Why Ruby Tuesday Couldn't Stand Up to Red Lobster and Chipotle
Ruby Tuesday will release its quarterly report on Thursday, and the long-struggling restaurant chain has had to work to try to reinvigorate its namesake brand after it gave up on efforts to expand into different business lines. Yet investors expect to see losses in the Ruby Tuesday earnings report, showing that even ceding its seafood concept to Darden Restaurants and its Red Lobster chain hasn't yet helped turn the company around.
Ruby Tuesday's difficulties are nothing new, as the stock never fully recovered from the recession and has lost half its value since early 2011. But even as restaurant rivals Chipotle Mexican Grill and Darden have looked to expand their reach through new chain offerings, Ruby Tuesday hasn't been able to get any traction from its attempts at innovation. Let's take an early look at what's been happening with Ruby Tuesday over the past quarter and what we're likely to see in its report.
Stats on Ruby Tuesday
Analyst EPS Estimate
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance.
Why Ruby Tuesday earnings could look ugly this quarter
In recent months, analysts have become even less optimistic about Ruby Tuesday earnings. They've reversed initial calls for a modest profit for the August quarter to their current loss expectations, and they've chopped more than 90% from their profit projections for the full 2014 fiscal year. The stock has fallen further recently, dropping 18% since early July.
Ruby Tuesday's previous quarterly report was responsible for most of those losses, as same-store sales fell 3.1% at company-owned restaurants and 5.1% at franchises. Despite hopes that new marketing campaigns and menu offerings could reverse those losses later in the fiscal year, Ruby Tuesday kept expectations low for the August quarter as well, prompting a double-digit percentage decline in the stock.
Yet Ruby Tuesday's longer-term strategic moves haven't panned out well either. Early this year, the company closed its Marlin & Ray's seafood chain, which Ruby Tuesday had cited for years as having strong growth potential in a market that Red Lobster dominated. Even Red Lobster has faced struggles, though, forcing Darden to launch new marketing campaigns of its own to support its flagging business. Similarly, Ruby Tuesday wasn't able to duplicate the success Chipotle has had with its ShopHouse Southeast Asian Kitchen, as Ruby Tuesday shut down its Wok Hay restaurant as well.
One big question is whether Ruby Tuesday's Lime Fresh Mexican Grill concept will survive. The company opened nine new Lime Fresh locations last quarter, but it also took large impairment charges against Lime Fresh's goodwill and trademark assets. If Lime Fresh can't enjoy the same success as Chipotle, it would mark another setback for Ruby Tuesday.
In the Ruby Tuesday earnings report, see how the company expects to move forward with its long-range planning. If it can't take bigger steps to get itself moving in the right direction, the restaurateur could find itself facing even larger losses in the future.
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The article Why Ruby Tuesday Couldn't Stand Up to Red Lobster and Chipotle originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill and Darden 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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