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Ruby Tuesday Inc.’s (RT - Snapshot Report) adjusted earnings of 12 cents per share in the fourth quarter of 2013 fell short of the Zacks Consensus Estimate by 36.8% as well as the year-ago earnings of 21 cents by 42.9%. Earnings suffered mainly due to lower revenues.  Higher restaurant operating costs also marred earnings. Adjusted earnings were nowhere near the management guidance of 28–32 cents.

Revenues in the quarter slipped 4.6% year over year to $316.1 million. Revenues also missed the Zacks Consensus Estimate of $327.0 million by 3.4%. The year-over-year downside in revenues was due to the closure of 8 company-owned Ruby Tuesday units, a decline in same restaurant sales at its namesake brand and a tough year-over-year comparison owing to an extra operating day in the comparable period of last year led to the decline.

The owner of its namesake brand and Lime Fresh Mexican Grill, Ruby Tuesday posted a 3.1% downside in comparable store sales at company-owned restaurants. Its franchised division also saw a 5.1% contraction in comps. Same-store sales also lagged the flat same-store sales guidance issued by management for the company-owned units.

In fiscal 2013, adjusted earnings were halved to 23 cents from the year-ago level mainly due to a 4.6% decline in revenues. Continually sluggish same-store sales resulted in the revenue decline.

Share Repurchase

The company bought back 4.1 million shares of common stock during the year for $30.1 million with no repurchases made in the fourth quarter.

Fiscal 2014 Outlook

For fiscal 2014, management expects comps to decline in high-single digits in the first quarter of 2014 and then improve gradually in the latter part of the year backed by menu innovation and marketing campaigns.  

Management expects to generate $10-$15 million of cash proceeds by offloading excess real estate and a year-over-year improvement in free cash flow. However, due to lesser visibility for the upcoming year, management chose not to provide earnings guidance this time.

Store Update

The restaurateur opened 9 Lime Fresh restaurants and closed 6 company-owned Ruby Tuesday restaurants in fiscal 2013.

Our Take

Ruby Tuesday failed to beat the Zacks Consensus Estimate on both counts in all four quarters of fiscal 2013. After barely meeting the earnings estimates in the past two quarters, it missed it by a wide margin in the reported quarter. On the revenue front, the performance was highly disappointing throughout the year. Consistently weak year-over-year comparison on both lines is a spot of bother. The company refrained from providing an earnings guidance, which adds to our concern.
While management is striving to transition the brand by shutting down the underperforming units and resorting to several sales building initiatives, the efforts are yet to pay off. Hence, we prefer to remain on the sidelines for this Zacks Rank #3 (Hold) stock at the current level.

However, restaurateurs currently performing well include Burger King Worldwide Inc. (BKW - Analyst Report), Cracker Barrel Old Country Store Inc. (CBRL - Snapshot Report) and Domino’s Pizza Inc. (DPZ - Analyst Report) all carrying a Zacks Rank #2 (Buy).

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