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Post Earnings Coverage as Ruby Tuesday's Sales Dropped 17.7%, Moody's Revised Ratings

Upcoming AWS Coverage on Dunkin' Brands Group

LONDON, UK / ACCESSWIRE / January 11, 2017 / Active Wall St. announces its post-earnings coverage on Ruby Tuesday, Inc. (NYSE: RT). The Company reported its second quarter fiscal 2017 financial results on January 05, 2017. The casual dining chain sales declined in double digits while its net loss widened. Register with us now for your free membership at: http://www.activewallst.com/register/.

One of Ruby Tuesday's competitors within the Restaurants space, Dunkin' Brands Group, Inc. (NASDAQ: DNKN), is estimated to report earnings on February 02, 2017. AWS will be initiating a research report on Dunkin' Brands Group following the release of its next earnings results.

Today, AWS is promoting its earnings coverage on RT; touching on DNKN. Get our free coverage by signing up to:



Earnings Reviewed

For the three months ended November 29, 2016, Ruby Tuesday's total revenue was $214.7 million, a decrease of 17.7% or $46.2 million from Q2 FY16. The decrease was attributed to a net reduction of 109 Company-owned Ruby Tuesday restaurants compared to the year earlier same quarter, including 95 restaurants closed in connection with the Company's Fresh Start Initiative announced on August 11, 2016.

During Q2 FY17, Ruby Tuesday's same-restaurant sales declined 4.1% compared to a 0.8% increase in Q2 FY16. The drop in same-restaurant sales was driven in part by guest traffic declines resulting from a challenging external environment, with y-o-y guest counts down 2.8%. Additionally, given the Company's promotional activity during the reported quarter, average check declined 1.3%.

During Q2 FY17, Ruby Tuesday reported a net loss of $38.0 million, or ($0.63) per diluted share, compared to a net loss of $15.8 million, or ($0.26) per diluted share, in Q2 FY16. The Company's adjusted net loss was $10.9 million, or ($0.18) per diluted share, compared to adjusted net loss of $2.4 million, or ($0.04) per diluted share, in the year earlier corresponding quarter.

Operating Metrics

During Q2 FY17, as a percentage of sales, Ruby Tuesday's cost of goods sold were 29.1%, an increase of 200 basis points compared to the prior year. This increase in rate was driven by increased promotional activity in the reported quarter, and a one-time settlement that benefited cost of goods sold by 50 basis points in Q2 FY16. This was partially offset by cost savings from the Company's inventory management system. In H1 2017, Ruby Tuesday achieved approximately $1.7 million of savings from its inventory management system, and is forecasting roughly $1 million to be realized in the remainder of FY17.

During the reported quarter, Ruby Tuesday's payroll and related costs, as a percentage of sales, increased 200 basis points to 37.6%. Higher labor costs as a percentage of sales were due to wage inflation of approximately 4.6%, more fully staffed restaurants and other labor inefficiencies. In Q2 FY17, Ruby Tuesday's Restaurant level margin decreased to $24.6 million from $40.4 million in Q2 FY16. As a percentage of restaurant sales and operating revenue, restaurant level margin declined 410 basis points to 11.5% driven primarily by underperforming promotional activities which resulted in inefficient management of controllable costs.

Balance Sheet

As of November 29, 2016, Ruby Tuesday had cash and cash equivalents totaling $38.6 million and debt of $223.2 million.

Sale of Property

During Q2 FY17, Ruby Tuesday completed the sale of its property at 150 W. Church Avenue in Maryville, Tennessee for $2.8 million. The Company announced that team members will be relocated to its other Tennessee-based Restaurant Support Center by the end of January 2017.

Restaurant Activity

As of November 29, 2016, there were 613 Ruby Tuesday restaurants system-wide, of which 546 were Company-owned. During Q2 FY17, one Company-owned Ruby Tuesday restaurant was closed. Additionally, one international franchised Ruby Tuesday restaurant was closed during the reported quarter.

Asset Generalization

For FY17, Ruby Tuesday is expecting $32 million to $36 million of pretax expense compared to its previous estimate of $33 million to $42 million. These expenses are comprised of restaurant closing costs, corporate restructuring, lease terminations, asset impairment, holding and other associated costs.

The Company expects to generate cash proceeds of approximately $45 million to $50 million compared to $35 million to $45 million previously from the sale of the 34 Corporate-owned properties closed in connection with its asset rationalization plan.

Moody Ratings

On January 09th, 2017, Moody's Investors Service affirmed the ratings of Ruby Tuesday, including its B3 Corporate Family Rating, B3-PD Probability of Default Rating, and Caa1 senior unsecured rating. At the same time, Moody's revised the Company's rating outlook to negative from stable and downgraded the Company's Speculative Grade Liquidity Rating to SGL-4 from SGL-3.

"The revision of Ruby Tuesday's rating outlook to negative reflects Moody's expectations that following a weak second quarter ended November 29, 2016 -- including negative adjusted EBITDA and negative same store sales and traffic -- it will be more difficult to achieve the improvements expected when the company announced its Fresh Start Initiative in August," stated Peter Trombetta, an AVP-Analyst at Moody's.

Moody's stated that the downgrade of the Company's liquidity rating primarily reflects the Ruby Tuesday's inability to meet its fixed charge coverage ratio for the November 30, 2016 period under its bank facility and certain of its mortgage obligations.

Stock Performance

At the closing bell, on Tuesday, January 10, 2017, Ruby Tuesday's stock marginally fell 0.41%, ending the trading session at $2.43. A total volume of 1.37 million shares were traded at the end of the day, which was higher than the 3-month average volume of 594.46 thousand shares. The stock currently has a market cap of $194.13 million.

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SOURCE: Active Wall Street