Ruby Tuesday, Inc. (RT): Comps Worsen, S&P Downgrades Credit Rating
Shares of the casual dining chain Ruby Tuesday, Inc. (NYSE:RT) dropped more than seven percent this Thursday after reporting a steeper decline in comparable sales at its restaurants as the company’s Fresh Start initiatives appear to be falling flat. “The casual dining environment remains highly challenging, promotional, as well as price competitive and our sales trends are reflective of these conditions” said departing CEO Lane Cardwell, who has been replaced by James Hyatt, an industry veteran with an experience spanning four decades. RT’s same-store-sales drop stood at 4% for the fiscal third quarter ended Feb. 28, compared to 3.1% decline in the year-ago-quarter. Overall revenue fell a lot more, 16.8%, as the company reduced store count by 105, the majority of these closures came as part of its Fresh Start initiative, which involves improving customer experience and asset rationalization. A 3.8% drop in traffic and an increase in raw material and labor costs reflected in the company recording a net loss of $19.8 million and a drop in restaurant level margin to 15.8% from 17.1% in the year-ago-quarter. Following RT’s weak earnings report, credit rating agency S&P downgraded its RT’s debt rating to ‘CCC+’ from ‘B-‘, while issuing a negative outlook, indicating that the company’s financial health can deteriorate further. S&P said the current capital structure is unsustainable. RT doesn’t meet any of SWS health-checks either — RT’s liquidity is in danger with its cash pile dropping to $32.7 million as of 28 February 2017, compared to $67.3 million when the previous fiscal ended, 31 May 2016. And amid losses, tough industry conditions, and contracting margins and sales, the company’s debt to equity ratio of 68% hardly seems sustainable, as S&P indicated.