Ruby Tuesday’s Losses Widen on Fresh Start Initiatives

Revenue fell 17.7% to $214.7 million due to closure of 109 Ruby Tuesday restaurants

rRuby Tuesday Inc. (NYSE: RT) announced its Q2 FY17 financial results on January 05th, 2017.

The Maryville, Tennessee-based company, together with its subsidiaries, owns, develops, operates, and franchises casual dining restaurants under the Ruby Tuesday name in the US and international markets.

As of November 29th, 2016, the company operated 613 Ruby Tuesday restaurants in 42 states, 14 foreign countries, and Guam. Of those restaurants, it owned and operated 546 Ruby Tuesday restaurants and franchised 67 Ruby Tuesday restaurants, comprised of 18 domestic and 49 international restaurants. Ruby Tuesday company-owned and operated restaurants are concentrated primarily in the Southeast, Northeast, Mid-Atlantic, and Midwest of the US. Read more about Ruby Tuesday’s financial results below.

Q2 FY17 financial highlights

During Q2 FY17, Ruby Tuesday’s revenue fell 17.7% to $214.7 million, mainly due to a net reduction of 109 company-owned Ruby Tuesday restaurants versus the prior year’s same period. Same-restaurant sales declined by 4.1% at Company-owned Ruby Tuesday restaurants, due in part to guest traffic declines resulting from a challenging external environment, with Y-o-Y guest counts down 2.8%. Additionally, given the Company’s promotional activity during the quarter, average check declined 1.3%.

Restaurant level margins fell to $24.6 million from $40.4 million in the year ago comparable period. As a percentage of restaurant sales and operating revenue, restaurant level margin declined 410 basis points to 11.5%, primarily due to underperforming promotional activities that resulted in inefficient management of controllable costs during the reporting quarter.

r2During Q2 FY17, Ruby Tuesday’s general and administrative expenses (G&A) increased to $18.4 million from $14.2 million. As a percentage of total revenue, G&A expenses increased 320 basis points to 8.6% from 5.4%, mainly due to an increase in costs associated with executive transition. Closures and impairments expense was $15.7 million compared to $12.1 million in the year-ago corresponding period. Marketing expenses increased to $14.0 million from $13.7 million during the reporting quarter. As a percentage of revenue, marketing expenses increased 130 basis points to 6.5% from 5.2%, mainly due to deleveraging on lower sales.

In all, Ruby Tuesday’s Q2 FY17 net loss widened to $38.0 million, or ($0.63) per diluted share, compared to a net loss of $15.8 million, or ($0.26) per diluted share, in Q2 FY16. Adjusted net loss widened to $10.9 million, or ($0.18) per diluted share, compared to adjusted net loss of $2.4 million, or ($0.04) per diluted share, in the year-ago same period, and excluded adjustments of $27.1 million related to closures and impairment charges.

Other highlights

Balance sheet and cash flow: The Company ended Q2 FY17 with cash and cash equivalents totaling $38.6 million and debt of $223.2 million.

Sale of property: During Q2 FY17, Ruby Tuesday completed the sale of its property in Maryville, Tennessee, for $2.8 million. Team members will be relocated to the Company’s other Tennessee-based Restaurant Support Center in Maryville, Tennessee by the end of January 2017.

Restaurant activity: As of November 29th, 2016, there were 613 Ruby Tuesday restaurants system-wide, of which 546 were company-owned, versus 733 total restaurants in the year-ago comparable quarter. During Q2 FY17, one company-owned Ruby Tuesday restaurant and one international franchised Ruby Tuesday restaurant were closed down.

Asset rationalization plan: Ruby Tuesday is in the contract process to sell 25 properties with average expected net proceeds of $1.6 million per location. This includes 20 properties closed as a result of our Asset Rationalization Plan announced on August 11th, 2016.

Fresh Start initiatives: As announced on October 06th, 2016, Ruby Tuesday plans to accelerate the execution of its Fresh Start Initiatives that includes a new menu and garden bar to better address business challenges and improve financial profitability.

Fresh New Menu: The Company is facing intense competition with Shake Shack Inc. (NYSE: SHAK), Chik-fil-A Inc., and Whataburger that offer a more appetizing menu. Moreover, its competitors such as McDonald’s Corp. (NYSE: MCD), Darden Restaurants Inc. (NYSE: DRI), Chipotle Mexican Grill Inc. (NYSE: CMG) and Five Guys Burgers and Fries have been fast expanding their operations.

To drive sales, the company launched a new core menu mid-November 2016 across all Ruby Tuesday restaurants, which features new shareable appetizers, garden fresh salads, pastas, and desserts, as well as a new drink and redesigned kids menu. The menu features four new freshly prepared salads (BBQ Chicken Salad, Crispy Chicken Cobb Salad, Mediterranean Chicken Salad or Kale Caesar Salad) that can be served three ways (tossed, chopped or chopped and stuffed in a warm baguette). New appetizers include Philly Cheesesteak Potstickers, Buffalo Chicken Tostadas, and Italian Five-Cheese Skillet. The Fresh New Menu also reduced the total number of items offered by approximately 30% to remove underutilized and overly complicated options which simplified operations.

Fresh New Garden Bar: On January 17th, 2017, the Company will roll out its Fresh New Garden Bar nationally across all Ruby Tuesday restaurants. The Fresh New Garden Bar will include fresh greens, raw vegetable toppings, roasted vegetables, crispy toppings, as well as hummus, dips and fruits. The Company will also introduce eight in-house new salad dressings hat are naturally gluten-free and utilize the freshest ingredients.

Fresh Experience: Ruby Tuesday continued to improve customer service and during Q2 FY17, reached its best ever overall satisfaction score. The Company expects to complete 13 store remodels by the end of January 2017 in certain markets.

Stock Performance

r3Ruby Tuesday’s stock stood at $2.44, losing 8.27%, at the close on Monday, January 09th, 2017, having vacillated between an intraday high of $2.77 and a low of $2.40 during the session. The stock’s trading volume was at 1,918,595 for the day. The Company’s market cap was at $194.93 million as of Monday’s close.

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