- For the six months ending June, 2006,
net income was $631,000 versus.
$1.398 million. - Revenue, however, was up 3.1 percent
versus last year at $72.2 million.
Fuller also commented on the wage and
hour lawsuit that the firm was defending.
This was a class action suit claiming that
restaurants in California did not properly pay
workers for their lunch hours and their
required work breaks. All the other restau-
rants named in the suit have already settled,
but Rubio’s appears ready and willing to go
to trial. The expense of defending the compa-
ny and going to trial would be significant
and could hurt future earnings, according to
Fuller.
Larry Sink discussed the marketing efforts
of the company. He was quite critical of past
efforts. He had four primary reasons for the
ineffectiveness of the marketing:
- Inconsistent brand identity—caught
between low prices and high quality - Uneven advertising—$1 menu did not
match store image - Poor in-store promotions—too many
and too confusing - High fuel prices—reduced customer
driving
He reported that the new plan was to empha-
size quality food, friendly and efficient serv-
ice, fun, and reasonable (but not low) prices.
Rubio’s had just hired a new advertising
agency, Grant, Scott & Hurley of San
Francisco, to emphasize the good taste of the
food.
Ralph Rubio concluded the presentation
with a look toward the future. He assured the
audience that sales would continue to grow
at 3 percent. He vowed to renew the firm’s
new-product development efforts and take
the fish taco to places it had not been before.
Stores would relaunch their take-away busi-
ness. Advanced menu analysis would
improve profitability with a mixture of rea-
sonably priced and upscale items. The
reimaging program would improve the look
and feel of the stores. And better human
resource policy and training would improve
management and the service team members.
During the Q & A session, people asked
questions about the poor financial perform-
ance, the wage and hour lawsuit, and the
CEO search. The executives repeated the
answers to the first and second questions,
and Ralph said that the CEO search was
approaching the critical stage and he could
not comment. There would be no announce-
ment until the deal was done.
Finally, one securities analyst commented
as follows: It appeared that the enterprise
value of each store (market value divided by
number of stores) was $350,000 each. But
the cost to open a new store was around
$500,000. Maybe opening new stores was
not a good use of the company’s cash!
Perhaps the company should buy back its
own stock and focus on getting the stock
price up to the value of the stores.
But Ralph Rubio said he didn’t believe
this focus on stock price was the best way to
go. He said they needed to grow again and
that Rubio’s story was not yet finished. He
would use cash for growth and all the initia-
tives he had earlier described. Besides, he
added, there was not enough stock float out
there to make much of a difference with a
stock re-purchase program.EPILOGUEOn August 22, 2006 (less than a month after
the conference call), Rubio’s announced that
its new president and CEO would be Daniel
Pittard. The search for Miksa’s replacement
had taken almost a year.
Pittard, 56, said that he would try to take
the company into a pricier, more upscale seg-
ment. The days of the $1 special appear to be
over. Pittard said that Rubio’s would try to
attract customers from restaurant chains like
Chevy’s and On the Border. These sit-down
restaurants have more offerings in the casual
than in the fast-casual segment.
Pittard has no prior restaurant experience.
He is a former Pepsico and Amoco executiveRubio’s Restaurants, Incorporated (C) Troubles and Turmoil 2006 473