Ruby Tuesday Inc. has agreed to acquire the fast-casual Lime Fresh Mexican Grill chain for $24 million, but the casual-dining operator also plans to close up to 27 underperforming locations of its namesake brand in coming months.
The announcement Wednesday came during Ruby Tuesday’s Feb. 28-ended third quarter report, which officials said showed disappointing results with a 71-percent drop in profit, largely due to impairment charges from the planned closure of 25 to 27 restaurants in the fourth quarter.
However, Sandy Beall, Ruby Tuesday’s founder, chair and chief executive, said the acquisition of Lime Fresh’s intellectual property rights, along with the assets of seven company-owned restaurants, offers the Maryville, Tenn.-based chain an opportunity for growth.
Ruby Tuesday in 2010 signed on as a master franchisee of the Miami-based Lime Fresh brand and currently operates four locations.
Lime Fresh has a total of 15 locations — including franchised units — though future openings will be company operated. Beall said the company plans to add another 20 next year with 30 more planned for 2014.
“The acquisition opens up development opportunities for us all over the United States, in particular Florida, where the brand has realized much success to date,” Beall said.
John Kunkel, Lime Fresh’s founder, will join Ruby Tuesday’s board, Beall said.
Kunkel, who will step down as chief executive of the brand, will retain ownership of the original South Beach location of Lime Fresh as a franchisee.
Through a separate company 50 Eggs Restaurant Group, based in Miami, Kunkel last year opened the “relaxed fine-dining” Yard Bird Southern Table & Bar. A second pork-variation on the concept is scheduled to open later this year called Swine Southern Table & Bar, and Kunkel said two more limited-service concepts are in the works.
For Lime Fresh, Kunkel said the change in ownership will be a “very easy transition,” given Lime Fresh has been working with Ruby Tuesday to develop the brand for more than a year.
“We feel very confident the brand will move in the right direction with the right operator,” he said.
Lime Fresh is seeing same-store sales in the high-single-digit to low-double-digit range year-to-date, he noted.
Ruby Tuesday’s core brand, however, saw same-store sales decline 5 percent in the third quarter at company-owned locations.
Ruby Tuesday Inc. operated 740 locations at the end of the quarter, while franchisees operated another 85 of the brand’s restaurants in the United States and internationally.
The company’s net income also took a hit in the third quarter, dropping to 4.5 million, or 7 cents per share, including $9.6 million in impairment charges, compared with $16 million, or 25 cents per share, a year ago, when the company benefited from accounting gains from franchise partner acquisitions.