Ruby Tuesday, Inc. Reports Positive Same-Restaurant Sales, Margin, and Profit Improvement for First Quarter Fiscal 2011

Ruby Tuesday, Inc. (NYSE: RT) today reported financial results for the fiscal first quarter ended August 31, 2010.

“The improvements in our sales, operations, and balance sheet have allowed us to begin executing on our longer-term strategies to further strengthen and grow our business in order to rebuild shareholder value. Our key strategies for the next three to five years include the following four areas”

Highlights for the first quarter of 2011 compared to the first quarter of 2010 include:

• Positive same-restaurant sales of 1.2% at Company-owned Ruby Tuesday restaurants
• Restaurant level operating margin of 18.5%, or 18.0% excluding accounting gains from franchise partner acquisitions of $1.7 million. The adjusted margin, an improvement of 210 basis points over the prior year, was primarily driven by lower levels of promotional activity.
• Net income of $12.4 million, or $10.7 million excluding accounting gains realized from franchise partner acquisitions, compares to prior-year net income of $6.1 million
• Diluted earnings per share of $0.19, or $0.17 per share excluding accounting gains noted above, compares to diluted earnings per share of $0.11 for the prior year
• Book debt to EBITDA ratio of 2.08 represents a sizeable improvement over the prior-year ratio of 2.84
• We have included a reconciliation of the franchise partner acquisition accounting gains noted above on the Investor Relations page of the Ruby Tuesday website: www.rubytuesday.com

Sandy Beall, Founder and CEO, commented on the results, saying, “We are excited to report another solid quarter and believe our strategies and repositioning efforts are showing sustained traction as our momentum has continued to build over the past year. The positive same-restaurant sales for the quarter, on lower promotional levels and in a continued difficult economic environment, are a strong testament to the new Ruby Tuesday. Our strategies going forward are to continue strengthening the business, resume growing the business, and further enhance shareholder value.”

Other highlights from our first quarter results include:

• Second consecutive quarter of positive same-restaurant sales, and outperformed Knapp-Track^TM, the industry benchmark
• Same-restaurant sales for domestic franchised restaurants increased by 0.4%
• Total revenue increased 0.7% from the same period of the prior year
• Sales at domestic and international franchise Ruby Tuesday restaurants (which is the basis for determining royalty fees included in franchise revenue on the Company’s statement of operations) totaled $91.1 million and $94.8 million for the first quarter of fiscal 2011 and 2010, respectively
• Acquired the Long Island and New England franchise partner businesses, which represent a total of 20 restaurants
• The Company did not open any new Ruby Tuesday restaurants and closed two restaurants
• Domestic and international franchisees opened three new Ruby Tuesday restaurants and closed three
• Total capital expenditures were $6.6 million

Mr. Beall said, “The improvements in our sales, operations, and balance sheet have allowed us to begin executing on our longer-term strategies to further strengthen and grow our business in order to rebuild shareholder value. Our key strategies for the next three to five years include the following four areas:

• Continue to Enhance the Quality of Our Core Brand – Our Ruby Tuesday brand restaurants will remain our primary focus. Over the past year, we have introduced several new key promotions and offerings, which we call ‘Game Changers,’ that have strengthened the brand. We launched our fall menu on August 24^th, along with our enhanced Sunday Brunch and Bar menus. Our new product offerings, including our complimentary garlic cheese biscuits and our Fit & Trim entrees, should continue to provide momentum for our brand. We will continue to invest in various initiatives from both a food quality and labor standpoint to facilitate our longer-term goal of providing a $25 high-quality casual dining experience for $15.
• Increase Revenue and EBITDA Through New Concept Conversions and Franchise Partnership Acquisitions – Part of our long-term plan is to convert certain underperforming Company-owned restaurants to other high-quality casual dining concepts. We opened our first converted Jim ‘N Nick’s Bar-B-Q in Knoxville on September 21^st and our first Truffles conversion will open in the Buckhead area of Atlanta in November. The low capital requirement for these conversions should provide attractive cash-on-cash returns for our shareholders. Another part of our plan is focused on generating incremental revenue and EBITDA from our current franchise partners. We completed two franchise partner acquisitions in the first quarter and are considering our options for the remaining franchise partners, which include potential additional acquisitions or conversion to traditional franchises over time.
• Focus on Low Risk, Low Capital-Intensive Growth – We are excited about the licensing agreement we recently entered into with Lime Fresh Mexican Grill, a Florida-based restaurant concept, which gives us the opportunity to operate up to 200 fast casual fresh-Mexican restaurants in the eastern United States, excluding Florida. Our growth with the Lime brand will primarily be in smaller, inline locations. The Lime brand is in alignment with our focus on high quality and offers great opportunities for us in the high-growth, high-quality, fast casual dining segment. We also plan on opening Company-owned, inline Ruby Tuesday restaurants as another segment of our growth strategy. The ability to enter the growing fast casual segment with a strong brand such as Lime and further expand our Ruby Tuesday Company-owned brand provides a growth option that should create long-term value for our shareholders with relatively low risk.
• Optimally Manage Excess Cash Flow – We have made great progress over the past year in strengthening our balance sheet and we will, in the short term, continue to leverage our free cash flow to pay down debt. As the cash flow from our core business continues to grow through current and new brand enhancements, and our conversions and inline growth begin to generate incremental cash flow, we will return the excess cash flow, which we are unable to accretively reinvest in the Company, to our shareholders.”

Fiscal Year 2011 Guidance

• Same-Restaurant Sales - We estimate same-restaurant sales for Company-owned restaurants will be in the range of flat to positive 2% for the year
• Company-Owned Restaurant Development - We expect to open one to two smaller prototype, inline restaurants in 2011, expect to close seven to nine Company-owned restaurants, and convert five to seven Company-owned restaurants to other high-end casual dining concepts. In addition to the 20 franchise restaurants acquired during our first fiscal quarter, we are evaluating the buy back of five to 10 additional franchise restaurants over the remainder of the fiscal year.
• Franchise Restaurant Development - We project our franchisees will open eight to 13 restaurants, up to 10 of which will be international
• Restaurant Operating Margins - Margins are anticipated to be relatively flat, primarily reflecting the impact of our continued investment in higher-quality menu items and new product offerings, as well as investments in service to enhance our guest experience and drive sales, offset by lower promotional levels. Our food costs are expected to remain relatively stable compared to the prior year.
• Other Expenses - Depreciation is projected in the $60-$63 million range and selling, general, and administrative expenses are targeted to be up 8%-10% from a year earlier, primarily reflecting higher advertising, training, and marketing research expenses. Interest expense is projected to be $10-$12 million and the effective tax rate is estimated to be 20-25%.
• Diluted Earnings Per Share for the year are projected to be in the $0.76-$0.86 range. Fully-diluted weighted average shares outstanding are estimated to be approximately 64.5 million for the year.
• Capital Expenditures are estimated to be $29-$33 million

In closing, Mr. Beall said, “We are excited with the improved results in our core Ruby Tuesday business and believe our repositioning efforts and investments in high-quality menu offerings, combined with targeted and effective marketing, have been the basis for our continued momentum. We first and foremost will continue to focus on making our Ruby Tuesday brand even stronger in the high-quality casual dining space. Additionally, we look forward to leveraging our future growth options and believe our long-range plan will enable us to rebuild shareholder value going forward.”

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