In April 2008 I posed the question, Is Ruby Tuesday solving the right problem?. At that time Ruby Tuesday announced a $50 million restaurant and brand makeover. I did a simple estimate based on Ruby Tuesday’s own goal of increasing cash flow by 3% and did not include the economic problems. The quick analysis showed the investment to be net negative.
The fiscal second quarter results announced last week point to the restaurant’s woes stemming from the economic crisis. Ruby Tuesday suffered more than the restaurant groups due to its high makeover expense that did not payoff and due to fall in traffic to malls where many of its restaurants are located. The WSJ reports,
While most large restaurant chains are struggling, Ruby Tuesday has had a particularly difficult time. Since 2007, the company has invested heavily in a brand overhaul to make its food and atmosphere more contemporary, but the effort hasn’t reversed the slide in same-store sales. During the past year, its shares have fallen 82%.
The answer to the original question is an absolute No.
Book Review:Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage
I do not recommend this book. It is one thing to explain things in simple terms and another to make it appear that there is nothing more to a complex concept. This book goes over the line items of the three financial statements and explains things like what is COGS, SG&A, etc. It says everything with a prefix, “What Warren looks for is “. It makes certain absolute claims like a high percentage of gross profit spent in SG&A and R&D is bad, a company with large R&D spend obviously does not have competitive advantage (the book reasons, otherwise they would not be spending so much will they?). It misses the point that where the companies choose to spend most indicates its competitive advantage.
Another egregious error is ignoring the footnotes that has the most convoluted language and hide many truths. The book makes no attempt to even point out the existence of footnotes. In fact Warren has said before how he reads the 10-Ks fully in valuing a target. If you want to see a goo reference on interpreting footnotes, check out http://footnoted.org
The net is, don’t waste time reading this book and definitely don’t buy individual stocks based on the methods described.