General:

Ruby Tuesday, Inc., including its wholly-owned subsidiaries ("RTI," the "Company," "we" and/or "our"), owns and operates Ruby Tuesday® casual dining restaurants and two Wok Hay restaurants. We also franchise the Ruby Tuesday concept in selected domestic and international markets. As of September 1, 2009 we owned and operated 670, and franchised 226, Ruby Tuesday restaurants. Ruby Tuesday restaurants can now be found in 46 states, the District of Columbia, 13 foreign countries, and Guam.

Overview and Strategies

Casual dining, the segment of the industry in which we operate, is intensely competitive with respect to prices, services, convenience, locations, and the types and quality of food. We compete with other food service operations, including locally-owned restaurants, and other national and regional restaurant chains that offer the same or similar types of services and products as we do. In 2005, our analysis of the bar and grill segment within casual dining indicated that many concepts, including Ruby Tuesday, were not clearly differentiated. We believed that as the segment continued to mature, the lack of differentiation would make it increasingly difficult to attract new guests. Consequently, we created brand reimaging initiatives to implement our strategy of clearly differentiating Ruby Tuesday from our competitors. We implemented our strategy in stages, first focusing on food, then service, and in 2007, we embarked on the most capital intensive aspect of our reimaging program - the creation of a fresh new look for our restaurants. Offering compelling value, our fourth initiative, is especially important in a difficult economy such as we are currently experiencing. We believe that Ruby Tuesday, as a result of these initiatives, is well positioned for the future.

While we were in the process of implementing our brand reimaging, consumer spending came under pressure for a variety of reasons, and further weakened in the fourth quarter of calendar 2008. As the economic environment deteriorated, operating results for other casual dining concepts, as well as our operating results, declined significantly. In response, in the second half of fiscal 2009, we implemented several initiatives intended to enhance our sales, reduce costs and improve cash flow, including the following:

• Sales initiatives. Our sales initiatives aim to increase guest traffic by focusing primarily on two areas, menu and marketing. The menu emphasizes high quality and compelling value. For example, our burgers now include "endless fries," the majority of our Specialties and Premium Seafood items offer a complete meal for typically less than $12 and we offer 40 meals for under $10. Through independently conducted studies, we regularly measure our guests' perception of our menu offerings and will make item modifications to enhance their value proposition if necessary. Our new brand image allows us to credibly offer higher end limited time menu items, such as lobster tails, which we believe allow us to better leverage our fixed costs and further differentiate our brand from our traditional competitors.

We shifted our marketing strategy to more effectively communicate our brand and value message. We broadened our strategy to encompass four pillars: traditional media, print promotion, internet activities, and community-based programs. Part of our emphasis is greater promotional activity, with a local market focus, that is intended to address the current importance of price in consumers' perception of value. We are also evaluating programs to increase sales during off-peak times.

• Cost savings. In the second half of fiscal 2009, we implemented initiatives designed to result in substantial cost savings. These cost savings are a result of: labor initiatives, including new scheduling systems and the realignment of field supervisors, which are expected to account for approximately one-half of the savings, while disciplined food cost management, improved operating efficiencies and the closing of the underperforming restaurants are expected to account for the remainder. We estimate that these initiatives resulted in cost savings of approximately $20.0 million in the second half of fiscal 2009 and have further benefitted us in the first quarter of fiscal 2010.

• Restaurant closings. During our second quarter of fiscal 2009 we conducted an analysis of all our Company-operated restaurants based on profitability, brand image, location, and other factors and identified 73 restaurants to close, 43 of which we closed in the third quarter of fiscal 2009. Two additional restaurants closed in the first quarter of fiscal 2010 upon their lease expirations.

• Generate free cash flow and improve our balance sheet. Because of our leverage, we are highly focused on maximizing our cash flow and paying down our debt. If we are successful in stabilizing same-restaurant sales and maintaining or lowering our costs, we have the opportunity to maintain substantial levels of free cash flow. Furthermore, our near-term capital requirements are relatively modest as we don't anticipate opening any new Ruby Tuesday restaurants during the remainder of fiscal 2010, and our maintenance capital spending needs are low because we have remodeled virtually all the Company-owned restaurants within the last two years. We define "free cash flow" to be the net amount remaining when purchases of property and equipment are subtracted from net cash provided by operating activities.

We generated $27.9 million of free cash flow in the first quarter of fiscal 2010, all of which was dedicated to the reduction of debt. We anticipate total capital spending in fiscal 2010 to be $18.0 to $20.0 million. We also estimate we will generate $60.0 million to $65.0 million of free cash flow during the remainder of fiscal 2010, a substantial portion of which will be dedicated to the reduction of debt. Similarly, we intend to use free cash flow generated in the next couple of years following fiscal 2010 to reduce debt. Our objective is to reduce debt as quickly as possible to strengthen our balance sheet and reduce the financial risk related to our leverage. As another means of reducing our bank debt and strengthening our balance sheet, on July 28, 2009, we closed an underwritten public offering of 11.5 million shares of Ruby Tuesday, Inc. common stock. The $73.1 million net proceeds raised in the equity offering was also used to reduce our outstanding debt. See further discussion in the Financing Activities section of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").

Results of Operations:

The following is an overview of our results of operations for the 13-week period ended September 1, 2009:

Net income increased to $6.1 million for the 13 weeks ended September 1, 2009 compared to $0.3 million for the same quarter of the previous year. Diluted earnings per share for the fiscal quarter ended September 1, 2009 increased to $0.11 compared to $0.01 for the corresponding period of the prior year as a result of the increase in net income as discussed below.

During the 13 weeks ended September 1, 2009:

? No restaurants were opened by either the Company or our franchisees;

? Two Company-owned Ruby Tuesday restaurants were closed;

? Three franchise restaurants were closed;

? Same-restaurant sales* at Company-owned restaurants decreased 3.1%, while same-restaurant sales at domestic franchise Ruby Tuesday restaurants decreased 6.5%; and

? We closed an underwritten public offering of 11.5 million shares of Ruby Tuesday, Inc. common stock, receiving approximately $73.1 million in net proceeds from the sale of the shares, after deducting underwriting discounts and offering expenses.

* We define same-restaurant sales as a year-over-year comparison of sales volumes for restaurants that, in the current year have been open at least 18 months, in order to remove the impact of new openings in comparing the operations of existing restaurants.

                                                      Thirteen weeks ended
                                                September 1,          September 2,
                                                    2009                  2008
Revenue:
Restaurant sales and operating revenue            99 .6%                  99 .1%
Franchise revenue                                  0 .4                    0 .9
Total revenue                                    100 .0                  100 .0
Operating costs and expenses:
Cost of merchandise (1)                           30 .2                   27 .3
Payroll and related costs (1)                     33 .6                   34 .2
Other restaurant operating costs (1)              20 .3                   21 .4
Depreciation and amortization (1)                  5 .4                    6 .3
Selling, general and administrative, net           6 .3                    8 .1
Closures and impairments                           0 .2                    0 .6
Equity in losses/(earnings) of unconsolidated      0 .1                   (0 .2)
franchises
Interest expense, net                              1 .8                    3 .0
Income before income taxes                         2 .5                    0 .1
Provision for income taxes                         0 .4                    0 .0
Net income                                         2 .0%                   0 .1%

(1) As a percentage of restaurant sales and operating revenue.

The following table shows year-to-date Company-owned and franchised Ruby Tuesday concept restaurant openings and closings, and total Ruby Tuesday concept restaurants as of the end of the first quarter in each of fiscal 2010 and 2009.

Thirteen weeks ended September 1, 2009 September 2, 2008

Company -owned:
Beginning of quarter 672                 721
Opened               -                   2
Closed               (2)                 (8)
End of quarter       670 *               715 *

Franchise:
Beginning of quarter 229                 224
Opened               -                   4
Closed               (3)                 (2)
End of quarter       226                 226

* The September 1, 2009 and September 2, 2008 amounts exclude two and one Wok Hay restaurants, respectively.

We expect our domestic and international franchisees to open approximately three to six additional Ruby Tuesday restaurants during the remainder of fiscal 2010.

Revenue

RTI's restaurant sales and operating revenue for the 13 weeks ended September 1, 2009 decreased 6.8% to $299.3 million compared to the same period of the prior year. This decrease primarily resulted from the closing of 54 restaurants in fiscal 2009, 46 of which closed after the end of fiscal 2009's first quarter, and a 3.1% decrease in same-restaurant sales. The 54 restaurants closed in fiscal 2009 produced $13.9 million of restaurant sales in the first quarter of the prior year.

Franchise revenue for the 13 weeks ended September 1, 2009 decreased 52.9% to $1.3 million compared to the same period of the prior year. Franchise revenue is predominately comprised of domestic and international royalties, which totaled $1.3 million and $2.6 million for the 13-week periods ended September 1, 2009 and September 2, 2008, respectively. This decrease is due to a decline in royalties from domestic franchisees as a result of temporarily reduced or deferred royalties for certain franchisees and a decrease in same-restaurant sales for domestic franchise Ruby Tuesday restaurants of 6.5% in the first quarter of fiscal 2010.

Under our accounting policy, we do not recognize franchise fee revenue for any franchise with negative cash flows at times when the negative cash flows are deemed to be anything other than temporary and the franchise has either borrowed directly from us or through a facility for which we provide a guarantee. We also do not recognize additional franchise fee revenue from franchisees with fees in excess of 60 days past due. Accordingly, we have deferred recognition of a portion of franchise revenue from certain franchises. Unearned income for franchise fees was $2.6 million and $1.2 million as of September 1, 2009 and June 2, 2009, respectively, which are included in other deferred liabilities and/or accrued liabilities - rent and other in the Condensed Consolidated Balance Sheets. The increase in unearned income is primarily due to an increase in unearned fees due from a traditional franchise ($1.1 million), for whom we agreed to defer fees for a limited period of time while the franchise negotiated with its lenders for extended terms.

Pre-tax Income

Pre-tax income increased to $7.4 million for the 13 weeks ended September 1, 2009, over the corresponding period of the prior year. The increase included the elimination of $2.8 million in pre-tax losses recorded in the first quarter of fiscal 2009 on the 54 restaurants closed during fiscal 2009. This increase is also due to lower payroll and related costs, other restaurant operating costs, depreciation, selling, general and administrative expense, net, closures and impairments, and interest expense, net. These lower costs were partially offset by a decline of 3.1% in same-restaurant sales at Company-owned restaurants, lower franchise revenue, and higher cost of merchandise and equity in losses of unconsolidated franchises.

In the paragraphs that follow, we discuss in more detail the components of the increase in pre-tax income for the 13-week period ended September 1, 2009, as compared to the comparable period in the prior year. Because a significant portion of the costs recorded in the Cost of merchandise, Payroll and related costs, Other restaurant operating costs, and Depreciation and amortization categories are either variable or highly correlate with the number of restaurants we operate, we evaluate our trends by comparing the costs as a percentage of restaurant sales and operating revenue, as well as the absolute dollar change, to the comparable prior year period.

2009 Restaurant Closings

Operating results for the first quarter of fiscal 2009 for the 54 restaurants
closed in fiscal 2009 were as follows (in thousands):

                                      Thirteen Weeks
                                           Ended
                                     September 2, 2008
Total revenue                        $           13,870

Cost of merchandise                               3,992
Payroll and related costs                         6,271
Other restaurant operating costs                  4,412
Depreciation and amortization                     1,014
Selling, general and administrative                 974
                                                 16,663
Net loss                             $           (2,793 )

Cost of merchandise increased $2.7 million (3.1%) to $90.3 million for the 13 weeks ended September 1, 2009, over the corresponding period of the prior year. As a percentage of restaurant sales and operating revenue, cost of merchandise increased from 27.3% to 30.2% for the 13 weeks ended September 1, 2009. Excluding the $4.0 million decrease from the elimination of 54 restaurants closed in fiscal 2009, cost of merchandise increased $6.7 million.

The absolute dollar increase in fiscal 2010 for the 13-week period is a result of an approximate 3.1% increase in guest counts, as well as a shift in menu mix corresponding to our value promotions such that our guests are ordering higher cost menu items, the introduction of lobster tails, which have a high food cost, to our menu in late fiscal 2009, and value-enhancing programs such as offering endless fries with burgers.

As a percentage of restaurant sales and operating revenue the increase is also due to several promotions offered in the current quarter including freestanding insert coupons in all markets with Company-owned restaurants, direct address label mail pieces, and a value promotion for our So Connected guests offering a buy one get one free on our Specialties, Fork-Tender Ribs, and Handcrafted Steaks. These value offerings had the impact in the current quarter of reducing average net check approximately 6.2% for restaurants in our same-restaurant groupings, which increased the related food cost as a percentage of restaurants sales and operating revenue.

Payroll and Related Costs

Payroll and related costs decreased $9.3 million (8.5%) to $100.5 million for the 13 weeks ended September 1, 2009, as compared to the corresponding period in the prior year. This amount includes $6.3 million of payroll and related costs spent in fiscal 2009 at the 54 restaurants closed in the prior year. As a percentage of restaurant sales and operating revenue, payroll and related costs decreased from 34.2% to 33.6%.

The remaining $3.0 million decrease not attributable to closings is primarily due to decreases in hourly labor as a result of new staffing guidelines for certain positions in our restaurants and the elimination of the dedicated To Go positions in our mall restaurants and certain other locations since the first quarter of the prior year.

As a percentage of restaurant sales and operating revenue, the decrease in payroll and related costs is attributable to the impact of closing 54 restaurants in fiscal 2009, which ran higher than system average labor, and the hourly labor cost savings initiatives discussed in the prior paragraph. Offsetting these savings was the impact on the ratio of the value offerings discussed in the Cost of Merchandise section above that contributed to the increase in guest counts of approximately 3.1% for the restaurants in our same-restaurant grouping and the decrease in our average net check of approximately 6.2%.

Other Restaurant Operating Costs

Other restaurant operating costs decreased $7.7 million (11.3%) to $60.9 million for the 13-week period ended September 1, 2009, as compared to the corresponding period in the prior year. This decrease includes $4.4 million of costs incurred on the 54 restaurants closed in fiscal 2009. As a percentage of restaurant sales and operating revenue, these costs decreased from 21.4% to 20.3%.

For the thirteen weeks ended September 1, 2009, the remaining $3.3 million in reductions not attributable to closings related to the following (in thousands):

Utilities $ 1,367
Repairs       909
Other       1,045
          $ 3,321

In both absolute dollars and as a percentage of restaurant sales and operating revenue for the 13-week period, the decrease is primarily due to decreases in utilities resulting from reductions in overall electric

Depreciation and Amortization

Depreciation and amortization expense decreased $3.8 million (19.1%) to $16.3 million for the 13-week period ended September 1, 2009, as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, this expense decreased from 6.3% to 5.4%.

In terms of both absolute dollars and as a percentage of restaurant sales and operating revenue, the decrease for the 13-week period is primarily due to reduced depreciation for assets that became fully depreciated since the first quarter of the prior year (a $2.2 million reduction), restaurant closures ($1.0 million depreciation in the prior year), and other assets previously impaired (a $0.4 million reduction).

Selling, General and Administrative Expenses, Net

Selling, general and administrative expenses, net of support service fee income, decreased $7.2 million (27.6%) to $19.0 million for the 13-week period ended September 1, 2009, as compared to the corresponding period in the prior year.

The decrease for the 13-week period is primarily due to a reduction in advertising ($7.1 million) as a result of eight weeks of national cable television advertising during the prior year quarter as compared to none in the current year, reflecting a shift in our marketing strategy to one based more on offering guests incentives through print media rather than through television and a decrease in media sponsorship expenses relating to sponsorship of a racecar.

Closures and Impairments

Closures and impairments decreased $1.3 million to $0.6 million for the 13-week period ended September 1, 2009, as compared to the corresponding period of the prior year. The decrease for the 13-week period is due primarily to a reduction in restaurant impairment charges ($1.0 million) coupled with higher gains during the current quarter on the sale of surplus properties ($0.7 million) offset by higher closed restaurant lease reserve expense ($0.3 million) compared with the same period of the prior year. See Note G to our Condensed Consolidated Financial Statements for further information on our closures and impairment charges recorded during the first quarters of fiscal 2010 and 2009.

Equity in Losses/(Earnings) of Unconsolidated Franchises

Our equity in the losses of unconsolidated franchises was $0.2 million for the 13 weeks ended September 1, 2009 compared with equity in earnings of ($0.5) million for the 13 weeks ended September 2, 2008. The change is attributable to losses from investments in five of our six 50%-owned franchise partnerships, which all had income in the first quarter of the prior year. The increase in losses was due in part to same restaurant sales declines in the current year and fee rebates in the prior year, offset by lower advertising charges in the current year.

As of September 1, 2009, we held 50% equity investments in each of six franchise partnerships, which collectively operate 70 Ruby Tuesday restaurants. As of September 2, 2008, we held 50% equity investments in each of six franchise partnerships which then collectively operated 72 Ruby Tuesday restaurants.

Interest Expense, Net

Net interest expense decreased $4.4 million for the 13 weeks ended September 1, 2009, as compared to the corresponding period in the prior year, primarily due to lower average debt outstanding on the revolving credit agreement (the "Credit Facility"), lower interest rates on the Credit Facility, and other debt payments made since the same period of the prior year.

The effective tax rate for the current quarter was 17.4% compared to 21.3% for the same period of the prior year. The change in the effective tax rate resulted primarily from the impact of pre-tax income which increased as compared to the same period of the prior year without a corresponding increase in the charge for unrecognized tax benefits.

Critical Accounting Policies:

Our MD&A is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make subjective or complex judgments that may affect the reported financial condition and results of operations. We base our estimates on historical experience and other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We continually evaluate the information used to make these estimates as our business and the economic environment changes.

In our Annual Report on Form 10-K for the year ended June 2, 2009, we identified our critical accounting policies related to share-based employee compensation, impairment of long-lived assets, franchise accounting, lease obligations, estimated liability for self-insurance, and income tax valuation allowances and tax accruals. During the first 13 weeks of fiscal 2010, there have been no changes in our critical accounting policies.

Liquidity and Capital Resources:

Cash and cash equivalents decreased by $3.9 million and $7.3 million during the
first 13 weeks of fiscal 2010 and 2009, respectively. The change in cash and
cash equivalents is as follows (in thousands):

                                                   Thirteen weeks ended
                                              September 1,     September 2,
                                                  2009             2008
        Cash provided by operating activities   $    31,720    $      38,463
        Cash used by investing activities            (1,752 )         (5,505 )
        Cash used by financing activities           (33,906 )        (40,231 )
        Decrease in cash and cash equivalents   $    (3,938 )  $      (7,273 )

Operating Activities

Cash provided by operating activities for the first 13 weeks of fiscal 2010 decreased 17.5% to $31.7 million due to changes in operating assets and liabilities, which collectively produced $18.1 million less cash flow during the first quarter of fiscal 2010 compared with the same period of the prior year primarily as a result of a reduction in the source of cash from income taxes of $13.1 million. Also contributing to the decrease were reductions in non-cash charges for depreciation expense of $3.8 million and (gain)/loss on impairments of $1.8 million. Partially offsetting these were increases in net income of $5.9 million, deferred taxes of $8.9 million, and share-based compensation of $1.6 million.

Our working capital deficiency and current ratio as of September 1, 2009 were $23.2 million and 0.8:1, respectively. As is common in the restaurant industry, we carry current liabilities in excess of current assets because cash (a current asset) generated from operating activities is reinvested in capital expenditures (a long-term asset) or reduction of debt (a long-term liability) and receivable and inventory levels are generally not significant.

We require capital principally for the maintenance and upkeep of our existing restaurants, limited new restaurant construction, investments in technology, equipment, remodeling of existing restaurants, and on occasion for the acquisition of franchisees or other restaurant concepts. Property and equipment expenditures for the 13 weeks ended September 1, 2009 were $3.8 million, which . . .