Ruby Tuesday's CEO Presents at 2013 Consumer & Retail Conference (Transcript)

| About: Ruby Tuesday, (RT)

Ruby Tuesday, Inc. (NYSE:RT)

March 12, 2013 8:30 am ET

Executives

James J. Buettgen - Chief Executive Officer and President

Michael O. Moore - Chief Financial Officer and Executive Vice President

Analysts

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Start in just a couple of seconds right here because of elevator issues on my part. I'm Joe Buckley, Bank of America Merrill Lynch's restaurant analyst. I'm very pleased today to be hosting the restaurant portion of our consumer conference. We've got a terrific line-up of companies both today and tomorrow and welcome your attendance live and over the Internet. We're going to start off our restaurant presentations with Ruby Tuesday, and there's a bit of old and a bit of new with this presentation. Ruby Tuesday is the restaurant company that I've followed the longest, the most continuous coverage in my universe, dating back to a date I not going to mention, but it's been a long, long time, a lot of ups and downs, a lot of interesting times. The new is that for the first time, we've got a new reader at Ruby Tuesday, new CEO J.J. Buettgen, who just joined the company December 1. So we're very pleased that he's willing to come out and talk with us roughly 90 days into his tenure. With that, I'm going to turn it over to J.J. Buettgen.

James J. Buettgen

Thank you, Joe, and good morning, everyone. Thank you very much for taking the time to come out and talk to us today. With me today, I have Greg Ashley who's Vice President of Finance; as well as Michael Moore, who's our Executive Vice President and CFO. Michael is going to be handling the financial section of today's presentation.

So since most of you probably don't know much about me, before I get started, I just wanted to take a few minutes to give you a sense of my background, so you have a sense of what you're dealing with here. I've been in the consumer and marketing space for about 24 years now. About 14 of which has been in the restaurant sector. Started my career with General Mills, worked up in packaged goods in Minneapolis for a while, and my first entry into the restaurant space was back in the mid-'90s when the Olive Garden Red Lobster brands were still part of what was then the General Mills restaurant division, originally as the Director of advertising for the Olive Garden, ultimately as the Head of Marketing in Culinary for the Olive Garden. So those 2 companies combined about a 10-year stretch. I then spent 4 years in the entertainment business working for Hollywood Entertainment, as well as The Walt Disney Company and then came back into restaurants in 2002 when I was the Head of Marketing for Brinker International and then ran a concept for Brinker for a while. I came back to Garden about 8.5 years or so ago as part of the transition plan when Joe Lee retired as Chairman and Clarence Otis was made the CEO, originally came in to be a Concept President running Smokey Bones for Darden and then went into new business development for Darden, and in that role had a chance to do a number of things. One of which was retool the insights organization at Darden, did a lot of work on -- from the consumer analysis for acquisition candidates, took some of their brands international for the first time, doing some deals in the Middle East, as well as Mexico and Brazil and led the team that developed what Darden now talks about as the "synergy restaurant" concept, which is a small market expansion vehicle for their large concepts and then for about the last 1.5 years up until this December, served as the Chief Marketing Officer for Darden before coming to join Ruby Tuesday. So a couple of takeaways in terms of background, one of which is a lot of experience in marketing and strategy and in a number of different consumer categories and also had the chance to see what great looks like, whether that's in terms of great brands, great strategy, great processes and tools to development brands and great people. And that's the background that I bring into this role at Ruby Tuesday.

So before we get started into the presentation, I do want to remind you of our forward-looking statements that you can read in our most recently filed 10-Q. So now that, that's out of the way, I'd like to start by giving you an overview of Ruby Tuesday, Inc. The company has consolidated revenues of $1.3 billion and a market cap of approximately of $440 million. As of our most-recent quarter end in early December, we had 786 Ruby Tuesday restaurants, with 7 of those being company owned and 77 franchised. Ruby's has average restaurant volumes of approximately $1.75 million, and the Ruby Tuesday concept represents about 98% of our total revenue as a company, and it's obviously the primary focus with us as the management team. Our Lime Fresh Mexican casual -- fast casual concept, which we acquired in April 2012, had 15 company-owned restaurants and 5 franchised locations as of the quarter end December.

As we look at the company today, our #1 priority is to stabilize and grow same restaurant sales and guest counts at the Ruby Tuesday brand. We have tremendous upside and leverage since given that we've got over 700 locations. We also currently have approximately 40% to 45% EBITDA flow-through on our incremental sales given that we've got a really tight cost structure. So any upside on the Ruby Tuesday's brand has significant impact to our financials.

Our CapEx needs are approximately $20 million to $25 million a year, and we have opportunities to enhance the brand position and performance that do not require large capital investment, and I'll talk to you about some of those this morning. Our Lime Fresh brand is well positioned in the exciting and high-growth fast casual segment. We believe this brand offers an attractive unit growth opportunity. The capital investment is low, and the concept has compelling unit economics if we can achieve our targeted sales volumes.

The third leg of our investment thesis is our solid balance sheet, which provides good financial flexibility. We have significant real estate ownership, which provides good protection for our equity and bondholders. In addition to investing the appropriate amounts of capital into both the Ruby Tuesday and Lime brands, we will look for opportunities to return excess cash to shareholders through share repurchases.

Before we talk about the future of Ruby Tuesday, I think it'd be helpful to give you some context and give you a quick sense of where we've been. In 2008, the company began a 3-phase brand repositioning effort that included reimaging 650 restaurants over approximately a 15-month time period, followed by a focus on providing better, fresher food and higher quality service that was more consistent with a high-quality casual dining brand. The final phase of this plan was implemented in April 2011 with the testing of a TV advertising strategy with more competitive spend levels.

We believe today's guest is very interested in the quality and freshness of the food they consume in restaurants, and we've come a long way in our focus on food quality with an internal program that we refer to as our food integrity program. Some examples of the things we do to support high-quality food in our restaurant is using all-fresh never-frozen chicken, food that's artificially trans -- artificial trans fat free, food that has no added MSG. We use sustainable seafood products. We use 100% fresh prime and choice ground beef, as well as numerous options for vegetarians, as well as those who are seeking lower calorie options. These are changes that our guests appreciate, and they've certainly elevated the quality of our menu and the dining experience at Ruby Tuesday.

We believe that better-tasting and more flavorful food requires a commitment. Today, we're committed to sourcing high-quality, fresher foods that taste better because they have fewer chemicals and additives, and they get from the farm to the table as fast as possible, developing great-tasting recipes with high-flavor profiles and providing choices and variety that fit guests' everyday lifestyle and are relevant for a broad range of occasions. Our strong food integrity program combined with improvements in guest service, as we upgraded both the talent and depth of our restaurant operations team, has led to strong increases in our branch tracker scores in categories like overall satisfaction, overall service, likelihood to revisit and likelihood to recommend.

While we made significant changes to the brands over the past -- the brand over the past 4 to 5 years, both from a restaurant look and feel, as well as menu and service upgrades, we've yet to effectively communicate those enhancements for a couple of reasons. One of which was about our marketing spend has historically been predominately focused on coupons. What this chart shows is our marketing spend over the period from 2010 through 2013, and if you look starting over on the left, we had an $85 million marketing budget that was comprised essentially 100% of couponing efforts. As you move towards the right side of the graph, what you see is a more balanced approach. And in fiscal '13, it was almost a 50% mix between coupons and television advertising. So we only have had a year of experience in trying to communicate the enhancements that we made to the brand, as well as some of the most-recent changes we've made to positioning. This level of advertising spend does put us at a level that's more competitive in a category that's obviously very news driven, and you'll see from us going forward is more of a balanced approach.

So given the knowledge that I've been able to pick up, not only from the years of experience but in my first 3 months with the brand, I wanted to start to tell you a little bit about what we're going to -- what you'll see from us going forward, and there are a couple of refinements that we plan to make as we continue to strengthen the brand. We're looking at some improvements in the restaurants where we can make some improvements to the atmosphere. So in particular, we're looking at things like lighting changes and music changes that will bring more energy to the brand and start to communicate again that this is a more lively and fun place for all demos. When we talk to our guests, well, we get a lot of improved scores, a couple of areas of improvement that they give us are that the restaurants tend to be too dark and they tend to be too quiet. So we're taking a look at lighting. We're taking a look at music to bring up the energy level.

Over the next several quarters, we're going to continue to focus on traffic-driving programs through menu introductions and limited time offers that emphasize affordability, approachability and unique flavor profiles, as well as the reintroduction of some of our previous all-time guest favorites. As we look at the 2 Ruby Tuesday brands over the longer term , we'll continue to evaluate and make any necessary refinements to our marketing strategy. We're only about a year into our integrated TV advertising, and we are assessing and leveraging our learnings to date in order to optimize the mix between both media and couponing, as well as the messaging for our limited time offers and our advertising. We're also undergoing a change to the look and feel of our TV advertising to portray a more lively and approachable brand that's a better fit to what we deliver in restaurants. We need to ensure that our marketing programs, that the unique flavor profiles and the breadth and depth of our menu are top of mind with consumers and that we're getting credit for the brand upgrades that we've already made, such as our food integrity program, which has never been communicated to consumers either through television advertising or even on our menu.

I'd like to share some of the items that are on our menu currently and some of the things that we've just added. If you look at the left side of the slide, what you see is some items that have been popular within the concept for a couple of years, like Chicken Fresco, our New Orleans Seafood, our signature Triple Prime Cheddar Burger, as well as our Spinach and Artichoke Dip. Some of the new introductions are featured on the right side. We rolled out a new menu in early spring and as well as a new feature menu that includes a number of exciting new entrées. We are pleased to bring back one of our popular favorites, Smoky Mountain Chicken, which has been off the menu for a number of years, and even though it's only been on for a couple of weeks now, it's already one of the highest preference items on our menu. Some of the other popular entrées that we've added, our Hickory Bourbon Salmon and our Black Fire New York Strip.

Entrées on the feature menu are all served with either a choice of 2 sides or 1 side and our Create Your Own Garden Bar. Our Garden Bar is another element that makes Ruby Tuesday unique in the casual dining segment since it offers something that is not -- that competitors are not able to replicate, and our guests recognize the value, freshness and variety of the Garden Bar. In fact, over half of our guests order the Garden Bar today. And the Garden Bar is really on trend with some of the things that consumers want in casual dining: choice, variety, customization and freshness.

This next panel or this next slide gives you a sense of some of the changes that we're making as we start to steer this brand towards a more approachable and affordable direction. On the left-hand side, what you'll see is part of our menu that featured our Premium Wine. Up until a couple of weeks ago, both our lunch and dinner menu featured nearly 2 dozen wines by the glass, which if you're trying to be a high-end casual dining restaurant, makes sense. But if you think about the way consumers in casual dining order alcoholic beverages and what they tend to drink, the wine segment is the smallest and the least profitable alcoholic beverage category. So on the right, what you see is something that we just introduced where we're starting to feature beer and cocktails, as well as wine, showing a more broad reach of alcoholic beverages, as well as starting to showcase some things that are more casual and informal than the focus on wine.

This is an example of some of the changes that we've started to make to our merchandising materials. On the left hand, you'll see one of our former pieces, and again, what you see is a little bit more formality: the focus on wine, the focus on higher-end entrées, almost a hint of white tablecloth with a white napkin, which, I think, portrays our brand a little more narrow and a little more higher end than consumers are looking for us. On the right-hand side, what you see is an example of some of the more recent merchandising materials, a little more casual with the chalkboard look and feel, a broader range of items, some higher end, some lower end, a cold beer, a glass of iced tea, again showing a broader range of options that are available to our guests at Ruby Tuesday.

And next, what I want to do is share with you couple of examples, one from the past and then our most-recent television commercial, also to give you a sense of some of the change in direction. The first spot is one that we launched a couple of years ago that was really about trying to convince consumers that Ruby Tuesday was more of a higher-end brand.

[Presentation]

James J. Buettgen

It's not supposed to be that short.

[Presentation]

James J. Buettgen

So a couple of things you probably picked up is we used the word "dining" probably 4 times in that spot as -- in an attempt to try and elevate perceived quality, a lot of focus on wine, a lot of relatively formal-looking place settings. And this next spot is representative of the direction we're moving. We're not all the way to a complete new positioning yet, but we're starting to show a little bit more energy, a little bit more kind of informalness and more of a casual and more upbeat atmosphere.

[Presentation]

James J. Buettgen

So what you'll see is both spots, obviously, show a range of food items both because they're LTOs, are focused on value to some degree, but hopefully, you'll notice the second one, a little bit more casual, shows a broader range of items that we offer in the menu, a little bit higher energy level. And that's indicative of the direction that we'll be moving the marketing efforts going forward. We've got a number of efforts underway currently that we're in the process of vetting with consumers around a solidified positioning going forward, new creative for television, as well as some work on promotion concepts and menu optimization, which we'll be able to tell you more about in the coming months.

So next, I'd like to switch gears to our -- take a few minutes to talk about our Lime Fresh Mexican Grill. Lime Fresh is a high-quality brand that operates in the fast casual segment, but it also has some elements of casual dining from a menu and service perspective that we feel make the brand unique. We believe Lime Fresh has an attractive business model with a low capital investment, a small footprint of about 2,300 square feet and attractive margin potential. The CapEx requirement for the new restaurant is about $800,000 to $850,000 with revenue targets of $1.2 million to $1.3 million and EBITDA of $150,000 to $200,000, which we believe will grow over time, similar to other fast casual concepts.

It's an exciting and attractive growth vehicle for our company. The concept is fun, energetic and has a very vibrant culture. The Mexican fast casual segment is fast growing and very popular among consumers, and we feel that Lime offers a differentiated experience in this space. The food quality is excellent, and everything is cooked to order and made-from-scratch recipes. We offer a wide range of salsas that are made fresh daily in each location. Our focus over the next year or so will be to utilize the knowledge that we've gained over the past 12 months to strengthen the concept and position it as a growth vehicle going forward. We're currently testing a few enhancements to the brand, such as menu boards to simplify the ordering process, removal of tip lines on the check to make -- to have lower price point and better value and developing even stronger flavor profiles through some of our internal chefs, as well as some outside consultants.

We currently have restaurants in 6 states and Washington, D.C. Over the next year, our growth will be in D.C., North Carolina and the Ohio markets, as well as additional development in Florida. We plan on opening another 6 restaurants over the remainder of fiscal 2013 to achieve our guidance of 10 to 12 openings for the full fiscal year.

I will now turn the presentation over to Michael to review our capital structure, provide an overview of our uses of cash and discuss our 3-year financial targets.

Michael O. Moore

Thank you, J.J. Over the past several years, we have focused on reducing our debt levels. Since 2009, we've reduced our debt level by about $184 million. We've recapitalized the company in May 2012 with a $250 million high-yield bond offering, which gives us significant financial flexibility, as there are -- as we have no material debt maturities due until 2020. Additionally, we ended our December quarter with $26 million in cash. I think it's very important to note that we own approximately 340 of our locations valued at $500 million to $600 million, and 285 of those locations are debt free.

Since Q3 2012, we have executed sale-leaseback transactions on 26 locations, and we have generated gross cash of $59 million. We are currently pursuing sale-leaseback transactions on an additional 18 to 20 properties, which we believe could generate gross proceeds of $40 million to $44 million. This will take another 5 to 6 quarters to complete.

Our corporate financial model governs our allocation of capital. First of all, we will continue to invest in the Ruby Tuesday brand and grow our Lime Fresh concept. Secondly, we will look to opportunistically repurchase shares. We've demonstrated this commitment by repurchasing over 5% of our outstanding year to date through the first period in our third quarter. In January, the board increased our share repurchase authorization by 10 million shares bringing the current authorization to 12.7 million shares. We will also look to opportunistically pay down our debt. Our revolving credit facility allows us to repurchase up to $15 million per year of our high-yield bonds. So far this year, we've repurchased $11.5 million. Lastly, in the future, we will consider acquisitions. However, our primary focus right now is increasing and stabilizing our Ruby Tuesday same restaurant sales and growing our Lime Fresh concept.

Let's take a look now at our key 3-year financial targets. Our 3-year goals are strongly linked to our ability to grow same restaurant sales over time with our new brand positioning. Our targeted adjusted EBITDA range of $125 million to $135 million in 3 years will largely be tied to incremental flow-through on Ruby Tuesday sales in addition to growth contribution from Lime Fresh. To put it into context, every 1% of incremental revenue at our company-owned Ruby Tuesday restaurants generates approximately $5 million of incremental consolidated EBITDA given our 40% to 45% flow-through on incremental sales.

Our annual free cash flow target of $40 million to $50 million is driven by EBITDA growth noted above, slightly offset by increase in CapEx. Lastly, our debt -- net debt to adjusted EBITDA target of approximately 2x reflects a combination of both EBITDA growth, debt reduction and excess cash on hand. Right now we are at a ratio of about 2.4x.

In closing, we believe we are well positioned for long-term success. Our announcement in January that we are exiting our Marlin & Ray's, Truffles Grill and Wok Hay noncore concepts allow us to focus solely on our Ruby Tuesday and Lime Fresh brands. We are looking to build sales momentum by an appropriate mix of coupon and television dollars. We have strong teams in place, and we'll seek opportunities to strengthen our teams with experienced talent.

We have very good operating leverage. For every $1 of additional sales, we can deliver 40% to 45% to the bottom line. We have a strong balance sheet, flexibility under our covenants, and we have no near-term debt maturities. We have excess free cash flow, which we will grow over time, and we will continue to reinvest in our core brands, repurchase shares and pay down debt.

On behalf of J.J., Greg and myself, we appreciate you taking time to join us today. I will turn it back over to Joe.

Question-and-Answer Session

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Okay. Thank you. Is this on? Yes. Okay. We're going to have a Q&A period. I'm going to kick it off with a couple of questions, and we'll shift to somebody with a microphone in the audience. I'm going to ask if you wait until the microphone reaches you to ask a question for the benefit of those on the webcast. So J.J., Michael and Greg, thank you for coming in. J.J, especially, I thank you to come 90 days into your tenure as CEO of Ruby Tuesday. I'd like to ask 2 big-picture questions. First on your perception of the brand, there's lots of ways to interpret what you just presented, but in some ways, my reaction is that the upward repositioning of the brand into -- the attempt to push the brand upward has failed and that you're more now acknowledging you're in the bar and grill segment and trying to find ways to compete more effectively in the bar and grill segment. And I guess I'm curious to your reaction to my perception and more importantly, your perception of the brand, where it is and the opportunities.

James J. Buettgen

Certainly. Thank you for the question, Joe. I agree with most of it, so I think the attempt to reposition Ruby Tuesdays originally, we talked about it as -- internally, it was talked about as high-quality casual dining. In market speak, they are basically trying to make Ruby Tuesdays a casual plus brand, which, I think, was, for a number of reasons in hindsight, too much of a stretch. One of which is it was really more focused about internal aspirations of the company and its leadership than it was about a viable position in the marketplace. It was also, I think, a too far of a move for a brand with a 40-year heritage. Consumers know and love Ruby Tuesday but not as a polished casual brand. The other thing is when you -- it's hard to move a brand when you're not in fully considering the installed asset base. So probably 45% to 50% of Ruby Tuesday locations are located in trade areas with a $40,000 to $60,000 household income. And those aren't the consumers who go out to polished casual. The last piece is even if you can be successful in the polished casual space, there's no one in that space that has anywhere near the density of locations that we do. So we have 700 polished casual brands in effectively half the U.S. geography, I think was a mismatch. I wouldn't -- I don't agree that, that means that we're now going back to bar and grill. What I would say is if bar and grill was kind of our starting point, we'd say that was point 1, and polished casual was an attempt to move up to a 10, we should have gone somewhere around a 6. So one of the things that I think has really changed with Ruby Tuesday over time is prior to the repositioning, when you would ask consumers, if they didn't come to Ruby Tuesday, where else would you have gone, they would answer with the likely suspects. It was all the other bar and grill competitors, and that was pretty much the choice set. Today, when you ask consumers or ask our guests where they would have gone if they didn't choose Ruby Tuesday, you'll still hear mention of bar and grill brands, but you'll also hear dinner houses like Olive Garden, Outback, Red Lobster. So I think we've done a nice job of changing perceptions of the brand, and our goal going forward is to end up in between and source both from bar and grill, as well as dinner houses because I don't think it would be smart for us to turn right back around and go right into probably the most concentrated and competitive segments in casual dining.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Okay, then, one other big picture question before I turn it to the audience. You come from -- most immediately from Darden, big organization, very sophisticated, very large organization with many, many functions and many -- and a deep management team. Because of what my perception has always been, a relatively flat organization where your predecessor seem to make virtually every decision. And I guess I'm curious as you look at the management team, if there's positions you need to fill, functions that you need to improve the Ruby Tuesday capability and just your thoughts in general from that perspective.

James J. Buettgen

Got it. Yes. The 2 companies are very different, both in terms of culture, resource level, and on the extreme, there are advantages and disadvantages to both. So it is a flatter, leaner team. The benefit of which is that the team can respond very quickly, and you'll see us make changes quickly. But it is thinner, and there are opportunities where we need to upgrade talent. Some of which are already underway. Most of you have probably seen we had an 8-K filing. We're out searching for a new Head of Marketing. We have a new Head of Culinary, who'll be joining us actually this Monday, and we've also brought on a strong player to strengthen our financial organization and will be coming on in April. So we're starting to make changes where we need to. And the good news so far is that there's a lot of people out there who we have knowledge and experience with who believe in what we're doing as a company, and so far, the signs are good that we're going to be able to upgrade the team in the way we see fit.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Okay, we have one in the audience here.

Unknown Analyst

Yes, I had basically 2 questions. One was I was curious, when you look at your frontline sales, what do you think or do you think has been an impact from the tax hikes that have hit the consumer? And then the second question is, looking further out, what are your plans for more of expanding Ruby Tuesday footprint across the country, store openings, et cetera?

James J. Buettgen

Got it. Thank you for your question. On the first one, we're subject to the same challenges that everybody else is seeing whether it's payroll tax, the funk over sequester and all the -- just the economic challenge. And it's obviously not a tailwind for us. How much of what we're seeing is headwind that's driven by consumers versus what we've done that's self induced is a little hard to tease apart. But I would say the bigger -- our bigger focus is making sure that we can do everything that we're capable of to drive sales in this kind of environment. So one of the challenges in hindsight to the strategy that we pursue that Joe mentioned is in our effort to position ourselves as a more of a high-end brand, we lost disproportionately from income levels $60,000 and below, which is the meat of the market. So even though the environment's challenging, I think by being smarter about the approachability and affordability, not only of the items we promote throughout LTOs but through the way we position our offering in total, I think will help us. And those are things we can control. The other piece that I think you'll -- that we're starting to learn more about and I think will help us is one of the slides we mentioned, for example, this balance between coupons and media. Last year -- this fiscal year was the first in a long time with a significant media spend, so a couple of areas that we're kind of learning from this year on are anything from the relative appeal and special visit intent of the concepts that we promote. We're getting smarter about developing more effective advertising, and as an example, the last spot I showed you is the highest-scoring ad we've ever tested. So we're starting to get smarter about that. We're also getting smarter about the allocation of marketing dollars whether that's absolute level of media spend by market or the mix between coupons and media. So as we learn markets that respond well, we invest in; markets that don't, we invest in something else. So we're starting to make some headway there. To your second question about longer-term growth, I would say for us, the main thing about that question is that's the longer-term question. And not to be evasive, but our biggest priority right now is to do anything we can to build same restaurant sales and guess counts in the existing Ruby Tuesday locations. And any future growth goes right through that priority, so that's what we've got the team focused on. But if we do get that -- get traction, a couple of things that I would note, one of which is both the capital model as well as the operating model are pretty tight, so we can start to make money at a much lower volume than many of our casual dining competitors. And as Michael and I shared, even with our current units, we're looking at $0.40 to $0.45 of incremental EBITDA for every sales dollar increase. But if that -- if we can get the trends moving in the right direction, there's no reason that we can't explore potentially further penetration in markets we're already in or explore penetration on the west half of the country because we only have roughly a dozen restaurants that are basically west of -- if you were to draw a line from Minnesota through the eastern half of Texas, we only have about a dozen restaurants on the other side of that line. So there's opportunity.

Unknown Analyst

J.J., you kind of touched on it on your last -- I mean, in response to your last question, but with the advertising mix, it's about 50-50 of this year between the couponing and the TV, where do you guys see that going? And where would you like to see that go?

James J. Buettgen

I don't -- I personally don't have a strong preference, one versus the other, other than I want to make sure we're doing what works because I've seen where advertising, when it's right and when it's on strategy, can be a really powerful tool, but when it's not, there are not many quicker ways to spend money. So right now, what we've been doing is really kind of trying to tailor the message, look at the effectiveness of different markets. And then the bigger question going forward isn't necessarily about the mix, is the absolute level of spend that our model can tolerate. So again, not to give you less than a clear answer, but we're still learning on both dimensions.

Unknown Analyst

I had 3 quick questions, hopefully quick. One is you mentioned getting credit for the upgrade, and would you expect to see that more in traffic or more in a higher average check?

James J. Buettgen

We have gotten credit to some degree on the check side, but what we haven't necessarily gotten credit is on the traffic side. So as we think about getting "credit" for what we've done, I look at that a couple of different ways. One of which is, we've, I think, put in narrower lens on our brands through the way we've communicated than the brand really offers. So we tended to position ourselves as higher end. We've focused largely on the center of the plate, knife and fork entrées where we still have a lot of guests who come to us for burgers and sandwiches in casual occasions, but we haven't featured that. So if we can tell that story better, I think it opens us up to a broader range of consumers and a broader range of occasions. If you look at, for example, the food integrity program, we're making a big commitment to it now. It's on trend. It's not necessarily -- it's potentially not a broad enough platform for the brand to stand on, but it's a really important attribute that a lot of consumers appreciate. Yet, we haven't told anybody about it. So we currently have people in the marketing team working doing some consumer work now to understand what's the best way to talk about that and which audience is going to respond to it the most. So I think there are examples of things like that, that we can get more credit for what we're currently doing.

Unknown Analyst

And second and third questions, just real quick. Could you talk about the competitive and promotional environment so far this year compared to what we've seen in the past? And then lastly, I know it's early days, but in terms of the sequester, when you look at your Virginia, Maryland stores, are you seeing any differential comp trend recently versus the rest of the chain?

James J. Buettgen

I'll take the second one first. We traditionally do pretty well up in that part of the country, and we haven't seen any disproportionate impact there at all. And can you repeat the other one again? I'm sorry.

Unknown Analyst

[indiscernible] promotion...

James J. Buettgen

Oh, got it. The competitive environment continues to be tough. Actually, there's -- it's probably more change in how we -- how successful or responsive to the promotions consumers have been and there has been to the level of competitiveness. So if you look at casual dining over the past 5 years, it's gotten more and more price driven, more kind of new menu innovation driven. That's not new. I think there are few of the big brands that still periodically had gaps where they try and promote either a higher-priced item or something that's not quite as aggressive. And most of those windows have closed, but it's been that way for quite some time. We haven't seen a really big change.

Unknown Analyst

Darden's casual concepts have underperformed the industry for the last several years in seemingly at an accelerating pace. What lessons have you taken away from that or maybe what not to do at Ruby Tuesday?

James J. Buettgen

I guess I would answer that a couple of ways. While their performance is not what it used to be, it's better than ours in terms of absolute volume. So there's a lot of things that we could use to get better at on our own. I think the biggest challenge that -- or the biggest lesson, I would say that just more so than ever before, you've got to have a balanced approach where you need to continue to make your brand and your execution better. You've got to have news and innovation, but you can't do that at the expense of value, and then value gets more specifically, affordability because what I've seen a lot of brands do is maybe confuse the 2, and talk about or promote things that they see are a "good value." But if it's not affordable, it doesn't drive enough traffic. So I think, for us, that's a lesson that we have to take, especially given the trade areas we tend to operate in and the income demographics of our guests. We have to continue to be a good value at Ruby Tuesday.

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Thank you very much.

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