Can Ruby Tuesday Turn It Around?

Neighborhood chain restaurant Ruby Tuesday  (NYSE: RT  ) whiffed big time on its recent earnings announcement. Though in the midst of an overhaul -- one that was thought to be improving steadily -- the fast-casual dining restaurant posted a loss of $0.37 per share, which was a far cry from Wall Street's estimates. Coupled with more disheartening figures for the past three months, investors and analysts promptly sold off the stock, dragging the price down more than 16% in Thursday's trading. The question going forward is if Ruby Tuesday's woes are a matter of macroeconomic headwinds keeping patrons away, or if the company's aforementioned recovery is falling flat.

Earnings recap
For the fiscal first quarter, Ruby Tuesday's saw its net income plummet to a loss of $22.2 million, or $0.37 per share. In the year ago quarter, the company was able to turn a profit of $2.6 million. The Street was expecting a much smaller loss of just $0.05 per share. Revenue fell less -- down 11% year over year.

Perhaps the most troubling figure to come from the company was the more than 11% drop in same-store sales for company-owned stores. Clearly, the company is having difficulty getting people in the doors. Meanwhile, franchised stores saw an 8.4% decline.

Looking ahead, the company expects same-store sales to again trend down in the high single digits, giving investors no hope of quick improvement. Management didn't cite internal factors, but blamed the lack of performance on the poor consumer-spending environment.

Retail and restaurants can be hit especially hard by short-term weakness, which sometimes presents opportunity to the value-seeking investor. But with a lack of visibility looking ahead, it's hard to say whether the freshly trimmed stock price provides investors with an attractive value proposition.

Caution ahead
Ruby Tuesday's market cap is under $370 million, and the company has nearly $270 million in debt. Looking ahead, management sees those rough same-store sales figures turning positive by the end of the fiscal year as a result of ongoing restaurant renovations. The company is spending $30-$40 million in capital expenditures this year.

With less than $36 million in cash, the company may have to fund its improvements with its new credit facility. Liquidity is not necessarily a concern here, especially with $10-$15 million in real estate sales coming in, but the balance sheet overall does little to comfort the murky operating business.

At this point, investors would be wise to steer clear of Ruby Tuesday.

 

More from The Motley Fool 
Profiting from our increasingly global economy can be as easy as investing in your own backyard. The Motley Fool's free report "3 American Companies Set to Dominate the World" shows you how. Click here to get your free copy before it's gone.

 

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2680063, ~/Articles/ArticleHandler.aspx, 7/25/2014 11:16:01 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement