I don't follow the restaurant sector closely since there is little growth there (except for something like
Chipotle (CMG)), but I like to keep my eye on a few.
Ruby Tuesday's (RT) is one since its a run of the mill casual dining company.
Back in September, I said this group was toast but since I cannot short individual names, and there is not an ETF to short them, I could not do much except say "well this group is done" (
Tough Times Ahead: Restaurants?) A very simple thesis that is "now" conventional wisdom but back in September we were still in the "subprime is all contained" media hype period
Middle class consumer squeezed along with skyrocketing inputs for their food doesn't bode well for profit margins in this group as a whole. We have the cheese inflation, the dairy inflation, the corn inflation and now the wheat inflation.I was wondering how the heck
Chipotle was holding up at the time since last I checked it also has to buy the same inputs as everyone else, and is not immune to cost inflation. Evidence of this inflation was hitting by October (
Food Inflation Starting to Hit Restaurants)
In mid October we saw
Ruby Tuesday (RT) report a bad quarter (
Let's Check in on Ruby Tuesday's) The stock fell from $19 to $17s..
My analysis was simple "
I have never digged into the stock, but I know it serves food and it serves US consumers and is not at the very low end of fast food. So therefore its a good short (if I could)"
Well now we have
another report out of this lovely company and lo and behold, more pain
- Shares of restaurant chain Ruby Tuesday Inc. fell to their lowest levels in a decade Thursday after the company cut its fiscal 2008 profit forecast. Ruby Tuesday now expects to earn between 40 cents per share and 60 cents per share in the fiscal year ending May 30, far below the company's previous forecast of $1.01 to $1.13 per share. Analysts polled by Thomson Financial already expected the company to report a profit of 51 cents per share.
- The company also predicted a larger decrease in same-store sales, or sales at outlets open at least one year.
This is now a $6 stock.
