A year ago, I commented that Ruby Tuesday's
The company continued to build momentum in a solid third quarter. Total revenues increased 17.1% year over year. Same-store restaurant sales were also stout in both company-owned and franchised units, showing increases of 4.7% and 5.4%, respectively. In the company conference call, management pointed to its investments in a new menu, increased advertising, and improved management training as the reasons for the success.
The new menu may be the single most important factor driving growth. For years, Ruby Tuesday was lost in the shuffle amid competition like Applebee's
Ruby Tuesday formerly used coupons to attract customers, but it is weaning itself off this strategy in favor of increased advertising. Management partly blamed coupons for deteriorating margins, and it believes that the company's new marketing strategy, coupled with increased menu prices, will help strengthen margins. This should help turn around the declining margins that were evident even in this quarter, when net margins declined by six percentage points year over year.
In addition to the new burger-centric menu and advertising campaign, the company has revamped its management training strategy. According to remarks in the conference call, it's now experiencing its lowest management turnover in years.
Thanks to these changes, Ruby Tuesday is upbeat about its future. The company projects earnings-per-share growth of 12.5% to 15% per year. Ruby Tuesday further expects that 2007 will exceed this target with the help of strong comps and new unit growth of 7% to 8%. If this wasn't good enough, the company also plans to reward shareholders even more, devoting its free cash flow to steadily increasing its dividend payout and buying back company shares. With a new flavor pointing the way to success, investors certainly have a more compelling reason to look at Ruby Tuesday.
Fool contributor Jeremy MacNealy does not have any financial interest in any companies mentioned.