Ruby Tuesday Inc.
) reported adjusted earnings of 18 cents per share in third quarter
2012, beating the Zacks Consensus Estimate by a penny and also
ahead of management's guided range of 12-16 cents per share.
However, reported earnings compared unfavorably with the year-ago
quarter earnings of 24 cents.
Total revenue in the quarter perked up 1.8% year over year to
$324.8 million. The year-over-year upside in revenue was
attributable to franchise partnership business acquisitions in
2011, partially offset by a drop in comparable restaurant
Inside the Headline Numbers
Restaurant sales were up 2.0% to $323.5 million, while franchise
revenues plunged 28.5% to $1.4 million owing to the franchise
The casual dining restaurant operator posted a 5.0% decline in
comparable store sales at company-owned restaurants, due to heavy
promotional activities by competitors to drive traffic. Comparable
store sales at domestic franchised restaurants also dropped 5.8%.
However, to drive traffic, the company is now focusing more on
marketing with increased television advertising.
Restaurant level operating margin slipped 10 basis points (bps)
year over year to 16.9% (as a percentage of company-operated
restaurant sales) due to a 110-bp upside in payroll and related
costs to 34.6%, partially offset by a 110-bp dip in other
restaurant operating costs to 19.6% and a 50-bp decline in cost of
merchandise to 28.8%.
The company has also begun executing its sale-leaseback strategy
to raise $50 million in gross proceeds through the sale and
leaseback of approximately 25 locations by the end of first quarter
of 2013. At the end of the quarter, Ruby completed a sale-leaseback
transaction on eight properties, resulting in $17.5 million in
gross proceeds. Ruby Tuesday plans to use the proceeds for debt
reduction and capital expenditure.
During the quarter, the company did not open any new
company-owned restaurant, but closed down one restaurant. The
company opened two domestic and international franchised
restaurants in the quarter, but closed down four.
For 2012, the company plans to close 31-33 company-owned
restaurants, convert 8-10 company-operated restaurants into other
high-quality dining concepts and open one new Truffles Grill
restaurant. Ruby Tuesday is also planning to open 6-8 Lime Fresh
Mexican restaurants. During the fourth quarter, company plans to
close 25 to 27 underperforming company-owned units.
The company plans to open six to eight franchised restaurants in
2012, out of which five will be in the international market. Ruby
Tuesday also expects to close 18 to 20 restaurants, out of which 14
will be in the international market.
Ruby Tuesday ended the quarter with cash and short-term
investments of $8.9 million, long-term debt of $292.6 million and
shareholders' equity of $584.4 million.
For fiscal 2012, management expects adjusted earnings in the
range of 43 cents to 48 cents per share versus the previous
expectation of 55 cents to 65 cents per share, and comparable-store
sales at company-owned restaurants to dip 4% to 4.5%, up from the
earlier forecast of down 2% to 4%. Restaurant operating margins are
expected to contract slightly. For 2012, capital expenditures are
estimated between $35 million and $37 million and free cash flow in
the range of $75 to $85 million.
Ruby Tuesday expects same-store sales to benefit from higher
television advertising and restaurant-level margins to expand due
to cost-savings programs, resulting in annualized savings of $35 to
We remain enthusiastic about the company's future strategies
including improving margins by lowering costs, driving
same-restaurant sales through several value offerings, focusing on
low capital growth opportunities and returning excess cash to
shareholders. Additionally, the acquisition of Lime Fresh Mexican
Grill, a fast casual concept, is also promising.
However, economic uncertainties, stiff competition from peers
and continued investment in product offerings as well as other
initiatives may strain its margin and cash flow generation.
Ruby Tuesday, which competes with
Texas Roadhouse Inc (
currently retains a Zacks #3 Rank, implying a short-term Hold
rating. We are also maintaining our long-term Neutral
recommendation on the stock.
RUBY TUESDAY (
): Free Stock Analysis Report
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