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

MARYVILLE, TN–(hospitalitybusinessnews.com)–Ruby Tuesday, Inc.  today announced financial results for the fiscal quarter ended November 29, 2016.

Fiscal Second Quarter 2017 Highlights (13 weeks ended November 29, 2016, compared to the 13 weeks ended December 1, 2015):

  • Total revenue declined 17.7% to $214.7 million, which included a net reduction of 109 Company-owned Ruby Tuesday restaurants compared to the second quarter of the prior fiscal year, including 95 restaurants closed in connection with our Fresh Start Initiative announced on August 11, 2016.
  • Same-restaurant sales declined 4.1% compared to a 0.8% increase in the second quarter of the prior fiscal year.
  • Closures and Impairments expense was $15.7 million compared to $12.1 million in the second quarter of the prior fiscal year.
  • Net Loss was $38.0 million, or ($0.63) per diluted share, compared to a Net Loss of $15.8 million, or ($0.26) per diluted share in second quarter of the prior fiscal year.
  • Restaurant level margin* declined 410 basis points to 11.5%.
  • Adjusted Net Loss* was $10.9 million, or ($0.18) per diluted share, compared to an Adjusted Net Loss of $2.4 million, or ($0.04) per diluted share in the second quarter of the prior fiscal year.
  • Adjusted EBITDA* was negative $2.7 million compared to $14.1 million in the second quarter of the prior fiscal year.
  • As of November 29, 2016, the Company had cash on hand of $38.6 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 results of our fiscal second quarter were disappointing, I am excited about the strategic changes and the new product rollouts that began with the introduction of our Fresh New Menu in November and will continue in January with the national launch of our Fresh New Garden Bar.”

Cardwell continued, “Our progress in executing the key strategies of the Fresh Start initiative should be viewed in two stages. The first is marked by the launch of our Fresh New Menu in mid-November while the second is marked by the launch of the enhanced Garden Bar in mid-January. We believe this combination will ultimately have a positive impact on our performance through increasing guest count and frequency.”

Cardwell concluded, “Our new menu has been designed to showcase the affordability and value that Ruby Tuesday offers. We view the national launch of our reinvented Garden Bar as our greatest brand differentiator by appealing to customers’ desire for fresh, healthy options. Furthermore, based on market survey data the New Garden Bar resonates well and scores high with our target customer base. Most importantly, the entire team is focused on providing an enhanced guest experience through new product offerings as well as service improvements. We believe these efforts should change the trajectory of our business and drive shareholder value.”

Update on Fresh Start Initiatives

As announced on October 6, 2016, the Company plans to accelerate the execution of its Fresh Start Initiatives to better address the challenges currently facing the business, improve financial profitability, and create long-term value for shareholders.

The Company has continued to make progress on its Fresh Start Initiatives. Key updates include:

Fresh New Menu

  • The Company launched a new core menu mid-November 2016 across all Ruby Tuesday restaurants which has been redesigned to better communicate freshness and affordability to our guests and in order to connect with our target demographic of women and families.
  • The Fresh New Menu added new menu items that feature high quality ingredients including new shareable appetizers, garden fresh salads, pastas, and desserts, as well as a new drink and redesigned kids menu.
    • There are four new freshly prepared salads (BBQ Chicken Salad, Crispy Chicken Cobb Salad, Mediterranean Chicken Salad or Kale Caesar Salad) that can be served three ways (tossed, chopped or chopped and stuffed in a warm baguette).
    • New appetizers include Philly Cheesesteak Potstickers, Buffalo Chicken Tostadas, and Italian Five-Cheese Skillet.
  • The Fresh New Menu also reduced the total number of items offered by approximately 30% to remove underutilized and overly complicated options which simplified operations.

Fresh New Garden Bar

  • On January 17, 2017, the Company will be rolling out its Fresh New Garden Bar nationally across all Ruby Tuesday restaurants.
    • The launch will be supported by marketing through national television, on-line video, social media, and multiple other vehicles inside and outside the restaurant to showcase and tell the story of the New Garden Bar.
  • Ruby Tuesday will dramatically expand the product offering from 36 to 58 items, which we believe will provide enhanced value and variety for our guests.
  • The Fresh New Garden Bar will include fresh greens, raw vegetable toppings, roasted vegetables, crispy toppings, as well as hummus, dips and fruits.
    • The Company will also introduce a line of eight new salad dressings made in-house that are naturally gluten-free and utilize the freshest ingredients to ensure great taste and high quality.

Fresh Experience

  • The Company continues to improve customer service through the execution of plans focused on key measures of guest satisfaction. During the second quarter, Ruby Tuesday reached its best ever overall satisfaction score.
  • The Company expects to complete 13 store remodels by the end of January 2017 in certain markets, which upon completion will be followed by re-grand openings supported by local marketing.
  • Pending the results of the market tests, the Company is placing the remodeling program on a temporary hold while measuring the combined results from a new look, new menu and new Garden Bar.

Asset Rationalization Plan

  • The Company is in the contract process to sell 25 properties with average expected net proceeds of $1.6 million per location. This includes 20 properties closed as a result of our Asset Rationalization Plan announced on August 11, 2016.

Fiscal Second Quarter 2017 Financial Results

Total revenue was $214.7 million, a decrease of 17.7% or $46.2 million from the second 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 second quarter of the prior fiscal year and a same-restaurant sales decline of 4.1% at Company-owned Ruby Tuesday restaurants.

The second quarter same-restaurant sales decrease was driven in part by guest traffic declines resulting from a challenging external environment, with year-over-year guest counts down 2.8%. Additionally, given the Company’s promotional activity during the quarter, average check declined 1.3%.

Restaurant level margin* decreased to $24.6 million from $40.4 million in the second quarter of the prior fiscal year. As a percentage of restaurant sales and operating revenue, restaurant level margin declined 410 basis points to 11.5% driven primarily by underperforming promotional activities which resulted in inefficient management of controllable costs.

General and administrative expenses (G&A) increased to $18.4 million from $14.2 million in the second quarter of the prior fiscal year. As a percentage of total revenue, G&A expenses increased 320 basis points to 8.6% from 5.4%. The increase in G&A was primarily due to an increase in costs associated with executive transition.

Marketing expenses, net increased to $14.0 million from $13.7 million in the second quarter of the prior fiscal year. As a percentage of revenue, marketing expenses, net increased 130 basis points to 6.5% from 5.2%. The increase in marketing expenses, net as a percentage of total revenue was primarily due to deleveraging on lower sales.

Net Loss was $38.0 million, or ($0.63) per diluted share, compared to Net Loss of $15.8 million, or ($0.26) per diluted share, in the second quarter of the prior fiscal year.

Adjusted Net Loss* was $10.9 million, or ($0.18) per diluted share, compared to Adjusted Net Loss of $2.4 million, or ($0.04) per diluted share, in the second quarter of the prior fiscal year. Adjusted Net Loss for the second quarter of fiscal year 2017 excluded adjustments of $27.1 million, primarily related to closures and impairment charges. Adjusted Net Loss for the second quarter of fiscal year 2016 excluded adjustments of $13.4 million, primarily related to closures and impairment charges. A reconciliation between Net Loss and Adjusted Net Loss is included in the accompanying financial data.

Balance Sheet

The Company ended the fiscal 2017 second quarter with cash and cash equivalents totaling $38.6 million and debt of $223.2 million.

Sale of Property

During the quarter, Ruby Tuesday completed the sale of its property at 150 W. Church Avenue in Maryville, Tennessee for $2.8 million. Team members will be relocated to the Company’s other Tennessee-based Restaurant Support Center at 333 E. Broadway Avenue in Maryville, Tennessee by the end of January 2017.

Restaurant Activity

As of November 29, 2016, there were 613 Ruby Tuesday restaurants system-wide, of which 546 were Company-owned. During the second quarter, one Company-owned Ruby Tuesday restaurant was closed. Additionally, one international franchised Ruby Tuesday restaurant was closed during the quarter.

 

Financial Results For the Second Quarter of Fiscal Year 2017
(Amounts in thousands)
(Unaudited)
November 29, May 31,
CONDENSED BALANCE SHEETS 2016 2016
Assets
Cash and Cash Equivalents $ 38,565 $ 67,341
Accounts and Other Receivables 7,018 12,827
Inventories 21,257 21,595
Income Tax Receivable 5,213 3,003
Prepaid Rent and Other Expenses 9,628 11,508
Assets Held for Sale 26,728 4,642
Total Current Assets 108,409 120,916
Property and Equipment, Net 617,433 671,250
Other Assets 43,493 45,751
Total Assets $ 769,335 $ 837,917
Liabilities
Current Maturities of Long-Term Debt, including
Capital Leases $ 13,629 $ 9,934
Deferred Revenue – Gift Cards 14,780 16,354
Other Current Liabilities 91,053 71,418
Total Current Liabilities 119,462 97,706
Long-Term Debt and Capital Leases, less
Current Maturities 209,609 213,803
Deferred Escalating Minimum Rents 43,157 51,535
Other Deferred Liabilities 63,799 67,093
Total Liabilities 436,027 430,137
Shareholders’ Equity 333,308 407,780
Total Liabilities and
Shareholders’ Equity $ 769,335 $ 837,917

Financial Results For the Second Quarter and First 26 Weeks of Fiscal Year 2017
(Amounts in thousands except per share amounts)
(Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

13 Weeks 13 Weeks 26 Weeks 26 Weeks
Ended Percent of Ended Percent of Ended Percent of Ended Percent of
November 29, Total December 1, Total November 29, Total December 1, Total
2016 Revenue 2015 Revenue 2016 Revenue 2015 Revenue
Revenue:
Restaurant sales and operating revenue $ 213,815 99.6 $ 259,330 99.4 $ 469,579 99.6 $ 537,237 99.4
Franchise revenue 904 0.4 1,626 0.6 1,797 0.4 3,199 0.6
Total Revenue 214,719 100.0 260,956 100.0 471,376 100.0 540,436 100.0
Operating Costs and Expenses:
(as a percent of Restaurant sales and operating revenue)
Cost of goods sold 62,142 29.1 70,305 27.1 134,332 28.6 146,546 27.3
Payroll and related costs 80,418 37.6 92,284 35.6 171,025 36.4 187,619 34.9
Other restaurant operating costs 46,620 21.8 56,385 21.7 103,983 22.1 118,592 22.1
Restaurant Level Margin (excludes franchise revenue) 24,635 11.5 40,356 15.6 60,239 12.8 84,480 15.7
Depreciation and amortization 10,488 4.9 12,936 5.0 21,717 4.6 25,742 4.8
(as a percent of Total revenue)
General and administrative expenses 18,394 8.6 14,156 5.4 34,483 7.3 30,078 5.6
Marketing expenses, net 14,025 6.5 13,692 5.2 29,521 6.3 27,166 5.0
Closures and impairments, net 15,708 7.3 12,072 4.6 45,900 9.7 14,784 2.7
Total operating costs and expenses 247,795 271,830 540,961 550,527
Loss From Operations (33,076 ) (15.4 ) (10,874 ) (4.2 ) (69,585 ) (14.8 ) (10,091 ) (1.9 )
Interest expense, net 4,844 2.3 5,105 2.0 9,721 2.1 11,105 2.1
Loss before income taxes (37,920 ) (17.7 ) (15,979 ) (6.1 ) (79,306 ) (16.8 ) (21,196 ) (3.9 )
Provision / (benefit) for income taxes 36 0.0 (180 ) (0.1 ) (1,658 ) (0.4 ) (1,203 ) (0.2 )
Net Loss $ (37,956 ) (17.7 ) $ (15,799 ) (6.1 ) $ (77,648 ) (16.5 ) $ (19,993 ) (3.7 )
Net Loss Per Share:
Basic $ (0.63 ) $ (0.26 ) $ (1.29 ) $ (0.33 )
Diluted $ (0.63 ) $ (0.26 ) $ (1.29 ) $ (0.33 )
Shares:
Basic 60,170 61,455 59,980 61,400
Diluted 60,170 61,455 59,980 61,400
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 26 Weeks 26 Weeks
Ended Ended Ended Ended
November 29, December 1, November 29, December 1,
2016 2015 2016 2015
Net Loss $ (37,956 ) $ (15,799 ) $ (77,648 ) $ (19,993 )
Depreciation and Amortization 10,488 12,936 21,717 25,742
Interest Expense, net 4,844 5,105 9,721 11,105
Provision / (Benefit) for Income Taxes 36 (180 ) (1,658 ) (1,203 )
EBITDA $ (22,588 ) $ 2,062 $ (47,868 ) $ 15,651
Closures and Impairments, Net (1) 15,708 12,072 45,900 14,784
Executive Transition (2) 4,208 4,208 (1,274 )
Adjusted EBITDA $ (2,672 ) $ 14,134 $ 2,240 $ 29,161
Net Loss $ (37,956 ) $ (15,799 ) $ (77,648 ) $ (19,993 )
Closures and Impairments, Net (1) 15,708 12,072 45,900 14,784
Executive Transition (2) 4,208 4,208 (1,274 )
Debt Prepayment Penalties & Deferred Financing Fees (3) 1,084
Income Tax Benefit from Adjustments (4) (7,905 ) (4,792 ) (19,888 ) (5,792 )
Income Tax Benefit Adjusted to Statutory Rate (5) 15,086 6,162 29,819 7,210
Adjusted Net Loss $ (10,859 ) $ (2,357 ) $ (17,609 ) $ (3,981 )
Net Loss Per Share $ (0.63 ) $ (0.26 ) $ (1.29 ) $ (0.33 )
Adjusted Net Loss Per Share $ (0.18 ) $ (0.04 ) $ (0.29 ) $ (0.06 )
Basic Shares Outstanding (6) 60,170 61,455 59,980 61,400
Diluted Shares Outstanding (6) 60,170 61,455 59,980 61,400
(1) Includes property impairments, closed restaurant lease reserves, other closing expenses, losses / (gains) on sales of properties, and a $2.0 million partial trademark impairment charge of the Lime Fresh trademark during Q2 FY16.
(2) On September 13, 2016, our then Chairman, President, and Chief Executive Officer left the Company. Accordingly, we recorded severance, unused vacation, and other benefit costs of $3.0 million, a charge of approximately $0.9 million in connection with the accelerated vesting of certain share-based awards, and other related payments of $0.3 million. In Q1 FY16, 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 certain share-based awards.
(3) Debt prepayment penalties and the write-off of deferred financing fees are classified within Interest expense and included in 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
November 29, December 1,
2016 2015
Ruby Tuesday:
Company-Owned 546 655
Domestic Franchised 18 28
International Franchised 49 50
Total 613 733
Lime Fresh:
Company-Owned 0 8
Domestic Franchised 0 8
Total 0 16
Total Restaurants:
Company-Owned 546 663
Domestic Franchised 18 36
International Franchised 49 50
System-wide total 613 749
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