Ruby Tuesday, Inc. (RT)

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Ruby Tuesday Inc. (RT)

F1Q11 (Qtr End 08/31/2010) Earnings Call

October 6, 2010 5:00 pm ET

Executives

Greg Ashley - VP of Finance

Sandy Beall - Chairman and CEO

Margie Duffy - Chief Financial Officer

Kimberly Grant - EVP

Mark Young - SVP and CMO

Dan Dillon - SVP of Brand Development

Analysts

Jeff Omohundro - Wells Fargo Securities

Brad Ludington - KeyBanc Capital Markets

Joe Buckley - Bank of America-Merrill Lynch

Robert Derrington - Morgan, Keegan

Bryan Elliott - Raymond James

Keith Siegner - Credit Suisse

Presentation

Operator

Greetings and welcome to the Ruby Tuesday Inc. first quarter fiscal year 2011 earnings call. (Operator Instructions)

It is now my pleasure to introduce your host, Mr. Greg Ashley, Vice President of Finance for Ruby Tuesday.

Greg Ashley

Thank you, Doug, and thanks all of you for joining us this evening for our first quarter earnings release. With me today are Sandy Beall, Ruby Tuesday's Chairman and CEO; Margie Duffy, Chief Financial Officer; Kimberly Grant, Executive Vice President; Mark Young, Senior Vice President and Chief Marketing Officer; and Dan Dillon, our new Senior Vice President of Brand Development.

I'd like to remind you that there are likely to be forward-looking statements in our comments and I refer you to the note regarding forward-looking information in our press release and the most recently filed Form 10-K. We plan to release second quarter fiscal year '11 earnings in early January.

Our first quarter earnings were released today after the market closed. A copy of our press release can be found on the Investor Relations section of our website at rubytuesday.com and is also available on Business Wire, First Call and other financial media outlets.

Our format today as usual includes the following: An overview of our first quarter financial results, our fiscal 2011 outlook and a review of our plans and strategies. At the conclusion of our prepared remarks, we will respond to your questions.

I will now turn the call over to Sandy.

Sandy Beall

Thanks, Greg. I’d like to welcome all of you listening in this afternoon and thank you for joining us. We’re pleased to report another great quarter overall highlighted by positive same-restaurant sales. This was our best sales quarter in the last four years and we’re very excited to see that the momentum which began in our brand last year has continued to strengthen.

We saw a year-over-year improvement in restaurant operating margins, and our net income for the quarter excluding accounting gains realized from the franchise partner acquisitions was up 74% over the prior year. We believe the impact of our Game Changers coupled with high cost controls, tight cost management and good operations is providing attractive incremental flow-through to our topline sales numbers.

Our same-restaurant sales for the first quarter were 1.2%, more importantly beating Knapp-Track, the industry benchmark, on a one-year basis by more than 1 point and on a two-year basis by 5 points. Our same-restaurant sales have shown sequential quarterly improvement for the last seven quarters, including two successive quarters of positive results. We are achieving this with fewer commercial marketing efforts.

Our balance sheet is in great shape. During the quarter, our total debt paydown was offset by debt absorbed from our two franchise partner acquisitions. We are comfortably in compliance relative to our debt covenants and our book debt to EBITDA ratio is only 2.08 times during the quarter. This represents a sizeable improvement over the prior year ratio of 2.84.

We continue to strengthen our brand in high-quality casual dining sector from both the food and service standpoint. Our Game Changers which are our innovative and enhanced product offerings such as Brunch or Tuesday Steak and Lobster Night, Gimmie A Mini, our Bar programs, et cetera, all those are exciting, and I think Mark will give you more information on those. Our guest satisfaction scores are at all time high, and Kimberly and team have done a great job on that.

As we discussed on our last call, we’ve spent a significant amount of time with the Board discussing low-risk ways to grow our business. What we want is low-risk, high-return and maintain a lot of free cash flow. We now have all the pieces and personnel in place and have started to execute on our long-range plan.

As we look forward to the next three to five years, our focus will be on the following key initiatives.

First and foremost, we’re focused on continuing to enhance the quality of Ruby Tuesday brand along with continuing to maximize sales and profits through a non-traditional sales building program. We’ll continue to elevate the brand experience by rolling out innovative products, promotions and investing in various labor initiatives to enhance the overall dining experience. Kimberly will talk more about this in her section. We mentioned last time our goal was to end up with the $25 high-quality casual dining experience for $15.

Our second strategy focuses on converting some underperforming company-owned locations to other high-quality casual dining concepts. We have a number of restaurants in our portfolio where there are these less than $1.4 million. While some of these are just bad locations, many of them are good and could be converted to an alternate concept. We’re assessing which brands are best suited for the local market concept, who can do the most volume at best street corner versus just trying to have Ruby Tuesdays everywhere.

So whether it’s a Jim 'N Nicks, upscale Bar-B-Q, Truffles and upscale casual dining restaurant or an internal seafood health concept that we plan on opening this year, which one would get the most volume out of the marketplace. These conversions require nominal capital investments, less than $500,000 on average, and have the potential to drive average restaurant volume of $1 million and more.

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