Sunday's drive back from Christmas in western Pennsylvania provided a somewhat rare opportunity to give struggling casual dining name Ruby Tuesday (RT) another try. The rarity stems from the fact that it is sometimes difficult to get my family to agree on a chain restaurant, given our varied tastes.
While I've followed the name on and off (and owned it a time or two) for a number of years, it had been several since I'd stopped in for a meal. Ruby Tuesday has been a potential turnaround for several years, but still has not been able to get back on track. The company nearly imploded in 2008 due to the combination of debt, general market conditions, and inability to differentiate itself from all of the other casual dining chains.
While it has survived, it certainly has not prospered. Several menu changes, store redesigns and failed forays into other dining concepts, it just can't seem to turn the corner. Indeed, the deck may be stacked against Ruby Tuesday, as restaurant turn-arounds are quite rare. Denny's (DENN) did it, arguably against much stiffer odds. Domino's Pizza (DPZ) did it, with one of the greatest advertising campaigns the industry has ever seen. Red Robin (RRGB) did it, with involvement from activists. Ruby Tuesday, however, continues to muddle along in casual dining purgatory.
When I suggested that we have lunch there yesterday, all of our teenage children said "what's Ruby Tuesday"? The answer, "it's like Applebee's, or T.G.I Friday's", reveals a great deal. There is simply little brand recognition, and the casual dining space is incredibly crowded and competitive. That's a shame, too, because the food, everyone agreed, was really quite good. The salad bar was very fresh, the burger and fries among the best I've had recently at similar chains. Granted, that was just one location, so I may have to hit another location or two.
From a fundamental perspective, Ruby Tuesday is a "tale of two companies". It has not turned an annual profit since 2011, and broke even in 2012. Revenue has fallen for several years,and the stock currently trades at 2009 levels. However, the balance sheet has improved over the years. Total debt currently stands at $232 million, down from $600 million in 2008. The next large debt maturity is not until 2020 ($217 million). The company also has $57 million in cash, or just under $1 per share.
In addition, the company is real estate rich, owning the land and building for 303 locations and building only for another 257. This potentially presents the company with opportunity to monetize some locations, as Denny's and Cracker Barrel (to a lesser extent) have done. Or it may ultimately make it attractive to be taken private, or acquired by another chain looking to somewhat cheaply expand its footprint. Ruby Tuesday's current enterprise value is just $520 million.
Of course, in order for it to survive and prosper on its own, it needs to put customers in the seats. It needs to differentiate itself from other casual dining chains, which it has failed to do, despite many attempts. At this point, perhaps the best suggestion begins with a name change. Out with the old and in with the new. You've got to grab customers' attention. Have a contest to rename the company. Give away free food for life to the winner. Have some kind of gimmick that will grab attention.
Denny's did it several years ago, with two Super Bowl advertising campaigns that gave away free breakfasts to customers willing to show up. Domino's did it by admitting in commercials that its pizza recipe had grown stale, and changed the formula. Red Robin has endless French fries.
Truthfully, I am not sure Ruby Tuesday can turn it around. I was impressed by the food, and intrigued by the stock from a deep value perspective. But I've also been to this rodeo before.
