Struggling casual-dining name Ruby Tuesday (RT) is launching a six-week burger "road show" on Sept. 18 -- which happens to be National Cheeseburger Day -- that will feature regional burger favorites, along with endless fries. The "endless-fries" concept, pioneered by Red Robin Gourmet Burgers (RRGB) , brings to mind something else that has been endless concerning Ruby Tuesday -- heartache suffered by the company's shareholders.
If restaurant chains, like cats, had nine lives Ruby Tuesday is probably already on life number five or six. The stock is down about 50% year to date, and the blows keep coming. On Wednesday, the company reported that preliminary fiscal first-quarter results would be worse than expected, with same-store sales in the $257 million area, below the $263 million consensus, and a loss per share of $0.10-$0.12, much worse that the consensus $0.01 loss forecast.
The bigger news, however, was the "resignation" of CEO James Buettgen, a move that was at the board of directors' request. This comes on the heels of last month's closure of 95 "underperforming" restaurants. Both moves are a step in the right direction, but won't put customers back in the seats. That will be a tall order, if it's even possible, under the current management and board of directors.
A review of the company's 14A filing shows that in 2016, the seven non-employee directors earned total compensation averaging more than $185,000 each, and I doubt there are many shareholders who believe that we got our money's worth. Now-former CEO Buettgen was set to earn $2.347 million in total compensation for the year, and that was down from $3.945 million in 2015.
If there was ever a situation that was begging for an activist investor to engage, this is it. Not because a turnaround of restaurant operations in their current state will be easy, or even possible, but because there are significant company-owned assets, namely real estate, that need to be protected and not squandered as Ruby Tuesday continues to fiddle while Rome burns. Value needs to be maximized for the 300 or so company-owned locations (land and building) and additional 250 building-only sites.
There is not yet a liquidity crisis for Ruby Tuesday, which ended its latest fiscal year (May) with $67 million in cash, but we'll know more when the company reports its final first-quarter numbers in early October. It also has $223 million in debt, the majority of which matures in 2020.
In one of its earlier lives, in 2009, Ruby Tuesday was all but on death's door, burdened by nearly three times its current level of debt. In fact, the company's current enterprise value of $317 million is less than half of what it was during the dark days of 2009. The company did emerge from that period, returned to profitability for a few years, and paid down debt, only to begin another stumble in 2012, from which it has yet to emerge.
The shame for shareholders is that the past several years have been a golden era for restaurant stocks and Ruby Tuesday did not participate in that. It remains lost in the abyss, on its way toward the graveyard of restaurant dinosaurs unless it can somehow get the right people in place with realistic, but bold ideas of how to make it fly.
Someday I'll write the "Tale of Two Tennessee-based Restaurant Chains" based on Ruby Tuesday and Cracker Barrel (CBRL) . The latter has prospered, and did not need the help of activist investor Sardar Biglari of Biglari Holdings (BH) -- in fact, it rejected him at every step, despite a 20% stake in CBRL. The former has been a disaster, needs major changes, and could benefit from the right activist, if there are any willing to take on this mess.