Last month, Ruby Tuesday
Yesterday, the company posted first-quarter numbers in line with the reduced outlook, announcing that earnings rose 19% to $0.44 ($29.3 million) from $0.37 the year before on a 7.1% increase in revenues to $267.5 million. Unfortunately, first-quarter weakness is now expected to spill over into the rest of fiscal 2005, and the pessimism had shares tumbling more than 15% lower in morning trading to a new 52-week low.
Earlier guidance projecting a 16%-to-17% jump in full-year earnings on a 1% improvement in same-store sales has been toned down to 12% to 14%, with a 2%-to-3% decline in comps. For the current quarter, same-store sales are expected to drop 4% to 6% (reflecting a hurricane-impacted 9% fall in September), with flat earnings.
Overall, consumer spending patterns have been weak for casual diners, and Ruby Tuesday isn't the only company to report current softness or troubles on the horizon. Late last month, Darden's
Meanwhile, however, rival Applebee's
Ruby Tuesday is in the midst of a marketing shift away from promotional coupons -- which drove $6 million in redemptions during last year's second quarter -- and toward more traditional media/television advertising. Thus far, the transition seems to have made little headway but may have a greater impact after operating conditions go back to being more favorable.
Nevertheless, the company achieved record revenues and earnings last year of $1 billion and $1.64 per share, respectively, and has consistently grown earnings in the 20% range with only marginal same-store sales gains. Furthermore, it maintains operating margins that are among the highest in the industry and trades at a reasonable PEG ratio of only 0.76. If management can become less reliant on expansion and generate more growth out of the existing restaurant base, few investors may be willing to say goodbye to Ruby Tuesday.
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Fool contributor Nathan Slaughter is not a huge Rolling Stones fan, although he is fond of that catchy Ruby Tuesday song. He owns none of the companies mentioned.