Faced with a steep drop in fourth-quarter profit, Ruby Tuesday Inc. executives outlined strategies to drive guest traffic during a conference call with analysts Thursday, including restaurant conversions to new brands, a promotional switch to more limited-time offers and continued work on service.
After experiencing what it called a very challenging fourth quarter and facing two upcoming quarters that chief executive Sandy Beall acknowledged will be difficult, Ruby Tuesday plans to transfer its promotional dollars away from coupons and incentives to more limited-time offers. Those new promotions will focus on value and “everyday affordability.” The Maryville, Tenn.-based company also will continue to test new concepts that will be used as conversion vehicles for underperforming units of the Ruby Tuesday brand.
“While investments we made this year on a new bread program, additional labor hand service and marketing research will benefit our brand longer term, we’re very disappointed with our financial results of the year and believe me, we're actively working on it,” Beall said. “We expect the competitive pressures that impacted our results in the fourth quarter will remain for the near term.”
Fourth quarter profit fell 33.8 percent to $13.9 million, or 21 cents per share, compared to $21 million, or 33 cents per share, for the same fourth quarter in 2010. Fourth-quarter revenue rose 12.6 percent to $353 million and same-store sales fell 0.1 percent at corporate Ruby Tuesday restaurants. The increase in revenue was driven by the company’s franchise acquisitions.
Ruby Tuesday, which operates or franchises more than 900 units, will continue to diversify its brand portfolio by converting underperforming Ruby Tuesday restaurants into new concepts and opening six new Lime Fresh Mexican Grill franchised restaurants in the southeast this year.
The brand’s four main goals for fiscal year 2012, which began in June, include increasing same-store sales, lowering costs, enhancing restaurant margins and maximizing the corporate free cash flow position.
“Executing on each of these goals is key to getting ourselves and earnings back to stronger levels and building shareholder value,” Beall said.
Ruby Tuesday will continue testing its new concepts and properties in fiscal year 2012: seafood concept Marlin & Ray’s, upscale eatery Truffles and Asian concept Wok Hay.
Ruby Tuesday opened its second Marlin & Ray’s unit in Manassas, Va., on June 1. “This dinner-only concept is performing well from both the revenue and customer feedback standpoint,” Beall said.
On June 15, a new Wok Hay restaurant opened in Knoxville, Tenn., just down the street from a Pei Wei location and about three miles from a P.F. Chang’s unit. Beall called the area a “good, good market thus for us.”
The goal is to “determine which concepts provide the best conversion growth vehicle to generate solid returns for our shareholders in the future,” Beall said.
Ruby Tuesday also plans to invest in “low-risk, low capital-intensive, smaller in-line locations” of six Lime Fresh Mexican Grill restaurants in 2012, according to Beall. The Lime Fresh development schedule includes test rollouts for Washington, D.C., and Ruby Tuesday’s core Southeastern markets, including Alabama, Georgia and Tennessee.
The chain was pleased to close the year with a same-store sales increase of 0.9 percent, Beall said, which was the brand’s first positive same-store sales result in five years. But he termed the quarter “very challenging” in sales and profitability.
The first month of the quarter suffered from negative sales, then the chain experienced a bump in same-store sales in May, ending the quarter with nearly flat same-store sales.
“We saw a very aggressive promotional environment within the casual dining bar-grill segment, especially at the lower end of casual dining during the quarter, which was also supported by very heavy media TV levels,” Beall said.
Ruby Tuesday did not open any new restaurants in the fourth quarter and closed seven restaurants, two of which experienced significant tornado and hail damage, said Margie Duffy, Ruby Tuesday chief financial officer.
Ruby Tuesday introduced new drink offerings to reach the chain’s goal of driving alcohol sales from 9 percent to 12 percent, said Dan Dillon, senior vice president of brand development.
Marketing efforts included promoting the Ruby Seafood Festival in digital media such as banner ads, online videos during March Madness On Demand broadcasts, and search engines, Dillon said. At the beginning of the fourth quarter, Ruby Tuesday promoted limited-time offers with a 30-second ad in about 200 movie theaters. The video, which was also streamed online, highlighted the affordability, freshness and quality of the chain’s seafood offering, Dillon said.
On television, Ruby Tuesday tested 11 spot markets with positive impacts on both traffic and sales. The brand also placed advertisements in magazines such as Better Homes and Gardens, Men's Health and SELF to target and drive retention from a slightly younger and higher income demographic, Dillon said.