This restaurant’s turnaround recipe could produce a tasty gain
Ruby Tuesday, Inc. (NYSE:RT), which operates 783 company-owned or franchised Ruby Tuesday brand restaurants and 24 Lime Fresh brand locations, has pretty much disappointed Wall Street since 2010 when the stock traded as high as $14 and the company’s recent earnings report didn’t seem to improve Street confidence.
Results for the most recent quarter included same-restaurant sales decreasing 3.1% at company-owned sites and falling 5.1% at domestic franchise spots. Adjusted net income from continuing operations was a weak $7 million, compared to the prior-year’s figure of $12.1 million. For the full 2013 fiscal year, Ruby Tuesday, Inc. (NYSE:RT)’s same-restaurant sales decreased 1% at company-owned locations and dropped 2.1% at franchise restaurants. Adjusted income fell to $13.9 million compared to $29.3 million in fiscal 2012.
As bad as the results look, there are signs that the company may be able to turn things around. First, a new CEO was appointed. JJ Buettgen, formerly Chief Marketing Officer of Darden Restaurants, Inc. (NYSE:DRI), came on board in December 2012 and seems to be putting together a highly experienced management team that he is familiar with. Just about all of the recently added top executives looked to have had connections with Darden.
Mr. Buettgen also seems to be putting a good strategy into place. He aims to drive traffic by focusing on innovative foods that are attractively priced in conjunction with a compelling advertising campaign. He also seems committed to maintaining a strong balance sheet, prudently allocating capital, and utilizing excess cash for debt reductions and opportunistic share repurchases.
Ruby Tuesday, Inc. (NYSE:RT)’s stock may show noticeable upside if these steps can deliver any improvement. Reasonable business value looks to be around $10 a share based on a typical industry multiple of 12 times with sales of $1.23 billion and $48 million in earnings at a 3.9% profit margin.
Conclusion
The restaurant sector is worth watching. One can usually find plenty of interesting stories and maybe an occasional good value. From steady dividend-payers like Darden Restaurants, Inc. (NYSE:DRI) to smaller turnarounds like Ruby Tuesday, Inc. (NYSE:RT), restaurant stocks can often offer something for any type of investor.
The article There’s Usually Something for Everyone in Restaurant Stocks originally appeared on Fool.com and is written by Bob Chandler.
Bob Chandler has no position in any stocks mentioned. The Motley Fool recommends Cracker Barrel Old Country Store. The Motley Fool owns shares of Darden Restaurants. Bob is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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