Ruby Tuesday, Inc. Reports Third Quarter Fiscal 2010 Results; Earnings Per Share Increase; Same-Restaurant Sales Trends Improve; Fiscal 2010 EPS Guidance Raised

This compares to earnings of $0.09 per diluted share on net income of $4.8 million for the third quarter of the prior year. Closure and impairment expenses were $2.3 million pretax ($0.02 per diluted share after tax) in the third quarter of this year, compared to $14.3 million ($0.17 per diluted share after tax) in the third quarter of the prior year. Included in prior year expenses were charges related to the Company’s restructuring announced in December 2008.

As previously announced, same-restaurant sales for the third quarter decreased 0.7% at Company-owned Ruby Tuesday restaurants; severe winter weather in many of the Company’s core markets reduced same-restaurant sales by an estimated 1.5% to 2%. Same-restaurant sales at domestic franchised restaurants declined 5.3%.

Sandy Beall, Founder and CEO, commented on the results, saying, “We are very encouraged with the momentum in our business and excited to report five consecutive quarters of improving trends since our sales and traffic first began to improve in last year’s third quarter. Despite this more difficult comparison, the quarter was one of our best in terms of sales in three years. We believe our repositioning efforts and investments in quality menu options, combined with targeted and effective marketing, are driving improved results. Although the economic environment remains uncertain, there are signs of improvement and we are working hard to end our fiscal year with strength and continued momentum.”

Highlights from our third quarter results include:

• Same-restaurant sales were down 0.7%.
• Restaurant operating margins increased in the quarter reflecting the positive impact from store closings, more efficient labor scheduling, and the success of our cost reduction efforts.
• Debt was reduced another $43 million during the quarter, bringing the year-to-date total debt paydown to $171 million, including $73 million from the proceeds of the sale of 11.5 million shares of stock through an equity offering in July.

“We continued to make solid progress against our top priorities for the year. Our first goal is to increase same-restaurant sales and get guests in seats. The modest increase in same-restaurant sales in January and February were the first monthly increases in three years and we were able to effectively balance the relationship between average check and traffic to the benefit of profitability. The emphasis on our second goal, maximizing our cash flow and reducing debt, has resulted in an improved balance sheet and leverage ratios. We have paid down approximately $283 million of debt since the end of fiscal 2008, or nearly 47% of the total then outstanding in less than two years. As a result, our book debt to EBITDA ratio has declined to 2.2 at the end of the third quarter, from 3.7 at the end of fiscal 2008. Our third priority is to further strengthen and differentiate our brand through quality and remaining true to our core operating strategies: Uncompromising Freshness and Quality of our food; service with Gracious Hospitality; a Fresh New Look for our restaurants; and Compelling Value. Towards these objectives, we continue to focus on operations, the menu, and other enhancements to the brand such as the addition of lobster tails and our four-course Sunday brunch and the installation of new high definition flat screen televisions in our bar areas. We believe these strategies are key contributors to the momentum in our business.”

Other highlights for the 13-week third quarter included:

• Total revenue declined 3.2% from the same period of the prior year primarily because of 12 fewer restaurants in operation and the decrease in same-restaurant sales.
• The Company closed 11 restaurants and did not open any restaurants during the quarter.
• Domestic and international franchisees opened one and closed three restaurants.
• 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 $91.9 million and $96.8 million for the third quarter of fiscal 2010 and 2009, respectively.
• Total capital expenditures were $3.8 million.
• The Company had approximately 64 million shares of common stock outstanding at the end of the quarter.

Fiscal Year 2010 Guidance

• New restaurant development – No new Company-owned Ruby Tuesday restaurants will be opened in fiscal 2010 and a total of 14 are projected to close, including one in the fourth quarter, as part of our previously announced plan to close 30 restaurants over time when their leases expire. We expect domestic franchisees will open two or three restaurants during the year, including one or two in the fourth quarter. We expect international franchisees will open three to five restaurants during the year, including up to two in the fourth quarter.
• Same-restaurant sales – We estimate same-restaurant sales for the year for Company-owned restaurants will be down approximately 1% to 2%.
• Restaurant operating margins are anticipated to be down primarily reflecting the impact of our marketing strategy to emphasize Compelling Value and its impact on food costs as a percentage of sales.
• Other expenses – Depreciation is projected in the $63-65 million range and selling, general, and administrative expenses are targeted to be down 10-12% from a year earlier. Interest expense is projected to be $16-17 million and the tax rate is estimated to be 20-22%. Fully diluted weighted average shares outstanding are estimated to be approximately 62 million for the year.
• Diluted earnings per share for the year are projected to be in the $0.60-0.65 range.
• Capital expenditures for the year are estimated to be $18-20 million.

Mr. Beall added, “We are pleased with our results in the third quarter and are excited by the momentum in our business. Our top priorities continue to be to increase average restaurant sales and traffic, to maximize cash flow and pay down debt, and further strengthen and differentiate our brand. With the improvement in our balance sheet, we are now able to develop longer term strategies to further increase sales, cash flow, and return on assets. All our actions are in keeping with our mission statement: to be the best in the bar grill segment of the restaurant industry by delivering a high-quality casual dining experience with compelling value.”

Ruby Tuesday, Inc. has Company-owned and/or franchise Ruby Tuesday brand restaurants in 46 states, the District of Columbia, Guam, and 14 foreign countries. As of March 2, 2010, the Company owned and operated 659 Ruby Tuesday restaurants, while domestic and international franchisees (including Hawaii) operated 168 and 57 restaurants, respectively.