Ruby Tuesday, Inc. Reports Fourth Quarter and Fiscal Year 2016 Financial Results

MARYVILLE, TN–(hospitalitybusinessnews.com)–Ruby Tuesday, Inc.  today announced fourth quarter and fiscal year 2016 financial results for the periods ended May 31, 2016 and provided a fiscal year 2017 outlook. The Company also announced plans to streamline the organization, improve financial profitability, and create long-term value for shareholders through its Fresh Start initiative.

The Fresh Start initiative will be achieved through the execution of several key strategies including an Asset Rationalization Plan along with programs to improve the food and beverage offering, dining environment and service at its namesake brand through a Fresh New Menu, Fresh New Garden Bar, and Fresh Experience. These initiatives will be rolled out in phases across multiple markets throughout the coming quarters.

JJ Buettgen, Chairman of the Board, President, and Chief Executive Officer, commented, “Our fourth quarter was impacted by softness in the casual dining industry and increased promotional activity by our peers. Given that we expect the macro environment to remain challenging for some time, we are taking the necessary steps to change the trajectory of our business.”

Buettgen continued, “Our Fresh Start Initiative has been designed to streamline our organization through asset rationalization, improve financial profitability, and ultimately create long-term value for shareholders. Our Fresh New Menu, Fresh New Garden Bar, and Fresh Experience initiatives will position us to accelerate traffic and will be supported by better in-restaurant execution, refining our media and targeting plans, and incorporating the insights from our Garden Bar and remodel tests into our go forward strategy. Through our goal of attracting more women and young families as well as increasing visits from our current Ruby Tuesday guests, we believe we can return to positive same-restaurant sales, expand restaurant level margins, and increase operating profit.”

Ruby Tuesday recently completed a comprehensive review of its corporate-owned restaurant portfolio and determined that it was in the Company’s best interest to close approximately 95 underperforming restaurants. These locations will cease operations by September 2016. As of May 31, 2016, Ruby Tuesday’s system included 724 restaurants, of which 646 were company-operated. This conclusion, followed a rigorous unit-level analysis of sales, cash flows and other key performance metrics, as well as site location, market positioning and lease status.

Buettgen concluded, “The decision to close restaurants is a difficult but necessary step as we take aggressive actions to strengthen our organization. Performance at each of these locations, despite the loyalty of valued guests and the efforts of our dedicated employees, was not meeting expectations. Full-time and part-time employees impacted by closures will be offered positions in nearby restaurants where possible.”

Fiscal Fourth Quarter 2016 Highlights (13 weeks ended May 31, 2016, compared to the 13 weeks ended June 2, 2015):

  • Total revenue declined 5.9% to $279.3 million, which included a net reduction of 12 corporate-owned Ruby Tuesday restaurants and 17 corporate-owned Lime Fresh Mexican Grill restaurants during fiscal year 2016.
  • Same-restaurant sales declined 3.7% following a 1.7% decline in the fourth quarter of the prior fiscal year.
  • Restaurant level margin* held steady at 18.7%.
  • Closure and Impairment expense was $43.8 million primarily due to the announced restaurant closures, compared to $4.0 million last year
  • Net Loss was $27.6 million, or ($0.46) per diluted share, compared to Net Income of $4.3 million, or $0.07 per diluted share in last fiscal year’s fourth quarter.
  • Adjusted Net Income* was $6.3 million, or $0.10 per diluted share, flat to the prior-year fiscal quarter.
  • Adjusted EBITDA* was $28.3 million compared to $28.7 million in the fourth quarter of the prior fiscal year.
  • The Company prepaid $5.1 million of mortgage debt, unencumbering 18 corporate-owned restaurants.
  • The Company recognized a $5.9 million gain on sales of Lime Fresh Mexican Grill assets.
  • As of May 31, 2016, the Company had cash on hand of $67.3 million.

Fiscal Year 2016 Highlights (52 weeks ended May 31, 2016, compared to the 52 weeks ended June 2, 2015):

  • Total revenue declined 3.1% to $1.1 billion, which included a net reduction of 12 corporate-owned Ruby Tuesday restaurants and 17 corporate-owned Lime Fresh Mexican Grill restaurants during fiscal year 2016.
  • Same-restaurant sales declined 1.4% following a 0.5% decline in the prior fiscal year.
  • Restaurant level margin* contracted 10 basis points to 16.8%.
  • Net Loss was $50.7 million, or ($0.83) per diluted share, compared to Net Loss of $3.2 million, or ($0.05) per diluted share in the last fiscal year.
  • Closure and Impairment expense was $62.7 million, compared to $10.5 million in the prior fiscal year.
  • Adjusted Net Income* was $3.9 million, or $0.06 per diluted share, compared to Adjusted Net Income of $4.1 million, or $0.07 per diluted share in the last fiscal year.
  • Adjusted EBITDA* was $77.7 million compared to $80.6 million in the prior fiscal year.

* Restaurant Level Margin, Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share are non-GAAP measures. Reconciliations of Restaurant Level Margin, Adjusted EBITDA, Adjusted Net Income and Adjusted Net Income per share to the most directly comparable financial measures presented in accordance with United States Generally Accepted Accounting Principles (GAAP) are set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures” and “Condensed Consolidated Statements of Operations.”

Fiscal Fourth Quarter 2016 Financial Results

Total revenue was $279.3 million, a decrease of 5.9% or $17.5 million from the fourth quarter of the prior fiscal year. This was due to a net reduction of 12 corporate-owned Ruby Tuesday restaurants and 17 corporate-owned Lime Fresh Mexican Grill restaurants during fiscal year 2016 and a same-restaurant sales decline of 3.7% at corporate-owned Ruby Tuesday restaurants.

The fourth quarter same-restaurant sales decrease was driven in part by traffic declines resulting from a challenging and competitive external environment. Year-over-year guest counts fell 4.6% while average check rose 0.9%.

Restaurant level margin*, excluding franchise revenue, decreased to $51.9 million from $55.2 million in the last fiscal year’s fourth quarter. As a percentage of corporate-owned restaurant sales, restaurant level margin held steady at 18.7% as increases in cost of goods sold along with payroll and related costs were offset by a reduction in other restaurant operating costs.

Selling, general & administrative expenses (SG&A) decreased to $25.0 million from $28.2 million in the prior fiscal year’s fourth quarter. As a percentage of total revenue, SG&A expenses declined 50 basis points to 9.0% from 9.5%. The decrease in SG&A was primarily due to lower incentive compensation expense and a slight decline in marketing spend.

Net Loss was $27.6 million, or ($0.46) per diluted share, compared to Net Income of $4.3 million, or $0.07 per diluted share in the last fiscal year’s fourth quarter.

Adjusted Net Income* was $6.3 million, or $0.10 per diluted share, in line with last fiscal year’s fourth quarter. Adjusted Net Income for the fourth quarter of fiscal year 2016 excluded after-tax adjustments of $33.9 million, primarily related to closure and impairment charges partially offset by the gain on sales of Lime Fresh Mexican Grill assets. Adjusted Net Income for the fourth quarter of fiscal year 2015 excluded after-tax adjustments of $2.1 million, primarily related to closure and impairment charges. A reconciliation between Net (Loss)/Income and Adjusted Net Income is included in the accompanying financial data.

Fiscal Year 2016 Financial Results

Total revenue was $1.1 billion, a decrease of 3.1% or $35.3 million from last fiscal year, primarily due to a net reduction of 12 corporate-owned Ruby Tuesday restaurants and 17 corporate-owned Lime Fresh Mexican Grill restaurants and a same-restaurant sales decline of 1.4% at corporate-owned Ruby Tuesday restaurants. Year-over-year guest counts fell 3.9% for fiscal year 2016 while average check rose 2.5%.

Restaurant level margin*, excluding franchise revenue, decreased to $182.4 million from $189.5 million in the prior fiscal year. As a percentage of corporate-owned restaurant sales, restaurant level margin declined approximately 10 basis points to 16.8% from 16.9%. The decrease in margin rate was primarily driven by increases in cost of goods sold and payroll and related costs offset in part by improvement in other restaurant operating costs.

Selling, general & administrative expenses (SG&A) decreased to $109.6 million from $115.3 million in the prior fiscal year. As a percentage of total revenue, SG&A expenses declined 20 basis points to 10.0% from 10.2%. The decrease in SG&A was primarily due to lower incentive compensation expense, partially offset by increased marketing spend to support new initiatives.

Net Loss was $50.7 million, or ($0.83) per diluted share, compared to Net Loss of $3.2 million, or ($0.05) per diluted share in the last fiscal year.

Adjusted Net Income* was $3.9 million, or $0.06 per diluted share, a decline of $0.2 million compared to Adjusted Net Income of $4.1 million, or $0.07 per diluted share, in the prior fiscal year. Adjusted Net Income for fiscal year 2016 excluded after-tax adjustments of $54.6 million, primarily related to closure and impairment charges partially offset by a gain on sales of Lime Fresh Mexican Grill. Adjusted Net Income for fiscal year 2015 excluded after-tax adjustments of $7.2 million, primarily related to closure and impairment charges. A reconciliation between Net Loss and Adjusted Net Income is included in the accompanying financial data.

Balance Sheet

The Company ended fiscal year 2016 with cash and cash equivalents totaling $67.3 million and book debt of $223.7 million. This compares to cash and cash equivalents totaling $52.5 million and book debt of $229.1 million as of March 1, 2016.

Restaurant Activity

As of May 31, 2016, there were 724 Ruby Tuesday restaurants system-wide, of which 646 were corporate-owned. During the fourth quarter, four corporate-owned Ruby Tuesday restaurants were closed and one was opened. Additionally, one domestic franchised Ruby Tuesday restaurant was closed. The Company also opened one and closed two international franchised Ruby Tuesday restaurants.

Fiscal Year 2017 Financial Outlook

The Company is providing full-year Adjusted Net Income per share guidance of $0.05 to $0.09. Pre-tax charges related to the Asset Rationalization Plan and as outlined in this release are excluded from Adjusted Net Income per share guidance. The Company notes that fiscal year 2017 is a fifty-three week period ending June 6, 2017 compared to a fifty-two week period in fiscal year 2016 and expects the fifty-third week impact on Adjusted Net Income per share to be approximately $0.02. Fiscal year 2017 guidance is based on the following assumptions:

  • Same-Restaurant Sales – Fiscal year 2017 same-restaurant sales of flat to up 2% for the comparable fifty-two week period ending May 30, 2017.
  • Unit Development – A net reduction of 95 corporate-owned Ruby Tuesday restaurants as part of the Asset Rationalization Plan with the potential of an additional 5 to 10 closures as leases expire.
  • Restaurant Level Margin* – Fiscal year 2017 restaurant level margin of 17.8% to 18.4%.
  • Selling, General, and Administrative Expense – Fiscal year 2017 SG&A ranging from $108 million to $112 million.
  • 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 year 2017 capital expenditures ranging from $38 million to $42 million.

The forward-looking restaurant level margin and estimated impact to EBITDA related to the Asset Rationalization Plan included in the Fiscal Year 2017 Financial Outlook cannot be reconciled to the most comparable GAAP measure of net (loss)/income. Providing net (loss)/income guidance is potentially misleading and not practical given the difficulty of projecting event driven transactions and other operating items that are included in net (loss)/income.

Fresh Start Initiative: Impact of Asset Rationalization Plan

Preliminary Estimated Impacts related to the Asset Rationalization Plan:
(in millions, or as otherwise indicated)
Estimated Annualized
FY17 Impact
Increase EBITDA $6 – $8 $12 – $14

Decrease in Depreciation expense

$3 – $4 $4 – $5
Pre-Tax Income $9 – 12 $16 – $19
Estimated Estimated
Pre-Tax Charges (1) FY17 Total
Asset Write-off & Impairment Charges (2) $3 – $5 $42 – $44
Lease Reserves (3) $19 – $21 $19 – $21

Closing, Restructuring and Other

$11 – $16 $11 – $16
Pre-Tax Expenses $33 – $42 $72 – $81
(1) With the exception of impairment charges which were substantially booked in FY16 Q4, the majority of pre-tax charges are expected to be realized in FY17.
(2) $39.2 million of non-cash impairment charges related to the Asset Rationalization Plan were recorded in Q4 FY16.
(3) Lease reserves estimate is stated net of deferred rent liability recorded as of 5/31/16. The actual amount of any cash payments made by the Company for lease contract termination costs will be dependent upon ongoing negotiations with the landlords of the leased restaurant properties and could be higher or lower than the amounts currently estimated.

The Company estimates that it will incur $72 million to $81 million in pre-tax charges related to the restaurant closures; with approximately $30 million to $37 million expected to be cash charges related to closing expenses, corporate restructuring, lease termination, holding and other costs. Additionally, the Company expects to receive cash proceeds of approximately $35 million to $45 million from the sale of corporate-owned properties closed as a part of the Asset Rationalization Plan. Proceeds from the sale of corporate-owned properties will be used to pay down debt and reinvest in the business.

 

Financial Results For the Fourth Quarter and Year Ended May 31, 2016
(Amounts in thousands except per share amounts)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
13 Weeks 13 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
May 31, Percent June 2, Percent May 31, Percent June 2, Percent
2016 of Revenue 2015 of Revenue 2016 of Revenue 2015 of Revenue
Revenue:
Restaurant sales and operating revenue $ 277,929 99.5 $ 295,087 99.4 $ 1,085,034 99.4 $ 1,120,142 99.4
Franchise revenue 1,393 0.5 1,725 0.6 6,194 0.6 6,424 0.6
Total Revenue 279,322 100.0 296,812 100.0 1,091,228 100.0 1,126,566 100.0
Operating Costs and Expenses:
(as a percent of Restaurant sales and operating revenue)
Cost of goods sold (excluding depreciation and amortization shown below) 76,840 27.6 80,717 27.4 298,529 27.5 305,306 27.3
Payroll and related costs 93,585 33.7 96,775 32.8 374,561 34.5 383,261 34.2
Other restaurant operating costs (1) 55,615 20.0 62,403 21.1 229,518 21.2 242,109 21.6

Restaurant Level Margin (excludes franchise revenue) (1)

51,889 18.7 55,192 18.7 182,426 16.8 189,466 16.9
Depreciation and amortization (1) 12,884 4.6 13,072 4.4 51,358 4.7 52,391 4.7
(as a percent of Total revenue)
Selling, general and administrative, net 25,005 9.0 28,186 9.5 109,627 10.0 115,327 10.2
Closures and impairments, net 43,773 15.7 3,994 1.3 62,681 5.7 10,542 0.9
Trademark impairment 1,999 0.2
Gain on sales of Lime Fresh Mexican Grill assets (5,937 ) (2.1 ) (5,937 ) (0.5 )
Total operating costs and expenses 301,765 285,147 1,122,336 1,108,936
(Loss)/Earnings From Operations (22,443 ) (8.0 ) 11,665 3.9 (31,108 ) (2.9 ) 17,630 1.6
Interest expense, net 5,654 2.0 5,952 2.0 21,764 2.0 22,735 2.0
Gain on extinguishment of debt (10 )
(Loss)/Income before income taxes (28,097 ) (10.1 ) 5,713 1.9 (52,862 ) (4.8 ) (5,105 ) (0.5 )
(Benefit)/Provision for income taxes (494 ) (0.2 ) 1,430 0.5 (2,180 ) (0.2 ) (1,911 ) (0.2 )
Net (Loss)/Income $ (27,603 ) (9.9 ) $ 4,283 1.4 $ (50,682 ) (4.6 ) $ (3,194 ) (0.3 )
Net (Loss)/Income Per Share:
Basic $ (0.46 ) $ 0.07 $ (0.83 ) $ (0.05 )
Diluted $ (0.46 ) $ 0.07 $ (0.83 ) $ (0.05 )
Shares:
Basic 59,765 60,725 60,871 60,580
Diluted 59,765 61,709 60,871 60,580

(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. While the reclassification had no impact on Net (Loss)/Income, it did impact the Company’s Other restaurant operating costs, Restaurant-level margin and Depreciation and amortization.

Financial Results For the Fourth Quarter of Fiscal Year 2016
(Amounts in thousands)
(Unaudited)
May 31, June 2,
CONDENSED CONSOLIDATED BALANCE SHEETS 2016 2015
Assets
Cash and Cash Equivalents $ 67,341 $ 75,331
Accounts Receivable 12,827 5,287
Inventories 21,595 20,411
Income Tax Receivable 3,003
Prepaid Rent and Other Expenses 11,508 12,398
Assets Held for Sale 4,642 5,453
Total Current Assets 120,916 118,880
Property and Equipment, Net 671,250 752,174
Other Assets 45,751 54,398
Total Assets $ 837,917 $ 925,452
Liabilities
Current Portion of Long-Term Debt, including
Capital Leases $ 9,934 $ 10,078
Income Tax Payable 1,069
Deferred Income Taxes, Net 7
Other Current Liabilities 87,772 99,227
Total Current Liabilities 97,706 110,381
Long-Term Debt and Capital Leases 213,803 231,017
Deferred Income Taxes, Net 1,442
Deferred Escalating Minimum Rents 51,535 50,768
Other Deferred Liabilities 67,093 66,261
Total Liabilities 430,137 459,869
Shareholders’ Equity 407,780 465,583
Total Liabilities and
Shareholders’ Equity $ 837,917 $ 925,452
Non-GAAP Reconciliation Table
Reconciliation of EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income Per Share
(Amounts in thousands except per share amounts)
(Unaudited)
13 Weeks 13 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
May 31, June 2, May 31, June 2,
2016 2015

2016

2015
Net (Loss)/Income $ (27,603 ) $ 4,283 $ (50,682 ) $ (3,194 )
Depreciation and Amortization 12,884 13,072 51,358 52,391
Interest Expense, net of Gain on Extinguishment of Debt 5,654 5,952 21,754 22,735
Provision (Benefit) for Income Taxes (494 ) 1,430 (2,180 ) (1,911 )
EBITDA $ (9,559 ) $ 24,737 $ 20,250 $ 70,021
Closures and Impairments, Net (1) 43,773 3,994 62,681 10,542
Trademark Impairment (2) 1,999
Executive Transition (3) (1,274 )
Gain on Sales of Lime Fresh Mexican Grill Assets (4) (5,937 ) (5,937 )
Adjusted EBITDA $ 28,277 $ 28,731 $ 77,719 $ 80,563
Net (Loss)/Income $ (27,603 ) $ 4,283 $ (50,682 ) $ (3,194 )
Closures and Impairments, Net (1) 43,773 3,994 62,681 10,542
Trademark Impairment (2) 1,999
Executive Transition (3) (1,274 )
Gain on Sales of Lime Fresh Mexican Grill Assets (4) (5,937 ) (5,937 )
Debt Prepayment Penalties & Deferred Financing Fees (5) 695 799 1,840 1,284
Income Tax Benefit from Adjustments (6) (15,293 ) (1,902 ) (23,540 ) (4,694 )
Income Tax Provision (Benefit) Adjusted to Statutory Rate (7) 10,659 (837 ) 18,801 115
Adjusted Net Income $ 6,294 $ 6,337 $ 3,888 $ 4,053
Net (Loss)/Income Per Share $ (0.46 ) $ 0.07 $ (0.83 ) $ (0.05 )
Adjusted Net Income Per Share $ 0.10 $ 0.10 $ 0.06 $ 0.07
Basic Shares Outstanding (8) 59,765 60,725 60,871 60,580
Diluted Shares Outstanding (8) 60,091 61,709 61,222 61,390
(1) Includes property impairments, restaurant lease reserves, closing cost adjustments, and gain on the sale of surplus properties.
(2) In connection with the 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.
(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) In Q4 FY16, the Company sold various Company-owned Lime Fresh restaurants to Rubio’s Restaurants Inc. and sold the Lime Fresh Mexican Grill brand to EverFresh Endeavors.
(5) Debt prepayment penalties and the write-off of deferred financing fees are classified within Interest Expense, net of Gain on Extinguishment of Debt, which are already included in EBITDA calculation and therefore not a separate add-back for Adjusted EBITDA.
(6) Represents the tax impact of the adjustments to Net Income (Loss) at the statutory rate (39.69%).
(7) Represents the Company’s Income Tax Provision (Benefit) adjusted to the Company’s statutory tax rate.
(8) Net Income and Adjusted Net Income per share figures are calculated based on diluted shares outstanding whereas Net Loss per share figures are calculated based on basic shares outstanding.
Reconciliation of 2017 Estimated GAAP Pre-Tax (Loss)/Income to Adjusted Net (Loss)/Income
53 Weeks ending June 6, 2017
(Amounts in millions except per share amounts)
Low High
Pre-Tax (Loss)/Income $ (37.0) $ (24.1)
Adjustments:
Asset Write-off & Impairment Charges (1) 5.0 3.0
Lease Reserves (2) 21.0 19.0

Closing, Restructuring, Other (3)

16.0 11.0
Adjusted Pre-Tax Income $ 5.0 $ 8.9

Tax at Statutory Rate (4)

2.0 3.5
Adjusted Net (Loss)/Income $ 3.0 $ 5.4
Adjusted EPS (4) $ 0.05 $ 0.09
Diluted Shares 59.9 59.9
(1) Estimated non-cash property impairments and asset write-offs.
(2) Estimated non-cash lease reserve charges net of deferred rent liability. The actual amount of any cash payments made by the company for lease contract termination costs will be dependent upon ongoing negotiations with the landlords of the leased restaurant properties and could be higher or lower than the amounts currently estimated.
(3) Estimated restaurant closing expenses, corporate restructuring and other costs related to the Asset Rationalization Plan.
(4) Represents tax calculated at the statutory rate of 39.69%.
Ruby Tuesday, Inc.
Number of Restaurants at End of Period
May 31, June 2,
2016 2015
Ruby Tuesday:
Company-Owned 646 * 658
Domestic Franchised 27 29
International Franchised 51 49
Total 724 736
Lime Fresh:
Company-Owned 2 19
Domestic Franchised 0 7
Total 2 26
Total Restaurants:
Company-Owned 648 677
Domestic Franchised 27 36
International Franchised 51 49
System-wide total 726 762
Share Button
About the Author