Ruby Tuesday Is on the Mend, but Is It a Buy?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

It's not easy to be a casual full-service restaurant chain these days, and Ruby Tuesday (NYSE: RT  ) has until recently been no exception to the trend. While the company posted lower year-over-year figures for nearly all of its financial metrics and continued to earn a negative bottom line, the numbers actually came in at a premium to the Street's estimates. Ruby Tuesday is another casual restaurant whose model did not age well, and management is trying to transform the brand as quickly as possible without alienating the remaining customer base. The company is also on target to achieve operating efficiencies and allow more to flow to the bottom line. Is Ruby Tuesday becoming investable?

Better bad results
For the company's fiscal third quarter, Ruby Tuesday again posted lower sales, though this time it was not a matter of declining operations. Due to 30 net store closures over the past year, the company brought in just under $300 million, as opposed to slightly more than $300 million in the year-ago quarter. Same-store sales continued downward as well -- 1.9% at company-owned stores and 2.2% at franchised ones -- due to a 1.7% drop in guest count. While the numbers in isolation aren't much to celebrate, the guest drop comes in better on a sequential basis. The second-quarter guest count had dropped more than 6%.

Considering that more than 20 stores were closed for renovations during the quarter, plus the terrible weather across many parts of the U.S. and the still-cautious consumer, Ruby Tuesday's results are indicative of a turnaround plan that may just be working.

On an adjusted basis, net loss was $0.07 per share -- $0.03 better than one year ago. Starting to help the bottom line are cost-savings efforts aimed at SG&A as well as cost of goods sold. By the fourth quarter of the fiscal year, the company expects to realize $3 million in savings.

Primed up?
There is no doubt that the company's effort to reinvent the menu, spice up the locations, and create operating efficiencies is working, but does that make it a buy at these levels? This is still a money-losing business, and next quarter is projected to show a continued drop in same-store sales and more store closures. At the right price, this is an encouraging turnaround story. But Ruby Tuesday's current EV/EBITDA is nearly 13 times. If the company were to hit the high end of sales estimates for fiscal year 2015 ($1.2 billion), the implied forward price-to-sales ratio is 0.34 times.

At a glance, the company is reasonably valued and on the cheaper end, but its downside risk is still prevalent enough to keep deep-value turnaround investors away. Management has proved it can stop the bleeding, but the question of whether Ruby Tuesday can truly flourish again is still an open-ended one.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

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.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2914203, ~/Articles/ArticleHandler.aspx, 9/4/2015 2:52:22 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...

Michael Lewis

Michael is a value-oriented investment analyst with a specific interest in retail and media businesses. Before coming to the Fool, Michael worked with private investment funds focusing on deep value and special situations. Currently living in the media capital of the world--Los Angeles, California.

Today's Market

updated Moments ago Sponsored by:
DOW 16,038.56 -336.20 -2.05%
S&P 500 1,913.17 -37.96 -1.95%
NASD 4,661.09 -72.41 -1.53%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 2:34 PM
RT $6.70 Down -0.14 -2.05%
Ruby Tuesday, Inc. CAPS Rating: *