Earnings preview: Ruby Tuesday turnaround?

Earnings preview: Ruby Tuesday turnaround?

Ruby Tuesday Inc. will report its latest quarterly results Thursday, and analysts say they expect the casual-dining company to outpace most of its competitors with positive sales, marking what could be one of the most dramatic industry turnaround performances in recent years.

Several securities analysts following the Maryville, Tenn.-based company now indicate that Ruby Tuesday is well on its way to a recovery benefitting from an improved brand position, following a successful turnaround effort completed during the past few years.

“Against the belief of many arm-chair quarterbacks who said it couldn’t be done, same-store sales appear on track to improve for the sixth consecutive quarter and despite sequentially tougher comparisons,” Bob Derrington, an analyst for Morgan Keegan, said in a report to clients. “The company has accomplished this through jettisoning its TV advertising, moving to a more local, targeted promotional and media plan, and improving its service, food quality and overall experience.”

The casual-dining segment has been one of the hardest hit by the recession and changing dining-out preferences among consumers. Numerous bar-and-grill chains have struggled with declining traffic and sales trends for more than three years — and while latest-quarter results from many in the segment show the tide could be turning, there are still a slew of negative reports.

Derrington projected that year-over-year same-store sales for Ruby Tuesday’s fourth quarter, which ended in May, would increase about 0.5 percent. The analyst had previously expected a decline of 1 percent. Ruby Tuesday, which operates or franchises 884 locations, reported its best quarterly sales results in three years last quarter, with a decrease of 0.7 percent at corporate restaurants.

Derrington projected earnings per share of 28 cents for the quarter and 69 cents for the full year, which would compare to 28 cents and 53 cents, respectively, for the year-ago fourth quarter and full year. He further expected that Ruby Tuesday management would target earnings per share growth for fiscal year 2011 at between 10 percent and 15 percent.

Brad Ludington, an analyst for KeyBanc Capital Markets Inc., said Ruby Tuesday’s “Steak & Lobster Tuesdays” and weekend “Dinner for Two” promotions would be a key to the chain’s uptick in same-store sales. He calculated a 1.4-percent increase in same-store sales from those promotions if each campaign added just $200 per day in incremental sales on the four days they run.

“We expect same-store sales trends to hold on to positive territory in the coming quarters as Ruby Tuesday continues to drive interest with the likely rollout of the hot bread initiative systemwide, along with the introduction of new menu items and promotions on a quarterly basis.”

Indeed, Ruby Tuesday’s plans to increase its menu offerings as well as introduce several new marketing campaigns are reasons to stay positive about Ruby Tuesday’s performance for fiscal year 2011, analysts said.

“Ruby Tuesday’s repositioning efforts turned a corner about 15 months ago after it altered its approach of encouraging guests to try the new food and beverage offerings,” said Chris O’Cull, a senior analyst for SunTrust Robinson Humphrey. “[Same restaurant sales] have outpaced the segment average since this shift in marketing. We believe this trial will gradually shift to repeat usage, especially as the company creates new reasons for returning, such as Couples Night Out and Fun with Friends promotions.”

Despite enthusiasm for Ruby Tuesday’s new programs, O’Cull said he lowered his same-store sales projections for FY11 from an increase of 2 percent to a flat result, partly over new concern that a consumer recovery will be slower than originally expected.

O’Cull further stated Ruby Tuesday’s new menu, which is expected to debut next month, probably would focus on seafood offerings.

“Seafood appears to be another way [the chain] is distinguishing itself from other bar and grill chains; one out of every five Ruby Tuesday guests orders seafood.”

Ruby Tuesday is expected to report full results Thursday.

Contact Elissa Elan at [email protected]