Ruby's 3Q Earnings In Line, Revs Miss

Ruby Tuesday Inc.’s (RT) adjusted earnings of 10 cents per share in the third quarter of 2013 matched the Zacks Consensus Estimate but were much lower than the year-ago earnings of 22 cents per share. Earnings suffered mainly due to lower revenues.

Revenues in the quarter slipped 4.3% year over year to $307.4 million. Revenues also missed the Zacks Consensus Estimate of $310.0 million.
The year-over-year downside in revenues was due to permanent closure of 27 company-owned Ruby Tuesday units and a decline in same restaurant sales at the Ruby Tuesday concept.

The owner of the namesake brand and Lime Fresh Mexican Grill, Ruby Tuesday, posted a 2.8% downside in comparable store sales at company-owned restaurants. Its franchised division also saw 1.7% contraction in comps.

Restaurant level operating margin shrank 20 basis points (bps) year over year to 17.9% attributable to sales deleverage.

Share Repurchase

The company bought back 1.3 million shares of common stock during the quarter for $10.1 million leaving an additional 11.9 million shares available for repurchase.

Fiscal 2013 Outlook

For fiscal 2013, management reiterated flat same-store sales guidance at company-owned restaurants.

Management raised its adjusted earnings per share guidance to a range of 28–32 cents per share from prior expectations of 24–34 cents per share.
Restaurant operating margins are expected to expand 100 basis points (bps), down from the prior expectation of 150–200 bps improvement.

Free cash flow is expected in the range of $10–$15 million, lower than the prior expectation of $10–$20 million.

Our Take

Ruby Tuesday has failed to beat the Zacks Consensus Estimate in the last four quarters. The company, however, managed to post in line results in the last two quarters despite weak year-over-year comparisons. Its sluggish sales scenario, decrease in same store sales as well as reduced margin guidance are matters of concern.

While we remain positive on some of the company’s operational strategies such as cost savings and the closure of underperforming units these are yet to pay off.

Economic uncertainties, stiff competition from peers and continued investment in sales driven initiatives, which may lower margins, add to our concerns.

Ruby Tuesday currently retains a Zacks Rank #4 (Sell). However, restaurateurs currently performing well include Red Robin Gourmet Burgers Inc. (RRGB), Burger King Worldwide Inc. (BKW) and Cracker Barrel Old Country Store Inc. (CBRL). While Red Robin and Cracker Barrel retain a Zacks Rank #1 (Strong Buy), Burger King carries a Zacks Rank #2 (Buy).