NEW YORK ( TheStreet) - Casual-dining restaurant chain Ruby Tuesday (RT) issued a press release last week meant to show investors that the company is taking steps to turn itself around, but what it told me is that the road to recovery may be a long one.
Coming on the heels of worse-than-expected results for its fiscal first quarter and then the sudden resignations of the company's chairman and a key vice president, plus a downgrade of its debt by Moody's deeper into junk territory, the press release gave more details about the cost-cutting initiatives Ruby Tuesday is undertaking in attempts to right its ship.
In its efforts to cut $6 million from its selling, general and administrative costs beginning in 2015, the company is reviewing its cost structure. The first move will be the elimination of 50 jobs at its Maryville, Tenn., restaurant support center. Next, the restaurant chain will hire a consulting firm to help it cut cost of goods sold and other restaurant operating costs.
Don't get me wrong, cost cutting here is a positive move, but I've been to this rodeo before. Usually, when a company gets to this point, the road to recovery is longer than investors might expect, and it begs the question why these cost-cutting initiatives were not in place sooner.Such austerity announcements are meant to bolster investor confidence, and sometimes they are effective in accomplishing that, at least in the short term. But if the company can't deliver in the ensuing quarters, investors will lose patience. We saw that to a certain extent with Wendy's (WEN), which foundered for several years, before it finally showed signs of improvement in the past year or so. Ruby Tuesday is a rarity in the restaurant sector these days: The stock is down year to date, one of just two of 39 restaurant stocks I track that have fallen. In fact, down 11%, it's also the worst performer -- BJ's Restaurants (BJRI), down 10%, is the other -- of the entire group. Last quarter's results were downright ugly, as revenue fell 11% to $289.7 million, which was below analysts' average estimate of $298 million. The bottom line was even worse -- a loss of 36 cents a share, versus estimates of a loss of 5 cents a share. Same-store sales fell 11.4%.