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Forget Ruby Tuesday (RT), Buy These Restaurant Stocks Instead

All’s not well with Ruby Tuesday, Inc. RT for quite some time now. This TN-based casual dining foodservice retailer released third-quarter fiscal 2016 adjusted earnings of 3 cents on Apr 7 which were in line with the year-ago figure.

However, the company’s quarterly revenues declined 5.1% to $271.5 million owing to the closure of certain underperforming segments. Comps at restaurants also declined 3.1%, comparing unfavorably with the prior quarter growth of 0.8%.

Ruby Tuesday’s restaurants are highly concentrated in the Southeast and East Coast. However, the company’s comps in the areas were affected by inclement weather conditions, which compelled the company to temporarily pull shutters on its restaurants.  Further, traffic took a hit as competitors came up with attractive discounts. In fact, guest count plunged 5.9% from the year-ago quarter.

Restaurant-level margins were 17.1%, down 10 basis points year over year, mainly due to an increase in cost of goods sold and payroll-related expenses, partially offset by a reduction in other restaurant operating costs.

Mirroring the woes, Ruby’s Tuesday slashed its guidance for fiscal 2016. The company now expects adjusted earnings per share in the range of 5 cents to 8 cents, down from the earlier projection of 12 cents to 17 cents. 

The company also lowered its comps guidance and expects fiscal 2016 comps to decline 1% compared to the prior expectation of being in the range of flat to up 1%. The company also lowered its restaurant-level operating margin projection to a range of 16.7% to 17.0% from the prior range of 17.3% to 17.6% for fiscal 2016.

Investors, however, need not sweat bullets just yet as there a handful of restaurant stocks which have better prospects, as is indicated by the strong Zacks Rank and Earnings ESP they flaunt.

4 Alternative Picks

With the help of our Zacks Stock Screener, we screened the following 4 stocks in the restaurant space that are likely to beat earnings.

Dave & Buster's Entertainment, Inc. PLAY

Headquartered in Dallas, TX, Dave & Buster's Entertainment Inc. is an owner and operator of venues in North America that combine dining and entertainment. The company offers its customers the opportunity to Eat and Drink, and Play and Watch in one location. Eat and Drink is offered through a full menu of Fun American New Gourmet entrees and appetizers and a selection of non-alcoholic and alcoholic beverages. The company's Play and Watch platter of offerings provide an assortment of attractions centered on playing games and watching live sports and other televised events.

Dave & Buster's has an Earnings ESP of +1.69% and a Zacks Rank #1 (Strong Buy).

McDonald's Corp. MCD

Based in Oak Brook, IL, McDonald’s Corp. is a leading fast-food chain that operates over 36,000 restaurants in more than 100 countries. The company mainly operates and franchises quick-service restaurants (QSRs) under the McDonald’s brand. The business is managed as distinct geographic segments.

McDonald's carries an Earnings ESP of +1.74% and a Zacks Rank #2 (Buy).

Yum! Brands, Inc. YUM,

Louisville, KY-based Yum! Brands – formerly known as Tricon Global Restaurants, Inc. – was spun off from PepsiCo in Oct 1997. The company currently owns, operates and franchises more than 42,500 fast food stores under the KFC, Pizza Hut and Taco Bell brands in more than 130 countries. In Feb 2012, the company acquired a controlling interest in Little Sheep. Little Sheep is a casual dining concept headquartered in Inner Mongolia, China and operates hot pot restaurants.

Yum! Brands has an Earnings ESP of +1.20% and a Zacks Rank #3 (Hold).

Bojangles', Inc. BOJA

Based in North Carolina, Bojangles’ operates and franchises limited service restaurants in the U.S. 

Bojangles’ has an Earnings ESP of +5.88% and a Zacks Rank #3.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
YUM! BRANDS INC (YUM): Free Stock Analysis Report
 
MCDONALDS CORP (MCD): Free Stock Analysis Report
 
DAVE&BUSTRS ENT (PLAY): Free Stock Analysis Report
 
BOJANGLES INC (BOJA): Free Stock Analysis Report
 
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