Can Ruby Tuesday Keep Going After Last Week's 35% Pop?

By Markets

Image source: Ruby Tuesday.

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Every dog has its day, and last week the surprising winner wasRuby Tuesday (NYSE: RT). The struggling casual-dining chain was the New York Stock Exchange's biggest gainer last week, soaring 34.6% as it started to bounce back from another problematic quarterly report. A report of insider buying also helped push the fragile and volatile shares higher.

Two executives and several directors were snapping up stock earlier in the week. Interim CEO F. Lane Caldwell Jr. bought 50,000 shares at an average price of $2.75 per share. CFO Linda Sue Briley added 7,500 shares at $2.70 a share. Five directors combined to purchase another 184,240 shares at a price per share between $2.64 and $2.81.

All of the transactions took place between Tuesday and Wednesday. It's encouraging to see 241,740 shares purchased by insiders who are fully aware of the chain's struggles, but one can also argue that the same insiders are also part of the reason for the stock falling out of favor. The seven purchases accounted for 11% of the trading volume during those two days, likely lifting the stock higher in the process.

Last week was a welcome break from a challenging situation at Ruby Tuesday, but it's not necessarily in better shape just because some of its bigwigs are eating their own cooking. There are big problems on Ruby Tuesday's plate, and it's running out of time to digest them.

The long road back

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Ruby Tuesday stock has plummeted 43% so far this year, even after last week's big move. The table-service concept is having a hard time standing out in this competitive climate. Comparable-restaurant sales declined 2.7% in its latest quarter, once again underperforming the industry average.

Revenue fell even harder as there are now 109 fewer restaurants open than a year earlier. The news only gets worse on the bottom line. Ruby Tuesday has now rattled off five consecutive quarterly losses, and it's hard to get any kind of read on when or if it will claw its way back to profitability. It has decided not to offer guidance for future reporting periods.

Ruby Tuesday officially announced its latest results earlier this month, but it had offered up the bleak preliminary results last month when it also revealed the resignation of James J. Buettgen as its CEO. Caldwell stepped in at that point as a temporary replacement, a seasoned vet of various chains. He's also been on the Ruby Tuesday board since 2012, so he's up to speed on the mess he's inheriting.

The struggling restaurateur isn't standing still. Ruby Tuesday is working on a multipoint attack through what it's calling its Fresh Start initiative. It is sprucing up and simplifying the menu, eliminating various menu items to help speed up prep times. It is tweaking the signature salad bar that half of its customers opt into. Ruby Tuesday is also starting to remodel some of its restaurant, but it's going to need some serious dough to revamp all of its locations. It's a tricky task when you're already leveraged and when you're sporting a nasty streak of quarterly deficits, but Ruby Tuesday has to keep moving. Standing still could prove fatal.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.