Ruby Tuesday's Beats Street - Analyst Blog

RT Shares Surge on Better-than-Expected Results

On July 7, 2009, Ruby Tuesday’s (RT) shares surged 12.46% and closed at $7.40, in the light of better than expected fourth quarter results, helped by cost cutting initiatives. Earnings per share for the reported quarter increased 3.7% year over year to $0.28 from $0.27 reported in the prior year quarter, beating Street expectation by $0.08.

The comparable store sales at company-owned restaurants dipped but at a slower rate, falling 3.2% in the reported quarter, as it improved over the 6.8% decline in the third quarter of 2009, and a 10.8% decline in both the first and the second quarters.

Comparable store sales at domestic franchise restaurants fell 6.9%. Guest count was positive in the reported quarter. Management expects comparable sales to fall in the range of 2.5%-3.5% for the fiscal year 2010, an improvement over the 7.9% decline in fiscal year 2009.

As a result of the decline in comparable store sales, total revenue plunged 7.1% to $317.3 million – restaurant sales and operating revenue plummeted 6.9% to $315.1 million, whereas franchise revenue declined 28.4% to $2.2 million. Restaurant operating cash flow margin shrank 50 basis points to 18.9%, but achieved a marginal improvement of 10 basis points sequentially.

The company also lowered its debt by $32 million in the reported quarter and $112 million during the fiscal year 2009.Consequently, interest expense declined 14% during the reported quarter.

Ruby Tuesday operates in a casual dining segment, which has been hit hard by plummeting same-store sales and falling traffic. Consumers with less disposable income are either shifting base to quick service restaurants or dining at home.

The company closed 54 restaurants during fiscal year 2009, of which 43 restaurants were closed during the third quarter. The company did not open or close any restaurants during the reported quarter.

Ruby Tuesday has no plans to open any company-owned restaurants in fiscal year 2010, but expects to close about 14 more restaurants. Management expects fiscal 2010 EPS to be in the range of $0.50 to $0.65.

Like Ruby Tuesday other casual dining operators – Cosi Inc. (COSI), California Pizza Kitchen (CPKI), Red Robin Gourmet Burgers (RRGB), Famous Dave’s of America (DAVE), O’Charley’s Inc. (CHUX) and The Cheesecake Factory Incorporated (CAKE) – are also facing the brunt of the recession with falling same-store sales and declining traffic.