Ruby Tuesday, Inc. (NYSE:RT), the casual dining restaurant operator, recently reported better-than-expected third-quarter 2010 results. Despite a low single-digit decline in the top-line, the company was able to post mid-teens growth in the bottom-line on the heels of effective cost management and improved margins.
The quarterly earnings of 30 cents a share surpassed the Zacks Consensus Estimate of 23 cents, and rose 15.4% from 26 cents delivered in the prior-year quarter. Management now expects fiscal 2010 earnings between 60 cents and 65 cents that dovetail with the current Zacks Consensus Estimate of 63 cents a share.
On a reported basis, including one-time items, quarterly earnings came in at 28 cents a share, reflecting a three-fold increase compared to the year-ago quarterly earnings of 9 cents.
The restaurant level operating margin expanded 70 basis points (bps) year-over-year to 19.5% (as a percentage of company-operated restaurant sales), reflecting a 30 bps drop in payroll and related costs to 32.7% and a 20 bps fall in other restaurant operating costs to 19.4%. Cost of merchandise remained flat at 28.5%.
However, for fiscal 2010, management expects restaurant operating margin to decline by 25 to 50 bps.
Total revenue for the quarter tumbled 3.2% to $307.3 million due to fewer restaurants (12 less) in operations and fall in comparable-store sales. Restaurant sales dropped 3% to $305.6 million, whereas franchise revenue plunged 32.6% to $1.6 million.
Ruby Tuesday has been witnessing improving trends in comparable-store sales and traffic at company-operated restaurants. After falling 3.1% and 1.7% in the first and second quarters of 2010, respectively, comparable-store sales dropped 0.7% in the third quarter.
Adverse weather conditions in many of Ruby Tuesday’s core markets have lowered comparable-store sales by 1.5% to 2%. For fiscal 2010, the company now expects comparable-store sales at company-operated restaurants to decline by 1% to 2%.
Comparable-store sales at domestic franchised restaurants fell 5.3%.
During the quarter, no new company-owned restaurants were opened, but 11 restaurants were closed down. On the other hand, one franchise restaurant was opened and three were closed down.
Looking ahead, management stated that it will not open new company-owned restaurants during fiscal 2010 and will go ahead with the closure of 14 restaurants as part of a plan to close 30 restaurants over time as and when lease expires. Domestic franchisees expect to open 2 to 3 restaurants, and international franchisees plan to open 3 to 5 restaurants in the year.
Ruby Tuesday operates and franchises casual dining restaurants in 46 states, the District of Columbia, Guam, and 14 foreign countries, under the Ruby Tuesday brand. As of March 2, 2010, the company owned and operated 659 of its namesake restaurants, whereas domestic and international franchisees operated 168 and 57 restaurants, respectively.