Should Ruby Tuesday Investors Remain Hopeful?

With shares of Ruby Tuesday (NYSE:RT) trading at around $8.31, is RT an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

earnings-header-clean-300Ruby Tuesday closed at $8.31 yesterday, but dropped to $7.62 after hours. This was due to worse than expected earnings results. Revenue came in at $304 million. The expectation was for $305 million. This also represents a drop of 1 percent revenue drop YoY. EPS came in at -$0.07 versus an expected -$0.06. Same-store sales increased 0.30 percent. Guidance was lowered. The original EPS expectation for FY2013 was $0.24 to $0.34. That has been lowered to a range of $0.24 to $0.30. Same-store sales are also expected to be flat, which hasn’t generated much excitement from investors.

Ruby Tuesday plans to open between 12 and 14 restaurants in 2013, the majority of them overseas. However, there will be more closings than openings. Planned closings include four to five Ruby Tuesday restaurants, all Marlin & Ray restaurants, one Wok Hay restaurant, and two Lime Fresh restaurants. The company is also seeking a buyer for Truffles. In additional news, Ruby Tuesday will expand its repurchase program by 10 million shares.

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It might be difficult to get a read on the Ruby Tuesday situation based on the information above. Let’s take a look at some important numbers so we can get a better view of the big picture.  

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Ruby Tuesday is normal as well as nothing to worry about. Debt management seems to be fine at this operation. The balance sheet could use a little help, but it’s not something to panic about.

Debt-To-Equity

Cash

Long-Term Debt

RT

0.56

$65.49 Million

$322.11 Million

TAST

1.63

$57.40 Million

$161.87 Million

TXRH

0.09

$84.32 Million

$51.68 Million

 

T = Technicals on the Stock Chart Are Mixed

The numbers below can be deceiving. Keep in mind that Ruby Tuesday was coming from an extreme low in early 2009. In regards to Carrols Restaurant Group (NASDAQ:TAST) and Texas Roadhouse (NASDAQ:TXRH), you will see that this group don’t trade together, which is simply because they’re different types of operations. The comparison is to show you where Ruby Tuesday fits in performance-wise for the industry.

1 Month

Year-To-Date

1 Year

3 Year

RT

7.92%

5.73%

24.22%

8.63%

TAST

0.00%

3.18%

-44.36%

-7.36%

TXRH

11.45%

5.65%

19.58%

69.65%

 

At $7.62, Ruby Tuesday is trading below its 50-day SMA, and above its 100-day SMA and 200-day SMA. This is rare, but more likely during earnings season.

50-Day SMA

7.75

100-Day SMA

7.43

200-Day SMA

7.25

 

E = Earnings Have Been Inconsistent

Ruby Tuesday has given its investors hope by improving the bottom line, but it often ends up being a tease. On the other hand, revenue has steadily increased since 2010.

2008

2009

2010

2011

2012

Revenue ($)in billions

1.36

1.25

1.20

1.27

1.33

Diluted EPS ($)

0.51

-0.35

0.73

0.72

0.00

 

We already know what happened this quarter. Let’s take a look at previous quarters as well.

8/2011

11/2011

2/2012

5/2012

8/2012

Revenue ($)in millions

330.34

307.45

324.83

363.21

332.92

Diluted EPS ($)

0.05

-0.03

0.07

-0.09

0.04

 

T = Trends Do Not Support the Industry

Casual dining is in a trough right now. The industry follows the strength of the economy. But this pertains to Main Street, not Wall Street. If the Middle Class is doing well, then casual dining is performing well. Despite constant reminders of a recovery, the Middle Class isn’t strong at the moment, which is bad news for restaurants like Ruby Tuesday.

Conclusion

At the present time, Ruby Tuesday has weak margins, limited growth potential, and a Forward P/E of 23.08. There is definitely potential for Ruby Tuesday to turn things around, and it looks as though management is making wise decisions, but for now Ruby Tuesday is a WAIT AND SEE.

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