Ruby Tuesday Inc. said Wednesday that a menu overhaul and closing underperforming restaurants would help it improve same-store sales.
James J. Buettgen, chairman, president and chief executive of the Maryville, Tenn.-based company, said cost savings from administration and waste management would also improve profitability, as would the closure of 24 underperforming restaurants in the third quarter.
Ruby Tuesday’s same-store sales in the third quarter ended March 4 fell 1.9 percent at company-owned units and 2.2 percent at franchised locations. However, the company said the downward trend in same-store guest counts improved from the second quarter, slipping 1.7 percent compared with a 6.3 percent decline in the second quarter.
Ruby Tuesday, which also owns the Lime Fresh brand, has closed more than 30 units in the past year and plans to shutter six to nine more Ruby Tuesday locations this quarter, executives told analysts in a call after releasing third-quarter earnings.
“We made solid progress over the past eight months in key areas of our brand transformation,” said Buettgen. “We remain intently focused on reengineering our core menu, continuing to add innovative new products, and simplifying recipes and procedures while ensuring we have meaningful variety and strong value across a wide range of price points."
Among the new entrees introduced in the quarter were Low Country Shrimp & Grits and Baked Ravioli.
Buettgen also said the 722-unit Ruby Tuesday brand was fine-tuning its promotion strategies.
“A great example of this is our ‘20 meals under $10’ campaign, which began in early January,” Buettgen said. “This promotion, which was supported by five weeks of national television advertising, showcased the wide variety of menu items under $10 that are available every Tuesday.”
Those items include burgers, tacos, flatbreads, Southern-style chicken tenders and the Garden Bar.
“This promotion was popular with our guests and demonstrates the depth of affordable variety in our menu, with menu items to suit the appetites of guests looking for something indulgent to those that are more health conscious,” Buettgen said.
Analysts weigh in
Ruby Tuesday’s improving same-store sales drew the attention of analysts.
Raymond James analyst Bryan C. Elliott, in a note that reiterated the firm’s “underperform” rating on Ruby Tuesday stock, said the third-quarter results “reflected the first sequential improvement in both comps (though still negative) and margins in several quarters.”
The Raymond James team raised a concern about how Ruby Tuesday’s real estate holdings were being valued in the market. The company said it is selling some of its owned real estate as it closes the locations.
“We continue to believe the market may be overvaluing the company’s underlying real estate assets,” Elliott wrote. “While a handful of recent transactions generated average proceeds of $1.6 million per unit, this seems too high an average to apply to its entire portfolio given current depressed per store sales and cash flow metrics.”
Late last year, Ruby Tuesday brought in outside consultants to help identify cost savings in the company.
Michael O. Moore, chief financial officer, told analysts that the review identified opportunities to reduce costs of goods sold by $6 million a year and cut administrative expenses by $7 million a year.
“All initiatives have been implemented and are delivering the projected savings,” Moore said. “These initiatives are expected to save $3 million in the fourth quarter and delivered a targeted annual savings in fiscal 2015.”
Moore said the company continued to review the business to look for other efficiencies and cost reductions in the supply chain, restaurant operations and marketing.
Ruby Tuesday on Wednesday reported a loss of $7.4 million, or 12 cents per share, from a profit of $2.2 million, or 4 cents a share, in the same quarter last year. Revenue fell 3.8 percent to $295.6 million, from $307.4 million in last year’s quarter.
Ruby Tuesday did not offer fiscal guidance for the fourth quarter, but it said it anticipated same-store sales to range between down 1 percent and up 1 percent.
The company also announced Wednesday the appointment of two new board members: Mark Addicks, chief marketing officer at General Mills; and Donald Hess, chief executive of investment firm Southwood Partners and a former executive of retail department stores Saks and Parisian Inc.
Besides the closure of 24 company-owned Ruby Tuesday restaurants in the third quarter, the company closed one Lime Fresh unit. Ruby Tuesday ended the quarter with 679 company-owned and 76 franchised units. It also had 28 Lime Fresh restaurants, 20 company-owned and eight franchised.