Ruby Tuesday: Challenging fiscal year leads to 4Q loss

Ruby Tuesday: Challenging fiscal year leads to 4Q loss

Ruby Tuesday Inc. swung to a loss in its fourth quarter, largely on impairment charges, but officials said more work needs to be done to stabilize traffic counts in an increasingly competitive environment.

For the quarter ended June 5, the Maryville, Tenn.-based company reported a net loss of $5.8 million, or a loss of 9 cents per share, compared with net income of $13.9 million, or 21 cents per share, a year ago.

Excluding pre-tax expenses, such as $16.9 million in impairment charges, $4.8 million in debt prepayment penalties and deferred loan fee write-offs, severance costs of $4.4 million, restaurant closure costs of $3.8 million, and a $1 million write-off related to the acquisition of the Lime Fresh Mexican Grill chain, the chain would have reported net income of $13.3 million, or earnings of 21 cents per share.

Revenues increased 2.9 percent to $363 million for the quarter, but same-store sales dropped 4.6 percent at company-owned restaurants.

In a call with analysts Wednesday, Sandy Beall, Ruby Tuesday’s founder, chair and chief executive, said fiscal 2012 was “a challenging year for us as the environment remained competitive, with a focus on value supported by heavy media levels by most of our competitors.”

Beall said the decline in same-store sales was in line with expectations, given the chain has been paring back on couponing while testing increased television marketing.

The company, however, is in a better position moving forward and making progress that will pay off in the first quarter of fiscal 2013, Beall predicted.

New TV ads have focused on the free fresh-baked garlic cheese biscuits served at Ruby Tuesday, as well as the Garden Bar available for free with certain entrees, he said, “which is a unique differentiator for us among our peers.”

With television support now implemented in all of the chain’s markets, Beall said sales trends are improving and the company is projecting a same-store sales increase in the first quarter of about 2 percent.

“While the first-quarter sales trends to date are encouraging, we still have much work ahead of us to fully stabilize our traffic patterns, and consistently grow our sales in an environment that we believe will continue to be very promotional with heavy advertising levels by our primary competitors,” Beall said.

Focusing on growth and conversion

During the quarter, the company opened three Lime Fresh restaurants, a fast-casual concept the company acquired earlier this year for $24 million with plans for aggressive growth. The acquisition deal was completed during the quarter.

Ruby Tuesday operates 13 company-owned Lime Fresh locations and there are four additional franchised units. The company plans to open 12 to 16 Lime Fresh restaurants in fiscal 2013, and open 20 plus the following year, with growth focused on the East Coast.

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Meanwhile, the company is closing or converting underperforming units. Ruby Tuesday permanently closed 26 restaurants during the quarter – 21 Ruby Tuesdays and 2 Wok Hay locations. Another two restaurants were rebranded under the company’s Marlin & Ray’s value-oriented seafood concept.

During fiscal 2013, the company plans to convert five to seven Ruby Tuesday locations to Marlin & Ray’s, as well as open one newly constructed Marlin & Ray’s. Kimberly Grant, Ruby Tuesday’s chief operations officer and executive vice president, said restaurants converted to Marlin & Ray’s see higher average checks than previous Ruby’s locations, primarily due to stronger appetizer, alcohol and drink sales.

Ruby Tuesday owned and operated 714 restaurants under the namesake brand at the end of the quarter, and another 79 Ruby Tuesday locations were franchised.

For the year, which had an extra week, the company reported a net loss of $200,000, or no earnings, compared with income of $46.9 million, or 72 cents per share. Excluding charges, the company would have seen net income of $25.9 million, or 41 cents per share.

Revenues for the year increased 4.8 percent to $1.3 billion, though same-store sales at company-owned locations declined 4.5 percent, and dropped 5.7 percent at domestic franchise units.

Executive and board changes to come

Beall, who said earlier this year that he would retire as chief executive earlier [7], said a search for his replacement as CEO is underway and that he would stay on until a successor is named, which he hoped would be later this year.

Matt Drapkin, a partner in Becker Drapkin Management, who joined the board in 2011, will be lead director on the board in October, and is in line to take the chairman role when Beall steps down, he added.

In addition to Beall, four other board members also announced their retirement or plans to step down, which Beall noted will be “a lot of change.”

“It’s getting the right board in place to help the new CEO and help the management team,” he said. “I think it’s better doing it at one time and be done with it and move on.”

Contact Lisa Jennings at [email protected] [8].
Follow her on Twitter: @livetodineout [9]