What: Shares of restaurant chain Ruby Tuesday slumped on Friday after the company reported mostly disappointing fiscal-first-quarter results, with a big earnings miss overshadowing a small beat on revenue. The stock closed down about 12%.
So what: Ruby Tuesday reported revenue of $279.5 million, down 0.6% year-over-year but slightly better than analyst expectations of $279 million. The decline in revenue was caused by store closings, with the company ending the quarter with 11 fewer stores compared to the same period last year. Same-store sales rose by 0.6% at company-owned restaurants, but it wasn't enough to prevent revenue from falling.
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The company reported a non-GAAP EPS loss of $0.03, missing analyst estimates by eight cents. On a GAAP basis, the company posted a loss of $0.07 per share, compared to a $0.04-per-share gain during the same period last year. Ruby Tuesday pointed to an increase in restaurant operating costs, particularly repair and maintenance expenses, as the main factor behind the decline in profitability.
Ruby Tuesday does expect to report a non-GAAP profit for the full year, guiding for between $0.12 and $0.17 per share. Same-store sales are expected to be in the range of flat to up 2%, while 11-14 additional stores will be closed throughout the year.
Now what: Ruby Tuesday's earnings miss was significant, and that seems to be the main reason why investors sent the stock tumbling on Friday. Restaurant-level margin declined to 15.9% during the quarter, down from 17.6% during the same period last year, driven down by higher expenses.
The company does expect its profitability to improve going forward, in part due to a new inventory management system that was rolled out during the first quarter. Ruby Tuesday guided for a restaurant-level margin between 17% and 17.5% for fiscal 2016, a significant improvement over the first quarter, but investors don't seem to be buying it.
The article Why Shares of Ruby Tuesday Inc. Sank 12% on Friday originally appeared on Fool.com.
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