Restaurant Posts Rave Review

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It's getting harder and harder to ignore Ruby Tuesday (NYSE: RI). With only 700 domestic locations, you might not find one at every intersection as is seemingly the case with larger casual-dining chains such as Darden (NYSE: DRI), Brinker (NYSE: EAT), or Applebee's (NYSE: APPB), but the company is having no problem wringing profits from that smaller base.

Fourth-quarter numbers released after the bell yesterday were an effective appetizer, leaving investors satisfied but eager for more. For the period, net income climbed 23% to $31 million -- in line with estimates of $0.46 -- on an 11.6% increase in operating revenues to $275 million. Ruby Tuesday's "Smart Eating" campaign, which features a range of healthy entrees and a recently redesigned menu detailing nutritional information, remains popular and helped drive same-store sales increases at company-owned and franchised locations of 1.3% and 4.6% respectively.

An 18% rise in fourth-quarter earnings per share capped off a terrific year that saw similar gains of 23%, 22%, and 19% the past three sequential quarters. Full-year earnings grew to $1.64 on $1 billion in revenues, with both totals setting new records for the company. Management reiterated fiscal 2005 earnings guidance calling for gains of 16% to 17% on a modest 1% rise in comps and is anticipating expansion of 85 to 95 new stores.

Trying to differentiate from a sea of casual-dining options is always a challenge, but Ruby Tuesday has been up to the task. Adding a healthy component to the menu is far from innovative, and curbside service has long been a tactic used by Outback Steakhouse (NYSE: OSI), but Ruby Tuesday has leveraged both of these ideas with much success.

Expectations of earnings growth in the mid-to-upper teens factoring only a 1% rise in comps, a number that management admits is both conservative and below internal goals, paints a pretty picture should same-store sales come in higher than forecast. This is a real possibility, especially considering the company is embarking on its first ever traditional television advertising campaign in key markets. With a forward multiple well below industry average and a PEG ratio of only 0.86, Ruby Tuesday stock is priced just as reasonably as one of its signature dishes.

Looking for more Ruby Tuesday coverage? Read Rick Munarriz's cleverly titled thoughts -- Hello Ruby Tuesday and Good Buy Ruby Tuesday.

Fool contributor Nathan Slaughter enjoys Ruby Tuesday's salad bar, but he owns none of the companies mentioned.