Ruby Tuesday, Inc. (RT - Snapshot Report) recently reported first-quarter fiscal 2015 results where losses were narrower than the Zacks Consensus Estimate while revenues missed. The first quarter marked the second consecutive quarter of positive same-restaurant sales and guest count. Given the positive scenario, the company raised the lower end of the same-restaurant sales guidance.

Further, Ruby Tuesday increased its forecast for restaurant-level operating margin while lowering its projection for selling, general, and administrative expenses, which has caught investors’ attention. Share price of the company rose 2.1% in response during the after-market trading hours.

This restaurateur posted a loss of 1 cent a share, significantly narrower than the year-ago loss of 34 cents and the Zacks Consensus Loss Estimate of 13 cents. The upside reflects improvement in comps growth and decline in selling, general and administrative expenses.

Ruby Tuesday Inc - Earnings Surprise | FindTheBest

Meanwhile, total revenue of $281.2 million missed the Zacks Consensus estimate of $286 million by 1.7% and also declined 3% year over year. The downside reflects closure of 38 underperforming restaurants since the first quarter 2014, partially offset by increased same-restaurant sales.

Behind the Headlines

Same-restaurant sales were up 1.1% at company-owned restaurants, better than the 0.4% comps growth in the prior quarter. Also, the sales figure exceeded management’s expectation in the range of down 1%–up 1%. This reflects a 1.3% increase in guest count, considerably better than the 0.2% increase registered in the last quarter and the 1.7% decline of the third quarter. However, the guest count increase was partially offset by a 0.2% drop in net check.

Also, same-restaurant sales surged 6% at 31 domestic Ruby Tuesday franchise restaurants, highlighting an improvement from a 4.9% increase recorded in the previous quarter. Restaurant-level margins stood at 17.4%, up 420 basis points (bps) year over year, owing to brand transformation efforts. This includes approximately 130 bps due to timing and non-recurring items.

Selling, general and administrative expenses, as a percentage of revenues, declined 180 bps to 11% owing to lower marketing expenses on efficient media and production plan.

Fiscal 2015 Guidance

Ruby Tuesday increased the lowered end of the guidance for fiscal 2015, which now stands at 1–2%, compared with the previous expectation of flat to up 2%.

The company expects restaurant-level operating margin to be up 16–17% in fiscal 2015, higher than the previous projection of a 15–16% and 15.1% reported in fiscal 2014. Decline in cost of goods sold, payroll and related costs, and other restaurant operating costs are expected to be partially offset by increase in incentive compensation.

The company lowered its expectation for selling, general and administrative expenses and expects it in the range of $127–130 million for fiscal 2015 compared with the previous expectation of $128–$132 million. The new range is also much lower than the fiscal 2014 expenses of $137.2 million. The decline reflects $5.3 million costs incurred in 2014 related to corporate restructuring and executive transition expenses and savings of $3.5 million from cost reduction initiatives taken in 2014, which will benefit the company in 2015.

Also, Ruby Tuesday expects marketing expenses to decline in fiscal 2015 on the back of benefits from its efficient marketing strategy. However, these benefits will be partially hurt by an increase in incentive compensation levels.

Second Quarter 2015 Guidance

Ruby Tuesday expects same-restaurant sales for the second quarter to be up 1% to 2%.

Our Take

In order to cope up with the weaker same-store sales owing to a slack consumer spending environment, the company reevaluated the menu to add cheaper items and focused on closing underperforming restaurants. We believe that these initiatives have begun to reap benefits.

Other Stocks to Consider

Ruby Tuesday sports a Zacks Rank #1 (Strong Buy). Other players in the industry, which look attractive at current levels, include Chipotle Mexican Grill, Inc. (CMG - Analyst Report), DineEquity, Inc. (DIN - Snapshot Report) and Jack in the Box Inc. (JACK - Snapshot Report). All these stocks carry the same Zacks Rank as Ruby Tuesday.