Please ensure Javascript is enabled for purposes of website accessibility

A Chipped Ruby

By Stephen D. Simpson, Simpson, – Updated Nov 16, 2016 at 12:57PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Ruby Tuesday still struggles to stand apart and produce meaningful growth.

Another quarter, another dreary result for dining chain Ruby Tuesday (NYSE:RI).

Same-store sales dropped 8.9% at company-owned restaurants (franchised sites did even worse), though total revenue did tick up 7.2%. Margins softened pretty much across the board, and net income dropped by about 16%.

Ruby Tuesday's slide is nothing new, and while management seemed enthusiastic about its chances of reversing course, future guidance wasn't especially uplifting.

I believe that Ruby Tuesday's woes have a simple explanation: what I call the TipsyMcStagger's issue. Simply put, if you removed all appearances of the restaurant's name, how many customers could readily distinguish Ruby Tuesday from Applebee's (NASDAQ:APPB), O'Charley's (NASDAQ:CHUX), Brinker's (NYSE:EAT) Chili's, or TGI Friday's?

The problem may be easy to spot, but it's considerably more difficult to fix. I have a hunch that the solution revolves around distinct and desirable food. Red Robin (NASDAQ:RRGB) focuses largely on good burgers. Cheesecake Factory (NASDAQ:CAKE) offers good food in huge quantities. P.F. Chang's (NASDAQ:PFCB) has its distinct Asian menu. All have enjoyed recent success.

To that end, I'm not sure that Ruby Tuesday's accelerating commitment to advertising is the right answer. The company is right to get the word out about its revised, burger-focused menu. But if that menu isn't distinct and appealing enough, all the advertising in the world won't build a sustainable niche in the brutally competitive restaurant trade.

Now for the good news. Margins remain solid, and the company's return on equity surpasses more than a few of its close competitors (and the industry in general). What's more, Ruby Tuesday has numerous restaurants already in place across the country. If management can build a distinct menu and dining experience, the business could enjoy a lot of positive leverage.

For now, though, I'd rather nibble on appetizers at the bar than sit down at a table with this stock. Good investment ideas often include distinct and defensible competitive advantages. I just don't see yet how Ruby Tuesday has distinguished itself from all the other buzzing neon bar-and-grills.

Is Ruby Tuesday paste or a precious jewel? See what other Fools have had to say:

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned.

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Brinker International, Inc. Stock Quote
Brinker International, Inc.
EAT
$25.53 (-5.02%) $-1.35
The Cheesecake Factory Incorporated Stock Quote
The Cheesecake Factory Incorporated
CAKE
$28.43 (-2.44%) $0.71
Red Robin Gourmet Burgers, Inc. Stock Quote
Red Robin Gourmet Burgers, Inc.
RRGB
$6.46 (-4.01%) $0.27

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.