Is This The End For Ruby Tuesday?

Is This The End For Ruby Tuesday?

It's never a good sign when the Chairman of the board of directors sells all of his stock and resigns. Ruby Tuesday is no exception. With its chairman and his shares now gone, the already bleak future for Ruby Tuesday is looking worse.

In an SEC filing on Monday, Oct 28, Chairman of the board Matthew A. Drapkin resigned, effective immediately. There was no two-week notice, no departure letter, and no press release from Ruby Tuesday thanking him for his service. In addition, on the way out the door in a separate filing, Drapkin apparently chucked his shares out into the open market, dumping them all in two shots on Thursday and Friday last week. There was a spike in volume on those days, as volume was five times normal.

No disagreement mention?
Usually when there's no trouble at a company and a key officer resigns, there's a notice that says there were no disagreements between the officer and the company. Take Best Buy for example. When its CEO Brian Dunn resigned, Best Buy announced, "There were no disagreements between Mr. Dunn and the company on any matter relating to operations, financial controls, policies or procedures." Investors who didn't panic did well. Best Buy has had record sales since, plus a stock price at five year highs, and it has paid growing dividends all the way up.

Then again, Drapkin said all that he needed to say by selling 1.45 million shares at once. If he had any confidence in the future, you would think he wouldn't be selling this entire load with the stock at 52 week lows. Maybe he had a personal emergency or wanted to pursue other opportunities? This is highly doubtful as well. Pursuing other opportunities would explain the resignation, maybe, but not the sudden and widespread dumping of his shares. Usually if an officer resigns and sells for personal reasons (such as an emergency), it states so in the filing. That language was absent here.

The stock sales and resignation comes just a few weeks after Ruby Tuesday reported terrible results. Same-store sales for its company-owned restaurants plummeted down 11.4% and down 8.4% for its franchises. Ruby Tuesday has been failing amid a change in its marketing image while blaming "a challenging economic environment." For the last couple of quarters CEO James Buettgen forecasted a turnaround only to see things get worse and worse, almost literally by the minute.

The same-store sales dive is the worst I've seen among the major public restaurant chains. BJ's Restaurants also reported poor results, so this may be the wrong environment for making costly mistakes. CEO Greg Trojan stated, "As most restaurant investors already know, the overall sales environment for the casual dining industry continues to be very challenging, and our comparable restaurant sales followed the negative industry trends through the summer months of our third quarter." BJ's Restaurants' observation of the industry would only partly explain Ruby Tuesday's downfall. After all, BJ's Restaurants' comparable sales only fell 2.2%--pie in the sky compared to an 11.4% fall.

Foolish final thoughts
How can I summarize? One word: run. While I wouldn't actually bet against Ruby Tuesday since we simply don't know all the details or what ace it may have up its sleeves, I certainly wouldn't bet with it. The warning signs are everywhere. Avoid.

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends BJ's Restaurants. The Motley Fool owns shares of BJ's Restaurants. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published