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This could be a pivotal quarter for Ruby Tuesday ( RI): It could return to prominence alongside competitor Applebee's ( APPB), or it could prove to be just a pretender in the casual dining sector.

In the past year the restaurant company has done an impressive job of repairing the damage inflicted by its own management team through increased reliance on coupons, and Atkins-related menu changes. As a reward, the stock has risen approximately 50% in the last six months to a new 52-week high of just over $30. With that price jump, the stock went from a deeply discounted casual-dining restaurant to one that is at the high end of reasonable industry valuation, with a P/E of just over 20 times trailing earnings.

I believe the company can retain this premium valuation if management proves to investors that it has fixed the problems described above. It can then once again begin to carry out expansion plans. This will likely be discussed on the earnings call, which is scheduled for 8:30 a.m. EST on Thursday. The company will report its third-quarter 2006 results after the close Wednesday.

The Street is expecting RI to earn 46 cents on net revenue of $334.23 million. This represents nearly a 10% jump from EPS of 42 cents in the year-ago period. Revenue in the year-ago quarter was $289.2 million.

Other points I will focus on during the call:

  • How the company fared during the recent period of tough comps in the entire industry
  • The extent to which RI is capitalizing on the lower trend in food commodity costs
  • Changes in the menu designed to attract new customers permanently rather than the transient specialized dieter

Also, don't lose track of the large expected improvement in quarterly results. Beating this would be nice. However, missing or even just meeting expectations could be a disaster for the stock.
At the time of publication, Rothbort held no positions in Ruby Tuesday.

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed accounts to its clientele. In addition, LakeView Asset Management, LLC has developed and manages trading of long/short proprietary index strategies. Rothbort is a professor of finance at the Stillman School of Business at Seton Hall University. Prior to that, Rothbort worked at Merrill Lynch for 10 years. During his tenure at Merrill, he was instrumental in building the global equity derivative business, started and managed the global equity swap business and oversaw and coordinated the secured funding, collateral management and collateral identification for the global capital markets group and corporate treasury of Merrill Lynch.