Markets

Will Ruby Tuesday (RT) Beat Q1 Earnings on Lower Costs?

Tennessee-based casual dining restaurant chain, Ruby Tuesday, Inc.RT , is set to report first quarter fiscal 2016 results on Oct 8, after the market closes. Last quarter, it posted a positive earnings surprise of 9.09%. The company presently has an average positive earnings surprise of 44.40% over the trailing four quarters. Let's see how things are shaping up for this announcement.

Factors to Consider

Ruby Tuesday is aggressively pursuing brand transformation initiatives. From offering new menu to limited time offers, executing marketing campaigns, and re-imaging its restaurants, the company is leaving no stone unturned to satisfy customers and return to profits.

Based on its sales initiatives, the company expects comps in the range of flat to up 2% in fiscal 2016. The company's comps in the first 2 months of the fiscal first quarter of 2016 were almost in line with the management's outlook. With guest counts improving gradually, comps are expected to grow in the to-be reported quarter.

Meanwhile, the company has been successful in reducing costs and improving margins from its brand transformation efforts that have lowered marketing expenses. Additionally, Ruby Tuesday's strategy to exit its non-core brands and shut down underperforming stores is helping it to lower operating costs. These initiatives, taken up to reduce costs, would aid the company's results in the soon-to-be reported quarter. In fact, due to the aforementioned initiatives, the company's losses have gradually narrowed down and the company posted a profit in the last reported quarter.

However, like every other restaurant chain, inflationary cost pressure is expected to take a toll on Ruby Tuesday's profits. The company has posted losses in 3 out of the trailing 4 quarters. Comps and revenues have remained sluggish on negative guest counts.

Moreover, the company's sales are under pressure as consumers are increasing their spending only modestly, despite moderate improvement in economic growth. Higher health care costs and still-tightened credit availability continue to hurt consumer discretionary spending in the U.S., which remains a concern for Ruby Tuesday.

Ruby Tuesday carries a Zacks Rank #2 (Buy).

Stocks to Consider

Here are a few companies in the retail and restaurant industry which have a favorable Zacks Rank and a positive Earnings ESP and are therefore likely to beat earnings:

Starbucks Corporation SBUX with an Earnings ESP of +2.33% and a Zacks Rank #2.

Panera Bread Company PNRA with an Earnings ESP of +0.76% and a Zacks Rank #3 (Hold).

Macy's, Inc. M with an Earnings ESP of +6.25% and a Zacks Rank #3.

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PANERA BREAD CO (PNRA): Free Stock Analysis Report

RUBY TUESDAY (RT): Free Stock Analysis Report

MACYS INC (M): Free Stock Analysis Report

STARBUCKS CORP (SBUX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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