Ruby Tuesday, Inc. reported financial results on Thursday for the fiscal first quarter ended September 4, 2012.
Results for first quarter 2013 compared to first quarter 2012 include:
- Same-restaurant sales increased 1.9% at Company-owned Ruby Tuesday restaurants
- Restaurant-level operating margin of 19.7%, compared to 15.7% for the prior year, an improvement of 400 basis points primarily driven by our restaurant-level margin cost savings. These savings, in addition to lower coupon expense, are largely funding our television marketing programs.
- Net income of $2.6 million, or net income of $2.9 million excluding CEO transition expenses primarily related to search fees. This compares to prior-year net income of $3.1 million. We have included a reconciliation of these items and the related earnings per share impact on the Investor Relations page of the Ruby Tuesday website:www.rubytuesday.com.
- Diluted earnings per share of $0.04, or diluted earnings per share of $0.05 excluding the impact of the item noted above, compared to diluted earnings per share of $0.05 for the prior year
Sandy Beall, Founder, Chairman, and CEO, commented on the quarterly results, saying, "We were very pleased with our positive same-restaurant sales in the first quarter, in line with our guidance of approximately 2%, and our first positive sales quarter in the last seven quarters. Our first quarter sales results are encouraging, in particular as we have significantly reduced our level of couponing while supporting and building our television marketing programs. We believe we are well positioned to grow our sales and continue to build upon all the groundwork we laid over the past year."
Other highlights from our first quarter results include:
- Total revenue increased 0.8% from the prior-year first quarter primarily due to our Ruby Tuesday same-restaurant sales increase in addition to revenue growth in our Lime Fresh and Marlin & Ray's concepts, which was partially offset by 27 permanently closed Company-owned restaurants
- Opened three Lime Fresh restaurants during the quarter (two Company-owned and one franchise), and now have 15 Company-owned Lime Fresh locations and five franchised locations
- Operated 11 Company-owned Marlin & Ray's seafood restaurants as of the end of the quarter and opened one Marlin & Ray's restaurant conversion subsequent to quarter end
- Permanently closed one and temporarily closed one Company-owned Ruby Tuesday restaurant in anticipation of conversion to Marlin & Ray's
- Domestic and international franchisees opened one and closed two Ruby Tuesday restaurants
- Repurchased 364,000 shares of our common stock at an average price of $6.45 per share during the quarter. Subsequent to quarter end, we repurchased another 173,000 shares at an average price of $6.73. Currently, 5.4 million shares remain authorized for repurchase under the Company's share repurchase program.
- Amended our Revolving Credit Facility to enable us to repurchase up to $15 million annually of our high yield bonds. Subsequent to the end of the first quarter, we repurchased $1.5 million of our bonds at approximately a 5% discount to par.
- Closed sale leaseback transactions on nine restaurants during the quarter resulting in $20.2 million of gross proceeds. Subsequent to the end of the quarter, we closed sale leaseback transactions on an additional three restaurants resulting in $7.5 million of gross proceeds. Since the third quarter of fiscal 2012, we have completed sale leaseback transactions on 22 restaurants, resulting in $50.0 million of gross proceeds.
- Total capital expenditures were $6.4 million
- Total book debt of $322 million at the end of the first quarter compared to $347 million for the prior-year quarter, a decrease of $25 million. Additionally, we had $65 million of cash on the balance sheet at quarter end compared to $8 million in the prior year.
- Continued our Board of Directors transition with the appointment of Lane Cardwell, Jr. and Jeff O'Neill, both of whom have extensive restaurant industry experience in the areas of marketing and operations
Mr. Beall added, "We enter our second quarter with good momentum and remain focused on the following four key initiatives:
- Increasing Ruby Tuesday Same-Restaurant Sales - We are very pleased with the traction we are building with our television marketing program now that we are spending at more competitive levels with our peer group. Our balanced approach of television advertising and promotional activities, in particular more targeted direct mail campaigns, was key to our improved traffic and sales trends in the first quarter. During the quarter, we continued the successful promotion of our Fresh Endless Garden Bar and fresh-baked garlic cheese biscuits, both complimentary with over 20 entrees starting at $9.99. We carried this momentum into the second quarter with the introduction of our new limited-time Steak & Lobster promotion priced at $14.99.
- Improving Restaurant-Level Margins - We have now identified and implemented approximately $40-$45 million of cost savings which are largely funding our television marketing program. Our objective going forward is to enhance our restaurant-level margins as we drive incremental traffic into our restaurants with our television advertising and promotional programs.
- New Growth Focused on High-Return Locations - We continue to focus on potential high-return growth with our Lime Fresh and Marlin & Ray's brands. Lime Fresh is our primary concept for new unit growth and we believe it has good potential given its positioning as a hybrid of high quality fast casual and casual dining. Additionally, we believe Marlin & Ray's represents conversion opportunity for select existing Ruby Tuesday restaurants.
- Strengthening Our Balance Sheet and Allocating Capital to Maximize Returns - Our new long-term capital structure gives us good flexibility to execute our strategic plans. We will continue to invest an appropriate amount of capital in our Ruby Tuesday brand and our two new brands, and plan on utilizing our excess cash to lower our debt levels and opportunistically repurchase our stock."
Fiscal Year 2013 Guidance
- Same-Restaurant Sales - We estimate same-restaurant sales for Company-owned restaurants will be in the range of flat to 2.0% for the year.
- Company-Owned Restaurant Development - We plan to open 12 to 16 Lime Fresh restaurants, convert five to seven Company-owned Ruby Tuesday restaurants to Marlin & Ray's, and close four to six Company-owned Ruby Tuesday restaurants (excluding conversions)
- Franchise Restaurant Development - We estimate our franchisees will open 10 to 12 restaurants, up to 10 of which will be international, and close two to four restaurants
- Restaurant Operating Margins - We estimate margins will improve approximately 150-200 basis points due to cost savings initiatives coupled with fixed cost leverage on incremental sales. This range is higher than our previous guidance in part due to approximately 20-25 basis points of improved margin related to the reporting reclassification of projected fourth quarter pension expense from restaurant payroll expenses to selling, general, and administrative expense.
- Depreciation - Estimated to be in the range of $62-$64 million for the year
- Selling, General, and Administrative Expenses - Advertising expense is estimated to be in the range of $80-$85 million for the year compared to $47.9 million in fiscal 2012 primarily due to incremental television advertising expense which is largely funded by our cost savings initiatives. Excluding advertising expense, selling, general, and administrative expenses are estimated to be relatively flat primarily due to lower consulting fees and other cost savings initiatives being offset by the reporting reclassification of projected fourth quarter pension expense noted above.
- Interest Expense - Estimated to be $25-$27 million for the year
- Tax Benefit - Based on our lower pre-tax income coupled with our employment-related tax credits, we anticipate a net tax benefit of $5 to $10 million for the year
- Diluted Earnings Per Share - Diluted earnings per share for the year are estimated to be in the $0.20 to $0.30 range including the CEO pension settlement expense and new CEO transition expenses. Excluding the impact of these items, diluted earnings per share for the year are estimated to be in the $0.24 to $0.34 range. Fully-diluted weighted average shares outstanding are estimated to be approximately 63-64 million for the year.
- Capital Expenditures - Estimated to be $44-$50 million for the year
- Free Cash Flow - Estimated to be $20-$30 million for the year. On an adjusted basis, free cash flow is estimated to be $31-$41 million after excluding the impact of the CEO pension payout (approximately $8 million) and estimated lease reserve settlements from restaurants closed in the fourth quarter of fiscal year 2012 (approximately $3 million) as we view these items as infrequent in occurrence.
- Sale-Leaseback - Given the success we have realized with our sale leaseback program and the compression we are seeing in cap rates, we estimate we will pursue sale leaseback transactions on up to 20 additional properties with estimated gross proceeds of approximately $40-$45 million
In closing, Mr. Beall said, "We have good momentum as a company as many of the investments we made in the brand last year are beginning to pay off. Our sales are starting to stabilize, we are making steady progress on both of our new brands, and our capital structure has significant flexibility and capacity. The Board continues to make good progress on the search for a Chief Executive Officer and hopes an announcement will be made later this calendar year. All of these positive developments signal a momentum change and even though we anticipate continued economic headwinds, we are excited about our plans to create long-term value for our shareholders."
Reporting Reclassification to Prior-Year Financial Statements
We completed an income statement reporting reclassification for the prior-year quarter to better align our financial statement presentation with our peer group. The reclassification, which had no effect on pre-tax or net income for the previous quarter, was in two key areas: 1) Deferred loan fees and revolving credit facility commitment fees of $0.4 million in the prior-year quarter were reclassified from other operating costs to interest expense; and 2) General and administrative personnel payroll taxes, accident & health insurance, and retirement expenses of $2.1 million in the prior-year quarter were reclassified from payroll expenses to selling, general, and administrative expense where the corresponding salary expenses are reported. In the current year quarter, these amounts were $0.6 million and $1.9 million, respectively.
