Ruby Tuesday, Inc. Reports Fiscal First Quarter 2017 Financial Results

MARYVILLE, TN–(hospitalitybusinessnews.com)–Ruby Tuesday, Inc. today announced financial results for the fiscal quarter ended August 30, 2016.

Fiscal First Quarter 2017 Highlights (13 weeks ended August 30, 2016, compared to the 13 weeks ended September 1, 2015):

  • Total revenue declined 8.2% to $256.7 million, which included a net reduction of 109 Company-owned Ruby Tuesday restaurants compared to the first quarter of the prior fiscal year, including 95 restaurants closed in the current quarter in connection with our previously-announced Fresh Start Initiative.
  • Same-restaurant sales declined 2.7% following a 0.6% increase in the first quarter of the prior fiscal year.
  • Closure and Impairment expense was $30.2 million primarily due to the previously-announced 95 restaurant closures, compared to $2.7 million in the first quarter of the prior fiscal year.
  • Net Loss was $39.7 million, or ($0.66) per diluted share, compared to a Net Loss of $4.2 million, or ($0.07) per diluted share in first quarter of the prior fiscal year.
  • Restaurant level margin* declined 200 basis points to 13.9%.
  • Adjusted Net Loss* was $6.8 million, or ($0.11) per diluted share, compared to an Adjusted Net Loss of $1.6 million, or ($0.03) per diluted share in the first quarter of the prior fiscal year.
  • Adjusted EBITDA* was $4.9 million compared to $15.0 million in the first quarter of the prior fiscal year.
  • As of August 30, 2016, the Company had cash on hand of $68.7 million.

* Restaurant Level Margin, EBITDA, Adjusted EBITDA, Adjusted Net Loss and Adjusted Net Loss per share are non-GAAP measures. Reconciliations of Restaurant Level Margin, EBITDA, Adjusted EBITDA, Adjusted Net Loss and Adjusted Net Loss 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.”

Lane Cardwell, Interim President and Chief Executive Officer, commented, “While the casual dining environment remains highly competitive and challenging as evidenced by our negative quarterly same-restaurant sales, our trend improved sequentially during the first quarter as we made investments in highlighting value aimed at building guest counts. In fact, we generated positive traffic in August through a successful 3 Course Meal offer for $12.99.”

Cardwell continued, “Our underlying goal is to drive traffic through the key strategies of our Fresh Start initiatives that we are launching in the coming months. These include our Fresh New Menu, Fresh New Garden Bar, and Fresh Experience. In each of these key areas, we are accelerating our actions as we believe these improvements will have a positive impact on our performance through increasing guest count and frequency. We are focused on showcasing the affordability and value that Ruby Tuesday offers through a redesign of our core menu. Our team has never been more excited and focused on the plan ahead. We are moving with greater urgency to change the trajectory of our business through a renewed focus on our guests.”

Fiscal First Quarter 2017 Financial Results

Total revenue was $256.7 million, a decrease of 8.2% or $22.8 million from the first quarter of the prior fiscal year. This decrease was due to a net reduction of 109 Company-owned Ruby Tuesday restaurants as compared to the first quarter of the prior fiscal year and a same-restaurant sales decline of 2.7% at Company-owned Ruby Tuesday restaurants.

The first quarter same-restaurant sales decrease was driven in part by guest traffic declines resulting from a challenging and competitive external environment. Year-over-year guest counts fell 3.1% while average check rose 0.3%.

Selling, general and administrative expenses, net (SG&A) increased to $31.6 million from $29.4 million in the first quarter of the prior fiscal year. As a percentage of total revenue, SG&A expenses increased 180 basis points to 12.3% from 10.5%. The increase in SG&A was primarily due to an increase in marketing spend and, to a lesser extent, higher incentive compensation expense.

Net Loss was $39.7 million, or ($0.66) per diluted share, compared to Net Loss of $4.2 million, or ($0.07) per diluted share, in the first quarter of the prior fiscal year.

Restaurant level margin* decreased to $35.6 million from $44.1 million in the first quarter of the prior fiscal year. As a percentage of restaurant sales and operating revenue, restaurant level margin declined 200 basis points to 13.9% driven mainly by increases in payroll and related costs and cost of goods sold.

Adjusted Net Loss* was $6.8 million, or ($0.11) per diluted share, compared to Adjusted Net Loss of $1.6 million, or ($0.03) per diluted share, in the first quarter of the prior fiscal year. Adjusted Net Loss for the first quarter of fiscal year 2017 excluded adjustments of $32.9 million, primarily related to closure and impairment charges. Adjusted Net Loss for the first quarter of fiscal year 2016 excluded adjustments of $2.6 million, primarily related to closure and impairment charges, debt prepayment penalties, and deferred financing fees, partially offset by executive transition. A reconciliation between Net Loss and Adjusted Net Loss is included in the accompanying financial data.

Balance Sheet

The Company ended the fiscal 2017 first quarter with cash and cash equivalents totaling $68.7 million and debt of $223.5 million. This compares to cash and cash equivalents totaling $67.3 million and debt of $223.7 million as of May 31, 2016.

Restaurant Activity

As of August 30, 2016, there were 615 Ruby Tuesday restaurants system-wide, of which 547 were Company-owned. During the first quarter, 99 Company-owned Ruby Tuesday restaurants were closed, including 95 restaurants closed in connection with the Fresh Start Initiative. The Company also closed one Company-owned Lime Fresh Mexican Grill restaurant during the quarter. Additionally, one domestic franchised Ruby Tuesday restaurant was opened and ten were closed. One international franchised Ruby Tuesday restaurant was closed during the current quarter.

Sale of Property

On September 22, 2016, Ruby Tuesday announced that it has entered into an agreement to sell its property at 150 W. Church Avenue in Maryville, Tennessee for $2.8 million. The completion of the transaction is targeted for October 2016, subject to customary closing conditions. Team members of the impacted property will be relocated into the Company’s other Tennessee-based Restaurant Support Center at 333 E. Broadway Avenue in Maryville, Tennessee by the end of January 2017.

Update on Fresh Start Initiatives

  • Asset Rationalization Plan – 95 restaurants have closed under the Company’s asset rationalization plan which was announced on August 11, 2016. Additionally, these locations have been excluded from the calculation of the Company’s same restaurant sales performance for the fiscal first quarter and will be excluded on a go-forward basis.
  • Fresh New Menu – The Company will be launching a new core menu in November 2016 across all Ruby Tuesday restaurants. The Fresh New Menu will include new shareable appetizers, garden fresh salads, pastas, and desserts, as well as a new drink and kids menu. It will also include a new menu design that better communicates freshness and value to guests.
  • Fresh New Garden Bar – In January 2017 the Company will be rolling out its Fresh New Garden Bar nationally across all Ruby Tuesday restaurants. The Company has fine-tuned the product offering to over 50 items, streamlined the implementation and execution, and determined the appropriate price point to provide value to guests in a cost effective and profitable way.
  • Fresh Experience – The Company remains on track to complete 11 to 13 store remodels by the end of the calendar year in the Charlotte, NC and Jacksonville, FL markets. Additionally, Ruby Tuesday anticipates executing six to eight remodels between January and May of 2017 and will provide an update on which markets will be targeted in the coming quarter.

Fiscal 2017 Outlook

Cardwell commented “We are embarking on a period of accelerated strategic change for Ruby Tuesday, and we believe that with a thoughtful but decisive approach, we can deliver improved profitability and enhance shareholder value. We are excited about the new products coming to market this fiscal year including our new menu in November, the relaunch of successful promotions, and the roll out of the enhanced Garden Bar system-wide in January. I am confident that these strategies coupled with our service improvements will bring same-restaurant sales back into positive territory in fiscal 2017.”

The Company plans to accelerate the execution of its Fresh Start Initiatives under new leadership to better address the challenges currently facing the business, and as a result is discontinuing providing guidance so that it can focus on long-term strategic objectives.

 

Financial Results For the First Quarter of Fiscal Year 2017
(Amounts in thousands)
(Unaudited)
August 30,

      May 31,

CONDENSED BALANCE SHEETS 2016

      2016

Assets
Cash and Cash Equivalents $ 68,661 $ 67,341
Accounts and Other Receivables 7,108 12,827
Inventories 18,658 21,595
Income Tax Receivable 4,721 3,003
Prepaid Rent and Other Expenses 10,643 11,508
Assets Held for Sale 11,849 4,642
Total Current Assets 121,640 120,916
Property and Equipment, Net 651,777 671,250
Other Assets 44,742 45,751
Total Assets $ 818,159 $ 837,917
Liabilities
Current Maturities of Long-Term Debt, including
Capital Leases $ 9,781 $ 9,934
Other Current Liabilities 114,191 87,772
Total Current Liabilities 123,972 97,706
Long-Term Debt and Capital Leases, less
Current Maturities 213,728 213,803
Deferred Escalating Minimum Rents 45,787 51,535
Other Deferred Liabilities 65,393 67,093
Total Liabilities 448,880 430,137
Shareholders’ Equity 369,279 407,780
Total Liabilities and
Shareholders’ Equity $ 818,159 $ 837,917
Financial Results For the First Quarter of Fiscal Year 2017
(Amounts in thousands except per share amounts)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
13 Weeks 13 Weeks
Ended Percent of Ended Percent of
August 30, Total September 1, Total
2016 Revenue 2015 Revenue
Revenue:
Restaurant sales and operating revenue $ 255,764 99.7 $ 277,907 99.4
Franchise revenue 893 0.3 1,573 0.6
Total Revenue 256,657 100.0 279,480 100.0
Operating Costs and Expenses:
(as a percent of Restaurant sales and operating revenue)
Cost of goods sold 72,190 28.2 76,241 27.4
Payroll and related costs 90,607 35.4 95,335 34.3
Other restaurant operating costs 57,363 22.4 62,207 22.4
Restaurant Level Margin (excludes franchise revenue). 35,604 13.9 44,124 15.9
Depreciation and amortization 11,229 4.4 12,806 4.6
(as a percent of Total revenue)
Selling, general and administrative, net 31,585 12.3 29,396 10.5
Closures and impairments, net 30,192 11.8 2,712 1.0
Total operating costs and expenses 293,166 278,697
(Loss)/Earnings From Operations (36,509 ) (14.2 ) 783 0.3

Interest expense, net

4,877 1.9 6,000 2.1
Loss before income taxes (41,386 ) (16.1 ) (5,217 ) (1.9 )
Benefit for income taxes (1,694 ) (0.7 ) (1,023 ) (0.4 )
Net Loss $ (39,692 ) (15.5 ) $ (4,194 ) (1.5 )
Net Loss Per Share:
Basic $ (0.66 ) $ (0.07 )
Diluted $ (0.66 ) $ (0.07 )
Shares:
Basic 59,790 61,344
Diluted 59,790 61,344
Non-GAAP Reconciliation Table
Reconciliation of EBITDA, Adjusted EBITDA, Adjusted Net Loss, and Adjusted Net Loss Per Share
(Amounts in thousands except per share amounts)
(Unaudited)
13 Weeks 13 Weeks
Ended Ended
August 30, September 1,
2016 2015
Net Loss $ (39,692 ) $ (4,194 )
Depreciation and Amortization 11,229 12,806
Interest Expense, net 4,877 6,000
Benefit for Income Taxes (1,694 ) (1,023 )
EBITDA $ (25,280 ) $ 13,589
Closures and Impairments, Net (1) 30,192 2,712
Executive Transition (2) (1,274 )
Adjusted EBITDA $ 4,912 $ 15,027
Net Loss $ (39,692 ) $ (4,194 )
Closures and Impairments, Net (1) 30,192 2,712
Executive Transition (2) (1,274 )
Debt Prepayment Penalties & Deferred Financing Fees (3) 1,085
Income Tax Benefit from Adjustments (4) (11,983 ) (1,001 )
Income Tax Benefit Adjusted to Statutory Rate (5) 14,732 1,048
Adjusted Net Loss $ (6,751 ) $ (1,624 )
Net Loss Per Share $ (0.66 ) $ (0.07 )
Adjusted Net Loss Per Share $ (0.11 ) $ (0.03 )
Basic Shares Outstanding (6) 59,790 61,344
Diluted Shares Outstanding (6) 59,790 61,344
(1) Includes property impairments, closed restaurant lease reserves, other closing expenses, and gain on sale of surplus properties.
(2) 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 Q1 FY16 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.
(3) Debt prepayment penalties and the write-off of deferred financing fees are classified within Interest Expense and included in the EBITDA calculation and therefore not a separate add-back for Adjusted EBITDA.
(4) Represents the tax impact of the adjustments to Net Loss at the Company’s statutory tax rate (39.69%).
(5) Represents the Company’s Income Tax Benefit adjusted to the Company’s statutory tax rate.
(6) Net Loss and Adjusted Net Loss per share figures are calculated based on diluted shares outstanding.
Ruby Tuesday, Inc.
Number of Restaurants at End of Period

      August 30,

  September 1,

      2016

  2015

Ruby Tuesday:
Company-Owned 547 656
Domestic Franchised 18 28
International Franchised 50 50
Total 615 734
Lime Fresh:
Company-Owned 1 19
Domestic Franchised 0 8
Total 1 27
Total Restaurants:
Company-Owned 548 675
Domestic Franchised 18 36
International Franchised 50 50
System-wide total 616 761
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