Tell me if this scenario sounds familiar...
A struggling chain brings in a new CEO who has tasted success as an executive for a more successful competitor. The new CEO offers up some radical changes that include aggressively scaling back couponing initiatives. Analysts begin buying into the turnaround story, gushing about the major upside potential for investors.
Can you name the company?
This would be Ruby Tuesday (NYSE:RT), which next week will report its first complete quarter with J.J. Buettgen at the helm. He joined the meandering restaurant operator late last year after serving as a key executive at Darden Restaurants (NYSE:DRI). If Darden doesn't ring a bell, you'll know its restaurants -- this is the company behind Olive Garden and Red Lobster.
Buettgen set the radical tone early, announcing that the company would be unloading three of its four smaller non-Ruby Tuesday concepts earlier this year. He's also backing a move to pare back couponing, and is ramping up advertising campaigns to make up for the lost traffic.
This seems a lot like what went down at J.C. Penney (OTC:JCPN.Q) with Ron Johnson.
A year earlier, he too joined a struggling chain after faring well at Target (NYSE:TGT) and helping to roll out the wildly successful Apple Store platform. His radical move was a total makeover of the department store's concept. He also put an end to coupons and weekly sales.
Things obviously didn't play out well for Johnson. Same-store sales have fallen sharply since he arrived.
Is Ruby Tuesday the next turnaround story to actually turn lower?
There's no joy in kicking a casual-dining chain when it's down, but this warning seems necessary. A column in Barron's over the weekend teases how the shares could soar as much as 75%; similarly, there was no shortage of analysts singing J.C. Penney's praises after Johnson arrived.
Ruby Tuesday is in a better place than J.C. Penney was when Johnson arrived. Ruby Tuesday's actually coming off positive comps during the latter half of last year.
However, just as J.C. Penney never transitioned to the "cheap chic" status that turned Target into a buzz-worthy discounter, it's not as if Ruby Tuesday can steal from the Darden playbook and start offering unlimited breadsticks or Cheddar Bay biscuits.
Buettgen is inheriting a concept that is tired at a time when consumers have more tantalizing options.
When's the last time that a restaurant chain sputtered only to race back into consumer fancy? There comes a point when a struggling company's brand becomes a liability at best or an albatross at worst.
J.C. Penney isn't showing signs of bouncing back, and the same can be said about Ruby Tuesday.