Ruby Tuesday, Red Lobster, or Buffalo Wild Wings: Which Restaurant Deserves Your Money?

Shares of down-on-its-luck casual-dining chain Ruby Tuesday perked up in early April after the company reported slightly better-than-expected financial results. Are there more gains ahead for investors?

May 11, 2014 at 8:00AM

Shares of casual-dining restaurant chain Ruby Tuesday (NYSE:RT) have been dead money for some time now, as the company has struggled to attract growing numbers of customers to its restaurants. It's a trend that has also affected competitors, like Darden Restaurants (NYSE:DRI). The double whammy of rising commodity costs and unending promotions has cut into Ruby Tuesday's profits, evidenced by a downward sloping trajectory for its operating margin over the past few years.

However, Ruby Tuesday's shares perked up by a double-digit amount in early April after it reported slightly better-than-expected sales and profitability in its latest fiscal quarter. So, is it time to bet on a new day for the company?

What's the value?
Ruby Tuesday has survived for more than 40 years by remaining true to its roots as a good neighborhood spot to get a quality meal at an affordable price, evidenced by price points that range from $7.49 to $19.99. Like other casual- dining chains, though, the company has anecdotally succumbed to competitive pressure from the fast-casual chains, which have picked off parts of its customer base with lower-priced food that is of comparable quality. Consequently, Ruby Tuesday has lost much of its pricing power, leading to historically weak per-store productivity.

In FY 2014, Ruby Tuesday has continued to operate in a difficult environment, reporting a decline in overall sales that has primarily been a function of lower customer volumes. More importantly, the lower level of per-store sales continues to negatively impact its store level margin, pushing the overall company's operating profitability into the red. The net result for Ruby Tuesday has been a need to continue reducing its store footprint as well as to sell off assets in order to shore up its financial position.

It's tough all over
Of course, Ruby Tuesday isn't alone in its difficulties, as other sector players have had similar issues, including casual-dining leader Darden Restaurants. The operator of a hodgepodge of brands, headlined by its Red Lobster and Olive Garden units, has posted disappointing results lately, due primarily to weak comparable-store sales at the two named units, which together account for roughly 70% of its overall store base. 

Like Ruby Tuesday, Darden has been hit by encroachment on the part of the fast- casual chains, which have limited Darden's pricing power and forced management into a new proactive mind-set. This has been highlighted by the addition of lower-priced and healthier fare options to its traditional menu offerings.

Looking into the crystal ball
Ruby Tuesday seems to be making the right operational moves, with a smaller overall store base and some new enticing menu options, like its spicy pretzel burgers and chicken flatbreads. However, until the company can put a stop to its draining customer volumes, it is unlikely that the changes will lead to sustainable profit increases. As such, investors should probably avoid trying to time the bottom at Ruby Tuesday and instead look for a sector player that continues to attract growing legions of fans, like Buffalo Wild Wings (NASDAQ:BWLD).

In its latest fiscal year, the reigning king of the American sports bar continued building on its multi-year growth trajectory, reporting a 21.7% top-line gain; the increase was a function of higher comparable-store sales and a further expansion of its overall store base, including the recent introduction of its brand to Mexico. 

Unlike Ruby Tuesday and Darden, Buffalo Wild Wings continued to enjoy a broadening of its customer base during the period, a trend that it helped to perpetuate with menu innovations, like its wings-by-portion offering and its GameChanger beer, a partnership with craft brewer Redhook Brewery. Combined with relief from lower raw chicken wing prices, the net result for Buffalo Wild Wings was a higher operating profit, funding its continued fast expansion across North America.

The bottom line
Shares of Ruby Tuesday may have spiked recently, but a sustainable move higher requires the company to get its customer volumes back into growth mode, which would go a long way toward restoring its profitability. Until then, Ruby Tuesday is, at best, a crap shoot, and prudent investors should avoid it.

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.

 

Robert Hanley owns shares of Buffalo Wild Wings. The Motley Fool recommends Buffalo Wild Wings. The Motley Fool owns shares of Buffalo Wild Wings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers