The Food Warehouse

Ruby Tuesday

Ruby Tuesday Beats Estimate

Ruby Tuesday, Inc. (RT), the casual dining restaurant operator, recently announced better-than-expected third-quarter 2010 results. Despite a low single-digit decline in the top-line, the company was able to post mid-teens growth in the bottom-line on the heels of effective cost management and improved margins.

Ruby Tuesday's quarterly earnings of 30 cents a share surpassed the Zacks Consensus Estimate of 23 cents, and rose 15.4% from 26 cents delivered in the prior-year quarter. Management now anticipates fiscal 2010 earnings between 60 cents and 65 cents that dovetail with the current Zacks Consensus Estimate of 63 cents a share.

On a reported basis, including one-time items, Ruby Tuesday's earnings came in at 28 cents a share, reflecting a three-fold increase compared to the year-ago quarterly earnings of 9 cents.

The restaurant level operating margin expanded 70 basis points (bps) year-over-year to 19.5% (as a percentage of company-operated restaurant sales), reflecting a 30 bps drop in payroll and related costs to 32.7% and a 20 bps fall in other restaurant operating costs to 19.4%. Cost of merchandise remained flat at 28.5%.

However, for fiscal 2010, management expects restaurant operating margin to decline by 25 to 50 bps.

Total revenue for the quarter tumbled 3.2% to $307.3 million due to fewer restaurants (12 less) in operations and fall in comparable-store sales. Restaurant sales dropped 3% to $305.6 million, whereas franchise revenue plunged 32.6% to $1.6 million.

Ruby Tuesday has been witnessing improving trends in comparable-store sales and traffic at company-operated restaurants. After declining 3.1% and 1.7% in the first and second quarters of 2010, respectively, comparable-store sales dropped 0.7% in the third quarter.

Adverse weather conditions in many of Ruby Tuesday's core markets have lowered comparable-store sales by 1.5% to 2%. For fiscal 2010, the company now projects comparable-store sales at company-operated restaurants to dip by 1% to 2%.

Comparable-store sales at domestic franchised restaurants fell 5.3%.

During the quarter, no new company-owned restaurants were opened, but 11 restaurants were closed down. On the other hand, one franchise restaurant was opened and three were closed down.

Looking ahead, management stated that it will not open new company-owned restaurants during fiscal 2010 and will go ahead with the closure of 14 restaurants as part of a plan to close 30 restaurants over time as and when lease expires. Domestic franchisees expect to open 2 to 3 restaurants, and international franchisees plan to open 3 to 5 restaurants in the year.

Ruby Tuesday operates and franchises casual dining restaurants in 46 states, the District of Columbia, Guam, and 14 foreign countries, under the Ruby Tuesday brand. As of March 2, 2010, the company owned and operated 659 of its namesake restaurants, whereas domestic and international franchisees operated 168 and 57 restaurants, respectively.

About the Author

Ruby Tuesday Beats Estimate

Why did Ruby Tuesday recently remove some of their most popular meals from their new menu?

I hadn't been to one of these in several months, but I had dinner at one yesterday. My server told me that the new menu was a huge mistake since it removed some of their most popular items. They still sell some of those items at some locations, but you have to ask. She said that their most popular steak dish was a steak with a half-rack of BBQ Ribs and it has been removed. She said that her manager has complained to corporate about the new menu.

Ruby Tuesday (and most other chain restaurants) changes their menu SOOO often. they do listen to what customers, and managers have to say though. they test menus at certain locations before the release the menu company wide. the steak and half-rack was popular, but also very expensive (for food cost, and for the customer). rest assured that next time they come out with a "new" menu, they will have some of the old favorites return. they always do that. also, if you have a favorite, ask your server if they still make it even if it's not on the menu. chances are, they do.