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Ruby Tuesday, Inc. (NYSE:RT)

UBS Global Consumer Conference

March 14, 2013 2:20 pm ET

Executives

James J. Buettgen - Chief Executive Officer and President

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

Analysts

David Palmer - UBS Investment Bank, Research Division

David Palmer - UBS Investment Bank, Research Division

David Palmer, UBS Restaurant and Packaged Food analyst. I'm pleased and honored to welcome Ruby Tuesday. J.J. Buettgen, President and CEO; Michael Moore, CFO; and Greg Ashley, who's over here in the front row, VP of Finance and Investor Relations. J.J. was appointed President and CEO of the company November of this last year, following the previously announced retirement of founder Sandy Beall as Chairman, President and CEO. Before joining Ruby Tuesday, J.J. served in several key roles at Darden restaurants, including Senior VP of New Business Development at Darden and as President of the Smokey Bones chain. Michael Moore was hired in April 2012 as the next CFO to replace Marguerite Duffy, who previously announced she would retire from her position as CFO as of June 2012. Previously, Michael has served as the CFO of Pamida stores, Advance Auto Parts, and the Cato Corporation and Bloomingdale's. Welcome and thanks again gentlemen. Over to you, J.J.

James J. Buettgen

Thank you, David. And good afternoon, everybody. I'm glad you could join us today, and we enjoyed spending time with many of you earlier today. David's already introduced our team. I would like to take just a couple of minutes to give you a little bit more sense of my background since I'm new to the organization and many of you don't know much about me. I've been -- had about 24 years of experience in the consumer space, in a number of different industries, starting with packaged goods in General Mills, worked in the entertainment industry for a while for the Walt Disney Company and Hollywood Entertainment. And I've been in the restaurant space in 2 different stints over -- for a combined period of about 14 years. So I've done everything from run advertising and marketing for the Olive Garden to, I was the Head of Marketing for Brinker. I ran a small concept for Brinker, and then I was recruited back to Darden back in 2004, when Joe Lee retired. I was brought in to back fill Clarence Otis, when he was made CEO of the company to run Smokey Bones. Ran that for a couple of years and then headed up new business development for a number of years, and I know new business development means different things at different times for different companies, so in my case, there was a series of major projects I worked on, one of which was to retool and upgrade the insights organization for Darden, to use that as a competitive intelligence hub for new business. Did a lot of work in terms of consumer analysis of acquisition targets and portfolio work, led the development of what Darden refers to as the synergy restaurant, which is essentially a co-brand, small-market expansion vehicle. And then, also, was the person who took Darden international for the first time, signing deals with partners in the Middle East, Mexico and other places in South America. And then over the last year and a half served as the Chief Marketing Officer for Darden, prior to coming to Ruby Tuesday.

So the reason I bring that up is a wealth of experience with perception and perspectives from a lot of different industries, and I've had the chance to see how a number of blue-chip companies attack marketing and strategy, which has given me a good sense of what great looks like, whether that's around strategy and branding, whether that's the processes required to develop great advertising, great positioning or the talent and tools it takes to bring those ideas to life. And those are things that I'm very excited about bringing to Ruby Tuesday.

So as David mentioned, I was hired in November. I've been with the company since December, and really excited about the opportunity for the company and what we have in front of us.

So before we get started with today's presentation, let me remind you of our forward-looking statement, which you can read in our most recently filed 10-Q.

So with that out of the way, I'd like to start by providing an overview of Ruby Tuesday, Inc. The company has consolidated revenue of $1.3 billion, and a market cap of approximately $440 million. As of our most recent quarter end, December, we had 786 Ruby Tuesday restaurants, with 709 of those being company-owned and 77 franchised.

Ruby's has an average restaurant volume of approximately $1.75 million, and the Ruby Tuesday concept represents approximately 98% of our total revenue, and is our primary focus as a management team.

Our Lime Fresh Mexican casual -- Fast Casual concept, which we acquired in April of 2012, had 15 company-owned units and 5 franchised Lime locations, as of our December 2012 quarter end.

As we look at the company today, our #1 priority is to stabilize and grow same restaurant sales of the Ruby Tuesday brand. We currently have approximately a 40% to 45% EBITDA flow-through on our incremental sales, given our tight cost structure, and our annual CapEx needs are approximately $20 million to $25 million a year.

While we do feel we have opportunities to enhance the brand position in ways that do not require a large capital investment, and I'll share some of those with you today. Our Lime Fresh brand is well positioned in the exciting and high-growth fast casual concept segment, and we believe this brand offers an attractive unit growth opportunity over time. The capital investment is low, and the concept has compelling unit economic levels, if we can achieve our targeted sales volume.

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

Before we talk about our future vision for the Ruby Tuesday brand, I think it'd be helpful to give you a sense -- a quick sense of where we've been. In 2008, the company began a 3-phase brand repositioning effort, including reimaging 650 restaurants over a 15-month period, followed by a focus on providing better, fresher food and service that was more consistent with a high-quality casual dining brand.

The final phase of the plan was implemented in April of 2011, with the testing of a TV advertising strategy that was -- at more competitive spending levels to our peer set. We believe today's guest is very interested in the quality and freshness of the food they consume in restaurants. We've come a long way in our focus on food integrity, and some examples are we now serve all-natural, fresh, never-frozen chicken. We serve food that's artificially -- artificial trans fat-free, we serve food that has no added MSG, we serve sustainable seafood products, we use 100% fresh prime and choice ground beef, we have a wealth of vegetarian options, as well as options for those who are seeking lower calorie options. These are some changes that our guests really appreciate, and they've helped elevate the quality of our menu and of the dining experience at Ruby Tuesday.

We believe we have better-tasting and more flavorful food, and that requires a commitment. Today, we're committed to sourcing higher-quality, fresher foods that taste better because they have fewer chemicals and additives, and they get them from the farm to table as fast as possible. We're also 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 the improvements in guest service, as we upgraded the talent and depth of our restaurant operations teams, has led to strong increases in our external brand tracker scores in categories like overall satisfaction, overall service, likelihood to revisit and likelihood to recommend.

While we have made significant changes to the brand over the last 4 to 5 years in both the look and feel of the restaurant as well as menu and service upgrades, we've yet to effectively communicate these enhancements. One of the reasons is that our marketing spend had been predominantly focused on coupons, with little to no television advertising.

This chart shows our historical TV and coupon spend. You can see that back in fiscal 2010, we spent roughly $84 million in marketing, and nothing on television advertising.

Fast-forward to fiscal '13, our plan is now more balanced from a coupon and television marketing perspective, with an increased television marketing spend being funded in part by a 45 -- $40 million to $45 million cost-savings effort that we implemented last year. This level of television puts us on a competitive level with our peer group, and we believe that a more balanced approach to marketing and promotional spending will enable us to more effectively grow our same restaurant sales over time.

Given in the knowledge of my last 3 months with the company, I thought it'd be beneficial to talk a little bit more in terms of what we're thinking for Ruby Tuesday brand refinements, which we think will strengthen the brand in the future. We are looking at some improvements in the restaurants in areas such as lighting and music to make the brand more approachable and more lively, a more fun place for all demographics.

Over the next several quarters, we'll be focusing on traffic-driving promotions through new menu introductions, limited time offers that emphasize approachability and affordably, as well as new menu introductions that will feature unique flavor profiles, as well as the reintroduction of some of our all-time guest favorites. As we look at the Ruby Tuesday brand over the longer term we will continue to evaluate and make any necessary refinements to our marketing strategy. We're only about 1 year into our integrated TV and advertising program, and we're assessing and leveraging our learnings to date, in order to optimize the media mix in both our spot and national cable programs, as well as the balance and mix of television versus other promotional support. We're also undergoing a change to the look and feel of our television advertising, to portray a more lively and approachable brand. We need to ensure through our marketing that the unique flavor profiles and depth and breadth of our menu are top-of-mind to consumers, and that we're getting credit for the brand upgrades that we've already made, such as the food integrity program.

I'd like to take a minute to share with you some of the items that are on our menu. On the left-hand side, you can see a few of our existing popular items, including Chicken Fresco, New Orleans Seafood, as well as our signature Triple Prime Cheddar Burger and our Spinach and Artichoke Dip. In mid-February, we rolled out an early spring menu and a new feature menu that includes some exciting new entrees. First, we're pleased to bring back the very popular Smoky Mountain Chicken, along with some unique, flavorful items that you can see here. Since its reintroduction, the Smoky Mountain Chicken has become one of our highest preference items. Other popular new entrees include the Hickory Bourbon Salmon Filet and the Black Fire New York Strip.

Entrees on the feature menu are all served with a choice of either 2 sides or 1 side and a trip to our Create Your Own Garden Bar. Our Garden Bar is a unique element to Ruby Tuesday, its unique and casual dining, and it's something that our guests really value and appreciate, because of the freshness and variety that it offers. In fact, over half the guests at Ruby Tuesday's take advantage of the Garden Bar.

This next slide shows a side-by-side comparison of some of the changes we're starting to make to our merchandising materials. I mentioned earlier that our -- we had been on a strategy of trying to make Ruby Tuesday a high-quality casual dining brand. Another way we've talked about it is, that the company was in the process of trying to position it as casual plus. We now believe that, that was too high of a target for the brand, and we've been steering it towards a more affordable and approachable place, both in terms of offerings, but also the look and feel of the menu.

So on the left-hand side, you can see the way we used to talk about alcoholic beverages, where wine took focus to the exclusion of beer and cocktails. As with some of our new newer merchandising materials, there is still a role for wine, but we're also featuring cocktails and beers, to let people know about the breadth of our offering, but also to signal that we're trying to be a more casual and approachable restaurant.

Similar to the beverage merchandising, on the left is one of our older, kind of -- food merchandising pieces, and you could see the high-end nature of the food, coupled -- paired with wine and what almost looks like white tablecloth, trying to kind of convince people that we're higher-end.

The new piece on the right shows a broader range of food items, shows a little bit more casual, approachable look and feel, shows beer instead of wine and features the item I just mentioned, the Smoky Mountain Chicken, which, in a matter of, literally a week, went back to being one of the most popular items in the system.

And that's -- those are indicative of some of the changes you're going to see going forward, as we continue to position the brand more in line with where we think the sweet spot of the market is, and frankly, where we think Ruby Tuesday belongs and you'll see us projecting a more casual and approachable look and adding a wider range of food items to the menu.

Let's go back? Okay, got it. So the next one I want to do is give you an example of how that's starting to come to life through the advertising. I've got 2 spots that I'm going to show you, the first of which, has been out a couple of quarters ago, and is indicative of the direction we are trying to pursue. So you'll see a look and feel on the television that's reminiscent of what you see on the left-hand side of this slide, focusing on higher-end foods, focusing on wines, focusing on more, kind of special occasion dining. The second one is our newest spot, which went on air about 2 weeks ago, that starts to showcase a little bit more variety on the menu, and you'll hear a livelier music track, you'll see more youthful people, both working in and dining in the restaurant, starting to portray kind of a more casual and upbeat look. And while it's only been in market for a couple of weeks, I can tell you it's the highest scoring piece of copy we've ever run at Ruby Tuesday. So roll those 2 spots, please.

[Presentation]

James J. Buettgen

Apologize for the jerkiness of the track. For some reason, we can't get that one to run right. But I hope what you can see is a little -- some of the change in tonality, some of the change in energy level, also showcasing a broader range of foods and letting people know that we still have things like hamburgers and chicken wings, in addition to things like salmon and steak. And as I said, while it's early in terms of its in-market results, but in terms of its feedback from guests and testing, it scored really well. And we're real excited about the direction.

All right. So I'd like to shift now and tell you -- take a few minutes to talk to you about our Lime Fresh Mexican Grill. It's a high-quality brand that operates in the fast casual segment, but also has casual dining elements from a menu and service perspective that we feel makes it unique. We believe Lime Fresh has an attractive business model, with low capital -- investment requirement, a small footprint of approximately 2,300 square feet and attractive margin potential. The CapEx requirements for new restaurants is around $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 and energetic and it has a vibrant culture. The Mexican fast casual segment is fast-growing, and it's 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, with made from scratch recipes.

We offer a wide range of salsas that are made fresh daily in all of our restaurants. Our focus over the next year or so will be to utilize the knowledge we've gained over the past 12 months, to strengthen the concept and position it as a growth vehicle. We are currently testing a few brand enhancements, such as menu boards to simplify the ordering process, removal of a tip line from our checks, and developing even stronger flavor profiles.

We currently have 6 -- we have currently have restaurants in 6 states and Washington D.C. Over the next year our growth will be in D.C., North Carolina and Ohio, as well as additional development in Florida, where the concept was founded.

We plan on opening a 6 -- another 6 restaurants over the remainder of fiscal 2013 to achieve our guidance of 10 to 12 openings on a full fiscal-year basis.

I'll now turn the presentation over to Michael Moore to review our capital structure, provide an overview of our uses of cash and to discuss our 3-year fiscal targets -- 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 by $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 we have no material debt maturities until 2020.

Additionally, we ended our December quarter with $26 million in cash, and nothing drawn on our revolver. It's also very important to note that we own approximately 340 of our locations that have a market value of $500 million to $600 million, and 285 of those have -- are debt-free.

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

Our corporate financial model governs our allocation of capital. First of all, we will continue to invest in our core Ruby Tuesday brand and grow our Lime Fresh concept. Secondly, we will look to opportunistically repurchase shares. We have demonstrated this commitment this fiscal year by repurchasing over 5% of our outstanding, and in January, we increased our share repurchase authorization by 10 million, bringing total current authorization to 12.7 million shares.

We will also look to opportunistically pay down our debt. Our revolving credit facility permits us to buy back up to $15 million of bonds per year. And so far, this year, we have repurchased $11.5 million.

Lastly, in the future, we will consider acquisitions. However, our primary focus for now is on increasing and stabilizing the Ruby Tuesday same-restaurant sales and growing the Lime Fresh concept.

Let's take a look now at our 3 key financial -- 3-year key financial goals. Our 3-year goals are strongly linked to our ability to grow same-restaurant sales over time with our new brand positioning. Our adjusted EBITDA range of $125 million to $135 million in 3 years will be largely tied to incremental flow-through on Ruby Tuesday sales, in addition to growth contribution at Lime Fresh.

To put it into context, every 1% of incremental revenue at each of our company-owned restaurants represents approximately $5 million of incremental, consolidated EBITDA, given our 40% to 45% flow-through on incremental sales. Our annual free cash flow targeted range of $40 million to $50 million is driven by the EBITDA growth noted above, slightly offset by an increase in CapEx.

Lastly, our net debt to adjusted EBITDA target of approximately 2.0x reflects a combination of both EBITDA growth, debt reduction and excess cash on hand.

Right now, we're at our ratio of about 2.4x on a net basis.

In closing, we believe we are well positioned for long-term success. Our announcement in January that we're exiting our Marlin & Ray's, Truffles Grill and Wok Hay non-core 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 coupons and television dollars. We have strong teams in place, and we'll seek opportunities to further 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 brands, repurchase shares and pay down debt.

On behalf of J.J., Greg and myself, I want to thank you again for joining us today. I will turn it back over for a Q&A session.

Question-and-Answer Session

David Palmer - UBS Investment Bank, Research Division

I think we can have this be more of a traditional Q&A -- open Q&A.

James J. Buettgen

Sure. Certainly.

David Palmer - UBS Investment Bank, Research Division

And I'll just start off. You mentioned your consumer satisfaction scores have been improving. I would imagine you all benchmarked versus yourselves, in showing how things currently are going. How long also [indiscernible]?

James J. Buettgen

Got it. We actually -- we do have a competitive external tracker that we do on a quarterly basis. That gives us a chance to measure our progress versus ourselves, as well as our rank and progress versus a competitive set. And we're excited about the fact that we've not only improved on an absolute basis, on measures from overall guest satisfaction to service scores to food scores to intent to repeat. We've also increased our ranking in that set over the past couple of years. So we are seeing progress. We got more work to do, but we're on the right path.

Unknown Analyst

J.J. [indiscernible] so casual [indiscernible]?

James J. Buettgen

I think we can make the changes in a relatively low-cost way. And I'll tell you a little bit more why I think that. I think while we did upgrade the level of interiors, and it was intended to take the brand casual plus, the challenges in terms of positioning and strategy are broader than the decor package. So other things that we did was, we eliminated a number of items that were similar to Rocky Mountain Chicken or Smoky Mountain Chicken that were incredibly popular, but not seen by management as fitting with the direction that the brand wanted to move. We made changes to the Garden Bar. Similarly, we took off popular items because they weren't seen as a fit. And those are things that we're working on in the short term to bring back. In terms of the atmosphere and decor within the restaurant, part of the change was driven by decor. A part of the change was driven by everything from server uniform to service standards. We made a much more formal approach. It was more scripted. Prior to that time, servers were allowed to kind of infuse a little bit of personality, kneel down next to the guest, engage in conversation. When the repositioning happened, they were instructed to do a much more kind of mechanical, less personal level of service, which threw our guests a little bit. And those are things that we can control basically for no cost, just with redirection. As it gets to your direct question on the prototype, when we -- the feedback we get in terms of what guests wish was different about our brand now, and in terms of the look and feel, tends to fall into 2 buckets, one of which is, they tell us the restaurants are too quiet, and they tell us the restaurants are too dark. And I think the quiet is being driven by a couple of different things. At the same time, when we reposition some other things, we changed the nature of the musicscape inside the restaurant as well. So for those of you who have been to the restaurant, it tends to be very subdued, both in terms of the type of music we play, as well as the volume we play it at. So we're already in the process of changing the music track to make it more contemporary, make it more popular music, something people want to listen to. We can pretty easily dial up the volume to bring that back. The other reason I think the restaurants, in many cases, come off as too quiet, is because we've lost a lot of the guests. Because the guests in the restaurant bring a lot of energy. So for those who live in the Northeast and you're ever up in Manhattan, walk into our restaurant in Times Square, the decor package is the same, the music package is the same. You don't sense any lack of energy, because the restaurant's vibrant and it's full. So as we bring more people back, I think that's going to help. And relating to it being too dark, there's a couple of things going on. I think we consciously toned down the lighting in service of making it feel more formal, and we can adjust that on our own. We've started to do some of that. I also think there's opportunity, and we're going to take a look at, kind of lighting level and lighting fixtures, so there might be some refixturing to brighten things up a little bit. And then the third piece, if you're -- and again, next time you're in, if you look around the restaurants, even the artwork package, very muted colors, very kind of subtle, and to see things like pictures of chefs around tables, it's all in service of trying to communicate this higher-end level. And while not totally free, it's relatively inexpensive to go back and put in some more colorful, vibrant and fun pieces of artwork to accent the experience. And I think those couple of changes will make a pretty big impact on the restaurants.

Unknown Analyst

Advertising ramp-up [indiscernible]. Is that a balance that [indiscernible] and one of the [indiscernible] that with advertising -- that's more of a -- but you're not -- ups the efficiency [indiscernible] kind of happened?

James J. Buettgen

Got it. No, it's a great question. I'd say the balance is much better than either of the 3 strategies we pursued historically, which is no marketing at all, 100% television with no price promotion or 100% price promotion with no couponing. That said, we now have basically 9 months of experience with how that balances work. And we've been studying really hard, the impact of those vehicles across markets, and we -- and doing a lot of marketing mix work to continue to tweak that balance. So we continue to look at the range of coupon vehicles we could be in, the offer, both the value and the products that we feature, to make sure we're dropping things that are driving strong redemptions and incrementality in terms of sales and margin. We've also continued to take a look at the effectiveness of, not only the advertising and the copy -- and doing copy testing, but also what we're seeing in terms of sales lift in the market. So even for the fourth quarter, we've made some tweaks. So there are some spot markets where we got a lift, but they were too expensive and it doesn't make financial sense to pursue advertising there. There are others where, the market was really responsive, and it's cost-effective that we dialed up the weight, and we're going to continue to kind of refine that based upon what's working in the market. We're also planning in the not-too-distant future, on a select basis to start some local marketing efforts too, to see how that responds for us. I think there's a range of options that are out there for us. And for me, I'm not necessarily wedded to any one of them as much as the right mix that we can come up with, to drive sales profitably.

Unknown Analyst

[indiscernible]

James J. Buettgen

I wasn't here when it started. I don't know if it was directly influenced by them in any way, maybe the name, I don't know. But what it was really in service of -- if you think about the strategy at the time, it was to take the brand higher end, and when you think about higher-end restaurants, premium ingredients is one of the things that you get. And Sandy and the team -- and I don't disagree with this, are big believers in fresher, cleaner food can give you better flavors. The interesting thing about the food with integrity program, and to me, it's an example of another -- a lever that we can potentially pull to improve the positioning of the brand to drive sales, is outside of people who either work for the company, or have seen our presentation, none of that's ever been mentioned to anybody. It doesn't show up on our menu, we've never talked about it in our advertising. We don't talk about in our promotion materials. And I personally think that, it's probably not a broad enough platform for the brand to stand on. But it's a pretty meaningful message to a lot of different consumer segments. So one of the areas that we're doing some consumer work now is to better understand what's the right name, what's the right way to talk about it, which of the things that we've pursued, have the broadest appeal and are most compelling, and then that gives us the opportunity, whether it's working it into our television advertising, designing print campaigns, putting it on the menu or even theoretically, we can create things in the lobby, where people could walk in and see it while they're waiting. But it's a great story that's never been told to any of our guests.

Unknown Analyst

[indiscernible] it's about [indiscernible] sizing down the road after you've [indiscernible]

James J. Buettgen

Yes. I guess I'd say that first off, I agree with your second point, which is, first and foremost, our goal is to get Ruby Tuesday same-restaurant sales and guest counts on the right path consistently over time. We'll benefit greatly from that as a company, given the incrementality on the upside, given the fact that we've got plenty of capacity that doesn't require capital to do that. So that's our short-term focus, and that takes a while. In a system of our size, with our tenure, that doesn't happen in 3 to 6 months, right? We going to have to work on that for a bit. That said, I would say, on the margin, we are kind of believers in owning and operating our own restaurants. We feel we can control the experience, it gives us flexibility in terms of making changes. And on the upside, we capture quite a lot of incremental profit if we can do that. That said, once we get that done, that gives us options, right? So right now, even if we did want to refranchise, we don't have a story to tell. So we need to fix the performance of the business, and then once that happens, then we've got options. We could grow by acquiring, we could raise capital by refranchising it. But we're not focused on that at this time yet.

Unknown Analyst

Execution, you've talked about execution [indiscernible]? Talk a little bit about your operating [indiscernible] happened to your morale and so on? And how do you [indiscernible] or what do you think [indiscernible]

James J. Buettgen

Got it. I feel great about the team. They have been through quite a bit, but morale's incredibly strong. The senior talented players in our operation's organization, we've lost almost none. They believe in the concept, they want to bring the concept back to a place where they feel like they're winning, and they're committed to helping us do that. And we're seeing that show up, not only in our multi-units, but if you look at our managers and even our teammates, we continue to see a pretty significant reductions in turnover over time. And I know a lot of concepts saw turnover fall when the economy went south, but most have plateaued and it started to go back in the other direction. We're continuing to see declines, which tells me that they're feeling good about the way they're being treated, and the nature of the work they do, and about the future of the company, because, as everybody here knows, if you work in the restaurant business and you want to be somewhere else, you can be there tonight or tomorrow if you want to. So, to me, that's a good sign that they're committed. The other thing I would say about the operations team is, as I've been out traveling and getting to know more of our hourlies, our managers and our multiunit operators is, they are excited about the direction as much as consumers are excited about the direction, because they remember a time when the brand was more casual, when it was more fun, more approachable, they were having more fun at work, they were making more money, the business was doing better. So they're very supportive of the direction. The other thing that, is it really, it's been a great, positive surprise is, for all the changes in strategy that we've done over time, the culture could've gone in one of 2 directions. It could've gotten kind of tired or worn out by it, or you could've kind of embraced the notion that you can take a challenge and run with it, and our group's in the second camp. They're just waiting for us to come down with changes and improvements and they're ready to go. So I feel great about that. In terms of things that I would say, I need to watch out for, or we want to be careful of as a team, if you look at the period from 2007 and 2008 to now, the AUVs and guest counts have fallen quite a bit. And as you would imagine in response to that, there's been a big focus on labor management and food cost management. And you have to be real careful. There's a fine line between being responsive and going too far and equating cost savings with winning. And I think what the team needs most, and what they're looking for, is a positive sense of direction and some exciting things that are about building guest counts and sales to get behind. So I feel great about our operations team and their willingness and their commitment to execute against what we're trying to do right now.

Unknown Analyst

[indiscernible] experienced retail stores, companies sometimes take their rank [indiscernible] their spending called the natural brand position and [indiscernible] This is like a mini [indiscernible] so like what you're saying, yes, we went a little over here, just bringing it back here we'd have to be [indiscernible] Is that just part of the message or [indiscernible]

James J. Buettgen

Yes, it's somewhere in between, because you could argue, going from $2.25 to $1.75 -- I don't know if I'd say disaster, but it's not good, right? We've paid the price for doing that. But we're close enough. We've retained enough of our guests, we still have a vibrant enough franchise that we've got a $1.3 billion business. The sales and guest counts have started to stabilize, and the direction feels really clear. And personally, I am a big believer in using the market and insights in the consumer to validate your judgment. And you can't do that over night, but everything we've done so far leads us to believe that our guests and our employees all believe with -- in the direction we're trying to go. And it feels like a much more natural place for the brand to exist. So it makes me feel great that we're going to be able to get some of those people back. The other thing that, to me is just -- you could argue that, if we were more successful in what we are trying to do, in terms of changing perceptions of the brand, things would've been worse. Because if you look at the footprint of our restaurants and put it up against what we were trying to be, there's not a polished casual brand that I know of that has much more than 200 to maybe 250 units. And we have over 700 locations in half the country. You can't support businesses that high at that high level of density. So as we started to dip down early down this path, we've got tools that are -- in our disposal or at our disposal, to kind of bring people back, whether it's our advertising, whether it's our print ads, or our coupons. The guests who we've lost, and it kind of falls into 2 buckets. We have a core group of guests that still dines with us, and they're still loyal, but they dine with us a lot less than they used to, and the reason is, they're now using us for the occasions that we've told them we're there for, which tends to be more of the couples night out, the nicer dinner, the dinner with a glass of wine. They used to use us for that, but they'd also come in on a Tuesday after the softball game and have a beer and a burger at the bar, but we've kind of told people over time that's not what we're about, so they're not using us. So those people will be the first ones to see the changes, and hopefully that will manifest itself in some added frequency with our current base. But then, we still have the guests who will live within 3 and 5 miles of our restaurants, who are still dining out in casual dining restaurants all around us, but think that we're still trying to be something they weren't comfortable with. And we've got to figure out through changes to our menu, word of mouth, coupons and advertising to let them know that we've got what they want in terms of a Ruby Tuesday experience.

Unknown Analyst

[indiscernible] margin [indiscernible]?

James J. Buettgen

It's huge. If -- as one benchmark along the way. And don't confuse this with a promise as much as a point of view. So we've got a number of things that we look to. In the short term, we all understand that we have some self-induced challenges that we have to overcome. We're in a tough environment, so everybody's wrestling for comps. But in that context, at least to make sure that we are being competitive, whether it's nap track or black box, that we're holding on our own and making a little bit of progress and stealing shares, so kind of the first thing we have to look to. Beyond that, we've got to get to where we're growing at an absolute basis, in terms of same-restaurant sales and overall AUVs. The next hurdle I would throw out is we want to start to see, not only sales increases but same-restaurant guest count increases, because to me, that's the biggest measure of health, there are more people are coming back. But as we start our path down, or our journey down that path, even if we can just get back from 1.7 to 1 -- 1.75 to 1.85, that alone adds about $30 million of incremental EBITDA to our business -- so looking at every 100 is a pretty big notch, and we're starting off at admittedly a pretty low base, but there is a lot of leverage on the upside, if we can get a little bit of traction on the guest count and sales.

Unknown Analyst

[indiscernible] fraction could be, which [indiscernible] talk about [indiscernible]?

James J. Buettgen

It's kind of the big 7 plus. It's the people you would think. And when we ask -- one of the things that's changed over time is, it used to be, if you'd go back 6 or 7 years and ask guests if you weren't going to dine at Ruby Tuesday tonight, where else would you have gone? All you would here was the other bar and grill competitors. We are clearly seen as one of those brands. When we ask that same question today, we still get some of that, because if nothing else, by the sheer size of those players, but we also have almost as many people who say if it wasn't Ruby Tuesday tonight, it would've been one of the specialty dinner houses, whether that's Red Lobster, Outback, Olive Garden, LongHorn. We're sourcing from all those people, and we have to keep our eye on and be competitive in that context. It looks like it.

David Palmer - UBS Investment Bank, Research Division

Yes, thank you very much, Ruby Tuesday.

James J. Buettgen

No, thank you for having us. We appreciate the chance to get to talk to you and share our story. We're really excited about what we're working on, and look forward to coming back again with a higher AUV to talk about.

David Palmer - UBS Investment Bank, Research Division

Thanks again.

James J. Buettgen

Thank you, again.

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