Ruby Tuesday, Inc. (RT) inched up 0.33% during after-market trading session on Thursday, following the better-than-expected fiscal third-quarter 2015 results. While losses were narrower than the Zacks Consensus Estimate, revenues beat the same. However, the lowered comps guidance for fiscal 2015 marred the positive sentiment in the market due to the earnings beat.

This restaurateur posted a loss of a penny per share, narrower than the Zacks Consensus Estimate of 6 cents loss. Further, losses were substantially narrower than the year-ago loss of 7 cents. The upside was primarily due to a decline in costs and improvement in margins.
 

Ruby Tuesday Inc. - Earnings Surprise | FindTheCompany

Meanwhile, total revenue of $285.9 million beat the Zacks Consensus estimate of $284 million by 0.7%. However, revenues declined 3.3% year over year due to the comps decline at company-owned restaurants.

Behind the Headlines

Same-restaurant sales declined 0.3% at company-owned restaurants, better than the 1% comps decline in the prior quarter. Also, sales were within management’s expectation of down 2% to up 1%. This reflects a 1% decrease in guest count, better than the 1.3% drop registered in the last quarter. However, this decline was partly offset by 0.7% increase in net check.

Restaurant-level margins came in at 17%, up 90 basis points (bps) year over year, owing to brand transformation efforts. Selling, general and administrative (SG&A) expenses, as a percentage of revenues, declined 120 bps to 10.1% owing to lower marketing expenses on efficient media and production plan. Further, cost efficient coupon placement led to the decline.

Fiscal 2015 Guidance

Ruby Tuesday expects fiscal 2015 comps to be flat to down 1%. The guidance for the year has been revised from prior guidance of down 1% to up 1%.

The company expects restaurant level margin to be 16.5% to 17% of restaurant sales, narrower than the prior guidance of 16% to 17% of total sales. The improvement is primarily due to decrease in cost of goods sold, payroll and related costs, and other restaurant operating costs from cost savings initiatives.

The company’s SG&A expenses are expected between $117 million and $119 million as against the prior guidance of $127 to $130 million. The reduction is primarily driven by reduced marketing spending. Also, Ruby Tuesday expects marketing expenses to decline on the back of benefits from its efficient marketing strategy. Capital expenditure is expected to range within $28 to $32 million.

Fourth-Quarter Fiscal 2015 Guidance

Ruby Tuesday expects same-restaurant sales in the fourth quarter to be flat to down in low single-digits.

Our Take

In order to cope with the weaker same-store sales owing to the slack consumer spending environment, Ruby Tuesday added cheaper items to its menu and closed underperforming restaurants. We believe that these initiatives would benefit the company over the long run.  

Stocks to Consider

Ruby Tuesday has a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include Darden Restaurants, Inc. (DRI - Analyst Report), Jack in the Box Inc. (JACK) and BJ's Restaurants, Inc. (BJRI - Analyst Report). All these stocks sport a Zacks Rank #1 (Strong Buy).