RUBY TUESDAY, INC. $7.17 New York Symbol RT

RUBY TUESDAY, INC. $7.17 (New York symbol RT; SI Rating: Speculative) (865-379-5700; www.rubytuesday.com; Shares outstanding: 51.7 million; Market cap: $370.7 million) continues to work at upgrading its image with higher-quality food, improved service, better marketing and re-modelled restaurants. The Ruby Tuesday restaurant chain offers casual American dining. The improved menu now includes 14 different appetizers, handcrafted burgers, a 46-item salad bar, fish, ribs and steaks. Ruby Tuesday owns and operates over 680 restaurants in 20 states. Its United States franchisees operate 199 restaurants in 25 states, and international franchisees operate 54 in the Asia Pacific Region, India, Kuwait, Saudi Arabia, Puerto Rico, Canada, Mexico, Iceland, Eastern Europe, and Central and South America. In the three months ended December 4, 2007, the company lost $0.20 a share, compared to a profit of $0.28 a share a year earlier. Revenues fell 4.7%, to $320.9 million from $336.8 million. Same restaurant sales at company-owned restaurants fell 10.8%. Remodeling costs accounted for $0.07 of the loss in the latest quarter, but most of it was due high gasoline prices and lower consumer confidence in the wake of the housing market slowdown. This continued to limit customer spending. The company is still trying to position itself as offering higher quality food but at higher prices. For example, in the latest quarter, Ruby Tuesday suffered as it found it had to offer lower-profit discount promotions to attract customers in the face of low-priced offerings from competitors. Promotions included unlimited salad bar, soup and fresh bread for $7.99; and lunch combinations starting at $6.99. Ruby Tuesday operates in the competitive and fickle casual dining segment. Like all restaurants, it will gain from an economic rebound. But regardless of economic trends, we think it will succeed in improving its menu and service, as well as its print, radio and TV advertising, to attract customers. The stock trades at only 14.3 times this year’s forecast earnings. Ruby Tuesday is a buy.

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