Ruby Tuesday Inc.
) adjusted loss of 7 cents per share in the second quarter of
2013 matched the Zacks Consensus Estimate but was wider than the
year-ago loss of 3 cents per share. Lower sales especially in the
latter part of the quarter along with higher maintenance expenses
hurt adjusted earnings.
Revenues in the quarter slipped 1.0% year over year to $304.2
million. However, revenue beat the Zacks Consensus Estimate of
The year-over-year downside in revenue was due to permanent
closure of 29 company-owned Ruby Tuesday units in the quarter,
which fully offset the positive impact of same restaurant sales
increase at Ruby Tuesday concept and unit growth at Lime Fresh
and Marlin & Ray's.
Behind the Headline Numbers
The casual dining restaurant operator posted a 0.3% upside in
comparable store sales at company-owned restaurants while its
franchised division saw 0.2% expansion in comps.
Restaurant level operating margin enhanced 170 basis points
(bps) year over year to 16.1% attributable to a downside in
payroll and related expenses and cost of goods sold, partially
offset by an increase in other operating costs and
Alongside benefiting margins, efficient cost containment
coupled with lower coupon expenses is also financing the
company's television marketing programs to some extent.
During the quarter, the company opened two Lime Fresh
company-owned restaurants. It also shut down two company-owned
Ruby Tuesday stores. Domestic and international franchisees
opened one and closed two Ruby Tuesday outlets.
The company also plans to open 10???12 Lime Fresh restaurants
and close two Lime Fresh restaurants, 13 Marlin & Ray's
restaurants, one Wok Hay restaurant, six to eight Company-owned
Ruby Tuesday restaurants as well as sell two Truffles Grill
restaurants, in 2013. The company's decision for the massive
divesture is intended to attain optimum capital allocation.
Ruby Tuesday ended the quarter with cash and short-term
investments of $25.6 million, up from the year-ago cash balance
of $9.0 million. Total book-debt of $309.0 million was also down
year over year by around $33.0 million.
he company bought back 2.4 million shares of common stock
during the quarter under review at an average price of $7.33 per
share. Following the quarter end, the restaurateur repurchased an
additional 400 thousand shares at an average price of $7.91.
On January 8, 2013, Ruby's board expanded the share repurchase
authorization by 10 million shares, resulting in 12.7 million
shares available for repurchase at present.
For fiscal 2013, management lowered its same-store sales at
company-owned restaurants guidance to flat from the range of flat
to growth of 2.0% projected previously.
While management reaffirmed its anticipation of recording
adjusted earnings in the range of 24-34 cents per share, it
slashed its reported earnings expectation to the range of a loss
of 3 cents to a gain of 3 cents from the prior range of 20-30
cents per share guided earlier.
New CEO transition expenses and CEO pension settlement
expense; second quarter impairment charges and third quarter
lease and other charges were responsible for the above cut.
Restaurant operating margins are expected to expand 150-200
basis points (bps) (reaffirmed). Free cash flow is expected to be
in the range of $10-$20 million lower than the prior expectation
of $20-$30 million.
After missing Zacks estimates for last two consecutive
quarters, Ruby Tuesday managed to meet the Consensus Estimate
this time though losses were substantially higher year over year.
Additionally, its persistent struggle to post sales growth also
While we prefer some of the company's operational strategies
such as improving margins by lowering costs as well as driving
same-restaurant sales that too amid such a competitive setting
and the closure of underperforming units, the efforts are yet to
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Economic uncertainties, stiff competition from peers and
continued investment in sales driven initiatives which may lower
margins add to our worry.
Ruby Tuesday currently retains a Zacks Rank #4 (Sell). However,
restaurateurs currently performing well include
Bob Evans Farms Inc.
Krispy Kreme Doughnuts Inc.
). Both the companies carry a Zacks Rank #1 (Strong Buy).