Ruby Tuesday, Inc. Reports Second Quarter Results, Including an Adjust

Ruby Tuesday, Inc. Reports Second Quarter Results, Including an Adjustment of Accounting for Leases, and Announces Semi-Annual Dividend

    Business Editors

    MARYVILLE, Tenn.--(BUSINESS WIRE)--Jan. 5, 2005--Ruby Tuesday, Inc. (NYSE: RI) today reported results for its second quarter of fiscal year 2005. Diluted earnings per share decreased 30.3% to $0.23, which included a one-time non-cash charge of $4.8 million (or $0.07 per diluted share) for an adjustment related to accounting for leases and subleases. Excluding the one-time charge, diluted earnings per share was $0.30. Same-store sales at Company-owned Ruby Tuesday restaurants decreased 8.6% as compared to an increase of 3.9% during the second quarter of the prior year. Same-store sales at domestic franchise Ruby Tuesday restaurants decreased 5.1% during the quarter. Average unit volumes at Company-owned restaurants decreased 9.1% during the second quarter as compared to a 4.3% increase during the same quarter of the prior year. The Company's Board of Directors declared a semi-annual cash dividend of $0.0225 per share, payable on February 4, 2005 to shareholders of record at the close of business on January 21, 2005.
    Sandy Beall, the Company's Chairman and CEO commented, "Three things affected our sales performance during the quarter. First, we estimate Company-owned same-store sales were negatively impacted 4.5-5.0% as a result of minimal couponing this year as we transition towards a television driven marketing strategy. Secondly, the higher oil prices and weaker economy in general impacted our middle income consumer base. Lastly, we made some menu portion decisions, which were a mistake. We have adjusted the portion issues in our menu and will be much more aggressive in food oriented television ads with our upcoming January ads focusing on delivering a greater call to action. We are extremely focused on operations and are excited about our January menu, which has some exciting new items and enhanced presentations, plateware, portions, and value.
    While we are certainly not pleased with our most recent performance, we do believe we have the right plans and strategies in place to improve sales and profits. We are investing more in our business through food and operations as well as advertising to create trial and increase the frequency of our existing guests. We are confident our teams are committed to improved performance as total management turnover for the quarter was lower than it has been in several years and team morale is good. We are focused on improving sales as we are challenged with overlapping our previous ValPak coupon strategy over the next couple of quarters. We remain focused on strategies and plans we believe will return our same-store sales to the 2.0-3.0% growth levels of the past and create long-term value."
    Based on the review of the Company's accounting policies and upon consultation with its independent registered public accounting firm, KPMG LLP, the Company is adjusting its computation of straight line rent expense and accounting for subleases. As a result, the Company's second quarter results include a one-time charge of $7.5 million ($4.8 million after-tax). The adjustment of the Company's straight-line rent expense is similar to recent announcements made by other KPMG client restaurant companies except for the fact that, unlike the others, due to the immaterial effect on the Company's financial statements, the adjustment was recorded in the current year as opposed to the Company restating prior periods.
    Prior to June 2003, the Company had accounted for leases with renewal options by recording rent expense on a straight-line basis over the original lease term. The buildings, leasehold improvements, and other long-lived assets associated with these properties were depreciated over their expected useful lives, which, in some cases, included only the original lease term and, in other cases, included one or more of the option periods. For leases entered into since June 2003, the Company has recognized rent expense on a straight-line basis over a term, which includes option periods not to exceed the same as that used to depreciate the buildings, leasehold improvements, and other long-lived assets.
    Second quarter fiscal 2005 financial statements reflect the cumulative impact to recognize rent expense on a straight-line basis over the same term as the useful life assigned to the buildings, leasehold improvements, and other long-lived assets as the Company has done since June, 2003. This adjustment will have only a modest impact (less than $0.01) on annual earnings per share going forward and has no impact on the Company's cash flows, sales or same-store sales for any prior period, or compliance with any covenant under any debt instruments.
    The Company also evaluated the accounting for its subleases and determined that in those cases where the Company sold units to others, but remained primarily obligated on the original leases, the Company should have continued to account for the deferred rent liability on its books and record a receivable for the straight-lined remaining rent due from the sublessees.
    The effect from these transactions, which is reflected in the attached financial statements, is as follows: increase in rent expense - $7.5 million, decrease in income tax expense - $2.8 million, increase in rent receivable - $2.4 million, increase in deferred rent liability - $9.9 million, and decrease in deferred tax liability - $2.9 million. See Schedule A for the reconciling income statement for the 13 week period ending November 30, 2004 and balance sheet as of November 30, 2004 for a reconciliation of these transactions. The adjustment is anticipated to have basically no impact on third and fourth quarter fiscal 2005 earnings.

    Fiscal 2005 Guidance

    Same-store sales at Company-owned restaurants were down 5.2% for the first five weeks of the Company's third quarter. Same-store sales at domestic franchise Ruby Tuesday restaurants were down 4.7% during the same period. Based on the Company's plans to spend an additional $3 to $4 million in advertising during the fiscal year and taking into consideration the estimated $0.07 impact on fiscal 2005 resulting from the one-time cumulative entry to adjust the Company's accounting for leases and subleases, the Company expects fiscal 2005 diluted earnings per share of approximately $1.53 with third quarter diluted earnings per share in the $0.38 to $0.41 range and fourth quarter diluted earnings per share in the $0.42 to $0.47 range. Excluding the one-time charge of $0.07 per diluted share, the Company expects fiscal 2005 diluted earnings per share of approximately $1.60.
    The Company anticipates approximately 55 Company-owned restaurant openings during fiscal 2005, and anticipates its franchisees (including both domestic and international) will open approximately 35 Ruby Tuesday restaurants during the same period.
    Commenting on the remainder of fiscal 2005, Sandy Beall stated, "We are investing in the business and making decisions to continue creating shareholder value. We have another three quarters ahead of us where we will be facing the negative same-store sales effect of reduced coupon usage. However, with the initiatives we have in place including increased advertising and a new menu in January, we anticipate the negative impact will lessen throughout the next three quarters. Costs have typically not been an issue for us. The sales line is the biggest variable in our model and that is what we are intensely focused on."

    Additional Second Quarter Highlights:

--	Sales at franchise (including franchise partnership and traditional franchise) Ruby Tuesday restaurants totaled $94,817,000 for the second quarter. These sales are the basis for determining royalty fees included in franchise income on the Company's income statement.
--	Eighteen Company-owned Ruby Tuesday restaurants were opened and none were closed.
--	The Company purchased the remaining equity interests of three franchise partnerships in which the Company previously had partial equity ownership. These businesses together operated 35 Ruby Tuesday restaurants in Florida, New York and California.
--	Six franchise restaurants were opened and two were closed.
--	The Company repurchased 873,000 shares of its common stock. Under the Company's ongoing share repurchase program, 2.1 million shares remain authorized for repurchase.

    Year-to-Date Highlights:

    -- Sales at franchise partnership and traditional franchise Ruby
    Tuesday restaurants (which is the basis for determining
    royalty fees included in franchise income on the Company's
    income statement) totaled $218,655,000 and $206,956,000 for
    the second quarter year-to-date of fiscal 2005 and fiscal
    2004, respectively.

    -- Twenty-six Company-owned Ruby Tuesday restaurants were opened
    and one was closed due to normal lease expiration. As
    previously mentioned, 35 Ruby Tuesday restaurants were
    acquired from franchisees.

    -- Nine franchise restaurants were opened and four were closed,
    two of which were due to lease expirations.

    -- The Company has repurchased 1.7 million shares of its common
    stock during fiscal 2005.

    Ruby Tuesday, Inc. has Company-owned, and/or franchise Ruby Tuesday brand restaurants in 42 states, the District of Columbia, Puerto Rico, and 12 foreign countries. As of November 30, 2004, the Company owned and operated 544 Ruby Tuesday restaurants, while domestic and international franchisees operated 186 and 36 (including Hawaii) locations, respectively. Ruby Tuesday, Inc. is traded on the New York Stock Exchange (Symbol: RI).
    The Company will host a conference call which will be a live web-cast tomorrow morning at 8:30 Eastern Time. The call will be available live at the following websites:

    http://www.fulldisclosure.com
    http://www.rubytuesday.com

    Special Note Regarding Forward-Looking Information

    This press release contains various "forward-looking statements," which represent the Company's expectations or beliefs concerning future events, including one or more of the following: future financial performance and unit growth (both Company-owned and franchised), future capital expenditures, future borrowings and repayment of debt, payment of dividends, stock repurchase, and restaurant acquisitions. The Company cautions that a number of important factors and uncertainties could, individually or in the aggregate, cause actual results to differ materially from those included in the forward-looking statements, including, without limitation, the following: changes in promotional, couponing and advertising strategies; guests' acceptance of changes in menu items; changes in our guests' disposable income; consumer spending trends and habits; mall-traffic trends; increased competition in the casual dining restaurant market; weather conditions in the regions in which Company-owned and franchised restaurants are operated; guests' acceptance of our development prototypes; laws and regulations affecting labor and employee benefit costs; costs and availability of food and beverage inventory; the Company's ability to attract qualified managers, franchisees and team members; changes in the availability of capital; impact of adoption of new accounting standards; effects of actual or threatened terrorist attacks in the United States; and general economic conditions.

RUBY TUESDAY, INC.

Financial Results For the Second Quarter of Fiscal Year 2005 (Amounts in thousands except per share amounts)

13 Weeks 13 Weeks Ended Percent Ended Percent November 30, of December 2, of Percent 2004 Sales 2003 Sales Change -------------------- -------------------- -------- Revenue: Restaurant sales and operating revenue $ 254,664 98.6 $ 240,966 98.4 Franchise revenue 3,554 1.4 4,038 1.6 ----------- ----------- Total operating revenue 258,218 100.0 245,004 100.0 5.4

Operating Costs and Expenses: (as a percent of Restaurant sales and operating revenue) Cost of merchandise 66,708 26.2 62,255 25.8 Payroll and related costs 81,089 31.8 77,890 32.3 Other restaurant operating costs 52,532 20.6 41,368 17.2 Depreciation and amortization 16,047 6.3 13,315 5.5 (as a percent of Total operating revenue) Selling, general and administrative, net 17,701 6.9 15,036 6.1 Equity in losses (earnings) of unconsolidated franchises 219 0.1 (198) (0.1) ----------- ----------- Total operating costs and expenses 234,296 209,666 ----------- -----------

Earnings before Interest and Taxes 23,922 9.3 35,338 14.4 (32.3)

Interest expense, net 1,167 0.5 1,165 0.5 ----------- -----------

Pre-tax Profit 22,755 8.8 34,173 13.9

Provision for income taxes 7,640 3.0 12,131 5.0 ----------- -----------

Net Income $ 15,115 5.9 $ 22,042 9.0 (31.4) =========== ===========

Earnings Per Share: Basic $ 0.23 $ 0.34 (32.4) =========== =========== Diluted $ 0.23 $ 0.33 (30.3) =========== ===========

Shares: Basic 64,603 65,243 =========== =========== Diluted 65,636 66,884 =========== ===========

26 Weeks 26 Weeks Ended Percent Ended Percent November 30, of December 2, of Percent 2004 Sales 2003 Sales Change -------------------- -------------------- -------- Revenue: Restaurant sales and operating revenue $ 517,518 98.4 $ 486,740 98.4 Franchise revenue 8,223 1.6 8,116 1.6 ----------- ----------- Total operating revenue 525,741 100.0 494,856 100.0 6.2

Operating Costs and Expenses: (as a percent of Restaurant sales and operating revenue) Cost of merchandise 134,043 25.9 125,596 25.8 Payroll and related costs 161,192 31.1 155,578 32.0 Other restaurant operating costs 98,761 19.1 82,822 17.0 Depreciation and amortization 30,679 5.9 26,202 5.4 (as a percent of Total operating revenue) Selling, general and administrative, net 32,529 6.2 31,116 6.3 Equity in losses (earnings) of unconsolidated franchises (1,545) (0.3) (1,269) (0.3) ----------- ----------- Total operating costs and expenses 455,659 420,045 ----------- -----------

Earnings before Interest and Taxes 70,082 13.3 74,811 15.1 (6.3)

Interest expense, net 1,759 0.3 2,515 0.5 ----------- -----------

Pre-tax Profit 68,323 13.0 72,296 14.6

Provision for income taxes 23,954 4.6 25,741 5.2 ----------- -----------

Net Income $ 44,369 8.4 $ 46,555 9.4 (4.7) =========== ===========

Earnings Per Share: Basic $ 0.68 $ 0.72 (5.6) =========== =========== Diluted $ 0.67 $ 0.70 (4.3) =========== ===========

Shares: Basic 64,923 65,026 =========== =========== Diluted 66,081 66,527 =========== ===========

RUBY TUESDAY, INC.

Financial Results For the Second Quarter of Fiscal Year 2005 (Amounts in thousands)

November 30, June 1, CONDENSED BALANCE SHEETS 2004 2004 ------------------------------------ ------------ ------------- Assets Cash and Short-Term Investments $6,668 $19,485 Accounts and Notes Receivable 9,108 9,978 Inventories 16,466 13,647 Deferred Income Taxes 1,087 1,975 Income Tax Receivable 6,834 2,941 Prepaid Rent 2,444 2,173 Assets Held for Disposal 3,944 3,030 Other Current Assets 7,498 6,450 ------------ -------------

Total Current Assets 54,049 59,679

Property and Equipment, Net 829,200 753,319 Goodwill, Net 12,559 7,845 Notes Receivable, Net 29,719 33,366 Other Assets 66,135 64,324 ------------ -------------

Total Assets $991,662 $918,533 ============ =============

Liabilities Current Liabilities $82,323 $90,542 Long-Term Debt, including Capital Leases 239,264 168,087 Deferred Income Taxes 47,003 51,310 Other Deferred Liabilities 94,574 81,810 ------------ -------------

Total Liabilities 463,164 391,749

Shareholders' Equity 528,498 526,784 ------------ -------------

Total Liabilities and Shareholders' Equity $991,662 $918,533 ============ =============

Schedule A

    The attached reconciling Balance Sheet as of November 30, 2004 and reconciling Income Statement for the 13-week period ending November 30, 2004 have been prepared in order to assist the Company's shareholders and the investment community in understanding the effects of accounting entries made in conjunction with the Company's adjustments related to accounting for leases and subleases. Several other companies in the restaurant industry have restated prior financial statements in conjunction with similar adjustments. However, due to the immaterial impact on the Company's financial statements, the Company recorded the adjustments in the second quarter of the current fiscal year as opposed to restating prior financial statements. Although the attached reconciling financial statements contain non-GAAP financial measures, where an adjustment was made or where a number was derived from an adjusted number, the Company believes they will provide its shareholders, as well as the investment community, with a clear understanding of the effect of the adjustments on the Company's financial position and results. The "As Reported" numbers are reported in accordance with GAAP.

RUBY TUESDAY, INC.

Reconciling Income Statement For the Second Quarter of Fiscal Year 2005 (Amounts in thousands except per share amounts)

13 Weeks Ended November 30, 2004 Prior to Adjustment for Adjustments Lease for Lease Accounting Accounting As Reported ---------------------------------------------

Revenue: Restaurant sales and operating revenue $254,664 98.6% $254,664 98.6% Franchise revenue 3,554 1.4% 3,554 1.4% -------- ----------- -------- Total operating revenue 258,218 100.0% 258,218 100.0%

Operating Costs and Expenses: (as a percent of Restaurant sales and operating revenue) Cost of merchandise 66,708 26.2% 66,708 26.2% Payroll and related costs 81,089 31.8% 81,089 31.8% Other restaurant operating costs 44,990 17.7% $ 7,542 52,532 20.6% Depreciation and amortization 16,047 6.3% 16,047 6.3% (as a percent of Total operating revenue) Selling, general and administrative, net 17,701 6.9% 17,701 6.9% Equity in losses (earnings) of unconsolidated franchises 219 0.1% 219 0.1% -------- ----------- -------- Total operating costs and expenses 226,754 7,542 234,296 -------- ----------- --------

Earnings before Interest and Taxes 31,464 12.2% (7,542) 23,922 9.3%

Interest expense, net 1,167 0.5% 1,167 0.5% -------- ----------- --------

Pre-tax Profit 30,297 11.7% (7,542) 22,755 8.8%

Provision for income taxes 10,409 4.0% (2,769) 7,640 3.0% -------- ----------- --------

Net Income $ 19,888 7.7% $ (4,773) $ 15,115 5.9% ======== =========== ========

Earnings Per Share: Basic $ 0.30 ($0.07) $ 0.23 ======== =========== ======== Diluted $ 0.30 ($0.07) $ 0.23 ======== =========== ========

Shares: Basic 64,603 64,603 64,603 ======== =========== ======== Diluted 65,636 65,636 65,636 ======== =========== ========

RUBY TUESDAY, INC.

Reconciling Balance Sheet For the Second Quarter of Fiscal Year 2005 (Amounts in thousands)

November 30, 2004 Prior to Adjustment Adjustments for Lease for Lease As CONDENSED BALANCE SHEETS Accounting Accounting Reported -------------------------------- ---------- ---------- --------- Assets Cash and Short-Term Investments $ 6,668 $ 6,668 Accounts and Notes Receivable 8,971 $ 137 9,108 Inventories 16,466 16,466 Deferred Income Taxes 862 225 1,087 Income Tax Receivable 6,989 (155) 6,834 Prepaid Rent 2,444 2,444 Assets Held for Disposal 3,944 3,944 Other Current Assets 7,498 7,498 ---------- ---------- --------- Total Current Assets 53,842 207 54,049 Property and Equipment, Net 829,200 829,200 Goodwill, Net 12,559 12,559 Notes Receivable, Net 29,719 29,719 Other Assets 63,921 2,214 66,135 ---------- ---------- --------- Total Assets $989,241 $ 2,421 $991,662 ========== ========== ========= Liabilities Current Liabilities $ 81,619 $ 704 $ 82,323 Long-Term Debt, including Capital Leases 239,264 239,264 Deferred Income Taxes 49,702 (2,699) 47,003 Other Deferred Liabilities 85,385 9,189 94,574 ---------- ---------- --------- Total Liabilities 455,970 7,194 463,164 Shareholders' Equity 533,271 (4,773) 528,498 ---------- ---------- --------- Total Liabilities and Shareholders' Equity $989,241 $ 2,421 $991,662 ========== ========== =========

--30--CB/na*

CONTACT: Ruby Tuesday, Inc., Maryville Price Cooper, 865-379-5700

KEYWORD: TENNESSEE INDUSTRY KEYWORD: RESTAURANTS FOODS/BEVERAGES RETAIL EARNINGS SOURCE: Ruby Tuesday, Inc.

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