Stocks That Won’t Exist in a Decade: Ruby Tuesday (RT)
The Way Out: Bankruptcy
There’s another struggling business looking to monetize its real estate: Ruby Tuesday, Inc. (NYSE:RT). Ruby Tuesday still owns 269 of its restaurants, and with business declining, is closing both leased and open properties to bring in cash.
In theory, the numbers work, as Ruby Tuesday restaurants have sold and/or been valued at $1.5 million-$2 million each. Yet Ruby Tuesday has an enterprise value of just $330 million. Hypothetically, Ruby Tuesday could sell its restaurants for at least $400 million, and still have a base of leased restaurants and franchise royalties to add further value.
One major problem is that there are costs in closing even fully-owned restaurants, such as severance costs. Another problem is that the existing business is lagging competitors like Darden Restaurants, Inc. (NYSE:DRI) in what overall is a struggling industry. In sum, the bull case for RT stock is based on one problematic argument: Ruby Tuesday real estate would be more valuable if only it were occupied by anything but a Ruby Tuesday restaurant.
Still, a sale is possible. A real estate firm has taken a 9.5% stake in the company, driving up RT stock in the process. However this plays out, RT is a real estate play at this point – there’s very little value in the business. Ruby Tuesday will be wound down one way or the other – the only question is how much, if anything, shareholders will receive in the process.