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Ruby Tuesday, Inc. Reports Second Quarter Results, Including an Adjustment of Accounting for Leases, and Announces Semi-Annual Dividend

01/05/2005

MARYVILLE, Tenn.--(BUSINESS WIRE)--Jan. 5, 2005--Ruby Tuesday, Inc. (NYSE: RI) today reported results for its second quarter of fiscal year 2005. Diluted earnings per share decreased 30.3% to $0.23, which included a one-time non-cash charge of $4.8 million (or $0.07 per diluted share) for an adjustment related to accounting for leases and subleases. Excluding the one-time charge, diluted earnings per share was $0.30. Same-store sales at Company-owned Ruby Tuesday restaurants decreased 8.6% as compared to an increase of 3.9% during the second quarter of the prior year. Same-store sales at domestic franchise Ruby Tuesday restaurants decreased 5.1% during the quarter. Average unit volumes at Company-owned restaurants decreased 9.1% during the second quarter as compared to a 4.3% increase during the same quarter of the prior year. The Company's Board of Directors declared a semi-annual cash dividend of $0.0225 per share, payable on February 4, 2005 to shareholders of record at the close of business on January 21, 2005.

Sandy Beall, the Company's Chairman and CEO commented, "Three things affected our sales performance during the quarter. First, we estimate Company-owned same-store sales were negatively impacted 4.5-5.0% as a result of minimal couponing this year as we transition towards a television driven marketing strategy. Secondly, the higher oil prices and weaker economy in general impacted our middle income consumer base. Lastly, we made some menu portion decisions, which were a mistake. We have adjusted the portion issues in our menu and will be much more aggressive in food oriented television ads with our upcoming January ads focusing on delivering a greater call to action. We are extremely focused on operations and are excited about our January menu, which has some exciting new items and enhanced presentations, plateware, portions, and value.

While we are certainly not pleased with our most recent performance, we do believe we have the right plans and strategies in place to improve sales and profits. We are investing more in our business through food and operations as well as advertising to create trial and increase the frequency of our existing guests. We are confident our teams are committed to improved performance as total management turnover for the quarter was lower than it has been in several years and team morale is good. We are focused on improving sales as we are challenged with overlapping our previous ValPak coupon strategy over the next couple of quarters. We remain focused on strategies and plans we believe will return our same-store sales to the 2.0-3.0% growth levels of the past and create long-term value."

Based on the review of the Company's accounting policies and upon consultation with its independent registered public accounting firm, KPMG LLP, the Company is adjusting its computation of straight line rent expense and accounting for subleases. As a result, the Company's second quarter results include a one-time charge of $7.5 million ($4.8 million after-tax). The adjustment of the Company's straight-line rent expense is similar to recent announcements made by other KPMG client restaurant companies except for the fact that, unlike the others, due to the immaterial effect on the Company's financial statements, the adjustment was recorded in the current year as opposed to the Company restating prior periods.

Prior to June 2003, the Company had accounted for leases with renewal options by recording rent expense on a straight-line basis over the original lease term. The buildings, leasehold improvements, and other long-lived assets associated with these properties were depreciated over their expected useful lives, which, in some cases, included only the original lease term and, in other cases, included one or more of the option periods. For leases entered into since June 2003, the Company has recognized rent expense on a straight-line basis over a term, which includes option periods not to exceed the same as that used to depreciate the buildings, leasehold improvements, and other long-lived assets.

Second quarter fiscal 2005 financial statements reflect the cumulative impact to recognize rent expense on a straight-line basis over the same term as the useful life assigned to the buildings, leasehold improvements, and other long-lived assets as the Company has done since June, 2003. This adjustment will have only a modest impact (less than $0.01) on annual earnings per share going forward and has no impact on the Company's cash flows, sales or same-store sales for any prior period, or compliance with any covenant under any debt instruments.

The Company also evaluated the accounting for its subleases and determined that in those cases where the Company sold units to others, but remained primarily obligated on the original leases, the Company should have continued to account for the deferred rent liability on its books and record a receivable for the straight-lined remaining rent due from the sublessees.

The effect from these transactions, which is reflected in the attached financial statements, is as follows: increase in rent expense - $7.5 million, decrease in income tax expense - $2.8 million, increase in rent receivable - $2.4 million, increase in deferred rent liability - $9.9 million, and decrease in deferred tax liability - $2.9 million. See Schedule A for the reconciling income statement for the 13 week period ending November 30, 2004 and balance sheet as of November 30, 2004 for a reconciliation of these transactions. The adjustment is anticipated to have basically no impact on third and fourth quarter fiscal 2005 earnings.

Fiscal 2005 Guidance

Same-store sales at Company-owned restaurants were down 5.2% for the first five weeks of the Company's third quarter. Same-store sales at domestic franchise Ruby Tuesday restaurants were down 4.7% during the same period. Based on the Company's plans to spend an additional $3 to $4 million in advertising during the fiscal year and taking into consideration the estimated $0.07 impact on fiscal 2005 resulting from the one-time cumulative entry to adjust the Company's accounting for leases and subleases, the Company expects fiscal 2005 diluted earnings per share of approximately $1.53 with third quarter diluted earnings per share in the $0.38 to $0.41 range and fourth quarter diluted earnings per share in the $0.42 to $0.47 range. Excluding the one-time charge of $0.07 per diluted share, the Company expects fiscal 2005 diluted earnings per share of approximately $1.60.

The Company anticipates approximately 55 Company-owned restaurant openings during fiscal 2005, and anticipates its franchisees (including both domestic and international) will open approximately 35 Ruby Tuesday restaurants during the same period.

Commenting on the remainder of fiscal 2005, Sandy Beall stated, "We are investing in the business and making decisions to continue creating shareholder value. We have another three quarters ahead of us where we will be facing the negative same-store sales effect of reduced coupon usage. However, with the initiatives we have in place including increased advertising and a new menu in January, we anticipate the negative impact will lessen throughout the next three quarters. Costs have typically not been an issue for us. The sales line is the biggest variable in our model and that is what we are intensely focused on."

    Additional Second Quarter Highlights:

    --  Sales at franchise (including franchise partnership and
        traditional franchise) Ruby Tuesday restaurants totaled
        $94,817,000 for the second quarter. These sales are the basis
        for determining royalty fees included in franchise income on
        the Company's income statement.

    --  Eighteen Company-owned Ruby Tuesday restaurants were opened
        and none were closed.

    --  The Company purchased the remaining equity interests of three
        franchise partnerships in which the Company previously had
        partial equity ownership. These businesses together operated
        35 Ruby Tuesday restaurants in Florida, New York and
        California.

    --  Six franchise restaurants were opened and two were closed.

    --  The Company repurchased 873,000 shares of its common stock.
        Under the Company's ongoing share repurchase program, 2.1
        million shares remain authorized for repurchase.

    Year-to-Date Highlights:

    --  Sales at franchise partnership and traditional franchise Ruby
        Tuesday restaurants (which is the basis for determining
        royalty fees included in franchise income on the Company's
        income statement) totaled $218,655,000 and $206,956,000 for
        the second quarter year-to-date of fiscal 2005 and fiscal
        2004, respectively.

    --  Twenty-six Company-owned Ruby Tuesday restaurants were opened
        and one was closed due to normal lease expiration. As
        previously mentioned, 35 Ruby Tuesday restaurants were
        acquired from franchisees.

    --  Nine franchise restaurants were opened and four were closed,
        two of which were due to lease expirations.

    --  The Company has repurchased 1.7 million shares of its common
        stock during fiscal 2005.

Ruby Tuesday, Inc. has Company-owned, and/or franchise Ruby Tuesday brand restaurants in 42 states, the District of Columbia, Puerto Rico, and 12 foreign countries. As of November 30, 2004, the Company owned and operated 544 Ruby Tuesday restaurants, while domestic and international franchisees operated 186 and 36 (including Hawaii) locations, respectively. Ruby Tuesday, Inc. is traded on the New York Stock Exchange (Symbol: RI).

The Company will host a conference call which will be a live web-cast tomorrow morning at 8:30 Eastern Time. The call will be available live at the following websites:

    http://www.fulldisclosure.com
    http://www.rubytuesday.com

    Special Note Regarding Forward-Looking Information

This press release contains various "forward-looking statements," which represent the Company's expectations or beliefs concerning future events, including one or more of the following: future financial performance and unit growth (both Company-owned and franchised), future capital expenditures, future borrowings and repayment of debt, payment of dividends, stock repurchase, and restaurant acquisitions. The Company cautions that a number of important factors and uncertainties could, individually or in the aggregate, cause actual results to differ materially from those included in the forward-looking statements, including, without limitation, the following: changes in promotional, couponing and advertising strategies; guests' acceptance of changes in menu items; changes in our guests' disposable income; consumer spending trends and habits; mall-traffic trends; increased competition in the casual dining restaurant market; weather conditions in the regions in which Company-owned and franchised restaurants are operated; guests' acceptance of our development prototypes; laws and regulations affecting labor and employee benefit costs; costs and availability of food and beverage inventory; the Company's ability to attract qualified managers, franchisees and team members; changes in the availability of capital; impact of adoption of new accounting standards; effects of actual or threatened terrorist attacks in the United States; and general economic conditions.

RUBY TUESDAY, INC.

Financial Results For the Second Quarter of Fiscal Year 2005
(Amounts in thousands except per share amounts)


                     13 Weeks            13 Weeks
                       Ended     Percent   Ended     Percent
                    November 30,   of    December 2,    of     Percent
                        2004      Sales     2003      Sales    Change
                    -------------------- -------------------- --------
Revenue:
 Restaurant sales
  and operating
  revenue           $   254,664    98.6  $   240,966    98.4
 Franchise revenue        3,554     1.4        4,038     1.6
                    -----------          -----------
   Total operating
    revenue             258,218   100.0      245,004   100.0      5.4

Operating Costs and
 Expenses:
 (as a percent of
  Restaurant sales
  and operating
  revenue)
   Cost of
    merchandise          66,708    26.2       62,255    25.8
   Payroll and
    related costs        81,089    31.8       77,890    32.3
   Other restaurant
    operating costs      52,532    20.6       41,368    17.2
   Depreciation and
    amortization         16,047     6.3       13,315     5.5
 (as a percent of
  Total operating
  revenue)
   Selling, general
    and
    administrative,
    net                  17,701     6.9       15,036     6.1
   Equity in losses
    (earnings) of
    unconsolidated
    franchises              219     0.1         (198)   (0.1)
                    -----------          -----------
Total operating
 costs and expenses     234,296              209,666
                    -----------          -----------

Earnings before
 Interest and Taxes      23,922     9.3       35,338    14.4    (32.3)

 Interest expense,
  net                     1,167     0.5        1,165     0.5
                    -----------          -----------

Pre-tax Profit           22,755     8.8       34,173    13.9

 Provision for
  income taxes            7,640     3.0       12,131     5.0
                    -----------          -----------

Net Income          $    15,115     5.9  $    22,042     9.0    (31.4)
                    ===========          ===========


Earnings Per Share:
Basic               $      0.23          $      0.34            (32.4)
                    ===========          ===========
Diluted             $      0.23          $      0.33            (30.3)
                    ===========          ===========

Shares:
Basic                    64,603               65,243
                    ===========          ===========
Diluted                  65,636               66,884
                    ===========          ===========



                     26 Weeks             26 Weeks
                       Ended     Percent    Ended     Percent
                    November 30,   of    December 2,    of     Percent
                        2004      Sales      2003      Sales   Change
                    -------------------- -------------------- --------
Revenue:
 Restaurant sales
  and operating
  revenue           $   517,518    98.4  $   486,740    98.4
 Franchise revenue        8,223     1.6        8,116     1.6
                    -----------          -----------
   Total operating
    revenue             525,741   100.0      494,856   100.0      6.2

Operating Costs and
 Expenses:
 (as a percent of
  Restaurant sales
  and operating
  revenue)
   Cost of
    merchandise         134,043    25.9      125,596    25.8
   Payroll and
    related costs       161,192    31.1      155,578    32.0
   Other restaurant
    operating costs      98,761    19.1       82,822    17.0
   Depreciation and
    amortization         30,679     5.9       26,202     5.4
 (as a percent of
  Total operating
  revenue)
   Selling, general
    and
    administrative,
    net                  32,529     6.2       31,116     6.3
   Equity in losses
    (earnings) of
    unconsolidated
    franchises           (1,545)   (0.3)      (1,269)   (0.3)
                    -----------          -----------
Total operating
 costs and expenses     455,659              420,045
                    -----------          -----------

Earnings before
 Interest and Taxes      70,082    13.3       74,811    15.1     (6.3)

 Interest expense,
  net                     1,759     0.3        2,515     0.5
                    -----------          -----------

Pre-tax Profit           68,323    13.0       72,296    14.6

 Provision for
  income taxes           23,954     4.6       25,741     5.2
                    -----------          -----------

Net Income          $    44,369     8.4  $    46,555     9.4     (4.7)
                    ===========          ===========


Earnings Per Share:
Basic               $      0.68          $      0.72             (5.6)
                    ===========          ===========
Diluted             $      0.67          $      0.70             (4.3)
                    ===========          ===========

Shares:
Basic                    64,923               65,026
                    ===========          ===========
Diluted                  66,081               66,527
                    ===========          ===========


RUBY TUESDAY, INC.

Financial Results For the Second Quarter
of Fiscal Year 2005
(Amounts in thousands)

                                            November 30,    June 1,
CONDENSED BALANCE SHEETS                        2004         2004
------------------------------------        ------------ -------------
Assets
   Cash and Short-Term Investments               $6,668       $19,485
   Accounts and Notes Receivable                  9,108         9,978
   Inventories                                   16,466        13,647
   Deferred Income Taxes                          1,087         1,975
   Income Tax Receivable                          6,834         2,941
   Prepaid Rent                                   2,444         2,173
   Assets Held for Disposal                       3,944         3,030
   Other Current Assets                           7,498         6,450
                                            ------------ -------------

     Total Current Assets                        54,049        59,679

   Property and Equipment, Net                  829,200       753,319
   Goodwill, Net                                 12,559         7,845
   Notes Receivable, Net                         29,719        33,366
   Other Assets                                  66,135        64,324
                                            ------------ -------------

     Total Assets                              $991,662      $918,533
                                            ============ =============

Liabilities
   Current Liabilities                          $82,323       $90,542
   Long-Term Debt, including Capital
    Leases                                      239,264       168,087
   Deferred Income Taxes                         47,003        51,310
   Other Deferred Liabilities                    94,574        81,810
                                            ------------ -------------

     Total Liabilities                          463,164       391,749

Shareholders' Equity                            528,498       526,784
                                            ------------ -------------

     Total Liabilities and
       Shareholders' Equity                    $991,662      $918,533
                                            ============ =============


                              Schedule A

The attached reconciling Balance Sheet as of November 30, 2004 and reconciling Income Statement for the 13-week period ending November 30, 2004 have been prepared in order to assist the Company's shareholders and the investment community in understanding the effects of accounting entries made in conjunction with the Company's adjustments related to accounting for leases and subleases. Several other companies in the restaurant industry have restated prior financial statements in conjunction with similar adjustments. However, due to the immaterial impact on the Company's financial statements, the Company recorded the adjustments in the second quarter of the current fiscal year as opposed to restating prior financial statements. Although the attached reconciling financial statements contain non-GAAP financial measures, where an adjustment was made or where a number was derived from an adjusted number, the Company believes they will provide its shareholders, as well as the investment community, with a clear understanding of the effect of the adjustments on the Company's financial position and results. The "As Reported" numbers are reported in accordance with GAAP.

RUBY TUESDAY, INC.

Reconciling Income Statement
For the Second Quarter of Fiscal Year 2005
(Amounts in thousands except per share amounts)


                                 13 Weeks Ended November 30, 2004
                             Prior to
                          Adjustment for  Adjustments
                              Lease        for Lease
                            Accounting     Accounting   As Reported
                         ---------------------------------------------

Revenue:
 Restaurant sales and
  operating revenue      $254,664   98.6%             $254,664   98.6%
 Franchise revenue          3,554    1.4%                3,554    1.4%
                         --------         ----------- --------
   Total operating
    revenue               258,218  100.0%              258,218  100.0%

Operating Costs and
 Expenses:
 (as a percent of
  Restaurant sales and
  operating revenue)
    Cost of merchandise    66,708   26.2%               66,708   26.2%
    Payroll and related
     costs                 81,089   31.8%               81,089   31.8%
    Other restaurant
     operating costs       44,990   17.7%   $  7,542    52,532   20.6%
    Depreciation and
     amortization          16,047    6.3%               16,047    6.3%
 (as a percent of Total
  operating revenue)
    Selling, general
     and
     administrative,
     net                   17,701    6.9%               17,701    6.9%
    Equity in losses
     (earnings) of
     unconsolidated
     franchises               219    0.1%                  219    0.1%
                         --------         ----------- --------
Total operating costs
 and expenses             226,754              7,542   234,296
                         --------         ----------- --------

Earnings before
 Interest and Taxes        31,464   12.2%     (7,542)   23,922    9.3%

 Interest expense, net      1,167    0.5%                1,167    0.5%
                         --------         ----------- --------

Pre-tax Profit             30,297   11.7%     (7,542)   22,755    8.8%

 Provision for income
  taxes                    10,409    4.0%     (2,769)    7,640    3.0%
                         --------         ----------- --------

Net Income               $ 19,888    7.7%   $ (4,773) $ 15,115    5.9%
                         ========         =========== ========


Earnings Per Share:
Basic                    $   0.30             ($0.07) $   0.23
                         ========         =========== ========
Diluted                  $   0.30             ($0.07) $   0.23
                         ========         =========== ========

Shares:
Basic                      64,603             64,603    64,603
                         ========         =========== ========
Diluted                    65,636             65,636    65,636
                         ========         =========== ========


RUBY TUESDAY, INC.

Reconciling Balance Sheet For the Second Quarter
of Fiscal Year 2005
(Amounts in thousands)

                                            November 30, 2004
                                     Prior to
                                    Adjustment  Adjustments
                                    for Lease    for Lease      As
CONDENSED BALANCE SHEETS            Accounting  Accounting   Reported
--------------------------------    ----------  ----------   ---------
Assets
   Cash and Short-Term
    Investments                      $  6,668                $  6,668
   Accounts and Notes Receivable        8,971    $    137       9,108
   Inventories                         16,466                  16,466
   Deferred Income Taxes                  862         225       1,087
   Income Tax Receivable                6,989        (155)      6,834
   Prepaid Rent                         2,444                   2,444
   Assets Held for Disposal             3,944                   3,944
   Other Current Assets                 7,498                   7,498
                                    ----------  ----------   ---------
     Total Current Assets              53,842         207      54,049

   Property and Equipment, Net        829,200                 829,200
   Goodwill, Net                       12,559                  12,559
   Notes Receivable, Net               29,719                  29,719
   Other Assets                        63,921       2,214      66,135
                                    ----------  ----------   ---------

     Total Assets                    $989,241    $  2,421    $991,662
                                    ==========  ==========   =========

Liabilities
   Current Liabilities               $ 81,619    $    704    $ 82,323
   Long-Term Debt, including
    Capital Leases                    239,264                 239,264
   Deferred Income Taxes               49,702      (2,699)     47,003
   Other Deferred Liabilities          85,385       9,189      94,574
                                    ----------  ----------   ---------

     Total Liabilities                455,970       7,194     463,164

Shareholders' Equity                  533,271      (4,773)    528,498
                                    ----------  ----------   ---------

     Total Liabilities and
       Shareholders' Equity          $989,241    $  2,421    $991,662
                                    ==========  ==========   =========

    CONTACT: Ruby Tuesday, Inc., Maryville
             Price Cooper, 865-379-5700

    SOURCE: Ruby Tuesday, Inc.