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Article by DailyStocks_admin    (10-23-08 07:36 AM)

Ruby Tuesday Inc. CEO SAMUEL E III BEALL bought 100000 shares on 10-14-2008 at $3.03

BUSINESS OVERVIEW

Background

The first Ruby Tuesday® restaurant was opened in 1972 in Knoxville, Tennessee near the campus of the University of Tennessee. The Ruby Tuesday concept, which at the time consisted of 16 restaurants, was acquired by Morrison Restaurants Inc. (“Morrison”) in 1982. During the following years, Morrison grew the concept to over 300 restaurants with concentrations in the Northeast, Southeast, Mid-Atlantic and Midwest regions of the United States and added other casual dining concepts, including the internally-developed American Cafe® and the acquired Tias, Inc., a chain of Tex-Mex restaurants. In a spin-off transaction that occurred on March 9, 1996, shareholders of Morrison approved the distribution of two separate businesses of Morrison to its shareholders, Morrison Fresh Cooking, Inc. (“MFC”) and Morrison Health Care, Inc. (“MHC”). In conjunction with the spin-off, Morrison was reincorporated in the State of Georgia and changed its name to Ruby Tuesday, Inc. Ruby Tuesday, Inc. and its majority-owned subsidiaries are sometimes referred to herein as “RTI”, the “Company”, “we” and/or “our”.

We began our traditional franchise program in 1997 with the opening of one domestically and two internationally franchised Ruby Tuesday restaurants. The following year, we introduced a program we called our “franchise partnership program”, under which we own 1% or 50% of the equity of each of the entities that own and operate Ruby Tuesday franchised restaurants. We do not own any of the equity of entities that hold franchises under our traditional franchise programs. As of June 3, 2008, we had 48 franchisees, comprised of 13 franchise partnerships, 17 traditional domestic and 18 traditional international franchisees. Of these franchisees, we have signed agreements for the development of new franchised Ruby Tuesday restaurants with 13 franchise partnerships, 13 traditional domestic and 12 traditional international franchisees. In conjunction with the signing of the franchise agreements, between fiscal 1997 and 2002, we sold 124 Ruby Tuesday restaurants in our non-core markets to our franchisees. Seven additional Ruby Tuesday restaurants were sold or leased by the Company to franchise partnerships in fiscal 2007. In addition, the 12 international franchisees (including Puerto Rico and Guam) hold rights as of June 3, 2008 to develop Ruby Tuesday restaurants in 27 countries.

On November 20, 2000, the American Cafe (including L&N Seafood) and Tia’s Tex-Mex concepts, with 69 operating restaurants, were sold to Specialty Restaurant Group, LLC (“SRG”), a limited liability company owned by the former President of our American Cafe and Tia’s Tex-Mex concepts and certain members of his management team. During fiscal 2007, both SRG, and the company to whom it sold the Tia’s Tex-Mex concept in fiscal 2004, filed for bankruptcy protection.

In fiscal 2008, we acquired certain assets of Wok Hay, LLC. Wok Hay, LLC operated a fast casual Asian restaurant in Knoxville, Tennessee. One of the sellers was granted a 10% minority interest in the subsidiary we formed to acquire the restaurant. We have since converted the acquired restaurant to a full-service Asian restaurant.

Operations

We own and operate the Ruby Tuesday concept in the higher end of the bar and grill segment of casual dining. We also offer franchises for the Ruby Tuesday concept in domestic and international markets. As of June 3, 2008, we owned and operated 721 casual dining restaurants, located in 28 states and the District of Columbia. Also, as of June 3, 2008, the franchise partnerships operated 122 restaurants and traditional franchisees operated 48 domestic and 54 international restaurants. A listing of the states and countries in which our franchisees operate is set forth below in Item 2 entitled “Properties.”

Ruby Tuesday restaurants offer simple, fresh American dining with a wide variety of appetizers, handcrafted burgers, a garden bar which offers up to 46 items, fresh chicken, steaks, crab cakes, salmon, tilapia, fork-tender ribs, and more. Burger choices include such items as beef, bison, turkey, chicken, and crab. Entree selections typically range in price from $6.99 to $18.99. We also offer our RubyTueGo curbside service at both Company-owned and franchised restaurants. This program provides a quick, convenient alternative for active guests who are on the go and a delivered-meals catering program for businesses, organizations, and group events.

In our effort to continue moving our brand towards higher-quality casual dining and to differentiate ourselves from the traditional bar and grill category, we have changed the look and feel of our restaurants. As of June 3, 2008, we have completed the re-imaging of 655 Company-owned restaurants which resulted in a more contemporary-looking exterior and dining rooms that are less cluttered, more comfortable, and more in touch with what we believe to be the tastes and expectations of today’s consumers.

In addition to the completion of the re-imaging of a majority of our Company-owned restaurants, we achieved certain other operational successes in fiscal 2008, including the following:







The implementation of a new guest service system that, although it increased labor costs, contributed to improved guest service ratings during the year;







A reduction in hourly turnover that partially offset the increased cost of our new guest service system; and







Enhancements to our menu through offering higher quality food and beverage items.

At June 3, 2008, the Company owned and operated restaurants concentrated primarily in the Southeast, Northeast, Mid-Atlantic and Midwest of the United States. We consider these regions to be our core markets. We believe our business sector is overbuilt and demand has declined. Because of this, we have suspended our new restaurant openings. We plan to open approximately four Company-owned Ruby Tuesday restaurants during fiscal 2009, all of which were already in progress at the end of fiscal 2008. These new restaurants will primarily be located in existing markets. Existing prototypes range in size from 4,600 to 5,400 square feet with seating for 162 to 230 guests. Because these restaurants provide for substantial seating in proportion to the square footage of the buildings, we believe these restaurants offer an opportunity for improved restaurant-level returns on invested capital. The availability of several different restaurant prototypes enables us to develop restaurants in a variety of different markets, including rural America, locations adjacent to interstate highways, retail locations, as well as our more traditional sites. Other than population and traffic volume, our site selection requirements for these new restaurants include annual household incomes ranging from $50,000 to $80,000, good accessibility to our restaurants, and visibility of the location. Our restaurants are operated by general managers who are rewarded for their ability to grow guest counts, achieve high standards and control certain costs.

Franchising

As previously noted, as of June 3, 2008, we had franchise arrangements with 48 franchise groups which operate Ruby Tuesday restaurants in 23 states, Puerto Rico, Guam, and in 13 foreign countries.



As of June 3, 2008, there were 224 franchise restaurants, including 122 operated by franchise partnerships. We acquired 36 restaurants from franchise partnerships in fiscal 2008 and 28 restaurants in fiscal 2007. Franchisees opened, or acquired from RTI, 14 restaurants in fiscal 2008, 35 restaurants in fiscal 2007, and 32 restaurants in fiscal 2006. We anticipate that our franchisees will open approximately 20 restaurants in fiscal 2009.



Generally, franchise arrangements consist of a development agreement and a separate franchise agreement for each restaurant. Under a development agreement, a franchisee is granted the exclusive right, and undertakes the obligation, to develop multiple restaurants within a specifically described geographic territory. The term of a domestic franchise agreement is generally 15 years, with two five-year renewal options.



For each restaurant developed under a domestic development agreement, a franchisee is currently obligated to pay a development fee of $10,000 per restaurant (at the time of signing a development agreement), an initial franchise fee (which typically is $35,000 in the aggregate for domestic franchisees), and a royalty fee equal to 4.0% of the restaurant’s monthly gross sales, as defined in the franchise agreement. Development and operating fees for international franchise restaurants vary.

Additionally, we offer support service agreements for domestic franchisees. Under the support services agreements, we have one level of support, which is required for franchise partnerships and optional for traditional franchisees, in which we provide specified services to assist the franchisees with various aspects of the business including, but not limited to, processing of payroll, basic bookkeeping and cash management. Fees for these services are typically 2.5% of monthly gross sales for franchise partnerships and about 1.5% for traditional franchisees, as defined in the franchise agreement. There is also an optional level of support services, available only to traditional franchisees, in which we charge a fee to cover certain information technology related support that we provide. All domestic franchisees also are required to pay a marketing and purchasing fee of 1.5% of monthly gross sales. Under the terms of the franchise agreements, we also require all domestic franchisees to contribute a percentage of monthly gross sales, currently 1.0%, to a national advertising fund formed to cover their pro rata portion of the production and airing costs associated with our national cable advertising campaign. Under these terms, we can charge up to 3.0% of monthly gross sales for this national advertising fund.

While financing is the responsibility of the franchisee, we make available to the domestic franchisees information about financial institutions that may be interested in financing the costs of restaurant development for qualified franchisees. Additionally, in limited instances, and only with regard to the franchise partnerships, we provide partial guarantees to certain of these lenders.



We provide ongoing training and assistance to all of our franchisees in connection with the operation and management of each restaurant through the Ruby Tuesday Center for Leadership Excellence, our training facility, meetings, on-premises visits, and by written or other material.

Training

The Ruby Tuesday Center for Leadership Excellence, located in our WOW-U® training facility in the Maryville, Tennessee Restaurant Support Services Center, serves as the centralized training center for all of our and the franchisees’ managers, multi-restaurant operators and other team members. Facilities include classrooms, a test kitchen, and the Ruby Tuesday Culinary Arts Center, which opened in fiscal 2007. The Ruby Tuesday Center for Leadership Excellence provides managers with the opportunity to assemble for intensive, ongoing instruction and hands on interaction. Programs include classroom instruction and various team competitions, which are designed to contribute to the skill and enhance the dedication of the Company and franchise teams and to strengthen our corporate culture. Starting with fiscal 2008, we also offered all team member training materials in a computer-based training (“CBT”) format. CBT enables us to leverage technology to provide an even higher quality training experience and allows for testing at every level to calibrate our team members’ skill levels.

Further contributing to the training experience is the Ruby Tuesday Lodge SM , which is located on a wooded campus just minutes from the Restaurant Support Services Center. Ruby Tuesday Lodge serves as the lodging quarters and dining facility for those attending the Ruby Tuesday Center for Leadership Excellence. After a long day of instruction, trainees have the opportunity to dine and socialize with fellow team members in a relaxed and tranquil atmosphere to be fully immersed in the Ruby Tuesday culture. We believe our emphasis on training and retaining high quality restaurant managers is critical to our long-term success.

Research and Development

We do not engage in any material research and development activities. However, we do engage in ongoing studies to assist with food and menu development. Additionally, we conduct extensive consumer research to determine our guests’ preferences, trends, and opinions, as well as to better understand other competitive brands.

Raw Materials

We negotiate directly with our suppliers for the purchase of raw and processed materials and maintain contracts with select suppliers for both our Company-owned and franchised restaurants. These contracts may include negotiations for distribution of raw materials under a cost plus delivery fee basis and/or specifications that maintain a term-based contract with a renewal option. If any major supplier or our distributor is unable to meet our supply needs, we would negotiate and enter into agreements with alternative providers to supply or distribute products to our restaurants.

We use purchase commitment contracts to stabilize the potentially volatile prices of certain commodities. Because of the relatively short storage life of inventories, limited storage facilities at the restaurants, our requirement for fresh products and the numerous sources of goods, a minimum amount of inventory is maintained at our restaurants. In the event of a disruption of supply, all essential food, beverage and operational products can be obtained from secondary vendors and alternative suppliers. We believe these alternative suppliers can provide, upon short notice, items of comparable quality.

Trade and Service Marks of the Company

We and our affiliates have registered certain trade and service marks with the United States Patent and Trademark Office, including the name “Ruby Tuesday.” RTI holds a license to use all such trade and service marks from our affiliates, including the right to sub-license the related trade and service marks. We believe that these and other related marks are of material importance to our business. Registration of the Ruby Tuesday trademark expires in 2015, unless renewed. We expect to renew this registration at the appropriate time.

Seasonality

Our business is moderately seasonal. Average restaurant sales of our mall-based restaurants, which represent approximately 17% of our total restaurants, are slightly higher during the winter holiday season. Freestanding restaurant sales are generally higher in the spring and summer months.

Competition

Our business is subject to intense competition with respect to prices, services, locations, and the types and quality of food. We are in competition with other food service operations, with locally-owned restaurants, and other national and regional restaurant chains that offer the same or similar types of services and products as we do. In times of economic uncertainty, restaurants also compete with supermarkets as guests may choose to limit spending and eat at home. Some of our competitors may be better established in the markets where our restaurants are or may be located. Changes in consumer tastes, national, regional or local economic conditions, demographic trends, traffic patterns, and the types, numbers and locations of competing restaurants often affect the restaurant business. There is active competition for management personnel and for attractive commercial real estate sites suitable for restaurants.

Government Regulation

We and our franchisees are subject to various licensing requirements and regulations at both the state and local levels, related to zoning, land use, sanitation, alcoholic beverage control, and health and fire safety. We have not encountered any significant difficulties or failures in obtaining the required licenses or approvals that could delay the opening of a new restaurant or the operation of an existing restaurant nor do we presently anticipate the occurrence of any such difficulties in the future. Our business is subject to various other regulations by federal, state and local governments, such as compliance with various health care, minimum wage, immigration, and fair labor standards. Compliance with these regulations has not had, and is not expected to have, a material adverse effect on our operations.

We are subject to a variety of federal and state laws governing franchise sales and the franchise relationship. In general, these laws and regulations impose certain disclosure and registration requirements prior to the offer and sale of franchises. Rulings of several state and federal courts and existing or proposed federal and state laws demonstrate a trend toward increased protection of the rights and interests of franchisees against franchisors. Such decisions and laws may limit the ability of franchisors to enforce certain provisions of franchise agreements or to alter or terminate franchise agreements. Due to the scope of our business and the complexity of franchise regulations, we may encounter minor compliance issues from time to time. We do not believe, however, that any of these issues will have a material adverse effect on our business.

Environmental Compliance

Compliance with federal, state and local laws and regulations which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had, and is not expected to have a material effect on our capital expenditures, earnings or competitive position.

Personnel

As of June 3, 2008, we employed approximately 26,400 full-time and 21,400 part-time employees, including approximately 380 support center management and staff personnel. We believe that our employee relations are good and that working conditions and employee compensation are comparable with our major competitors. Our employees are not covered by a collective bargaining agreement.


CEO BACKGROUND


Mr. Beall has served as Chairman of the Board and Chief Executive Officer of the Company since May 1995 and also as President of the Company since July 2004. Mr. Beall served as President and Chief Executive Officer of the Company from June 1992 to May 1995 and President and Chief Operating Officer of the Company from September 1986 to June 1992. Mr. Beall founded Ruby Tuesday in 1972.

Ms. Grant joined the Company in June 1992 and was named Executive Vice President in April 2007. From January 2005 to April 2007, Ms. Grant served as Senior Vice President, Operations, from September 2003 to January 2005, as Vice President, Operations and, from June 2002 to September 2003, as Regional Partner, Operations.

Mr. Johnson joined the Company in April 2000 and was named Senior Vice President in May 2000. Prior to joining the Company, Mr. Johnson was the President of Hopewell & Co. from February 1997 to April 2000.

Ms. Duffy joined the Company in August 1990 and was named Senior Vice President and Chief Financial Officer in June 2001. Ms. Duffy served as Vice President, Operations Controller of the Company from October 1999 to May 2001.

Mr. Ibrahim joined the Company in July 2001 and was named Senior Vice President, Chief Technology Officer in April 2003. He served as Vice President, Chief Technology Officer from July 2001 to April 2003. Prior to joining the company, Mr. Ibrahim served as a consultant to the Company's Information Technology department from June 1997 to July 2001.

Mr. LeBoeuf joined the Company in July 1986 and was named Senior Vice President, Chief People Officer in June 2003. From August 2001 to June 2003, Mr. LeBoeuf served as Vice President, Human Resources.

Mr. Ingram joined the Company in September 1979 and was named Senior Vice President – President, Franchise Development in October 2007. From May 2004 to October 2007, Mr. Ingram served as President of Franchise and served as President of World Wide Franchise Operations from December 2002 to May 2004.

Mr. Juergens joined the Company in June 1992 and was named Senior Vice President, Development in January 2006. From January 2002 to January 2006, Mr. Juergens served as Vice President, Development.

Mr. Young joined the Company in January 1995 and was named Senior Vice President, Chief Marketing Officer in June 2007. From October 2003 to June 2007, Mr. Young served as Vice President, Advertising, and August 1998 to September 2003 as Vice President, Marketing and Culinary.

MANAGEMENT DISCUSSION FROM LATEST 10K

Introduction

Ruby Tuesday, Inc. (“RTI,” the “Company,” “we” and/or “our”) owns and operates Ruby Tuesday® casual dining restaurants. We also franchise the Ruby Tuesday concept in selected domestic and international markets. In June 2007, we acquired one Wok Hay restaurant, an Asian concept located in Knoxville, Tennessee. As of fiscal year end, we owned and operated 721 Ruby Tuesday restaurants, located in 28 states and the District of Columbia. We also own 1% or 50% of the equity of each of 13 domestic franchisees, with the balance of the equity in these franchisees being owned by the various operators of the franchise businesses. As of year end, these franchisees, which we refer to as “franchise partnerships,” operated 122 restaurants. We have a contractual right to acquire, at predetermined valuation formulas, the remaining equity of any or all of the franchise partnerships. Our other franchisees operated 102 restaurants, including 54 in international markets. In total, our franchisees operate restaurants in 23 states, Puerto Rico, Guam, and 13 foreign countries.



Our fiscal year ends on the first Tuesday following May 30 and, as is the case once every five or six years, we have a 53-week year. Fiscal 2006 was a 53-week year. Fiscal years 2007 and 2008 each contained 52 weeks. In fiscal 2006, the 53 rd week added $24.5 million to restaurant sales and operating revenue and $0.04 to diluted earnings per share in our Consolidated Statement of Income.

References to franchise system revenue contained in this section are presented solely for the purposes of enhancing the investor's understanding of the franchise system, including franchise partnerships and traditional domestic and international franchisees. Franchise system revenue is not included in, and is not, revenue of Ruby Tuesday, Inc. However, we believe that such information does provide the investor with a basis for a better understanding of our revenue from franchising activities, which includes royalties, and, in certain cases, support service income and equity in losses/ (earnings) of unconsolidated franchises. Franchise system revenue contained in this section is based upon or derived from information that we obtain from our franchisees in our capacity as franchisor.



Overview and Strategies



Casual dining, the segment of the industry in which we operate, is intensely competitive with respect to prices, services, convenience, locations, and the types and quality of food. We compete with other food service operations, including locally-owned restaurants, and other national and regional restaurant chains that offer the same or similar types of services and products as we do. Three years ago, our analysis of the Bar and Grill sector of Casual Dining indicated that many of the concepts, including Ruby Tuesday, were not clearly differentiated and as the sector matures this lack of differentiation will make it increasingly difficult to attract new guests to all but the largest companies. Consequently, in response to this analysis, we developed “brand strategies” focusing on Uncompromising Freshness and Quality (high-quality menu items), Gracious Hospitality (guest service), and 5-Star Facilities (the look and atmosphere of our restaurants). Later we added Compelling Value to our strategic focus in response to the difficult operating and consumer environment.



Our first priority was to improve our food with an emphasis on Uncompromising Freshness and Quality. Our Gracious Hospitality initiative comprised upgrading our team selection, image, and performance standards. In the last fiscal year, we reimaged more than 650 Company operated restaurants, creating a fresh, new, updated look for our restaurants and accomplishing our objective of having 5-Star Facilities. The reimaging program was essentially finished in the fourth quarter of fiscal 2008, completing the strategic repositioning of our brand and putting us in position to deliver on our mission of delivering a memorable, high-quality casual dining experience with Compelling Value.



While we were in the process of implementing our brand strategies, consumer spending came under pressure for a variety of reasons and the casual dining segment of the restaurant industry has experienced a difficult operating environment. All of these factors have contributed to declines in same-restaurant sales and our not meeting our targeted financial results for the last two years even though our measures of guest satisfaction have shown increases.



Our same-restaurant sales for Company-owned restaurants declined 9.8% and our diluted earnings per share declined 67.9% in fiscal 2008. Throughout this Management’s Discussion and Analysis of Financial Condition and Results of

Operations (“MD&A”), we discuss our fiscal 2008 financial results in detail as well as provide insight for fiscal years 2006 and 2007. We hope our commentary provides insight as to the factors which impacted our performance. We remind you, that, in order to best obtain an understanding of our financial performance during the last three fiscal years, this MD&A section should be read in conjunction with the Consolidated Financial Statements and related Notes.

We remain committed to increasing shareholder value and have set the following financial goals for fiscal 2009 and beyond:









Get more from our existing restaurants. Our principal focus is to grow same-restaurant sales (same-restaurants are defined as those that have been open at least 18 months) and average annual sales per restaurant, with long-term targets of 2-3% annual growth and $2.4 million, respectively. As shown later in this MD&A section, our average annual sales per restaurant for Company-owned restaurants was $1.9 million in fiscal 2008. Our first priority is to stabilize same-restaurant sales and arrest the current decline. To achieve this, we will continue to focus on our core brand strategies that appear to be successful in improving customer satisfaction. We will also introduce the new Ruby Tuesday brand through a combination of media advertising and local marketing initiatives. Now that each element of the brand compliments the others, we believe we are in a position to more effectively communicate our changes to our guests. If our execution of our brand strategies leads to success in maintaining our current customers and the advertising and marketing initiatives draw in new customers, we believe we can grow same-restaurant sales and average annual restaurant volumes.









Lower our costs. We constantly strive to reduce our cost of doing business at both the corporate and restaurant levels without having a negative impact on quality or our guests’ experience.









Generate free cash flow and improve our balance sheet. Because of our leverage, we are highly focused on maximizing our cash flow. If we are successful in stabilizing same-restaurant sales and maintaining or lowering our costs, we should generate substantial cash flow. Furthermore, our capital requirements are relatively modest as we anticipate only adding approximately four restaurants this year and our maintenance capital spending needs are low because we have remodeled virtually all the Company-owned restaurants within the last year. We define “free cash flow” to be the net amount remaining when purchases of property and equipment are subtracted from net cash provided by operating activities. We anticipate total capital spending in fiscal 2009 to be approximately $25 million, down from $117 million in fiscal 2008. We also estimate we will generate $90-100 million of free cash flow in fiscal 2009, a substantial portion of which will be dedicated to the reduction of debt. Similarly, free cash flow generated in the next few years following fiscal 2009 will also be used to reduce debt. Our objective is to reduce debt as quickly as possible to the point where the payment of dividends and share repurchases will no longer be restricted by our loan agreements. We are also evaluating other ways we could reduce bank debt and strengthen our balance sheet.

Results of Operations

Ruby Tuesday Restaurants

During fiscal 2007:







73 Company-owned Ruby Tuesday restaurants were opened or acquired, including 28 purchased from our Orlando and South Florida franchisees;







22 Company-owned Ruby Tuesday restaurants were sold or closed, including seven sold or leased to our St. Louis and Western Missouri franchisees; and







Aside from the restaurants purchased or leased from or sold to the Company, 28 (18 domestic and 10 international) franchise restaurants were opened and five (two domestic and three international) were closed.



Restaurant Sales

Restaurant sales in fiscal 2008 decreased 3.5% from fiscal 2007 for Company-owned restaurants and 12.7% for domestic and international franchised restaurants as explained below. The tables presented below reflect restaurant sales for the last five years, and other revenue information for the last three years.

Our decrease in Company restaurant sales in fiscal 2008 is attributable to a 9.8% decrease in same-restaurant sales and lower overall average restaurant volumes, which were partially offset by a net addition of 41 restaurants since the prior year. The decrease in same-restaurant sales is partially attributable to reductions in customer counts, as there have been pressures on the consumer such as rising fuel prices, at a time concurrent with that of our move toward the higher end of casual dining. We also believe that other factors contributing to the decline include the loss of some of our customers who do not feel as comfortable in our re-imaged restaurants, the impact of heavy price-focused advertising by some of our traditional competitors, and leveling of sales growth in the casual dining segment of the restaurant industry resulting from the growth of supply outpacing that of demand.

Our increase in Company restaurant sales in fiscal 2007 is attributable to the net growth in number of restaurants partially offset by a decrease in same-restaurant sales and the addition of a 53 rd week in the prior year. During the year, we added a net of 51 restaurants. Same-restaurant sales for Company-owned restaurants decreased 1.4% in fiscal 2007. The decrease in same-restaurant sales is partially attributable to a leveling of sales growth in the casual dining segment of the restaurant industry as new restaurant growth has outpaced demand, coupled with pressures on the consumer such as rising fuel prices and higher short-term interest rates.

Franchise development and license fees received are recognized when we have substantially performed all material services and the restaurant has opened for business. Franchise royalties (generally 4% of monthly sales) are recognized as franchise revenue on the accrual basis. Franchise revenue decreased 9.5% to $13.6 million in fiscal 2008 and 4.6% to $15.0 million in fiscal 2007. Franchise revenue is predominantly comprised of domestic and international royalties, which totaled $12.9 million and $14.0 million in 2008 and 2007, respectively. The decreases in fiscal 2008 and 2007 are due in part to the acquisition of certain franchise partnership entities in the respective fiscal years, temporarily reduced royalty rates for certain franchisees, and the addition of a 53 rd week in fiscal 2006.

The 12.7% decrease in fiscal 2008 franchise restaurant sales is due to a decrease in average restaurant volumes as a result of a 7.6% decrease in domestic same-restaurant sales coupled with the acquisition of three franchise partnerships during the current year.

The 2.8% increase in fiscal 2007 franchise restaurant sales is due in part to an increase in average restaurant volumes as a result of an increase in domestic same-restaurant sales, partially offset by the acquisition of two franchise partnerships during fiscal 2007 and the addition of a 53 rd week in fiscal 2006.

Pre-tax Income

For fiscal 2008, pre-tax profit was $23.7 million or 1.7% of total revenue, as compared to $132.4 million or 9.4% of total revenue, for fiscal 2007. The decrease is primarily due to decreases in same-restaurant sales coupled with increases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of cost of merchandise, payroll and related costs, other restaurant operating costs, depreciation, selling, general, and administrative expenses, equity in losses of unconsolidated franchises, and interest expense, net.



For fiscal 2007, pre-tax profit was $132.4 million or 9.4% of total revenue, as compared to $151.0 million or 11.6% of total revenue, for fiscal 2006. The decrease is primarily due to decreases in same-restaurant sales coupled with increases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of cost of merchandise, other restaurant operating costs, selling, general and administrative expenses, and interest expense, net. Other factors impacting the change in pre-tax income include the impact of the 53 rd week in fiscal 2006, the loss from the Specialty Restaurant Group, LLC (“SRG”) bankruptcy, and increased losses from our equity in earnings of unconsolidated franchises as discussed below.

Cost of Merchandise

Cost of merchandise, as a percentage of restaurant sales and operating revenue, increased 0.6% in fiscal 2008 primarily due to increased food and beverage costs as a result of offering higher quality menu items as part of our strategy to offer compelling value to our guests. Enhancements during the year include increasing the size of steak with the sirloin and jumbo-lump crab cake entrée, adding salmon entrées to our menu, and offering promotions featuring ribs and seafood to our guests. Additionally, we utilized direct mail and freestanding insert coupons for various promotions throughout the year, with heaviest usage occurring in the second fiscal quarter. These promotions had the impact of reducing our average food check and increasing the related food cost as a percentage of restaurant sales and operating revenue. Wine cost also increased as we transitioned to higher grade premium wines.

Cost of merchandise, as a percentage of restaurant sales and operating revenue, increased 0.4% in fiscal 2007 primarily due to increased food and beverage costs as a result of product enhancements including items rolled out as part of our fresh program, an increase in the french fry portion size, a higher quality garden bar, and transitioning to premium wines and liquors.

Payroll and Related Costs

Payroll and related costs, as a percentage of restaurant sales and operating revenue, increased 2.3% in fiscal 2008 primarily due to higher hourly labor relating to the rollout of the quality service specialist program during the current year, minimum wage increases in several states during the current year, and higher management labor due to loss of leveraging with lower sales volumes.

Payroll and related costs, as a percentage of restaurant sales and operating revenue, remained consistent in fiscal 2007 with fiscal 2006 as increased wages were offset by favorable health claims experience. Wages increased in both the front and back of the house due to the addition of training manager positions in fiscal 2007, increased spending on line cooks and food runners, as well as minimum wage increases in several states.

Other Restaurant Operating Costs

Other restaurant operating costs, as a percentage of restaurant sales and operating revenue, increased 2.3% in fiscal 2008 primarily due to higher utility costs, primarily electricity, higher repairs due to increased maintenance contracts and equipment replacement costs, higher credit card expense due to recognition of income in the prior year resulting from a settlement with a credit card vendor, higher rent and lease required expenses due to the acquisition of three franchise partnerships during the year, an increase in asset impairment charges, and loss of leveraging with lower sales volumes.

Other restaurant operating costs, as a percentage of restaurant sales and operating revenue, increased 0.3% in fiscal 2007 primarily due to higher utility costs, primarily electricity, higher supplies as a result of upgraded plateware, glassware, and To Go containers, and higher building and equipment repairs. Partially offsetting these increases were decreased bad debt expenses associated with certain franchise notes receivable and decreased losses from the sale or impairment of certain properties.

Depreciation and Amortization

Depreciation and amortization, as a percentage of restaurant sales and operating revenue, increased 1.5% in fiscal 2008 primarily due to accelerated depreciation ($12.9 million) for restaurants re-imaged as part of our re-imaging initiative which had begun in the latter part of fiscal 2007 and loss of leveraging with lower sales volumes.

Depreciation and amortization, as a percentage of restaurant sales and operating revenue, remained consistent in fiscal 2007 with fiscal 2006 as the increase resulting from accelerated depreciation ($1.3 million) for restaurants remodeled during 2007 was offset by reduced depreciation for older leased restaurants as initial leasehold improvements became fully depreciated.

Loss from Specialty Restaurant Group, LLC Bankruptcy

SRG, the company to whom we sold our American Cafe and Tia’s Tex-Mex restaurants concepts in fiscal 2001, closed 20 restaurants on January 2, 2007 as well as several others earlier in fiscal 2007. SRG declared Chapter 11 bankruptcy on February 14, 2007, leading RTI to record a pre-tax charge of $5.8 million during fiscal 2007 for leases for which we have primary liability. See Note 10 to the Consolidated Financial Statements for more information regarding the SRG leases.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, as a percentage of total revenue, increased 0.4% in fiscal 2008. The increase is attributable to higher share-based compensation expense due to expensing in fiscal 2008 of a restricted share grant awarded to a retirement-eligible executive. Share-based compensation expense increased $2.8 million in fiscal 2008 to $13.0 million, net of amounts capitalized. Additionally, advertising expense was higher due to utilizing a direct mail program in conjunction with the completion of re-imaged restaurants. Support service, marketing and advertising fee income from franchisees, which is recorded as an offset to selling, general and administrative expenses, was lower due to the acquisitions of three franchise partnerships during the current year, temporarily reduced rates for certain franchise partnerships, and reduced requirements for our national advertising fund. These increased expenses (and reduced income amounts) were partially offset by lower cable and television expense due to less air time.

Selling, general and administrative expenses, as a percentage of total revenue, increased 0.3% in fiscal 2007. The increase is attributable to higher share-based compensation expense as a result of the adoption of the Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), “Share-Based Payment.” Share-based compensation expense increased $10.0 million in fiscal 2007 to $10.2 million, net of amounts capitalized. This increase was partially offset by lower bonus expense.

Equity in Losses/(Earnings) of Unconsolidated Franchises

For fiscal 2008, our equity in the losses of unconsolidated franchisees was $3.5 million as compared to $1.3 million in fiscal 2007. The change primarily resulted from an increase in losses from investments in certain of the franchise partnerships, due in part to same-restaurant sales declines. As of June 3, 2008, we held 50% equity investments in each of six franchise partnerships which collectively operate 73 Ruby Tuesday restaurants.

For fiscal 2007, our equity in the losses of unconsolidated franchisees was a $1.3 million loss as compared to a $0.9 million income in fiscal 2006. The change was primarily due to the acquisition of the Orlando franchise in the first quarter of fiscal 2007, coupled with increased losses associated with certain 50%-owned franchises due in part to same-restaurant sales declines of certain franchisees, primarily in the fourth fiscal quarter, coupled with higher interest expense due to increased debt associated with new restaurant openings and restaurant acquisitions from RTI and higher hourly labor costs as a result of minimum wage increases.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations:

The following is an overview of our results of operations for the 13-week period ended September 2, 2008:

Net income decreased to $0.3 million for the 13 weeks ended September 2, 2008 compared to $11.1 million for the same quarter of the previous year. Diluted earnings per share for the fiscal quarter ended September 2, 2008 decreased to $0.01 compared to $0.21 for the corresponding period of the prior year as a result of a decrease in net income as discussed below, partially offset by fewer outstanding shares.

During the 13 weeks ended September 2, 2008:







Two Company-owned Ruby Tuesday restaurants were opened;







Eight Company-owned Ruby Tuesday restaurants were closed;







Four franchise restaurants were opened and two were closed; and







Same-restaurant sales at Company-owned restaurants decreased 10.8%, while same-restaurant sales at domestic franchise Ruby Tuesday restaurants decreased 7.9%.

Revenue

RTI’s restaurant sales and operating revenue for the 13 weeks ended September 2, 2008 decreased 6.3% to $321.2 million compared to the same period of the prior year. This decrease primarily resulted from a 10.8% decrease in same-restaurant sales, lower overall average restaurant volumes, offset by a net increase of 24 restaurants from the same quarter of the prior year. The decrease in same-restaurant sales is partially attributable to reductions in customer counts, due to consumer pressures such as rising fuel prices, at a time concurrent with our move toward the higher end of casual dining. We also believe that other factors contributing to the decline include the loss of some of our customers who do not feel as comfortable in our re-imaged restaurants, the impact of heavy price-focused advertising by some of our traditional competitors, and leveling of sales growth in the casual dining segment of the restaurant industry resulting from the growth of supply outpacing that of demand.

Franchise revenue for the 13 weeks ended September 2, 2008 decreased 26.8% to $2.8 million compared to the same period of the prior year. Franchise revenue is predominately comprised of domestic and international royalties, which totaled $2.6 million and $3.7 million for the 13-week periods ended September 2, 2008 and September 4, 2007, respectively. This decrease is due to a decrease in royalties from domestic franchisees as a result of a decrease in same-restaurant sales for domestic franchise Ruby Tuesday restaurants of 7.9% in the first fiscal quarter of fiscal 2008, temporarily reduced royalty rates for certain franchisees, and the acquisitions of franchisees in the prior year.

Under our accounting policy, we do not recognize franchise fee revenue for any franchise partnership with negative cash flows at times when the negative cash flows are deemed to be anything other than temporary and the franchise has either borrowed directly from us or through a facility for which we provide a guarantee. Accordingly, we have deferred recognition of a portion of franchise revenue from certain franchise partnerships. Unearned income for franchise fees was $1.3 million and $3.4 million as of September 2, 2008 and June 3, 2008, respectively, which are included in other deferred liabilities and/or accrued liabilities – rent and other in the Condensed Consolidated Balance Sheets. The reduction in unearned income is primarily attributable to fee rebates given to certain franchise partnerships during the first quarter of fiscal 2009. These franchise fee rebates were recognized by the franchise partnerships as income. For 50%-owned franchise partnerships, these rebates created income of $0.7 million which is included in Equity in (earnings)/losses of unconsolidated franchises in the Condensed Consolidated Statement of Income for the thirteen weeks ended September 2, 2008, as discussed below.

Pre-tax Income

Pre-tax income decreased to $0.4 million for the 13 weeks ended September 2, 2008, over the corresponding period of the prior year. This decrease is primarily due to a decrease of 10.8% in same-restaurant sales at Company-owned restaurants combined with increases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of cost of merchandise, payroll and related costs, other restaurant operating costs, and interest expense, net. These higher costs were offset by lower, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, depreciation and selling, general and administrative expenses, net. In the paragraphs which follow, we discuss in more detail the components of the decrease in pre-tax income for the 13-week period ended September 2, 2008, as compared to the comparable period in the prior year.

Cost of Merchandise

Cost of merchandise decreased 5.5% to $87.6 million for the 13 weeks ended September 2, 2008, over the corresponding period of the prior year. As a percentage of restaurant sales and operating revenue, cost of merchandise increased from 27.0% to 27.3%. This increase is due to increased food and beverage costs as a result of offering higher quality menu items as part of our strategy to offer compelling value to our guests. Enhancements made since the first quarter of the prior year include increasing the size of steak with the sirloin and jumbo-lump crab cake entrée and offering shrimp promotions to our guests during the current quarter. Additionally, we utilized direct mail and freestanding insert coupons for various promotions during the current quarter. These promotions had the impact of reducing our average food check and increasing the related food cost as a percentage of restaurant sales and operating revenue. Wine cost also increased as we transitioned to higher grade premium wines since the first quarter of the prior year.



Payroll and Related Costs

Payroll and related costs decreased 0.1% to $109.8 million for the 13 weeks ended September 2, 2008, as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, payroll and related costs increased from 32.1% to 34.2%. This increase is primarily due to higher hourly labor relating to the rollout of the quality service specialist program during the second quarter of the prior year, minimum wage increases in several states since the first quarter of the prior year, and higher management labor due to loss of leveraging with lower sales volumes.

Other Restaurant Operating Costs

Other restaurant operating costs increased 5.4% to $70.5 million for the 13-week period ended September 2, 2008, as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, these costs increased from 19.5% to 21.9%. The increase is due to higher utility costs, primarily electricity, higher asset impairment charges ($1.7 million in fiscal 2009 as compared to $0.4 million in fiscal 2008), a decrease of $1.5 million in gains on the sale of property, and higher rent and lease required expenses as a result, in part, of franchise partnership acquisitions since the first quarter of the prior year.

Depreciation and Amortization

Depreciation and amortization decreased 14.7% to $20.1 million for the 13-week period ended September 2, 2008, as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, these expenses decreased from 6.9% to 6.3% primarily due to accelerated depreciation in the prior year ($3.9 million) for restaurants re-imaged as part of our re-imaging initiative.

Selling, General and Administrative Expenses, Net

Selling, general and administrative expenses, net of support service fee income totaling $1.8 million, decreased 11.7% to $26.3 million for the 13-week period ended September 2, 2008, as compared to the corresponding period in the prior year. As a percentage of total operating revenue, these expenses decreased from 8.6% to 8.1%. The percentage decrease is primarily a result of a $1.1 million reduction in cable television advertising due to less air time and a decrease in management labor ($0.9 million), partially offset by a $0.8 million decrease in support service fee income.

Equity in (Earnings)/Losses of Unconsolidated Franchises

Our equity in the earnings of unconsolidated franchises was $0.5 million for the 13 weeks ended September 2, 2008, as compared to a loss of $0.8 million for the corresponding period in the prior year. The increase in earnings is attributable to higher profits at the six 50%-owned franchise partnerships and the acquisition of two franchise partnerships since the first quarter of the prior year. The increased earnings primarily resulted from reduced fees charged to four of the six 50%-owned partnerships as compared to the prior year, along with rebates from RTI for $0.7 million of fees charged in fiscal 2008.

As of September 2, 2008, we held 50% equity investments in each of six franchise partnerships, which collectively operate 72 Ruby Tuesday restaurants. As of September 4, 2007, we held 50% equity investments in each of seven franchise partnerships, which then collectively operated 82 Ruby Tuesday restaurants.

Interest Expense, Net

Net interest expense increased $2.7 million for the 13 weeks ended September 2, 2008, as compared to the corresponding period in the prior year, primarily due to higher average debt outstanding resulting from the acquisition of two franchise partnerships since the first quarter of the prior year and higher rates on certain of our restructured debt as discussed in the “Liquidity and Capital Resources” section following.

Provision for Income Taxes

The effective tax rate for the current quarter was 21.3%, down from 29.9% for the same period of the prior year. The effective income tax rate decreased as a result of the impact of tax credits, which remained consistent as compared to the prior year or increased, and a decrease in taxable income offset by settlements of audits in the prior year.

Our MD&A is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make subjective or complex judgments that may affect the reported financial condition and results of operations. We base our estimates on historical experience and other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We continually evaluate the information used to make these estimates as our business and the economic environment changes.

We believe that of our significant accounting policies, the following may involve a higher degree of judgment and complexity.

Share-based Employee Compensation

We account for share-based compensation in accordance with Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123(R)”). As required by SFAS 123(R), share-based compensation expense is estimated for equity awards at fair value at the grant date. We determine the fair value of equity awards using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires various highly judgmental assumptions including the expected dividend yield, stock price volatility and life of the award. If any of the assumptions used in the model change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period. See Note C to the Condensed Consolidated Financial Statements for further discussion of share-based employee compensation.

Impairment of Long-Lived Assets

We evaluate the carrying value of any individual restaurant when the cash flows of such restaurant have deteriorated and we believe the probability of continued operating and cash flow losses indicate that the net book value of the restaurant may not be recoverable. In performing the review for recoverability, we consider the future cash flows expected to result from the use of the restaurant and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the restaurant, an impairment loss is recognized for the amount by which the net book value of the asset exceeds its fair value. Otherwise, an impairment loss is not recognized. Fair value is based upon estimated discounted future cash flows expected to be generated from continuing use through the expected disposal date and the expected salvage value. In the instance of a potential sale of a restaurant in a refranchising transaction, the expected purchase price is used as the estimate of fair value.

If a restaurant that has been open for at least one quarter shows negative cash flow results, we prepare a plan to reverse the negative performance. Under our policies, recurring or projected annual negative cash flow signals a potential impairment. Both qualitative and quantitative information are considered when evaluating for potential impairments.

At September 2, 2008, we had 43 restaurants that had been open more than one year with rolling 12 month negative cash flows. Of these 43 restaurants, four had previously been impaired to salvage value. We reviewed the plans to improve cash flows at each of the other 39 restaurants and concluded that impairments existed at fourteen of these restaurants. Impairment charges of $1.4 million were recorded during the quarter for restaurants open as of September 2, 2008. Should sales at these restaurants not improve within a reasonable period of time, further impairment charges are possible. Considerable management judgment is necessary to estimate future cash flows, including cash flows from continuing

use, terminal value, closure costs, salvage value, and sublease income. Accordingly, actual results could vary significantly from our estimates. In addition to the above, impairments totaling $0.3 million were recorded during the first quarter of fiscal 2009 on non-operating assets, including those classified as held for sale in our September 2, 2008 Condensed Consolidated Balance Sheet.

Our goodwill, which totaled $18.9 million at September 2, 2008, is not amortized. We perform tests for impairment annually, or more frequently if events or circumstances indicate it might be impaired. Impairment tests for goodwill include comparing the fair value of the respective reporting unit with its carrying value, including goodwill. We use a variety of methodologies in conducting these impairment assessments, including cash flow analyses that are consistent with the assumptions we believe hypothetical marketplace participants would use, estimates of sales proceeds and other measures, such as fair market price of our common stock, as evidenced by closing trade price. Where applicable, we use an appropriate discount rate that is commensurate with the risk inherent in the projected cash flows. If market conditions at either the restaurant store level or system-wide deteriorate, or if operating results decline unexpectedly, we may be required to record additional impairment charges.
CONF CALL

Steve Rockwell

Thank you, Manny and thanks to all of you for joining us this evening. With me today are Sandy Beall, Ruby Tuesday Chairman and CEO, and Margie Duffy, Chief Financial Officer. In addition, Kimberly Grant, our Executive Vice President of Operations and Mark Young, our Senior VP of Marketing, are with us for the Q&A portion of the call.

I would like to remind you that there are likely to be forward-looking statements in our comments and I refer you to the note regarding forward-looking information in our press release and most recently filed Form 10-K. A copy of our press release can be found on the investor relations section of our website at rubytuesday.com. We plan to release second quarter fiscal ‘09 earnings in early January of 2009. Our first quarter earnings were released today after the market closed and were available on Businesswire, First Call, and other wire services.

Our format today includes an overview of our first quarter fiscal 2009 results, our updated fiscal 2009 outlook and a review of our plans and strategies. At the conclusion of our prepared remarks, we will open the lines for questions.

I will now turn the call over to Margie.

Marguerite N. Duffy

Thank you, Steve and good evening, everyone. I’ll take a few minutes to touch on our first quarter financial results and continuing fiscal 2009 financial plans, then Sandy will update you on our business plans and initiatives.

As you saw in our release, we reported diluted earnings per share for the quarter of $0.01. The positive is we generated enough cash flow to repay $40 million of debt during the quarter. Total revenue for the quarter decreased by 6.6%, driven by the 10.8% decline in same-restaurant sales, offset by an average of 5% more restaurants in operation, largely reflecting the acquisition of 25 franchise restaurants in the second quarter of fiscal 2008. We closed a net of six revenues during the quarter.

Restaurant level margins were 16.6% compared to 21.4% in the prior year. Food costs were higher due to offering higher quality menu items, as well as better pricing to our guests.

Labor costs were higher due to increases in minimum wage in several states and higher management labor because of a loss of leveraging with lower sales volumes. The other operating expense line was 240 basis points higher than the same quarter of the prior year. The bulk of this increase was due to higher utilities, higher rent from leased restaurants purchased from our franchisees, increased impairment charges, and a loss of leverage on certain relatively fixed costs.

SG&A costs decreased 50 basis points as a percent of operating revenue principally because of lower advertising expenses. We were on television only eight weeks during the quarter, a 25% decline from a year earlier when we were on air for 11 weeks. Management labor also declined year to year.

Equity and earnings of our franchisees was higher than prior year, due primarily to providing fee relief to several of our franchise partnerships as we continue to work closely with our franchise partners to improve their profitability during these soft economic times.

Interest expense was in line with our expectations.

In looking at the balance sheet, we ended the quarter with book debt of $565 million, down approximately $40 million from the end of our fiscal year, and total debt, including operating leases, guarantees, and letters of credit of approximately $857 million.

With our reimaging completed and new unit development effectively on hold, capital expenditures were only $6 million for the quarter.

As we indicated in our press release this afternoon, our revised guidance is as follows: we expect to open two additional company-operated restaurants later in the year and anticipate closing 10 locations with lease expirations at this time. For the year, we expect same-restaurant sales to be down in the mid-single-digit range with sequential improvement throughout the year. EPS is expected to be in the $0.30 to $0.35 range. We expect restaurant operating margins to be down as higher labor and other operating expenses reflecting lost leverage from the lower sales are partially offset by lower food costs. Depreciation is projected in the $79 million to $81 million range and SG&A is targeted to be down approximately 10% to 15%. Interest expense is projected to be up 25% to 30%, reflecting higher interest rates. At this time, we expect to record a tax credit for the year. We expect to generate $80 million to $90 million of operating free cash flow for the year.

Now, let me turn the call over to Sandy for an update on our strategies and initiatives.

Samuel E. Beall

Thanks, Margie and thank you for joining us, listening on the phone and the web. We appreciate your interest in Ruby’s.

The first quarter definitely continued to be a challenging one for us, the industry as well as the consumer. With the weaker economy, the housing crisis, all these things that you know about, it’s been very, very difficult. The consumer is spending less and that’s reflected in our sales and in the industry sales.

In the face of these challenges though, the good thing as Margie mentioned is our cash flow is very strong, enabling us to pay down $40 million of debt. I think that’s very important for our company. We also continued to see an increase in our guest satisfaction scores and we managed our controllable costs relatively well, I believe.

We implemented a new menu design during the quarter that has more personality than earlier ones. It offers much greater value to the guest and has enabled us to essentially maintain our check up approximately 1% but maintain our check compared with last year. Now the check increase was essentially flat.

Price value is the key in this environment, price more so than value, really, and we plan on promoting our price and that value more aggressively in the coming months as we overlap only six weeks of advertising in the last five months of our year.

With all of our recent initiatives in place, completed, including our reimaging and renewed emphasis on price value, we believe we are very well-positioned to communicate our value to our guests. We remain committed to our four key strategies -- uncompromising freshness and quality, gracious hospitality, a fresh new look for our restaurants, five-star facilities, we call it, and compelling value. We believe staying true to these strategies is the best way to differentiate ourselves from our competitors and positions us very favorably as we move forward and hopefully when the consumer comes back, we’ll benefit from improved situation.

Our teams remain passionate about executing our strategies. Our team strength has never been better. Our turnover for hourly and management teams is excellent. Hourly actually will hit the lowest that I can remember in the last 30 years, actually.

We continue to easily attract excellent management candidates from high quality casual dining concepts. They see the difference in the concept’s food, service, look and feel and most importantly, the passion of our teams towards quality.

We continue to challenge and push ourselves to be better, whether it’s improving our brand, whether it’s cutting cost, whether it’s figuring out how to make the balance sheet better by just being better overall. We want to attract more guests, we need to attract more guests.

Some examples of what we are doing -- first, we have to know who we are, what we are, and what’s important to our guests. We are about the best burger in the business. We know that. We are to burgers what Outback is to steaks and Olive Garden is to pasta. Forty-percent of our guests order one of our great burgers, whether it’s the minis or the handcrafted or the triple prime. Our burgers are extremely good. They are very highly rated by our guests. We use all the fresh meat. We use choice meat, we use prime meat, we use premium leaf lettuce versus shredded lettuce, vine-ripened tomatoes, pickles, et cetera. Anyway, you get the point -- we build a great burger and it’s so good that we actually guarantee it.

Our other high quality, high value menu items complement our burgers and hopefully when somebody comes in and gets a burger, we can sell them one of our craveables, like our slow-roasted ribs, our New Orleans seafood, one of our salad bar combinations or fresh jumbo lump crabcakes.

Also in this environment, it’s about best prices and best value. Our October menu printing, which will be out I think it’s October 21st, will have a few key items at even more competitive pricing. Our July menu had very competitive value. In October, we’ll even take it a couple of steps further. We’ll be highlighting our burgers, that great burger from $5.99, a powerful price point for the best burger around. Attractive prices like this will enable us to better communicate or actually get more effect from the ads when we are on television.

Also, we believe we need to add more fun and energy to our restaurants in our bar areas, especially in these difficult economic times, un-fun times, I call them. So we need to lighten it up a little bit, lighten up our guest’s day with a little better music, more energy in our menu and our promotional materials and our advertising.

We also plan on increasing television advertising more than originally planned in the back half of our year to help drive our guests. We have a fresh new brand with great food and service and a fresh new look. Now is the time to invest, even though it may seem like the most unlikely time. I think we have to invest as much as we possibly can in our business to attract guests to see what’s new at Ruby Tuesday.

We want to run our business more offensively than we have really in the last nine months. I think that’s important. Our advertising will send a clear, consistent message on who and what Ruby Tuesday is today, with more television support in local and regional promotions in addition to the television.

We’ll communicate our great food and value, giving consumers a powerful reason to give us a try. I think this will even be better than the ad we are currently running, which is actually doing well, our mini ad, which is a very differentiated product, our mini trio ad, where we are getting decent results there.

We are also investing in a stronger sales building culture. It’s not just our marketing department but Kimberly has an entire operations team thinking more about sales. We want them to be as good, learn to be as good at building sales locally as we are cost control, which we are excellent there. This involves training, dedicated manpower, focus, local and regional programs, and of course investing in some marketing and promotional dollars, especially in southern locations, which we started last month.

Our same-store sales decline is exaggerated by our locations in the south where we have over half of our restaurants. The rate of decline at these locations was about 50% higher than that of our restaurants in the north during the first quarter, and this has continued into September. We are addressing this sales discrepancy with a dedicated team that just focuses on the south, promotional and advertising activity market by market.

In addition to strengthening our brand, we are also looking for ways to strengthen our balance sheet and increase our financial flexibility. We continue to work with our financial advisors to evaluate the impact and cost of various options. Very few exist in this kind of marketplace but those come and go but we are constantly working on that.

Our most important focus though is to continue to strengthen our balance sheet by paying down significant levels of debt from internally generated cash flow, just like we did in the first quarter. Because of our recent reimaging, we require very little capital for our business. This year it’s in that $23 million, $24 million, $25 million range but going forward, it’s only in that $15 million plus range every year, so we are positioned to continue deleveraging from internal cash flow.

Our sales focus for the year, just to recap that, executing on a clear brand vision; number two, creating more energy and fun for our guests; number three, establishing even greater value through selectively pricing menu items more attractively; number four, creating a high energy sales culture; number five, starting to advertise more consistently and competitively, and on price than we have in the past year; and number six, focusing on our weakest area, the south, with a dedicated team and tailored plan.

We are also committed to managing our costs. We know in these times we have to continue to reduce cost, reduce them further. I think we’ve done a good job reducing costs in the last year but it’s not enough. We have to go further. This will enhance our ability to pay down even more debt and strengthen our balance sheet even further.

These are difficult times for all. We’ve made great investments in our brand and our operations teams have executed them very, very well and we brought those investments to life, I believe. I am very proud of what I see when I go into Ruby Tuesday. It’s resulted in the best food, the best service, the best team members and five star facilities we’ve ever had.

I want to thank you for your interest and I’ll now open it up for questions.


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