Ruby Tuesday Inc.’s decision to close about 95 restaurants by September came after a five-step analysis of 646 company-owned units, executives said Thursday.
The Maryville, Tenn.-based casual-dining operator had a total of 724 units at the end of the fourth quarter ended May 31. Ruby Tuesday reported $43.8 million in closure and impairment charges in the quarter, “primarily due to the announced restaurant closures,” said Sue Briley, interim chief financial officer, in a call with analysts.
The company could potentially add another five to 10 closures as leases expire, Briley said.
Michael Ellis, who joined Ruby Tuesday as chief development officer earlier this year, said he spent the past five months analyzing “each restaurant in every market to determine the optimal most profitable footprint for the Ruby Tuesday brand.”
“My first task was to perform a deep dive to access the following key attributes of each location,” Ellis said in a call with analysts after announcing the closures.
1. Finances. “We looked at the financial performance of each restaurant in the portfolio,” Ellis said. Later in the call, Briley said that the average unit volume among the 95 restaurants slated to close is about $1.2 million. That compares with AUVs of about $1.6 million for company-owned restaurants, including those being shuttered. JJ Buettgen, Ruby Tuesday president, chairman and CEO, added that this step included “rigorous unit-level analysis of sales, cash flow and other key performance metrics.”
2. Market. “We evaluated the marketwide unit count and specific restaurant placement,” Ellis said.
3. Demographics. “We examined the demographic makeup surrounding each restaurant,” Ellis said. In the past few years, the company has has set its target demographic as women and families.
4. Unit traffic and visibility. Ellis and his team assessed traffic patterns “to determine the site visibility and accessibility from surrounding roads, proximity of competitors and nearby traffic generators,” he said.
5. Real estate status. “Finally, we considered the lease or ownership structure in place at the location,” Ellis said. Briley noted that of the 95 restaurants scheduled for closure, about a third are on owned real estate, and the remaining two thirds are leased.
This five-step analysis generated data to help determine which markets were over-penetrated, and which had the best upside, Ellis said.
“What was clear from this comprehensive review was underperforming locations shared similar attributes, such as high market concentration, challenge trade areas or unfavorable population demographics,” he said. “All of these factors contributed to low restaurant level sales and profitability.”
The evaluation process also helped the company determine which restaurants would benefit most from investments in its “Fresh Start Initiative,” Ellis said.
Parts of the four-prong “Fresh Start Initiative” have been introduced in some markets already, Buettgen said, including restaging the signature Garden Bar salad buffet, a simplified menu, service enhancements and remodeling older units.
Those priorities “will drive greater engagement with more women and families as we better align with our target demographic,” he added.
Over the past few months, Ruby Tuesday has been testing a simplified menu with about 30 percent fewer items, Buettgen said. In addition, the chain is currently offering a $12.99 promotion with a salad, main course, two sides and a dessert.
Ruby Tuesday also restaged the signature Garden Bar in the Atlanta market six months ago, and has fine-tuned its offerings, Buettgen said. The chain expanded the salad bar refresh to St. Louis and Charlotte, N.C., in mid July.
Menu simplification has cut down on ticket time and food waste, and improved food taste scores, he added.
Ruby Tuesday completed 11 remodels in fiscal 2016, and was pleased with the initial results, Buettgen added.
“We continue to believe a fresh look will make our brand more competitive in the marketplace and drive increased guest visits and sales,” he said.
The company expects to complete 13 to 16 remodels by the end of the calendar year, and four to six remodels between January and May 2017. Briley said average investment spent on remodels per restaurants will be up to $375,000 per unit.
Ruby Tuesday’s fourth-quarter same-store sales declined 3.7 percent, lapping a 1.7-percent decline the previous year. Same-store guest counts declined 4.6 percent in the quarter, and average check grew 0.9 percent.
Fourth-quarter earnings swung to a loss of $27.6 million, or 46 cents a share, from a profit of $4.3 million, or 7 cents a share, in the same period last year. Revenue fell 5.9 percent, to $279.3 million, from $296.8 million the previous year.