Shares of Ruby Tuesday, Inc. (RT - Snapshot Report) slumped more than 7% in the aftermarket hours yesterday as the company recently reported disappointing first-quarter fiscal 2016 results. The company’s earnings and revenues both slid from the year-ago quarter.

Earnings and Revenue Discussion

This restaurant operator posted a loss of 3 cents per share, which was marginally wider than the year-ago loss of a penny.

Total revenue of $279.5 million declined 0.6%, primarily due to the closure of 11 underperforming company-owned restaurants compared to the first quarter of the last fiscal, partially offset by comps growth.

Behind the Headlines

Same-restaurant sales were up 0.6% at company-owned restaurants, a turnaround from the 1.7% comps decline in the prior quarter. Also, sales were within management’s expectation of a flat-to-2% increase.

Same-restaurant sales reflected a 2.9% decrease in guest count, moderating from the 4.6% decline last quarter. However, this decline was partly offset by an increase in net check. However, comps were negatively impacted by approximately 30 basis points due to the Labor Day holiday being reported in the company’s first quarter last year versus being reported in the second quarter this year.

Restaurant-level margins were 15.9%, down 170 basis points (bps) year over year, owing to an increase in other restaurant operating costs. Other restaurant operating costs increased 120 basis points due to a one-time settlement for a business interruption claim recognized in the first quarter of fiscal 2015. The remainder of the increase was primarily due to repair and maintenance expense and other restaurant supplies.

Fiscal 2016 Guidance

Ruby Tuesday reaffirmed the guidance for fiscal 2016. The company maintained its full-year adjusted earnings per share projection of 12 cents to 17 cents.  The company continues to expect fiscal 2016 comps in the flat-to-up 2% range.

The company expects restaurant-level operating margin to be 17–17.5% for fiscal 2016, compared with 16.9% in fiscal 2015.

The company also reiterated its expectation for selling, general and administrative (SG&A) expenses in the range of $116 million to $120 million, compared with $115.3 million in fiscal 2015. Capital expenditure is expected to range within $34 million to $38 million.

Our Take

In order to cope with weaker same-store sales owing to a slack in the consumer spending environment, Ruby Tuesday added cheaper items to its menu and closed underperforming restaurants. We believe that these initiatives would benefit the company over the long run.  

Ruby Tuesday has a Zacks Rank #2 (Buy).

Stocks to Consider

Some of the other favorably ranked stocks in the same sector include Darden Restaurants, Inc. (DRI - Analyst Report), Jack in the Box Inc. (JACK - Analyst Report) and Dave & Buster's Entertainment, Inc. (PLAY - Snapshot Report). All three stocks sport a Zacks Rank #1 (Strong Buy).