Why Ruby Tuesday Will Never Be Great Again

A Ruby Tuesday casual dining restaurant.
Alamy
Goodbye, Ruby Tuesday (RT) -- if not now, then soon.

Shares of the casual dining chain hit a fresh 52-week low this week after it posted the kind of quarterly results earlier this month that most sensible diners would send back to the kitchen.

Ruby Tuesday's undercooked results included a larger than expected quarterly loss, a confidence-bashing plunge in comparable restaurant sales, and the gall to blame its own malaise on the economy.

Seeing Ruby Red

Restaurant chains don't last forever. Their mortality is well documented. Just try and find a Steak & Ale, Chi-Chi's, or Lum's. In the 1960s, Howard Johnson's was the country's largest operator. Now, all that's left are a couple of renegade HoJo's that refuse to go down.

So Ruby Tuesday certainly won't be the first national chain to go belly up. It may, however, be the next national chain to go belly up.

The chain's latest quarter was a disaster. Comparable restaurant sales plunged 11.4 percent at company-owned locations in its latest quarter. This means that for every dollar that a restaurant rang up in sales last year, it's making less than 89 cents today. Eateries will have their setbacks; there are few out there that can post positive comps consistently. However, it's hard to bounce back from this kind of slide. A double-digit percentage decline isn't a hiccup. It's an exodus.

"The first quarter was challenging as the overall economy failed to realize any significant improvements which adversely affected us and the casual dining industry," the CEO explained in last week's quarterly report, but that's not fair. Where are the other restaurateurs posting 11.4 percent declines at the register?

No, the economy isn't at its best. Yes, casual dining is getting roughed up at the expense of cheaper, faster, and in some cases tastier fast casual operators. However, the factors affecting everyone in your business aren't the ones that really. If you're the slowest zebra in the herd, the lion's going to pick you out for supper.

Pretzel Bread to the Rescue

Menu changes are how a chain typically responds to slumping sales, and Ruby Tuesday isn't any different. It's shifting to emphasizing the value of its offerings, rolling out several new entrees priced between $5.99 and $9.99 apiece.

It also introduced pretzel bread burgers and flatbread in August, but is that really so impressive? Even Wendy's (WEN) has embraced pretzel bread as a premium bun for its burgers and chicken sandwiches.

Ruby Tuesday claims that the new menu tweaks are working -- but it's also forecasting another sharp drop in comps for the current quarter.

Back on Life Support

Ruby Tuesday's been close to the brink of death before. The stock traded below $1 in late 2008 -- and again in early 2009 -- when it seemed as if the financial crisis would crush the weaker restaurant concepts.

Ruby Tuesday's stock eventually bounced back, but the same can't really be said about the concept itself. Last week's larger than expected quarterly deficit has left Wall Street targeting a loss for the entire fiscal year that ends in April. Those same pros see Ruby Tuesday breaking even in fiscal 2015, but you can expect those projections to sour if restaurant-level sales don't turn positive in the springtime as the operator is now forecasting.

If Ruby Tuesday does fade away, it won't happen overnight. There are 778 Ruby Tuesday locations out there, and it's going to take more than one money-losing year to collapse that empire. However, there aren't many chains that have posted double-digit declines in comparable sales, and still managed to come back for seconds.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our newsletter services free for 30 days.

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127 Comments

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leonardo

One big reason they are going belly up is that the food stinks....its all pre-made somewhere else and then assembled in the kitchen....loads of preservatives and salt. I have not been to one in many years. Bye bye Ruby Tuesday !

October 21 2013 at 5:04 AM Report abuse rate up rate down Reply
bd55pack18

Ruby Tueday's started going downhill about 2 yaers ago. They suffered the same fate as other restaurants in my area, due to the slow economy, and closed my local one. So sad too; I really enjoyed the salad bar and the other food there. All things must end...

October 21 2013 at 4:01 AM Report abuse rate up rate down Reply
ROBERT W SELF

When was Ruby Tuesday's ever great?

October 21 2013 at 1:07 AM Report abuse rate up rate down Reply
Stephen

Problem is...there are just too many restaurants, and the cost of going to them increases all the time.

October 21 2013 at 12:22 AM Report abuse rate up rate down Reply
Ron

This kind of story makes the Socialist in office happy! Ever since gas has DOUBLED and stayed there for 5+ years, the economy has shrunk! Since it costs $80 to fill a tank, there went all the extra money we used to spend at stores! Don't believe me? Google Gas Price, Dec 2008, CNN and see that gas WAS $1.65 just before the clown took office! I am not laughing!!!

October 20 2013 at 5:57 PM Report abuse +3 rate up rate down Reply
1 reply to Ron's comment
james

Clown.. your being to nice to Him...Idiot.....

October 20 2013 at 11:55 PM Report abuse rate up rate down Reply
lah27282

They aren't the worst, but I have known people who worked there. They say that most everything is cooked in the mircowave.

October 20 2013 at 5:35 PM Report abuse rate up rate down Reply
CHARLES BENNETT

hi whomever

October 20 2013 at 5:31 PM Report abuse rate up rate down Reply
shoppermar

I don't really like any chain restaurants and try to avoid them as much as possible. What annoys me the most is when they open in resort areas or other sites of interest. For example in the 70s we went to Gatlinberg, TN which was a beautiful town in the foothills of the Great Smoky Mts. When we went back again in the 90s it was unrecognizable because of all the chains that had been built up in the area, McDonalds, Wendys, Burger King, Olive Garden, Dennys, etc. You could hardly see the mountains from the road. When I travel, I want local food. I don't want the same stuff I can get at home if I choose to patronize a chain (which I rarely do), but local restaurants seem to be few and far between these days.

October 20 2013 at 4:17 PM Report abuse +1 rate up rate down Reply
Rock Ranger

I hope this doesn't end up being a repeat. . .

Ruby Tuesday did two things that caused me to hesitate returning and one thing locally that made me refuse to return.

That redo. Changed the décor from interesting to bland neo-Mod and boring. Revisiting the 60s style is a re-run of the truly bizarre. Why the increase in prescription drug abuse back then? Goofy surroundings.
The severely truncated salad bar. From a great variety of offerings to a mundane few, Tuesday isn't saving money; just looking like all the others who merely think they have a salad bar.
Locally? Fenton's Ruby Tue has managed to provide me food borne illness twice in just a few weeks. Once--maybe a careless "didn't wash my hands" patron. Twice--a lazy, incompetent employee who disregards hygiene.
Ruby Tuesday: if it wasn't broke, why did you try to fix it? Now that the repair has failed, do you have any idea how to turn back the clock? And, no, 88 mph in a DeLorean with a Flux Capacitor won't do it.

Chi Chis? Used to be one of my favorite Mexican restaurants. Went to the one in South Bend many times while in grad school. Years later, found one in Midland, MI. Turns out this was just before the entire chain closed.

And these charming employees decided not to serve out their last with honor and pride, but with contempt and hostility. My enchiladas had a thin, barely present layer of ingredients in each mostly hollow tube of corn tortilla. My rice had been spread out so it was just one kernel thick. My refried beans also one bean thick. Can't remember what my wife had and how the cook had been creatively passive-aggressive with her meal. But I do remember noting waitstaff, bus boys and others hovering about the periphery of the restaurant observing us. And there were no other patrons.
I had considered engaging the manager, or whoever was serving in that capacity that day, in a dialogue expressing my surprise and dissatisfaction. But I thought better of it as most likely being counter-productive and futile. At the time I realized there was some large issue about and later learning of the chain's demise, my suspicions were confirmed.
The upshot? I tell everyone I know of this experience when opportunity presents. I use it in workshops on the inappropriate managing of emotions and being passive aggressive.
Oh, and I will never purchase salsa, tortillas or anything in the grocery store labeled Chi Chis. Those handful of employees failed to understand honor and integrity and how they poorly represented a corporation that day.

October 20 2013 at 2:08 PM Report abuse rate up rate down Reply
mccglf

Never be great AGAIN?

The food is terrible. Always has been.

October 20 2013 at 11:10 AM Report abuse +1 rate up rate down Reply