Could this be goodbye, Ruby Tuesday (NYSE: RT)? Or perhaps, good buy?
The struggling fast-casual restaurant chain has decided to "explore strategic alternatives in order to maximize shareholder value and position the business for long-term success," the company said in a press release. That includes, according to the company, a potential sale or merger. Ruby Tuesday has hired UBS to act as a financial advisor during the process.
"While we continue to focus on executing against our Fresh Start initiatives including the rollout of our Fresh New Menu, Fresh New Garden Bar and Fresh Experience, we believe now is the right time to explore strategic alternatives that have the potential to position the business for long-term success and to carry that legacy forward," said Non-Executive Chairman Stephen Sadove. "We are confident the process will identify the best strategic avenues to maximize the value of our business and achieve the best result for our shareholders, franchisees, and team members."
Why a sale now?
Like many of its restaurant chain rivals, Ruby Tuesday has been struggling. In the press release announcing that the company was exploring its alternatives, it also released some preliminary sales figures for its third quarter. Those results showed that comparable-restaurant sales fell 4%.
That's a disappointing number given the changes the company has made to its offerings. It's still very early in the chain's efforts to promote a fresher menu and an improved salad bar, but it does not bode well that sales continue to fall.
In Q2, the company's overall sales dropped 17.7% compared to the prior quarter due to the chain closing 109 company-owned restaurants. Same-restaurant sales dropped 4.1%, similar to the projected Q3 drop, but down from a 0.8% increase in the same quarter a year ago.
What's next for Ruby Tuesday?
Even using a franchise model, it's very hard for a standalone brand to compete. It's hard to know if there will be any takers, but Ruby Tuesday makes sense as part of a bigger restaurant chain operator that franchises multiple brands. That would lower corporate expenses and help it operate in a market where it may have to survive with lower sales.
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Daniel Kline has no position in any stocks mentioned.