Casual dining chain Ruby Tuesday (RT, Financial) is facing stiff competition from peers like Chipotle Mexican Grill (CMG, Financial). However, the company started financial year 2015 on a high note. It posted impressive first-quarter financial results. This improved performance was driven by strong comp sales coupled with rebranding efforts and enhanced restaurant-level margins. Ruby Tuesday has outpaced the industry on both the matrices such as same-store sales and same restaurant guest count for three consecutive quarters now. In addition, the company is effectively executing its brand transformation pains that should reap handy fruits for the company in the long run.
Results and beyond
The Maryville, Tennessee-based restaurant chain reported net sales of $281.2 million a slump of almost 3% as compared to net sales of $289.67 million in the same quarter a year earlier. The slowdown in the net sales was due to closure of its 38 underperforming restaurants. Yet its sales were pretty close to analysts’ estimates of $282.9 million in sales for the quarter.
However, it made tremendous progress in its bottom line. Its net profit rose to $2.6 million or earnings of $(0.01) per share from a loss of $21.9 million or earnings of $(0.36) per share in the same period last year. This also outperformed the average analysts’ estimates of $(0.12) per share for the quarter.
Looking forward, the company is focusing on various smart moves such as menu advancement, enriching guest experience and enhancing restaurant level margins. The company is executing various efforts such as training program and powerful marketing campaign in order to make Ruby Tuesday more casual, energetic and affordable. Its rebranding capabilities look great and should support its long-term growth in the long run. Its brand transformation initiatives concentrate on elevating guest experience across its restaurants and take its business to the next level. This brand building pains are expected to boost performance for both the sales at its restaurants and earnings for shareholders.
In addition, the company has rolled over two other initiatives to better reinforce both the guest experience and its business model. It is concentrating on two big initiatives such as labor productivity and inventory management. It has recently launched a new labor productivity tool together with guest count forecast tool. These tools will enable the staff at restaurants to better serve the guests as it assists in forecasting the arrivals of the guests. Ruby Tuesday has named this tool as “Scheduled for Success” or S-for-S program. The company has fixed this program and witnessing early success with this program. This program will not only assist the company to better serve its guest with the right team at the right time but also will reduce the avoidable labor cost.
On track for further growth
Moreover, the company remains on track to develop an effective inventory management tool. It is expected to test with this tool in the fourth quarter of the year and plans to roll it over to its systemwide network by the next financial year. The inventory management tool will enable the company to meritoriously manage food ordering. Also, it will ensure timely and accurate production, while focusing on the food quality and eliminating its food cost. This tool coupled with the guest forecasts tool will certainly enhance its operational efficiency and enrich guest experience for the company.
Meanwhile, Ruby Tuesday has upgraded its menu items. It has introduced a total of 40 new and value-added items to its menu. The company believes that these groundbreaking fresh menu additions will enhance its growth in the long run. Further, the company remains solid to bring in many new and innovative items to its menu as per its brand transformation strategy that should augment its performance in the remaining quarters and drive its growth over the years.
Apart from these efforts, Ruby Tuesday is executing numerous marketing initiatives and effectively communicating the kind of value, variety and affordability they provide to their guests across its restaurants. It remains solid to market the freshness and variety of its "Garden Bar." Its mini small burger started gaining traction for the company on the back of strong advertisement featuring its new Mini Masterpieces. It is heavily promoting its Mini Masterpieces, which is priced at $5.99 for two as an appetizer and for $9.99 as a combination meal with fries and its Create Your Own Garden Bar. Also, its Garden Bar lunch at $7.99 is driving traffic for its restaurants. The company is aggressively promoting this campaign through television media.
Conclusion
Ruby is undoubtedly a good pick. It has reformed most of its business and remains strong to fully transform it to yield healthy returns in the future. It is also improving its menu that is fetching a great deal for the company and delivering rich experiences for the guests. The analysts have estimated CAGR of 93.80% for this year and 160.00% for next year that indicate good short-term returns on the stock.
