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Ruby Tuesday CFO to Resign

Zacks Equity Research

The casual dining restaurant operator Ruby Tuesday Inc. (NYSE:RT - News) recently announced that its Chief Financial Officer (:CFO) Marguerite N. Duffy has decided to step down from her position, effective June 5, 2012.

Duffy joined the Maryville, Tennessee-based company in August 1990 and was named the Chief Financial Officer in June 2001. Ms. Duffy had earlier served as the Vice President and Operations Controller of the company from October 1999 to May 2001 and also held various other accounting and finance positions from August 1990 until October 1999.

She played a key role in strengthening the financial position of the company and chalked out an effective strategy to drive further growth. To boost financial flexibility, during her tenure, the company spun off two businesses into new public companies; adopted a franchise-based business model and recently implemented a sale leaseback program among other things.

We believe her contribution to the company is remarkable and we expect the task of finding a candidate matching Duffy’s rich experience and expertise to be rather challenging.

The company’s search for the new CFO has begun, but until the appointment of the new CFO is confirmed, we prefer to remain cautious about the situation.

In the recently concluded second quarter of 2012, the company reported a loss of 3 cents per share, as comparable store sales fell 4.2% at company-owned restaurants and 6.0% at domestic franchised restaurants.  However, the loss was narrower than the Zacks Consensus Estimate of a loss of 6 cents and management’s guided range of a loss of 4 to 8 cents. This was because total revenue in the quarter perked up 5.9% year over year to $307.5 million.

For fiscal 2012, management expects earnings in the range of 55 cents to 65 cents per share, as compared with the previous expectation of 60 cents to 75 cents, and comparable store sales at company-owned restaurants to dip 2% to 4%, up from the earlier forecast of flat to down 2%. Restaurant operating margins are expected to contract slightly. For 2012, capital expenditures are estimated between $33 million and $37 million and free cash flow in the range of $90 to $100 million.

For the third quarter of 2012, the company estimates earnings in the range of 12 cents to 16 cents per share due to higher advertising and interest expense.

Ruby Tuesday, which competes with Kona Grill Inc (NasdaqGM:KONA - News) and Red Robin Gourmet Burger Inc (NasdaqGS:RRGB - News), expects strong profitability in the fourth quarter with revenue being the highest for the year. This will be primarily driven by expansion in restaurant-level margins arising from cost-savings programs, an extra operational week in the quarter and additional EPS leverage from share repurchase program.

Consequently, the company currently retains a Zacks #4 Rank (short-term Sell rating). However, we maintain our long-term Neutral recommendation on the stock.

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