Ruby Tuesday Inc. is counting on a conversion strategy and a deal to open Lime Fresh Mexican Grill units to drive sales in fiscal 2012, after reporting a first-quarter drop in net income and same-store sales Thursday.
For the first quarter ended Aug. 31, Ruby Tuesday’s net income dropped 75 percent  and same-store sales at company-owned stores fell 4.1 percent.
On Wednesday, the Maryville, Tenn.-based company took a step to reverse those trends by opening its first Lime Fresh Mexican Grill restaurant in Huntsville, Ala.
“Lime is a strong brand that fits well with our focus on fresh food and great service. It takes fast casual to, I think, the service levels of casual dining, so it's a great blend of quick food with key casual dining service points and food quality points,” Sandy Beall, chief executive at Ruby Tuesday, said. “It's also low-risk, very low capital-intensive and very high return, so we're excited about this.”
Ruby Tuesday entered a deal last year with Lime Fresh Mexican Grill, a 10-unit fast-casual Mexican chain based in Miami, to franchise the brand east of the Mississippi River and open as many as 200 units.
Beall said Ruby Tuesday will also open Lime Fresh restaurants in Washington, D.C.; Atlanta; Alabama and Tennessee every 30 days. The next Lime Fresh is scheduled to open in mid-November.
The Lime Fresh unit that opened Wednesday “had a great, high-volume lunch. But what's key is what it does six months from now,” Beall said.
Ruby Tuesday also plans to convert underperforming restaurants into its Marlin & Ray’s seafood concept as another growth strategy.
“It continues to gain traction, as we now have four Marlin & Ray’s locations open,” Beall said. Those restaurants are located in Manassas, Va.; Maryville, Tenn.; and Acworth and Lithonia, Ga.
“We continue to see positive sales lifts in our surrounding Ruby Tuesday restaurants post-conversion, which is a big benefit of our conversion strategy,” Beall said. “We believe Marlin & Ray’s has the most growth potential. It's clearly a differentiated brand position and, if successful, it's where we will invest our conversion dollars.”
For fiscal 2012, Ruby Tuesday estimated same-store sales at company-owned restaurants to be flat to down 2 percent, Greg Ashley, Ruby Tuesday vice president of finance, said. Second quarter same-store sales are expected to be down 2 percent to 3 percent, he said.
“While we expect the second quarter to be difficult, we will adjust our strategy so we can operate more successfully in this environment,” Beall said. “We will continue to focus on our primary goals for fiscal '12: increasing same-store sales, lowering costs, enhancing our margins and maximizing our strong free cash flow, which all contribute to our strong free cash flow yield in relation to our competitors.”
For fiscal 2012, Ruby Tuesday expects to close three to five company-owned restaurants, excluding the conversions; convert six to eight low-performing, company-owned restaurants to other casual dining concepts; open one new Truffles Grill unit; and open six to eight Lime Fresh Mexican Grill restaurants, Ashley said.
Company franchisees expect to close 14 to 16 restaurants, up to 14 of which are international, and open seven to nine restaurants, up to six of which are international, he said.