Ruby Tuesday (NYSE:RT) is in a bad spot. Shares of the casual dining chain hit a new 52-week low this week. Last week it put out poorly received financials with comps at company-owned restaurants plunging 11.4%.
The outlook may not seem favorable, but let's look back -- and potentially ahead -- by checking out a few things about the restaurateur that you probably did not know.
1. Ruby Tuesday's founder isn't a Rolling Stones fan
Yes, the chain gets its name from the popular Keith Richards-penned tune. The first eatery opened in 1972, five years after the Rolling Stones released the hypnotic track. However, the name didn't come from founder Sandy Beall. It actually came from one of his initial investors -- a fraternity brother from his days at the University of Tennessee -- and it stuck.
In a New York Times interview four years ago, Beall conceded that he wasn't really a Rolling Stones fan.
"I wasn't that hip of a person," Beall said at the time.
2. A push-tray cafeteria chain was once its parent
Morrison's Cafeteria was looking for some casual dining flavor when it acquired what was then the 15-unit Ruby Tuesday chain.
The popularity of old-school cafeterias where primarily elderly diners would pick out meal components before hitting the register was starting to fade, and in 1996 the company decided to spin off Ruby Tuesday as a stand-alone operator.
3. Ruby Tuesday saw the fast casual movement coming
Casual dining has come under fire, and we're not talking about whatever is heating up in the kitchen.
Chipotle Mexican Grill (NYSE:CMG) has helped usher in consumer acceptance for the booming fast casual segment. Offering the speedy convenience of fast food but with higher quality food that one could typically find at sit-down eateries, fast casual has exploded on the scene. Chipotle Mexican Grill isn't slowing down. The fast-growing burrito roller posted another strong quarter on Thursday, spearheaded by a 6.2% spike in comps. That shows you how far behind Ruby Tuesday is with consumers these days. Chipotle now has 1,539 locations, and it's looking to own as many as 195 new stores next year. Who do you think will suffer from more Chipotle stores out there? Ruby Tuesday may not be a direct casualty, but clearly it will give even more diners access to fast casual.
The thing is that Ruby Tuesday did see this trend. It reacted. It snapped up Lime Fresh Mexican Grill last year for $24 million last year. It's another burrito roller, and it's probably not a coincidence that Chipotle and Lime Fresh share "Mexican Grill" in their moniker. Lime Fresh wants to be Chipotle, though it's certainly not as popular.
Lime Fresh had just 15 fast casual restaurants open at the time of the acquisition, which just happens to be how many Ruby Tuesday locations were open when it was acquired by Morrison's. It's the circle of life. Morrison's picked up Ruby Tuesday when it saw the mortality of push-tray cafeterias. Ruby Tuesday is reacting to both the weakness in casual dining but also it's own role within that troubled market.
4. Ruby Tuesday zigs when the market zags
It's been a few years since Ruby Tuesday switched out its imitation Tiffany lamps and bric-a-brac decor for a fancier menu in a setting featuring dark wood and leather banquettes. That was bad timing. The recession was starting to take hold, making it a terrible time to go upmarket.
Now Ruby Tuesday's going the other way. Its big summertime addition was pretzel bun burgers and flatbreads at price points between $5.99 and $9.99. The value message is clear, but it may be coming at a time when the economy's showing signs of life and customers are perhaps willing to pay more.
In the end, the changes may be too jarring for consumers. One day they love the salad bar. The next day they don't. One day they walk into the casual ambiance with a wait staff they can relate to. The next day they see lobster tails on the more pretentious menu served by a staff dressed in black. This isn't a Lady Gaga concert. All of the costume changes aren't helping. Ruby Tuesday's simply trying to find the formula that works, but in the process it may be alienating those longing for a particular earlier incarnation of the chain that's no longer there.
5. Ruby Tuesday is one the market's biggest winners in this bull cycle
As bad as things have been -- and continue to be -- for the fading casual dining operator, shares of Ruby Tuesday traded as low as $0.85 when the market bottomed out in March of 2009. When the stock dropped to $6 this week that was still a 605% pop. It's hard to laugh at that. Sure, Chipotle's been a 10-bagger in that time. Ruby Tuesday obviously isn't the best performer here. However, it's hard to scoff at that kind of return.
The future is uncertain for Ruby Tuesday. You don't see too many chains bounce back from double-digit percentage slides in comps. However, Ruby Tuesday investors have been in far worse places.