Ruby Tuesday rolls out changes to drive sales

Nation's Restaurant News, July 21, 2003 by James Peters

MARYVILLE, TENN. -- In a difficult economic and operating environment rife with aggressive growth and media campaigns from larger chains, Ruby Tuesday Inc. is leaving nothing to chance in maintaining its competitive foothold in the grill-and-bar segment.

The company, which operates 440 restaurants and franchises another 217 under its namesake brand, introduced a barrage of measures as well as an advertising test in an aim to drive sales.

Sandy Beall, Ruby Tuesday's chairman and chief executive, said during a quarterly conference call that the chain's new menu, training approach and area supervisor structure "appear to be hitting on all cylinders" and helped boost comparable-store sales in the fourth quarter ended June 3.

In mid-June the company also introduced an advertising test for TV, radio and billboards in about 10 percent of company-owned stores in six markets, senior vice president Rick Johnson said.

Ruby Tuesday's largest competitors, Applebee's Neighborhood Grill & Bar, Chili's Grill & Bar and T.G.I. Friday's, all have a significant TV advertising presence.

Ruby Tuesday, in its push to increase sales, also is on track to roll out its curbside-pick-up to-go service at more than 300 freestanding company-owned units by early September. The rollout entails the outfitting of 194 remaining freestanding units this summer. Franchisees also are on board to implement the strategy, Beall said.

Although industry analysts stated that they believe Ruby Tuesday's numerous sales-building strategies would generate stronger same-store sales growth, the company got off to a rocky start in its first quarter.

While first-quarter same-store sales appeared "to be slightly lower than estimated, there are a number of established sales drivers in place that should build momentum later in the quarter," said Nashville, Tenn.-based analyst Robert Derrington of Morgan Keegan & Co. Inc. in a research note.

Through the first five weeks of the first quarter, Ruby Tuesday said same-store sales at company-owned restaurants were down about 1 percent on a "net" basis and up about 1 percent on a "gross" basis.

The company said it believes the gross comparable-store sales measure provides a more direct comparison to many of its competitors, which primarily use advertising efforts, while Ruby Tuesday uses sales-building efforts, such as coupons. Under generally accepted accounting principles, advertising costs, unlike the costs for sales-building programs, aren't directly charged against sales, the company said.

In the fourth quarter net same-store sales rose 1.7 percent at company-owned Ruby Tuesdays but slipped 0.7 percent at franchised units. On a gross basis they rose 4.5 percent at company stores and 0.9 percent at franchised units.

Beall said a number of factors adversely affected the company's sales in the beginning part of the first quarter, including later year-end dates for many schools in the eastern and northeastern United States to make up for days lost to the harsh winter weather. In addition, the Fourth of July fell on a Friday, "which killed our three-day weekend," Beall said. The company also had comparatively fewer promotional efforts in June compared with the year-ago period.

Ruby Tuesday also said it would take a one-time charge in the range of 60 to 62 1cents per share in its current quarter related to the adoption of a new accounting rule under which the company will consolidate its franchise partnerships into its corporate financial statements. The company expects no additional dilutive impact from the accounting change.

Ruby Tuesday reported a 19percent increase in fourth-quarter earnings to $25.3 million, or 39 cents per diluted share, compared with net income of $21.2 million, or 32 cents per share, in the year-ago quarter. Fourth-quarter revenue increased 14 percent to $246.9 million from $217.5 million a year ago.

Beall said the company's coupon efforts, which are transmitted primarily through direct-mail services, such as Valpak or newspaper inserts, will be more aggressive in the latter part of the first quarter and first half of fiscal 2004 than in the second half.

During the conference call, Bear Stearns & Co. Inc. analyst Joseph Buckley expressed concern that the ramping up of multiple coupon drops could erode the brand's value, but company officials asserted that it was highly unlikely that the same potential customer would receive two different coupons.

The new menu, which Ruby Tuesday rolled out this spring, includes such offerings as Cajun chicken and Buffalo chicken salads. The company also extended its burger selections with the additions of a pepper Jack bacon burger, a garlic mushroom burger and a black and bleu burger, which is seasoned with peppercorns and topped with crumbled bleu cheese.

Ruby Tuesday also added smaller-portioned "shortcake" versions of the company's longstanding chocolate and strawberry "tallcake" desserts, Johnson said.

As a result of the new menu, Ruby Tuesday officials project a 70- to 90-basis-point improvement in cost of sales for fiscal 2004. Savings come from the use of more precut produce, which reduces prep times, Johnson noted. The company also modified some of its recipes to "simplify and minimize the number of steps involved in preparation," he added.