Ruby Tuesday, Inc. Reports Fiscal Third Quarter 2016 Financial Results

MARYVILLE, TN–(hospitalitybusinessnews.com)–Ruby Tuesday, Inc.  today announced fiscal third quarter 2016 financial results for the period ended March 1, 2016 and updated its guidance for fiscal year 2016.

Fiscal Third Quarter 2016 Highlights (13 weeks ended March 1, 2016, compared to the 13 weeks ended March 3, 2015):

  • Same-restaurant sales decreased 3.1%, which included a 140 basis point negative impact due to temporary store closures resulting from severe winter weather, compared to a 0.3% decline in the third quarter of the prior fiscal year.
  • Total revenue declined 5.1% to $271.5 million, which included a net reduction of 20 corporate-owned restaurants.
  • Restaurant level margin contracted 10 basis points to 17.1%.
  • Net loss was $3.1 million, or ($0.05) per diluted share, compared to a net loss of $800,000, or ($0.01) per diluted share.
  • Adjusted Net Income* was $1.6 million, or $0.03 per diluted share, compared to Adjusted Net Income of $1.9 million, or $0.03 per diluted share.
  • Adjusted EBITDA was $20.3 million compared to $21.5 million in the prior year quarter.
  • The Company invested $10.0 million to repurchase 1.9 million shares of its common stock and $2.5 million to repurchase bonds below par.
  • As of March 1, 2016, the Company had cash on hand of $52.5 million.

JJ Buettgen, Chairman of the Board, President, and Chief Executive Officer, commented, “Our third quarter was a volatile period affected by weather, softness in the casual dining industry, and increased promotional activity by our peers. Despite this challenging environment, we continue to believe that our key brand initiatives will drive an improvement in guest counts.”

Buettgen continued, “We are encouraged by our early results in attracting and delighting women and young families with our Garden Bar initiative and by the lift we are seeing so far at our remodeled locations. We remain focused on better in-restaurant execution, refining our media and targeting plans, and incorporating what we’ve learned from our Garden Bar and remodel tests into our go forward strategy. This gives us confidence that we can return to same-restaurant sales growth and higher operating profitability. While not yet visible in our results, we believe that we have the right framework in place to attract more women and families and increase visits from our current Ruby Tuesday guest.”

Fiscal Third Quarter 2016 Financial Results

Total revenue was $271.5 million, a decrease from last year of $14.4 million, or 5.1%, primarily due to a net reduction of 20 corporate-owned restaurants compared to the third quarter last year and a same-restaurant sales decline of 3.1% at corporate-owned Ruby Tuesday restaurants.

  • Third quarter same-restaurant sales decrease of 3.1% was driven mainly by traffic declines resulting from temporary store closures due to inclement weather and increased discounting by competitors. Year-over-year guest counts were down 5.9% for the quarter while average check rose 2.8%.

Restaurant level margin, excluding franchise revenue, decreased to $46.1 million from $48.9 million in the prior fiscal year’s third quarter. As a percentage of corporate-owned restaurant sales, restaurant level margin declined approximately 10 basis points to 17.1% from 17.2%. The decrease was primarily driven by an increase in cost of goods sold and payroll and related costs, partially offset by a reduction in other restaurant operating costs.

Selling, general & administrative expenses (SG&A) decreased to $27.4 million from $28.9 million in the prior fiscal year’s third quarter. The decrease in SG&A was primarily due to lower G&A expenses, partially offset by increased marketing spend to support new initiatives.

GAAP net loss was $3.1 million, or ($0.05) per diluted share, compared to a net loss of $0.8 million, or ($0.01) per diluted share in the prior fiscal year’s third quarter.

Adjusted Net Income was $1.6 million, or $0.03 per diluted share, a decline of $300,000 compared to Adjusted Net Income of $1.9 million, or $0.03 per diluted share, in the prior fiscal year’s third quarter. Adjusted Net Income for the period excluded after-tax adjustments of $4.7 million, primarily related to closure and impairment charges, compared to after-tax adjustments of $2.6 million in the prior fiscal year’s third quarter. A reconciliation between GAAP net loss and Adjusted Net Income is included in the accompanying financial data.

Balance Sheet

The Company ended the fiscal 2016 third quarter with cash and cash equivalents totaling $52.5 million and book debt of $229.1 million. This compares to cash and cash equivalents totaling $45.3 million and book debt of $231.9 million as of December 1, 2015.

Restaurant Activity

As of March 1, 2016, there were 729 Ruby Tuesday restaurants system-wide, of which 649 were corporate-owned, and 16 Lime Fresh Mexican Grills, eight of which were corporate-owned and are in the process of being sold. During the third quarter, six corporate-owned Ruby Tuesday restaurants were closed and two international franchised Ruby Tuesday restaurants were opened.

Fiscal Year 2016 Financial Outlook

The Company is updating its full-year Adjusted Net Income per share guidance to $0.05 to $0.08 (vs. $0.12 to $0.17 previously) based on the following updated assumptions:

  • Same-Restaurant Sales – Fiscal 2016 same-restaurant sales down approximately 1% (vs. flat to up 1% previously).
  • Unit Development – A net reduction of 11-14 corporate-owned Ruby Tuesday restaurants.
  • Restaurant Level Margin – Fiscal 2016 restaurant level margin of 16.7% to 17.0% (vs. 17.3% to 17.6% previously).
  • Selling, General, and Administrative Expense – Fiscal 2016 SG&A ranging from $110 million to $112 million (vs. $114 million to $117 million previously).
  • Tax Rate – Adjusted Net Income is calculated using the statutory tax rate of 39.69%. This provides a more consistent tax rate to facilitate review and analysis of the Company’s financial performance. The Company is limited in the amount of tax credits that can be utilized each year based upon taxable income for that year and cannot recognize a full benefit of any year’s currently generated tax credits or tax credit carry-forwards due to the Company’s tax valuation allowance.
  • Capital Expenditures – Fiscal 2016 capital expenditures ranging from $34 million to $36 million (vs. $36 million to $38 million previously).

 

Financial Results For the Third Quarter and First 39 Weeks of Fiscal Year 2016
(Amounts in thousands except per share amounts)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
March 1, Percent March 3, Percent March 1, Percent March 3, Percent
2016

of Revenue

2015

of Revenue

2016

of Revenue

2015

of Revenue

Revenue:
Restaurant sales and operating revenue $ 269,868 99.4 $ 284,392 99.5 $ 807,105 99.4 $ 825,055 99.4
Franchise revenue 1,602 0.6 1,521 0.5 4,801 0.6 4,699 0.6
Total Revenue 271,470 100.0 285,913 100.0 811,906 100.0 829,754 100.0
Operating Costs and Expenses:
(as a percent of Restaurant sales and operating revenue)
Cost of goods sold (excluding depreciation and amortization shown below) 75,143 27.8 77,796 27.4 221,689 27.5 224,589 27.2
Payroll and related costs 93,357 34.6 96,680 34.0 280,976 34.8 286,486 34.7
Other restaurant operating costs (1) 55,311 20.5 60,972 21.4 173,903 21.5 179,706 21.8

Restaurant Level Margin (excludes franchise revenue) (1)

46,057 17.1 48,944 17.2 130,537 16.2 134,274 16.3
Depreciation and amortization (1) 12,732 4.7 12,961 4.6 38,474 4.8 39,319 4.8
(as a percent of Total revenue)
Selling, general and administrative, net 27,378 10.1 28,948 10.1 84,622 10.4 87,141 10.5
Closures and impairments, net 6,123 2.3 3,991 1.4 18,908 2.3 6,548 0.8
Trademark impairment 1,999 0.2
Total operating costs and expenses 270,044 281,348 820,571 823,789
Earnings/(Loss) From Operations 1,426 0.5 4,565 1.6 (8,665 ) (1.1 ) 5,965 0.7
Interest expense, net 5,005 1.8 5,446 1.9 16,110 2.0 16,783 2.0
Gain on extinguishment of debt (10 ) (10 )
Loss before income taxes (3,569 ) (1.3 ) (881 ) (0.3 ) (24,765 ) (3.1 ) (10,818 ) (1.3 )
Benefit for income taxes (483 ) (0.2 ) (112 ) (1,686 ) (0.2 ) (3,341 ) (0.4 )
Net Loss $ (3,086 ) (1.1 ) $ (769 ) (0.3 ) $ (23,079 ) (2.8 ) $ (7,477 ) (0.9 )
Net Loss Per Share:
Basic $ (0.05 ) $ (0.01 ) $ (0.38 ) $ (0.12 )
Diluted $ (0.05 ) $ (0.01 ) $ (0.38 ) $ (0.12 )
Shares:
Basic 60,918 60,643 61,239 60,532
Diluted 60,918 60,643 61,239 60,532

(1) Beginning in the first quarter of 2016, the Company reclassified its Amortization of intangible assets from “Other restaurant operating costs” to “Depreciation and amortization.” The Company believes this reclassification better aligns the Company with its peers and increased both current and prior period restaurant level margin by approximately 20 basis points. The schedule accompanying the condensed unaudited consolidated financial statements has been revised to reflect the reclassification of Amortization of intangible assets.

Financial Results For the Third Quarter of Fiscal Year 2016
(Amounts in thousands)
(Unaudited)
March 1, June 2,
CONDENSED BALANCE SHEETS 2016 2015
Assets
Cash and Cash Equivalents $ 52,458 $ 75,331
Accounts Receivable 5,866 5,287
Inventories 22,587 20,411
Income Tax Receivable 2,958
Prepaid Rent and Other Expenses 11,520 12,398
Assets Held for Sale 3,402 5,453
Total Current Assets 98,791 118,880
Property and Equipment, Net 722,570 752,174
Deferred Income Taxes, Net 1,995
Other Assets 47,108 54,398
Total Assets $ 870,464 $ 925,452
Liabilities
Current Portion of Long-Term Debt, including
Capital Leases $ 10,964 $ 10,078
Income Tax Payable 1,069
Deferred Income Taxes, Net 2,612 7
Other Current Liabilities 85,308

99,227
Total Current Liabilities 98,884 110,381
Long-Term Debt and Capital Leases 218,117 231,017
Deferred Income Taxes, Net 1,442
Deferred Escalating Minimum Rents 51,793 50,768
Other Deferred Liabilities 66,116 66,261
Total Liabilities 434,910 459,869
Shareholders’ Equity 435,554 465,583
Total Liabilities and
Shareholders’ Equity $ 870,464 $ 925,452
Non-GAAP Reconciliation Table
Reconciliation of EBITDA, Adjusted EBITDA, Adjusted Net (Loss)/Income, and Adjusted Net (Loss)/Income Per Share
(Amounts in thousands except per share amounts)
(Unaudited)
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
March 1, March 3, March 1, March 3,
2016 2015 2016 2015
Net Loss $ (3,086 ) $ (769 ) $ (23,079 ) $ (7,477 )
Depreciation and Amortization 12,732 12,961 38,474 39,319

Interest Expense and Gain on Extinguishment of Debt

4,995 5,446 16,100 16,783
Benefit for Income Taxes (483 ) (112 ) (1,686 ) (3,341 )
EBITDA $ 14,158 $ 17,526 $ 29,809 $ 45,284
Closures and Impairments, Net (1) 6,123 3,991 18,908 6,548
Trademark Impairment (2) 1,999
Executive Transition (3)

(1,274 )
Adjusted EBITDA $ 20,281 $ 21,517 $ 49,442 $ 51,832
Net Loss $ (3,086 ) $ (769 ) $ (23,079 ) $ (7,477 )
Closures and Impairments, Net (net of tax) (1)(5) 3,692 2,407 11,403 3,949
Trademark Impairment (net of tax) (2)(5) 1,205
Executive Transition (net of tax) (3)(5) (768 )
Debt Prepayment Penalties & Deferred Financing Fees (net of tax) (4)(5) 36 690 293
Income Tax (Benefit)/Provision Adjusted to Statutory Rate (6) 933 238 8,143 953
Adjusted Net (Loss)/Income $ 1,575 $ 1,876 $ (2,406 ) $ (2,282 )
Net Loss Per Share $ (0.05 ) $ (0.01 ) $ (0.38 ) $ (0.12 )
Adjusted Net (Loss)/Income Per Share $ 0.03 $ 0.03 $ (0.04 ) $ (0.04 )
Basic Shares Outstanding 60,918 60,643 61,239 60,532
Diluted Shares Outstanding (7) 61,232 61,506 61,239 60,532
(1) Includes property impairments, restaurant lease reserves, closing cost adjustments, and gain on the sale of surplus properties.
(2) In connection with the planned sale and closures of our Company-owned Lime Fresh restaurants, we recorded a $2.0 million trademark impairment charge representing a partial impairment of the Lime Fresh trademark during the second quarter of fiscal year 2016. The Lime Fresh trademark has a net book value of $0.9 million remaining at March 1, 2016.
(3) On July 25, 2015, our then President Ruby Tuesday Concept and Chief Operations Officer left the Company. Accordingly, included within our share-based compensation expense for the first quarter is a forfeiture credit of $1.3 million in connection with the forfeiture of 333,000 unvested stock options and 137,000 unvested shares of restricted stock.
(4) Debt prepayment penalties and the write-off of deferred financing fees are classified within Interest Expense and Gain on Extinguishment of Debt, which are already included in EBITDA calculation and therefore not a separate add-back for Adjusted EBITDA.
(5) Adjusted for income taxes based on a statutory tax rate of 39.69%.
(6) Represents the difference between the benefit for Taxes at the quarterly effective tax rate versus the statutory tax rate of 39.69%. Adjusted Net (Loss)/Income per share applies the statutory rate to pre-tax loss and adjustments to loss.
(7) Adjusted Net Income per share figures are calculated based on diluted shares outstanding whereas Net Loss and Adjusted Net Loss per share figures are calculated based on basic shares outstanding.
Ruby Tuesday, Inc.
Number of Restaurants at End of Period
March 1, March 3,
2016 2015
Ruby Tuesday:
Company-Owned 649 658
Domestic Franchised 28 30
International Franchised 52 49
Total 729 737
Lime Fresh:
Company-Owned 8 19
Domestic Franchised 8 7
Total 16 26
Total Restaurants:
Company-Owned 657 677
Domestic Franchised 36 37
International Franchised 52 49
System-wide total 745 763
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