Ruby Tuesday, Inc. announced financial results for the fiscal quarter ended November 29.
Total revenue declined 17.7 percent 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 the Fresh Start Initiative announced on August 11.
Same-restaurant sales declined 4.1 percent compared to a 0.8 percent 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 million, or 63 cents per diluted share, compared to a net loss of $15.8 million, or 26 cents per diluted share in second quarter of the prior fiscal year.
Restaurant level margin declined 410 basis points to 11.5 percent.
As of November 29, 2016, the company had cash on hand of $38.6 million.
Lane Cardwell, interim president and chief executive officer, says, “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 continues, “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.”
“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.”
As announced on October 6, the company planned 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 percent to remove underutilized and overly complicated options which simplified operations.
Fresh New Garden Bar
On January 17, 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 TV, online 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.
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 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.
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 the asset rationalization plan announced on August 11, 2016.
Fiscal Second Quarter 2017 Financial Results
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 percent. Additionally, given the company’s promotional activity during the quarter, average check declined 1.3 percent.
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 percent driven primarily by underperforming promotional activities, which resulted in inefficient management of controllable costs.
General and administrative expenses 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 percent from 5.4 percent. The increase in G&A was primarily due to an increase in costs associated with executive transition.
Marketing expenses, net increased to $14 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 percent from 5.2 percent. The increase in marketing expenses, net as a percentage of total revenue was primarily due to deleveraging on lower sales.
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.
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.
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