Many restaurants have been struggling during the COVID-19 pandemic, and Luby's (NYSE: LUB) is no exception. In fact, the Texas chain just announced a liquidation plan that involves it shutting down its restaurant locations, selling off assets, and distributing the proceeds to stockholders.
A dreadful year
News of a Luby's closing shouldn't come as a huge shock, as the company had seen sluggish sales well before the pandemic. Still, clearly, 2020 was the year that did it in.
Though Luby's kicked off the year with a share price above $2, in late March, its stock plunged to just $0.51 a share -- though it's since recovered and is back above the $2 mark. But still, it's clear that the company's business has taken a major beating in the course of the pandemic, and as of late March, it had stopped operations at all 50 of its locations. The company has long-term debt totaling $57.3 million and lease obligations totaling $22.7 million.
The company now plans to sell off assets that include Luby’s Cafeteria locations, Fuddruckers, real estate holdings, and the company’s culinary contract services business. All told, Luby's expects to receive anywhere from $92 to $123 million in proceeds in the course of its liquidation plan. Luby's plan is to then distribute those proceeds to stockholders.
Luby's was founded in 1947 in San Antonio by Bob Luby. The Texas chain is a much-beloved family restaurant known for signature dishes like its LuAnn platter. While the company is pursuing a liquidation of its assets, Luby's also says that it could be sold if a compelling offer presents itself. In fact, Luby's may indeed place its restaurant operations with well-capitalized owners so the chain can continue to operate -- and customers can continue to enjoy the casual dining experience it offers.
The struggle for restaurants is real
The restaurant business can be a brutal one in the best of times, but during the COVID-19 pandemic, it's been dreadful. Social distancing requirements have forced many restaurants to operate at limited capacity, but eateries are still dealing with the same overhead and general expenses they normally grapple with. The only thing that's changed -- for the worse -- is revenue. And while higher-end establishments may, to some degree, be hurting more than low-end ones, the Luby's closing is a sure sign that the restaurant business is in trouble.
That's something commercial landlords and real estate investors need to take to heart. Luby's may be just one of many cafeteria-style establishments that bites the dust as restaurant operations continue to be far from normal, and the more that close, the more landlords and investors are likely to grapple with vacancies.
In fact, other chain restaurant businesses like Pizza Hut, Starbucks (NASDAQ: SBUX), and McDonald's (NYSE: MCD) have also closed locations, or will continue to do so in the near term. All told, it's estimated that over 1,500 locations will be shuttered after all is said and done, and unfortunately, Luby's is only one of many restaurant casualties that might ultimately ensue before the pandemic comes to an end.