,775) (4,775)
Total shareholders’ equity 175,024 177,133
Total liabilities and shareholders’ equity $ 275,435 $ 250,645
20
FIVE-YEAR SUMMARY OF OPERATIONS
Fiscal Year Ended
August 28,
2013
August 29,
2012
August 31,
2011

44. August 25,
2010
August 26,
2009
(364 days)
(364 days)
(371 days)
(364 days)
(364 days)
(In thousands except per share data)
Sales
Restaurant sales $ 366,155 $ 324,536 $ 325,383 $
230,342 $ 245,799
Culinary contract services 16,693 17,711 15,619
13,728 12,970
Franchise revenue 6,937 7,232 7,092 645 –

45. Vending revenue 565 618 654 44 –
Total sales 390,350 350,097 348,748 244,759
258,769
Income (loss) from continuing
operations 4,222 7,613 2,800 (494 ) (14,032 )
Income (loss) from discontinued
operations
(a)
(937 ) (759 ) 165 (2,399 ) (12,386 )
Net income (loss) $ 3,285 $ 6,854 $ 2,965 $ (2,893 )
$ (26,418 )
Weighted-average shares
outstanding:
Basic 28,618 28,351 28,237 28,129 28,084
Assuming dilution 28,866 28,429 28,297 28,129
28,084
Total assets $ 250,305 $ 231,017 $ 228,020 $ 242,342
$ 199,406
Total debt $ 19,200 $ 13,000 $ 21,500 $ 41,500 $ –
Number of restaurants at fiscal year

46. end 180 154 156 154 119
Number of franchised restaurants at
fiscal year end 116 125 122 130 –
Number of Culinary Contract
Services contracts at fiscal year
end 21 18 22 18 15
Costs and Expenses
(As a percentage of restaurant
sales)
Cost of food 28.7 % 27.9 % 28.9 % 27.6 % 27.6 %
Payroll and related costs 34.5 % 33.9 % 34.8 % 36.0
% 36.3 %
Other operating expenses 18.1 % 16.7 % 17.5 % 17.6
% 19.0 %
Occupancy costs 5.9 % 5.4 % 5.6 % 4.0 % 3.4 %
21

47. Segment Data Years Ended
August 27,
2014
August 28,
2013
August 29,
2012
(In thousands)
Sales:
Company-owned restaurants $ 368,799 $ 360,566
$ 325,154
Culinary contract services 18,555 16,693
17,711
Franchising 7,027 6,937 7,232
Total $ 394,381 $ 384,196 $ 350,097
Segment level profit:
Company-owned restaurants $ 44,843 $ 47,702 $
50,355
Culinary contract services 2,378 1,819 1,166

48. Franchising 7,027 6,937 7,232
Total $ 54,248 $ 56,458 $ 58,753
Depreciation and amortization:
Company-owned restaurants $ 17,357 $ 16,417 $
15,990
Culinary contract services 409 440 471
Franchising 767 767 767
Corporate 1,529 752 666
Total $ 20,062 $ 18,376 $ 17,894
Total assets:
Company-owned restaurants $ 220,793 $ 203,850
$ 182,162
Culinary contract services 2,724 3,547 3,774
Franchising 13,906 14,674 15,352
Corporate 38,012 28,574 29,601
Total $ 275,435 $ 250,645 $ 230,889
Capital expenditures:
Company-owned restaurants $ 43,075 $ 30,741 $
19,077

49. Culinary contract services 64 95 292
Franchising — — —
Corporate 3,045 503 6,476
Total $ 46,184 $ 31,339 $ 25,845
Income (loss) before income taxes and discontinued operations:
Segment level profit $ 54,248 $ 56,458 $ 58,753
Opening costs (2,164 ) (783 ) (395 )
Depreciation and amortization (20,062 ) (18,376 )
(17,894 )
General and administrative expenses (35,038 )
(32,217 ) (30,808 )
Provision for asset impairments, net (2,498 ) (615 )
(451 )
Net gain (loss) on disposition of property and equipment
2,357 1,723 (278 )
Interest income 6 9 9
Interest expense (1,247 ) (920 ) (942 )
Other income, net 1,125 1,043 1,058
Total $ (3,273 ) $ 6,322 $ 9,052

50. 22
Figure 1
Luby’s Locations
(Source: Luby’s Web Page http://www.lubys.com)
Where do we go from here?
Luby’s Case
John K. Masters, PhD., Cameron University
Pam Rodgers, PhD, Cameron University
Discussion Questions
1. What is happening in Luby’s Environment?
2. What Resources does Luby’s have to work with? What makes
the firm unique?
3. What Strategy would you recommend for Luby’s?
4. What ethical issues would the firm’s current alternatives
raise?
5. Which stakeholders are harmed or benefited by particular
actions?
6. What effect might Luby’s current situation and a
recommended plan for the firm have on the firm’s culture?