Ruby Tuesday Inc.
) reported adjusted earnings of 5 cents per share in the first
quarter of 2013, which lagged the Zacks Consensus Estimate by a
penny but was in line with the year-ago earnings per share.
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Total revenue in the quarter nudged up 0.8% year over year to
$332.9 million. Revenue number also fell short of the Zacks
Consensus Estimate of $335.0 million.
The year-over-year upside in revenue was attributable to sales
growth at Lime Fresh and Marlin & Ray's. However, 27
permanently closed company-owned restaurants partly offset overall
Inside the Headline Numbers
Restaurant sales were up 1.9% to $331.3 million, while franchise
revenues expanded 14.0% to $1.7 million owing to the franchise
partnership acquisitions. The casual dining restaurant operator
posted a 1.9% upside in comparable store sales at company-owned
Restaurant level operating margin enhanced 400 basis points (bps)
year over year to 19.7% (as a percentage of company-operated
restaurant sales) due to a 70-bps downside in payroll and related
costs, 60-bps dip in other restaurant operating costs, 40-bps
decrease in depreciation and 270-bps fall in cost of merchandise.
All these cost containment efforts coupled with lower coupon
expenses are financing its television marketing programs to some
During the quarter, the company opened two Lime Fresh company-owned
restaurants and one franchised unit. It also shut down two
company-owned stores. Out of the two stores, one was closed
permanently and another temporarily so that it can be converted to
Marlin & Ray's.
The company plans to open 12-16 Lime Fresh restaurants, as well as
transform 5-7 company-owned Ruby Tuesday restaurants to Marlin
& Ray's. The company also plans to shut down 4-6 company-owned
Ruby Tuesday restaurants (excluding conversions).
For 2013, the franchisees of Ruby's will likely open 10-12
restaurants, among which 10 will be international, and shut
down 2-4 restaurants.
Ruby Tuesday ended the quarter with cash and short-term investments
of $65.5 million, long-term debt of $310.6 million and
shareholders' equity of $577.5 million.
The company bought back 364,000 shares of common stock during the
quarter under review at an average price of $6.45 per share.
Following the quarter end, it bought back 173,000 shares at an
average price of $6.73.
For fiscal 2013, management anticipates recording adjusted earnings
in the range of 24-34 cents per share and reported earnings in the
range of 20-30 cents per share. Comparable-store sales at
company-owned restaurants are expected to be in the range of flat
Restaurant operating margins are expected to expand 150-200 bps.
For 2013, free cash flow is guided to be in the range of $20-$30
While we prefer 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, its
failure to meet the Consensus Estimates in the first quarter
concerns us a bit.
In addition, the company's sales growth has also been sluggish and
needs further impetus to surge ahead. Economic uncertainties, stiff
competition from peers and continued investment in product
offerings as well as marketing initiatives may add to the woes.
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.