General:

Ruby Tuesday, Inc., including its wholly-owned subsidiaries ("RTI", the "Company," "we" and/or "our"), owns and operates Ruby Tuesdayฎ casual dining restaurants. We also franchise the Ruby Tuesday concept in selected domestic and international markets. As of December 5, 2006 we owned and operated 673, and franchised 253, Ruby Tuesday restaurants. Ruby Tuesday restaurants can now be found in 43 states, the District of Columbia, 14 foreign countries, and Puerto Rico.

Casual dining, the segment of the restaurant industry in which RTI operates, 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. Our industry is often affected by changes in consumer tastes, national, regional or local conditions, demographic trends, traffic patterns, and the types, numbers and locations of competing restaurants as well as overall marketing efforts. There also is significant competition in the restaurant industry for management personnel and for attractive commercial real estate sites suitable for restaurants.

A key performance goal for us is to get more out of existing assets. To measure our progress towards that goal, we focus on measurements we believe are critical to our growth and progress including, but not limited to, the following:

• Same-restaurant sales: a year-over-year comparison of sales volumes for restaurants that, in the current year, have been open at least 19 months in order to remove the impact of new openings in comparing the operations of existing restaurants; and

• Average restaurant volumes: a per-restaurant calculated annual average sales amount, which helps us gauge the continued development of our brand. Generally speaking, growth in average restaurant volumes in excess of same-restaurant sales is an indication that newer restaurants are operating with sales levels in excess of the Company system average and conversely, when the growth in average restaurant volumes is less than that of same-restaurant sales, a general conclusion can be reached that newer restaurants are recording sales less than those of the existing system.

Our goal is to increase same-restaurant sales on average 3-5% per year and to increase average restaurant volumes by $100,000 per year towards our long-term goal of $2.5 million in sales per restaurant per year. We also have strategies to invest wisely in new restaurants as it relates to generating both higher sales as well as higher returns and to maintain the right capital structure to create value for our shareholders. Our historical performance in these areas is discussed throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section.

RTI generates revenue from the sale of food and beverages at our restaurants and from contractual arrangements with our franchisees. Franchise development and license fees are recognized when we have substantially performed all material services and the franchise-owned restaurant has opened for business. Franchise royalties and support service fees (each generally 4.0% of monthly sales) are recognized on the accrual basis.

Results of Operations:

The following is an overview of our results of operations for the 13 and 26-week periods ended December 5, 2006:

Net income decreased 4.1% to $16.7 million for the 13 weeks ended December 5, 2006 compared to $17.4 million for the same quarter of the previous year. Diluted earnings per share for the 13 weeks ended

During the 13 weeks ended December 5, 2006:

• 15 Company owned Ruby Tuesday restaurants were opened;

• Seven franchise restaurants were opened and none were closed; and

• Same-restaurant sales at Company-owned restaurants decreased 0.2%, while same restaurant sales at domestic franchise Ruby Tuesday restaurants increased 4.0% compared to the same quarter of the prior year.

Net income decreased 2.0% to $38.3 million for the 26 weeks ended December 5, 2006 compared to $39.1 million for the same period in fiscal 2006. Diluted earnings per share for the 26 weeks ended December 5, 2006 increased 4.8% to $0.65 compared to $0.62 for the corresponding period of the prior year as a result of fewer outstanding shares.

During the 26 weeks ended December 5, 2006:

• 49 Company-owned Ruby Tuesday restaurants were opened or acquired, including 17 purchased from our Orlando franchisee;

• Five Company-owned Ruby Tuesday restaurants were sold or closed, including three sold or leased to our St. Louis franchisee;

• Aside from the restaurants purchased from or sold to the Company, 17 franchise restaurants were opened and one was closed;

• Same-restaurant sales at Company-owned restaurants decreased 0.4%, while same- restaurant sales at domestic franchise Ruby Tuesday restaurants increased 2.6% compared to the same period of the prior year; and

• The Company adopted the Financial Accounting Standards Board's "Share-Based Payment" statement and began expensing our stock options.

The following table sets forth selected restaurant operating data as a percentage of total revenue, except where otherwise noted, for the periods indicated. All information is derived from our Condensed Consolidated Financial Statements included in this Form 10-Q.

                                              Thirteen weeks ended              Twenty-six weeks ended
                                          December 5,     November 29,       December 5,     November 29,
                                             2006             2005               2006            2005
Revenue:
Restaurant sales and operating revenue       99 .0%          98 .8%              98 .9%          98 .8%
Franchise revenue                             1 .0            1 .2                1 .1            1 .2
Total revenue                               100 .0          100 .0              100 .0          100 .0
Operating costs and expenses:
Cost of merchandise (1)                      27 .4           27 .0               27 .1           26 .9
Payroll and related costs (1)                31 .3           31 .9               31 .1           31 .7
Other restaurant operating costs (1)         18 .3           18 .3               18 .3           17 .9
Depreciation and amortization (1)             5 .7            5 .9                5 .6            5 .8
Selling, general and administrative, net      9 .2            8 .0                8 .9            8 .2
Equity in losses of unconsolidated
franchises                                    0 .2            0 .3                0 .1            0 .1
Interest expense, net                         1 .4            0 .9                1 .3            0 .8
Income before income taxes                    7 .4            8 .7                8 .5            9 .7
Provision for income taxes                    2 .4            2 .8                2 .8            3 .2
Net income                                    5 .0%           5 .9%               5 .7%           6 .5%

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

The following table shows Company-owned and franchised restaurant openings and closings for the 13 and 26 week periods ended December 5, 2006 and November 29, 2005.

                                   Thirteen weeks ended                 Twenty-six weeks ended
                              December 5, 2006    November       December 5, 2006    November 29, 2005
                                                  29, 2005
Company-owned:
Beginning number              658                590             629                 579
Opened                        15                 19              32                  35
Acquired from franchisees     -                  -               17                  -
Sold or leased to franchisees -                  -               (3)                 -
Closed                        -                  -               (2)                 (5)
Ending number                 673                609             673                 609

Franchise:
Beginning number              246                233             251                 226
Opened                        7                  9               17                  18
Acquired or leased from RTI   -                  -               3                   -
Sold to RTI                   -                  -               (17)                -
Closed                        -                  (2)             (1)                 (4)
Ending number                 253*               240             253*                240

* Includes 11 restaurants operated by RTI's South Florida franchisee, which were sold to RTI in December 2006.

We estimate that approximately 13 to 18 additional Company-owned Ruby Tuesday restaurants will be opened during the remainder of fiscal 2007.

We expect our domestic and international franchisees to open approximately 8 to 13 additional Ruby Tuesday restaurants during the remainder of fiscal 2007.

Revenue

RTI's restaurant sales and operating revenue for the 13 weeks ended December 5, 2006 increased 14.3% to $333.3 million compared to the same period of the prior year. This increase primarily resulted from a net addition of 64 restaurants over the prior year, offset by a 0.2% decrease in same-restaurant sales.

Franchise revenue for the 13 weeks ended December 5, 2006 increased 2.1% to $3.5 million compared to the same period of the prior year. Franchise revenue is predominately comprised of domestic and international royalties, which totaled $3.3 million and $3.2 million for the 13-week periods ended December 5, 2006 and November 29, 2005, respectively. This increase results from growth in the domestic and international franchise markets, offset by the acquisition of RT Orlando Franchise, LP ("RT Orlando") in July 2006, which owned 17 restaurants at the time of acquisition. Same-restaurant sales for domestic franchise Ruby Tuesday restaurants increased 4.0% in the second quarter of fiscal 2007.

For the 26 weeks ended December 5, 2006, sales at Company-owned restaurants increased 12.1% to $668.1 million compared to the same period of the prior year. This increase primarily resulted from that same net addition of 64 restaurants, offset by a 0.4% decrease in same-restaurant sales for the 26-week period ended December 5, 2006.

For the 26-week period ended December 5, 2006, franchise revenues increased 0.5% to $7.4 million compared to $7.3 million for the same period in the prior year. Domestic and international royalties totaled $6.8 million for each of the 26-week periods ending December 5, 2006 and November 29, 2005 as increased royalties from domestic and international franchisees were offset, in part, by the acquisition of RT Orlando, as previously discussed.

Pre-tax Income

Pre-tax income decreased by 3.1% to $25.0 million for the 13 weeks ended December 5, 2006, from the corresponding period of the prior year. This decrease is primarily due to an increase in stock expense pursuant to the adoption of Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004) "Share-Based Payments" ("SFAS 123(R)"), which is reflected in selling, general and administrative expenses, net, as well as higher interest expense due to the Company's increased share repurchase in the prior fiscal year coupled with a decrease of 0.2% in same-restaurant sales at Company-owned restaurants and an increase, as a percentage of restaurant sales and operating revenue, of cost of merchandise. These higher costs were offset by the increase in the number of restaurants and lower, as a percentage of restaurant sales and operating revenue, payroll and related costs and depreciation and amortization.

For the 26-week period ended December 5, 2006, pre-tax income was $57.1 million, a 2.2% decrease from the corresponding period of the prior year. The decrease was primarily due to the impact of the adoption of SFAS 123(R), which is reflected in selling, general and administrative expenses, net, as well as higher interest expense due to the Company's increased share repurchase in the prior fiscal year and a year-to-date same-restaurant sale decrease of 0.4%. In addition, the decrease in pre-tax income was due to increases, as a percentage of Company restaurant sales and operating revenue, of cost of merchandise, other restaurant operating costs, offset by increases in restaurant growth and a reduction, as a percentage of restaurant sales and operating revenue, of payroll and related costs and depreciation and amortization.

In the paragraphs which follow, we discuss in more detail the components of the decrease in pre-tax income for the 13 and 26-week periods ended December 5, 2006, as compared to the comparable periods in the prior year.

Cost of Merchandise

Cost of merchandise increased 16.0% to $91.4 million for the 13 weeks ended December 5, 2006, over the corresponding period of the prior year. As a percentage of restaurant sales and operating revenue, cost of merchandise increased from 27.0% to 27.4% for the 13 weeks ended December 5, 2006.

For the 26-week period ended December 5, 2006, cost of merchandise increased 12.9% to $181.0 million over the corresponding period of the prior year. As a percentage of restaurant sales and operating revenue, cost of merchandise increased from 26.9% to 27.1% for the 26 weeks ended December 5, 2006.

The increase for both the 13 and 26-week periods as a percentage of restaurant sales and operating revenue is primarily due to increased food and beverage costs as a result of burger and other product enhancements.

Payroll and Related Costs

Payroll and related costs increased 12.2% to $104.3 million for the 13 weeks ended December 5, 2006, as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, payroll and related costs decreased from 31.9% to 31.3%.

For the 26-week period ended December 5, 2006, payroll and related costs increased 10.2% to $207.9 million, as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, payroll and related costs decreased from 31.7% to 31.1%.

The decreased percentage of restaurant sales and operating revenue for both the 13 and 26-week periods is primarily due to lower management labor attributable to reduced turnover and leverage from higher average restaurant volumes, labor cost efficiencies resulting from the rollout of a Kitchen Display System ("KDS") and a decrease in health benefit costs due to favorable claims experience. These decreases were partially offset by higher hourly labor due to the addition of line cooks, increased front of house staffing intended to enhance the dining experience of our guests, and minimum wage increases in a few states.

Other restaurant operating costs increased 14.2% to $61.0 million for the 13-week period ended December 5, 2006, as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, costs of 18.3% remained unchanged from the prior year. Increases for the 13-week period were primarily due to write-offs of supplies resulting from upgrades in plateware and an increase in dead site costs associated with a strategic decision to remove from our development schedule certain restaurants. These increases were offset primarily by the gain realized upon settlement of the Hurricane Katrina claim as discussed further in Note D of the Condensed Consolidated Financial Statements and decreased bad debt expense, based on current analysis.

For the 26-week period ended December 5, 2006, other restaurant operating costs increased 14.6% to $122.2 million as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, these costs increased from 17.9% to 18.3%. The increase is due to the increased expenses mentioned above, coupled with higher utility costs and higher repairs and maintenance costs due to our commitment to bring equipment up to specification for rollout of a fresh proteins program. These increases were offset by the decreased expenses mentioned above, coupled with an increased gain on disposal of fixed assets, which resulted from the sale of three properties in the first quarter of fiscal 2007.

Depreciation and Amortization

Depreciation and amortization increased 10.2% to $19.0 million for the 13-week period ended December 5, 2006, as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, these expenses decreased from 5.9% to 5.7%.

For the 26-week period ended December 5, 2006, depreciation and amortization expense increased 8.6% to $37.4 million as compared to the corresponding period in the prior year. As a percentage of restaurant sales and operating revenue, these expenses decreased from 5.8% to 5.6%.

The decrease for both the 13 and 26-week periods as a percentage of restaurant sales and operating revenue is primarily due to reduced depreciation on older leased restaurants and information technology, as associated assets have become fully depreciated.

Selling, General and Administrative Expenses, Net

Selling, general and administrative expenses, net of support service fee income totaling $3.1 million, increased 31.4% to $30.9 million for the 13-week period ended December 5, 2006, as compared to the corresponding period in the prior year. As a percentage of total operating revenue, these expenses increased from 8.0% to 9.2%.

Selling, general and administrative expenses, net of support service fee income totaling $6.2 million, increased 22.0% to $60.3 million for the 26-week period ended December 5, 2006 as compared to the corresponding period in the prior year. As a percentage of total operating revenue, these expenses increased from 8.2% to 8.9%.

The increase for both the 13 and 26-week periods is primarily due to an increase in stock option expense as a result of the adoption of SFAS 123(R), which requires us to recognize the grant-date fair value of options and other equity-based compensation over the applicable term, and higher advertising expense, primarily due to increased spending for cable television commercials. Offsetting this was a decrease in accrued bonus expense due to a shift in compensation strategy and a reduction in training payroll resulting from lower management turnover and increased efficiencies created by KDS and other management tools.

Equity in Losses of Unconsolidated Franchises

Our equity in the losses of unconsolidated franchises was $0.7 million for the 13 weeks ended December 5, 2006, which is $0.1 million less than the corresponding period of the prior year.

The decrease for both the 13 and 26-week periods is primarily due to an increase in earnings from investments in certain franchise partnerships, offset by the acquisition of RT Orlando on July 12, 2006. As of December 5, 2006, we held 50% equity investments in each of ten franchise partnerships which collectively operate 110 Ruby Tuesday restaurants. As of November 29, 2005, we held 50% equity investments in each of 11 franchise partnerships, which then collectively operated 116 Ruby Tuesday restaurants.

Interest Expense, Net

Net interest expense increased $2.0 million for the 13 weeks ended December 5, 2006, as compared to the corresponding period in the prior year, primarily due to higher average debt outstanding resulting from the Company acquiring 7.8 million shares of its common stock during fiscal 2006 under our ongoing share repurchase program. Net interest expense increased $4.3 million for the 26-week period ended December 5, 2006, as compared to the corresponding period in the prior year, primarily for the same reasons mentioned above. See "Borrowings and Credit Facilities" for more information.

Provision for Income Taxes

The effective tax rate for the current quarter was 33.0%, up from 32.3% for the same period of the prior year. The effective tax rate was also 33.0% for the 26-week period ended December 5, 2006 compared to 33.1% for the corresponding period of the prior year. The effective income tax rate for the 13-week period increased primarily as a result of lower credits. The effective tax rate for the 26-week period decreased slightly as compared to the prior year primarily as a result of favorable developments on certain exposure items offset by lower credits.

Critical Accounting Policies:

Our MD&A is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. 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.

We believe that of our significant accounting policies, the following may involve a higher degree of judgment and complexity.

Share-based Employee Compensation

Beginning in the first quarter of fiscal 2007, we account for share-based compensation in accordance with SFAS 123(R). As required by SFAS 123(R), share-based compensation expense is estimated for equity awards at fair value at the grant date. We determine the fair value of equity awards using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires various highly judgmental assumptions including the expected dividend yield, stock price volatility and life of the award. If any of the assumptions used in the model change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period. See Note C to the Condensed Consolidated Financial Statements for further discussion of share-based employee compensation.

Impairment of Long-Lived Assets

Each quarter we evaluate the carrying value of any individual restaurant when the cash flows of such restaurant have deteriorated and we believe the probability of continued operating and cash flow losses

Restaurants open for less than five quarters are considered new and are excluded from our impairment review. We believe this approach provides sufficient time to establish the presence of the restaurant in the market and build a customer base. Approximately 11% of our restaurants have been open for less than five quarters and have not been evaluated for potential impairment.

If a restaurant that has been open for at least five quarters shows negative cash flow results, we prepare a plan to reverse the negative performance. Under our policies, recurring or projected annual negative cash flow signals a potential impairment. Both qualitative and quantitative information are considered when evaluating for potential impairments.

At December 5, 2006, we had seven restaurants that had been open more than five quarters with rolling 12 month negative cash flows. Of these seven restaurants, three had previously been impaired to salvage value. We reviewed the plans to improve cash flows at each of the other four restaurants and concluded that no impairment existed as of December 5, 2006. The combined 12-month cash flow loss at these four restaurants for which no impairment had previously been recognized, was approximately $0.1 million. Should sales at these restaurants not improve within a reasonable period of time, further impairment charges are possible. Considerable management judgment is necessary to estimate future cash flows, including cash flows from continuing use, terminal value, closure costs, salvage value, and sublease income. Accordingly, actual results could vary significantly from our estimates.

Allowance for Doubtful Notes and Interest Income

We follow a systematic methodology each quarter in our analysis of franchise and other notes receivable in order to estimate losses inherent at the balance sheet date. A detailed analysis of our loan portfolio involves reviewing the following for each significant borrower:

• terms (including interest rate, original note date, payoff date, and principal and interest start dates);

• note amounts (including the original balance, current balance, associated debt guarantees, and total exposure); and

• other relevant information including whether the borrower is making timely interest, principal, royalty and support payments, the borrower's debt coverage ratios, the borrower's current financial condition and sales trends, the borrower's additional borrowing capacity, and, as appropriate, management's judgment on the quality of the borrower's operations.

Based on the results of this analysis, the allowance for doubtful notes is adjusted as appropriate. No portion of the allowance for doubtful notes is allocated to guarantees. In the event that collection is deemed to be an issue, a number of actions to resolve the issue are possible, including the purchase of the franchised restaurants by us or a replacement franchisee, modification to the terms of payment of franchise fees or note obligations, or a restructuring of the borrower's debt to better position the borrower to fulfill its obligations.

At December 5, 2006, the allowance for doubtful notes was $5.1 million. Included in the allowance for doubtful notes was $4.0 million allocated to the $15.8 million of debt due from seven franchisees that have either reported coverage ratios below the required levels with certain of their third party debt, or . . .