It's Hard to Work Up an Appetite for Most Restaurant Stocks

 | Aug 23, 2017 | 10:00 AM EDT
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yum

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cmg

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dri

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dpz

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bwld

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din

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bjri

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amzn

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It has been a rough year for many restaurant names. You might not know that judging by the year-to-date performance of the Big Five -- McDonald's Corp. (MCD) , up 33%; Yum Brands Inc. (YUM) , up 22%; Chipotle Mexican Grill Inc. (CMG) , down 19%; Darden Restaurants Inc. (DRI) , up 20%; and Domino's Pizza Inc. (DPZ) , up 19% -- which are up an average of 15%. However, there has been plenty of carnage.

Stocks of many midsize names have struggled; among them are DineEquity Inc. (DIN) , down 45%; Cheesecake Factory Inc. (CAKE) , down 29%; Buffalo Wild Wings (BWLD) , down 31%; BJ's Restaurants Inc. (BJRI) , down 19%; and Jack in the Box Inc. (JACK) , down 12%. Meanwhile, the relative newcomers, which have gone public over the past several years, have not shown shareholders much love, either; they include Zoe's Kitchen Inc. (ZOES) , down 45%; Shake Shack Inc. (SHAK) , down 12%; Potbelly Corp. (PBPB) , down 10%, Bojangles Inc. (BOJA) , down 28%; Fiesta Restaurant Group Inc. (FRGI) , down 40%, Chuy's Holdings Inc. (CHUY) , down 37%; and Habit Restaurants Inc. (HABT) , down 23%.

Some of the old guard such as Wendy's Co. (WEN) , up 13%, have done OK year to date. But I cringe at the price of a meal at Wendy's these days, if you venture outside the value menu, that is. However, real-estate rich Luby's Inc. (LUB) , down 38%, can't seem to turn a profit and continues to linger.

Those on the fringe, such as Noodles & Co. (NDLS) , down 6%, and Ruby Tuesday Inc. (RT) , down 35%, are hanging on for dear life. The former was down 58% last year, 63% in 2015 and 27% in 2014 and continues to see its sales slide; it has not had a profitable year since 2014.

Meanwhile, Ruby Tuesday, which I had high hopes for -- not necessarily as a going-concern restaurant business, but rather as a special situation asset play -- continues to move forward, but to what, I do not know. The stock had a nice move yesterday, up 15% after reporting net income excluding one-time items) of six cents a share for the fourth quarter. I'd like to say that was better than expected (it was better than I expected). However there is no consensus here, as no analysts cover the name any longer.

Same-store sales at company-owned restaurants were down 1.6%, which was better than the 3.7% decline for the same period last year. It clearly was an improvement, but it also reflects a net reduction of 103 stores, which presumably included underperformers. Ruby Tuesday has been in property sale mode and has sold 13 locations for $20.1 million, an average of $1.55 million per location.

Ruby Tuesday ended the quarter with about $42 million in cash, $214 million in debt, and owns the land and building for 269 locations. While the company continues to try and tweak everything from the menu to store design and even is doing a delivery pilot with Amazon.com Inc. (AMZN) in eight of its stores, any money to be made from here -- if there's any money to be made from here -- likely would be based on a transaction, whether it's the sale of properties or the company.

Ruby Tuesday's strategic review process, which was announced in March and included the hiring of UBS as its financial adviser, is entering its final stage, according to Monday's earnings call. Interestingly, the company said it has postponed its annual shareholder meeting, originally scheduled for Dec. 6, until Jan. 22, 2018, due to the strategic review. Hmmm......

I am not sure where this is heading, if anywhere. We should know by January. Meanwhile, the stock continues to trade more like an option on company survival, or sale, than like a stock.

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