Hello, Ruby Tuesday

07/05/2011 8:30 am EST

Focus: STOCKS

Patrick McKeough

Editor, Successful Investor

The weak economy has been a challenge to restaurant stocks, but the creative ones are finding a way to turn a tough situation into an advantage, says Pat McKeough of the TSI Network.

US restaurants are always looking for ways to give themselves an edge in their intensely competitive industry.

Some, like Yum! Brands (YUM), are focusing on expanding in fast-growing overseas markets, like India and China. (Yum, whose restaurant chains include KFC, Pizza Hut, and Taco Bell, was the first fast-food company to enter China, in 1987.)

Other US restaurants have been looking to attract more diners by launching innovative new menu items, renovating restaurants, and improving their service.

Ruby Tuesday (RT) hopes its recent changes will be a hit with diners. This US restaurant is both launching new menu items and renovating some of its outlets.

Ruby Tuesday offers casual American dining. The company owns 742 of its US restaurants; franchisees operate 56 outlets in the US and 57 overseas.

Like many US restaurants, Ruby Tuesday’s earnings fell during the downturn. To attract more customers and increase sales, the company has been focusing on improving its menu and upgrading its service:

Its menu now includes a wide variety of appetizers, handcrafted burgers (including beef, bison, turkey, chicken, and crab), a 46-item salad bar, fish, ribs, and steaks.

It seems to be working. New menu items helped boost sales. In the three months ended March 1, Ruby Tuesday’s sales rose 3.8% to $319.1 million, from $307.3 million a year earlier, mainly due to the new menu items.

However, same-restaurant sales fell 1.2%, due to severe winter weather in the eastern US, where roughly 90% of the company’s restaurants are located. The bad weather also lowered earnings per share by 14.3%, to $0.24 from $0.28. [This appears to have had little effect on the company's recent performance. Shares have risen almost 20% in the last few weeks, to close last week at $11.23—Editor.]

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