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Ruby Tuesday Reports Second Quarter Results - Costs Reduced and Property Portfolio Restructured to Strengthen the Company

By: Ruby Tuesday |  0 Shares     137 Reads

MARYVILLE, Tenn.--(BUSINESS WIRE)--Jan. 7, 2009--Ruby Tuesday (NYSE: RT) reported revenue of $289.8 million for its second fiscal quarter ended December 2, 2008, versus $320.9 million for the same period a year ago, with the decrease reflecting a 10.8% decline in same-restaurant sales. The Company also reported a diluted loss per share of $0.73 on a net loss of $37.4 million including pre-tax charges of $56.2 million or $0.71 per diluted share for restructuring its property portfolio and the write-off of its goodwill. This compares to a diluted loss per share of $0.20 for the second quarter of the prior year on a net loss of $10.4 million.

Management took decisive action during the quarter to lower the Company's costs and improve the productivity and profitability of its assets in response to continuing soft sales and the deterioration in the overall economic climate by:

    --  Reducing costs by an estimated $40-45 million annually, including

        lowering general and administrative and other expenses, and the benefit

        from our restructuring;

    --  Restructuring the Company's property portfolio including plans to close

        approximately 40 restaurants in the third quarter and an additional 30

        over the next several years, and the write-down of properties held for

        sale to facilitate their disposal.

Sandy Beall, founder and CEO commented, "We are highly focused on four key aspects of our business: improving same-restaurant sales; maintaining and growing cash flow; improving the productivity and quality of our restaurant locations; and strengthening our balance sheet and reducing debt by an estimated $80-90 million in fiscal 2009. We paid down approximately $40 million of debt in the first half of the fiscal year.

"While the actions we took in the second quarter are important, we understand that the best and most sustainable way to increase cash flow, reduce our debt, and address our financial position is through increasing same-restaurant sales. Our advertising dollars are focused on promoting value aggressively to generate traffic. We are also testing targeted marketing programs in the South, an area that has been especially soft for us.

Mr. Beall continued, "In the last several years we invested heavily to reimage all our restaurants through upgraded menu offerings, service standards, and remodels. With our system freshly updated and new restaurant development on hold, we have minimal capital needs. Therefore, nearly all our cash flow will be used for debt pay-down.

"In addition, proceeds from the sales of the properties held for sale, the carrying value of which we wrote down in the second quarter, will be used to retire our debt.

"We are generating substantial free cash flow, have the liquidity to repay debt, and are in compliance with our debt covenants. We believe the actions we are taking, including our cost reduction efforts, will help us to remain in compliance with our debt covenants going forward.

"The bar grill segment is highly competitive and the supply of restaurants far exceeds the level of demand. Many observers believe the entire segment will need to invest to improve quality, overall value, and find ways to differentiate themselves. We have already accomplished this through our quality improvement initiatives and remodeling program that we commenced three years ago and completed towards the end of fiscal 2008. Consequently, we believe we are well-positioned to gain market share when consumer spending recovers," Mr. Beall concluded.

Second Quarter Highlights



    --  Same-restaurant sales at Company-owned Ruby Tuesday restaurants

        decreased 10.8%, while same-restaurant sales at domestic franchise Ruby

        Tuesday restaurants decreased 6.2%, as compared to a decrease of 10.8%

        and a decrease of 8.7% at Company-owned and domestic franchise Ruby

        Tuesday restaurants, respectively, in the second quarter of the prior

        year.





Second quarter fiscal 2009 same-restaurant sales:



                                                  Second

                    September  October  November           December

                                                  Quarter



Company-Owned       -9.4%      -10.4%   -12.7%    -10.8%   -9.1%



Domestic Franchise  -5.1%      -6.9%    -6.9%     -6.2%    -9.9%









    --  Total revenues were down 9.7% primarily reflecting the decline in

        same-restaurant sales. A net of one restaurant closed during the

        quarter, and there was a net decrease of 7 restaurants from the same

        quarter of the prior year.

    --  Sales at domestic and international franchise Ruby Tuesday restaurants

        (which are the basis for determining royalty fees included in franchise

        income on the Company's operating statement) totaled $90,698,000 and

        $98,173,000 for the second quarter of fiscal 2009 and 2008,

        respectively. Fiscal 2009 sales at franchise restaurants were reduced

        due to the acquisition of the Michigan franchisees in October 2007 and

        the lower same-restaurant sales.

    --  The Company's effective tax rate was impacted by our goodwill charges

        and tax credits.

    --  Capital expenditures were $5.0 million, compared with $40.8 million a

        year earlier reflecting the Company's decision to use cash flow to

        retire debt and the completion of its remodeling program in the fourth

        quarter of fiscal 2008.

    --  The Company was in compliance with its debt covenants as of the end of

        the second quarter: the leverage ratio was 4.22, versus a maximum

        requirement of 4.50; the fixed charge coverage ratio was 2.48, compared

        with a minimum threshold of 2.25; and net worth exceeded the minimum

        requirement by $13.6 million.

    --  The Company had 52.8 million shares outstanding at the end of the

        quarter.

 

Impairments and Goodwill Charges

The Company's pre-tax $37.2 million Closures and Impairments expenses in the quarter included impairments for approximately 40 restaurants that are to be closed in the third quarter of this fiscal year ($16 million), 30 restaurants that are expected to close over the next several years as their leases expire or sooner if possible ($9.9 million), the write down of properties held for sale ($8.7 million), dead site costs ($2.0 million), and ($0.6 million) of closed restaurant lease reserves and other adjustments. As of January 7, 2009, the Company had closed 28 of the approximately 40 restaurants that are expected to close in the fiscal third quarter.

The Company also incurred a $19.0 million pre-tax charge for the write-off of its goodwill balances. This followed the Company's on-going review process and was due to the overall poor economic conditions, declines in fair value, same-restaurant sales trends at Company-owned restaurants, and the current poor industry conditions.

Fiscal 2009 Guidance

Restaurant locations - we plan to open one Company-owned restaurant in the third quarter and close approximately 40. Our franchisees expect to open 12-15 restaurants during the second half of the year, including six to eight domestic and six to seven international.

Same-restaurant sales are expected to decline 9% to 10% for the year.

Other expenses - depreciation is projected to be in the $74-76 million range and selling, general, and administrative expenses are targeted to be down 20-25% from a year earlier.

Lease reserve - we anticipate incurring a pre-tax lease-related charge of $10-15 million in the third quarter when our restaurant closings take place.

After giving effect to the second quarter pre-tax restructuring and goodwill charges of $56.2 million and anticipated lease-related costs of $10-15 million in the third quarter, the diluted loss per share for the year is projected to be in the range of $0.45-$0.55. These charges are estimated to reduce annual EPS by approximately $0.85.

Capital expenditures for the year are expected to be in the $19-21 million range.

Debt pay-down is expected to total $80-90 million for the year.

Mr. Beall commented, "Fiscal 2009 is the most difficult year since our founding nearly 37 years ago. We are highly focused on improving cash flow and expect to be profitable in the second half of the year. Our entire team is committed to taking the appropriate steps to restore shareholder value."

About Ruby Tuesday

Ruby Tuesday, Inc. has Company-owned and/or franchise Ruby Tuesday brand restaurants in 45 states, the District of Columbia, Puerto Rico, Guam, and 14 foreign countries. As of December 2, 2008, the Company-owned and operated 713 Ruby Tuesday restaurants, while domestic and international franchisees (including Hawaii) operated 171 and 56 restaurants, respectively. Ruby Tuesday, Inc. is traded on the New York Stock Exchange (Symbol: RT).

The Company will host a conference call, which will be a live web-cast, this afternoon at 5:00 p.m. Eastern Time. The call will be available live at the following websites:

http://www.rubytuesday.com
http://www.fulldisclosure.com

Special Note Regarding Forward-Looking Information

This press release contains various forward-looking statements which represent the Company's expectations or beliefs concerning future events, including one or more of the following: future financial performance and restaurant growth (both Company-owned and franchised), future capital expenditures, future borrowings and repayment of debt, availability of debt financing on terms attractive to the Company, payment of dividends, stock repurchases, and restaurant and franchise acquisitions and re-franchises. The Company cautions the reader that a number of important factors and uncertainties could, individually or in the aggregate, cause our actual results to differ materially from those included in the forward-looking statements, including, without limitation, the following: changes in promotional, couponing and advertising strategies; guests' acceptance of changes in menu items; changes in our guests' disposable income; consumer spending trends and habits; mall-traffic trends; increased competition in the restaurant market; weather conditions in the regions in which Company-owned and franchised restaurants are operated; guests' acceptance of the Company's development prototypes and remodeled restaurants; laws and regulations affecting labor and employee benefit costs, including further potential increases in state and federally mandated minimum wages; costs and availability of food and beverage inventory; the Company's ability to attract qualified managers, franchisees and team members; changes in the availability and cost of capital; impact of adoption of new accounting standards; impact of food-borne illnesses resulting from an outbreak at either Ruby Tuesday or other restaurant concepts; effects of actual or threatened future terrorist attacks in the United States; significant fluctuations in energy prices; and general economic conditions.

RUBY TUESDAY, INC.



Financial Results For the Second Quarter of Fiscal Year 2009



(Amounts in thousands except per share amounts)



                 13 Weeks              13 Weeks                        26 Weeks              26 Weeks



                 Ended                 Ended                           Ended                 Ended



                 December 2,  Percent  December 4,  Percent  Percent   December 2,  Percent  December 4,  Percent  Percent



                 2008         of       2007         of       Change    2008         of       2007         of       Change

                              Revenue               Revenue                         Revenue               Revenue



Revenue:



Restaurant

sales and        $ 287,697    99.3     $ 317,393    98.9               $ 608,913    99.2     $ 660,387    98.9

operating

revenue



Franchise          2,081      0.7        3,530      1.1                  4,866      0.8        7,333      1.1

revenue



Total revenue      289,778    100.0      320,923    100.0    (9.7   )    613,779    100.0      667,720    100.0    (8.1      )



Operating Costs

and Expenses:



(as a percent

of Restaurant

sales and

operating

revenue)



Cost of            78,847     27.4       89,018     28.0                 166,478    27.3       181,711    27.5

merchandise



Payroll and        105,239    36.6       109,525    34.5                 215,037    35.3       219,466    33.2

related costs



Other

restaurant         64,785     22.5       68,157     21.5                 133,301    21.9       134,194    20.3

operating costs



Depreciation

and                19,326     6.7        25,140     7.9                  39,455     6.5        48,733     7.4

amortization



(as a percent

of Total

revenue)



Loss from

Specialty

Restaurant         28         0.0        (7      )  0.0                  54         0.0        157        0.0

Group, LLC

bankruptcy



Selling,

general and        24,815     8.6        32,734     10.2                 51,075     8.3        62,487     9.4

administrative,

net



Closures and       37,207     12.8       1,629      0.5                  39,185     6.4        2,479      0.4

Impairments



Goodwill           18,957     6.5        0          0.0                  18,957     3.1        0          0.0

Impairment



Equity in

losses of          577        0.2        1,612      0.5                  78         0.0        2,458      0.4

unconsolidated

franchises



Total operating

costs and          349,781               327,808                         663,620               651,685

expenses



Earnings/(Loss)

before Interest    (60,003 )  (20.7 )    (6,885  )  (2.1  )  (771.5 )    (49,841 )  (8.1  )    16,035     2.4      (410.8    )

and Taxes



Interest           9,888      3.4        8,281      2.6                  19,688     3.2        15,380     2.3

expense, net



Pre-tax Profit/    (69,891 )  (24.1 )    (15,166 )  (4.7  )  (360.8 )    (69,529 )  (11.3 )    655        0.1      (10,715.1 )

(Loss)



Provision for      (32,472 )  (11.2 )    (4,815  )  (1.5  )              (32,395 )  (5.2  )    (84     )  0.0

income taxes



Net Income/      $ (37,419 )  (12.9 )  $ (10,351 )  (3.2  )  (261.5 )  $ (37,134 )  (6.1  )  $ 739        0.1      (5,124.9  )

(Loss)



Earnings/(Loss)

Per Share:



Basic            $ (0.73   )           $ (0.20   )           (265.0 )  $ (0.72   )           $ 0.01                (7,300.0  )



Diluted          $ (0.73   )           $ (0.20   )           (265.0 )  $ (0.72   )           $ 0.01                (7,300.0  )



Shares:



Basic              51,395                51,380                          51,388                51,763



Diluted            51,395                51,380                          51,388                51,964









RUBY TUESDAY, INC.



Financial Results For the Second Quarter



of Fiscal Year 2009



(Amounts in thousands)



                                                  December 2,    June 3,



CONDENSED BALANCE SHEETS                          2008           2008



Assets



Cash and Short-Term Investments                   $ 6,926        $ 16,032



Accounts and Notes Receivable                       8,378          10,515



Inventories                                         22,325         21,323



Income Tax Receivable                               12,186         7,708



Deferred Income Taxes                               8,763          4,525



Assets Held for Disposal                            27,940         24,268



Prepaid Rent and Other Expenses                     18,385         20,538



Total Current Assets                                104,903        104,909



Property and Equipment, Net                         1,015,718      1,088,356



Goodwill, Net                                       0              18,927



Notes Receivable, Net                               2,001          1,884



Other Assets                                        50,927         57,861



Total Assets                                      $ 1,173,549    $ 1,271,937



Liabilities



Current Portion of Long Term Debt, including      $ 18,228       $ 17,301

Capital Leases



Other Current Liabilities                           99,210         97,852



Long-Term Debt, including Capital Leases            546,701        588,142



Deferred Income Taxes                               7,840          27,422



Deferred Escalating Minimum Rents                   43,781         42,450



Other Deferred Liabilities                          59,773         67,252



Total Liabilities                                   775,533        840,419



Shareholders' Equity                                398,016        431,518



Total Liabilities and Shareholders' Equity        $ 1,173,549    $ 1,271,937

Source: Ruby Tuesday, Inc.

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