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Thursday, January 15, 2009

Ruby Tuesday's Loss Widens in Dim Sign for Restaurants

As posted by: Wall Street Journal

In a sign that restaurant sales won't rebound anytime soon, the chief executive of Ruby Tuesday Inc. offered a bleak outlook for the next several months as the company posted a wider loss and said same-store sales in its fiscal second quarter fell sharply.

The results show how consumers are cutting back on eating out during the recession despite the discounts and freebies restaurants are offering. Analysts expect that chains will have to close more locations to survive what is looking like another difficult year.

Ruby Tuesday expects same-store sales will drop 9% to 10% for the fiscal year ending June 2. Above, a Times Square branch in New York

Investors recently have hoped that the worst times were behind restaurant chains. From Dec. 1 through Wednesday, the Dow Jones Wilshire U.S. Restaurants and Bars Index has risen 16.8%, while the Dow Jones Wilshire 5000 Index has risen 12.4%.

But Ruby Tuesday's results indicate that 2009 may not be the year that restaurants rebound from a more than two-year downturn. For the quarter ended Dec. 2, Ruby Tuesday reported a loss of $37.4 million, or 73 cents a share, compared with a year-earlier loss of $10.4 million, or 20 cents a share. Same-store sales fell 11%. Revenue declined 9.7% to $289.8 million.

Sandy Beall, Ruby Tuesday's founder and chief executive, said that fiscal 2009 is the most difficult year since the company's founding 37 years ago. The company expects same-store sales will worsen, declining 9% to 10% for the fiscal year.

While most large restaurant chains are struggling, Ruby Tuesday has had a particularly difficult time. Since 2007, the company has invested heavily in a brand overhaul to make its food and atmosphere more contemporary, but the effort hasn't reversed the slide in same-store sales.

During the past year, its shares have fallen 82%. The Maryville, Tenn., company's shares were down 9.2% to $1.49 in 4 p.m. New York Stock Exchange composite trading Wednesday, before the company released its quarterly results. Investors' main concern has been that the company has a lot of debt and declining profitability, said Howard Penney, an analyst at Research Edge LLC.

Ruby Tuesday plans to close 40 locations early this year and will close an additional 30 restaurants over the next several years. The company said Wednesday that it has reduced its costs by an estimated $40 million to $45 million annually and is paying down its debt.