Ruby Tuesday reports fiscal Q3 net earnings of US$2.2M on sales of US$307.4M, compared with year-ago earnings of US$4.5M on sales of US$320.7M

Nevin Barich

MARYVILLE, Tennessee , April 10, 2013 (press release) – Ruby Tuesday, Inc. (NYSE: RT) today reported financial results for the fiscal third quarter ended March 5, 2013.

Highlights for the third quarter of 2013 include:

Same-restaurant sales decreased 2.8% at Company-owned Ruby Tuesday restaurants and decreased 1.7% at domestic Ruby Tuesday franchise restaurants

Net income from continuing operations of $4.7 million, or $6.3 million excluding special items (see non-GAAP reconciliation below). This compares to the prior-year net income from continuing operations of $6.9 million, or $13.9 million excluding special items. Since the Marlin & Ray’s, Truffles Grill, and Wok Hay concepts met the accounting definition of discontinued operations in the quarter, their current and historical results are presented separately within our Statements of Operations and Comprehensive Income/(Loss).

Diluted earnings per share from continuing operations of $0.08, or $0.10 excluding special items, compared to diluted earnings per share from continuing operations of $0.11 for the prior year, or $0.22 excluding special items

Net loss from discontinued operations of $2.5 million, or a loss of $0.04 per diluted share, compared to net loss from discontinued operations of $2.3 million for the prior year, or a loss of $0.04 per diluted share

Repurchased 1.3 million shares of common stock for $10.1 million during the third quarter

Closed sale leaseback transactions on four restaurants during the quarter resulting in $8.8 million of gross proceeds, and closed sale leaseback transactions on an additional two restaurants subsequent to the end of the quarter, resulting in $5.2 million of gross proceeds

JJ Buettgen, President and CEO, commented, “I am pleased with the progress we have made in evolving the Ruby Tuesday brand over the past quarter. We believe the initiatives we are working on will shift consumers’ perceptions of the brand toward a more mainstream, lively, and approachable position. We have already introduced a handful of new menu items, and our current advertising and merchandising materials portray a more fun, casual, and affordable personality for the brand. As we broaden the brand’s appeal and make it relevant for more everyday occasions, we will be able to more effectively compete in the marketplace.

While the current operating environment is likely to remain volatile, we are optimistic about the potential of our brand. We believe that with the right combination of strategy, consumer insights, positioning, and execution, we can return to a path of same-restaurant guest count and sales growth, and create value for our shareholders as a result.”

Concept Closing Update

During the quarter, we incurred pre-tax lease reserve and other charges of $4.6 million related to our previously-announced decision to close and exit the Marlin & Ray’s, Truffles Grill, and Wok Hay concepts, and to close two Company-developed Lime Fresh restaurants. Subsequent to our quarter end, we made the decision to close our two Truffles Grill locations instead of continuing to market them for sale. In addition to the aggregate pre-tax impairment charges of $16.9 million incurred in the second quarter in connection with the decision to exit our non-core brands and to close two Company-developed Lime Fresh restaurants, as well as the third quarter charges of $4.6 million outlined above, we also will incur an estimated $1.0-$2.0 million in pre-tax lease reserves and other charges in the fourth quarter primarily related to the closure of our two Truffles Grill locations.

For accounting purposes, we have presented all current and prior-year amounts within our Statements of Operations and Comprehensive Income/(Loss) related to the Marlin & Ray’s, Truffles Grill, and Wok Hay concepts as discontinued operations.

Fiscal Year 2013 Guidance From Continuing Operations (Except for Capital Expenditures and Free Cash Flow)

Same-Restaurant Sales – Company-owned restaurant same-restaurant sales are estimated to be approximately flat for the year

Company-Owned Restaurant Development – Plan to open eight to nine Lime Fresh restaurants, close two Lime Fresh restaurants, and close six to seven Company-owned Ruby Tuesday restaurants

Franchise Restaurant Development – Our domestic franchisees plan to open one Lime Fresh restaurant. Our international franchisees plan to open four to five restaurants, two of which are Lime Fresh restaurants, and close four to five restaurants.

Restaurant Operating Margins – Estimated to improve approximately 100 basis points due to cost savings initiatives

Depreciation – Estimated to be in the range of $59-$60 million for the year

Selling, General, and Administrative Expenses – Advertising expense is estimated to be in the range of $71-$75 million for the year compared to $47 million in fiscal 2012, primarily due to incremental television advertising expense which is largely funded by our cost savings initiatives and reductions in promotional spending. Excluding advertising expense, selling, general, and administrative expenses are estimated to be slightly lower primarily due to lower consulting fees and other cost savings initiatives being partially offset by the projected fourth quarter pension settlement expense attributable to the upcoming lump sum payout to our former CEO.

Interest Expense – Estimated to be $27 million for the year

Tax Benefit – Based on our lower pre-tax income coupled with our employment-related tax credits, we anticipate a net tax benefit of $5 to $10 million for the year

Diluted Earnings Per Share from Continuing Operations – Estimated to be in the $0.18 to $0.22 range for the year. Excluding the CEO pension settlement expense, new CEO transition expenses, and other closing-related costs primarily from our previously-announced non-core brand and Lime Fresh closures, diluted earnings per share for the year are estimated to be in the $0.28 to $0.32 range. Both guidance ranges above are exclusive of the net loss per share from discontinued operations for the year.

Fully-Diluted Weighted Average Shares Outstanding – Estimated to be approximately 61 million for the year

Capital Expenditures – Estimated to be $38-$42 million for the year

Free Cash Flow – Estimated to be $10-$15 million for the year. On an adjusted basis, free cash flow is estimated to be $22-$27 million after excluding the impact of our former CEO’s pension payout (approximately $8 million) and estimated lease reserve settlements from restaurants closed in the fourth quarter of fiscal year 2012 and the third and fourth quarters of fiscal 2013 (approximately $4 million).

Sale Leaseback – We plan to sell approximately five to seven sale-leaseback locations during the fourth quarter which should generate estimated aggregate gross proceeds of approximately $11-$15 million

Reporting Reclassifications to Prior-Year Financial Statements

As previously disclosed in the first and second quarter, we made several reporting reclassifications to our prior-year statements of operations for the 13 week period ended February 28, 2012 to better align our financial statement presentation with our peer group. These reclassifications, which had no effect on pre-tax or net loss were primarily in two key areas: 1) Amortization of deferred debt issuance costs and revolving credit facility commitment fees of $0.6 million were reclassified from other restaurant operating costs to interest expense, net; and 2) Corporate and field executive fringe benefits and payroll taxes of $1.9 million were reclassified primarily from payroll and related costs to selling, general, and administrative, net, where the corresponding salary expenses are reported. In the current year quarter, these amounts were $0.6 million and $2.0 million, respectively.

ABOUT RUBY TUESDAY

Ruby Tuesday, Inc. has Company-owned and/or franchise Ruby Tuesday brand restaurants in 45 states, the District of Columbia, 11 foreign countries, and Guam. As of March 5, 2013, we owned and operated 709 Ruby Tuesday restaurants and franchised 77 Ruby Tuesday restaurants, comprised of 33 domestic and 44 international restaurants. Our Company-owned and operated restaurants are concentrated primarily in the Southeast, Northeast, Mid-Atlantic, and Midwest of the United States, which we consider to be our core markets.

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