Friday was an up day for the broad markets, but that was not the case for small- and micro-caps, which were down slightly, with the Russell 2000 and Russell Microcap Indexes down 0.3% and 0.5%, respectively. However, those declines tell only part of the story, as some lower-quality value names suffered greater punishment.
It was a particularly bad day for struggling casual dining name Ruby Tuesday (RT) , which I offered up as my Best Idea name for 2017. Shares fell nearly 25%, on a terrible second-quarter earnings report that showed little if any progress as the company attempts to turn the corner. Revenue was down 17.7%, though that included a reduction of 109 stores. However, same-store sales fell 4.1%, which is terrible, considering that the company lopped off its underperforming stores.
While the rollout of the company's "Fresh New Menu" just occurred in mid-November and the quarter ended at the end of November, giving little time for the initiative to impact results, I am not holding my breath with the belief that it's the answer to the company's woes. One positive is that this new menu eliminated about 30% of the items from the previous menu, but they've still got to put customers in the seats.
Doubling down on trying to revamp the company's image without changing the name, as it should be doing, RT also will be rolling out another major change, its Fresh New Garden Bar, at all stores on Jan. 17. According to the company, the launch will be supported by a TV, online-video and social media advertising campaign. Again, I wish management all the success in the world, but can't believe that this is the magic bullet to solve the company's woes. We've been to this rodeo before.
Cash dropped by $30 million to $38.7 million -- not all that surprising given the costs of store closings as well as the new initiatives. However, the company expects to raise $45 million to $50 million from the sale of 34 company-owned properties that it recently closed. That's up from previous expectations of $35 million to $45 million. That's a positive sign in my view, given my thesis that a lot of this company's value is locked within its real estate. However, this company needs some good news on the operating front in order to propel shares higher.
RT now trades at 0.48x tangible book value per share, which would seem even cheaper had it not been due to a 25% haircut in stock price on Friday, and 12% reduction in tangible book value from the first quarter to the second quarter.
In what was not a great day for some (but not all) restaurant stocks, Bob Evans (BOBE) also had a rough day, down 3.3%. Shares have been strong since July, up about 40% on renewed speculation that the company will separate its restaurant and prepared food businesses. After hitting the $55 level, shares have pulled back about 9% in the past month.
Boating retailer West Marine (WMAR) gave back 3.1%. After eclipsing the $11 mark in late December, shares have pulled back about 13%, and now trade at just 1.08x net current asset value. Shares are still up 25% since early November.
Some lower-quality names, after rallying post-election, are now giving back some of those gains as the markets attempt to digest the path from here.