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Ruby Tuesday May Need Ruby Slippers to Turn Itself Around

By Nickey Friedman – Jan 15, 2014 at 3:45PM

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With others restaurants such as Buffalo Wild Wings and Chipotle Mexican Grill doing so well, why bother with Ruby Tuesday?

Ruby Tuesday (RT) continues to slip backward. Sales are in a tailspin while losses continue to pile up. Executives have quit without notice and turnaround initiatives have failed to stop the bleeding. While investing in a cheap-looking turnaround can be sometimes exciting, there appears to be little to no reason to expect anything positive to emerge here. Why mess around with Ruby Tuesday when there are plenty of other successful restaurant chains such as Buffalo Wild Wings (BWLD) and Chipotle Mexican Grill (CMG -3.96%) that are making money instead of excuses?

Ruby Tuesday results
On Jan. 8, Ruby Tuesday reported fiscal second-quarter results. Revenue got chopped 8% to $276.2 million. Same-store sales got sliced 7.8% at company-owned stores and 5.3% at franchisees. Guest count dove 6.3% overall. While it was a sort-of improvement over the 10.8% decline, "somewhat less terrible" is hardly a reason to celebrate. Adjusted net loss from continuing operations blew up 793% to $25.9 million or $0.43 per share.

CEO J.J. Buettgen called this "solid progress." If so, you can only imagine what "awful progress" must look like. Ruby Tuesday has been struggling ever since it decided to change its image in late 2012. Same-store sales were showing positive strength back then and they have been continually showing large losses ever since. While Buettgen pointed out that the quarter was less-bad than the previous quarter, especially in the most recent two months, this is typical for Ruby Tuesday simply due to seasonal patterns. Year-over-year data is much more meaningful, and it was not pretty.

Going forward, Ruby Tuesday said it will not be providing earnings guidance. It blamed in part the "challenging casual dining environment" and the uncertainties surrounding its turnaround efforts. For sales, Ruby Tuesday expects next quarter to show same-store sales down mid-single digits, and low single digits in the following quarter. This compares to quarters that were already down from the prior year by 2.8% and 3.1%, respectively. This is going in the opposite direction. This is not progress.

Buffalo Wild Wings
In contrast to Ruby Tuesday, a report from Buffalo Wild Wings tends to read like a work of art. Last quarter, for instance, Buffalo Wild Wings reported sales that jumped 27.9% to $315.8 million, earnings that exploded 66.9% to $17.9 million, and same-store sales at company-owned restaurants that popped 4.8%. While Ruby Tuesday opened no domestic restaurants last quarter, Buffalo Wild Wings has aggressively expanded. Buffalo Wild Wings added 44 restaurants last quarter, targets 1,000 restaurants by the end of March, and has an eventual target of 1,700 restaurants.

Chipotle Mexican Grill
Meanwhile, Chipotle Mexican Grill is another example of a public restaurant chain with results that tend to read like a breath of fresh air compared to Ruby Tuesday's. Last quarter, Chipotle Mexican Grill saw revenue climb by 18%, earnings per share leap by 17.2%, and same-store sales tack on an impressive 6.2%. Like Buffalo Wild Wings and unlike Ruby Tuesday, Chipotle Mexican Grill has aggressively grown its store count. It added 37 restaurants last quarter, expects to have opened a total of 165 to 180 new restaurants for 2013, and expects to open 180 to 195 new ones for 2014.

Foolish final thoughts
While it would be great to include a silver lining in this dark cloud about Ruby Tuesday, it's difficult to see one. The company is reporting some of the worst, if not the worst, negative growth numbers and losses of any major publicly traded restaurant chain. With management not even having enough visibility into the chain's turnaround to give guidance, it's even more difficult for investors to expect and time a turnaround. Fools should consider avoiding Ruby Tuesday at least until the company demonstrates some solid evidence of a real turnaround.

Fool contributor Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings and Chipotle Mexican Grill. The Motley Fool owns shares of Buffalo Wild Wings and Chipotle Mexican Grill. 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.

Stocks Mentioned

Ruby Tuesday, Inc. Stock Quote
Ruby Tuesday, Inc.
Chipotle Mexican Grill Stock Quote
Chipotle Mexican Grill
$1,508.40 (-3.96%) $-62.21
Buffalo Wild Wings Inc. Stock Quote
Buffalo Wild Wings Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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