Why Shares of Ruby Tuesday, Inc. Got Cut Today

By Bradley Seth McNew Markets Fool.com

Image source:Ruby Tuesday.

Continue Reading Below

What happened

Shares ofRuby Tuesday, Inc.(NYSE: RT) dropped nearly 24% as of noon on Friday after the company reported fiscal second-quarter earnings -- or lack thereof -- after the market closed on Thursday.

So what

Ruby Tuesday, a restaurant chain specializing in casual American food, reported fiscal Q2 earnings for the period ended Nov. 29, 2016, during which sales dropped to $214 million, down nearly 18% year over year. That's partially due to a decrease in number of locations, but same-store sales also dropped more than 4%.The company is certainly slimming down in terms of store count -- Ruby Tuesday has closed 109 locations since this time last year and is under contract to sell another 25. The company says that this is part of its "fresh start" initiative as announced in August, so investors should expect sales to continue dropping in the quarter ahead.

Image source: Ruby Tuesday.

Continue Reading Below

Net loss for the quarter was $38 million, or $0.63 per share, compared with a loss of $0.26 per share in the prior-year period. Perhaps most troubling is that restaurant margin dropped 410 basis points, to 11.5%, and that the company has only $38.6 million in cash.

Now what

Shares are now down more than 45% over the last year, more than 61% over the last two years, and today's quarterly earnings don't inspire much confidence that the stock will move back the other way.Looking ahead to 2017, Ruby Tuesday faces some daunting challenges, such as looking for a permanent CEO to take over for interim CEOLane Cardwell.

Still, the company is excited about its new initiatives to drive growth, particularly the overhaul of the menu to a fresher and healthier one. Cardwell said in the quarterly release, "While the results of our fiscal second quarter were disappointing, I am excited about the strategic changes and the new product rollouts that began with the introduction of our Fresh New Menu in November and will continue in January with the national launch of our Fresh New Garden Bar."

That overhaul, in terms of both a leaner operating structure and a leaner menu, could help the company to turn around in the future -- but with such daunting losses and so little cash on hand, Ruby Tuesday may run out of time to make that turnaround work.

10 stocks we like better than Ruby Tuesday
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Ruby Tuesday wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 4, 2017

Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.