One of the leading upscale dining operators,
Ruth's Hospitality Group Inc
) reported first quarter 2012 adjusted earnings of 15 cents, in
line with the Zacks Consensus Estimate, but ahead of the prior-year
quarter earnings by 2 cents. The reported earnings exclude stock
repurchase charges, related debt expenses and restructuring
charges. The year-over-year growth in earnings was driven by higher
traffic resulting in higher revenue.
On a GAAP basis, the company recorded a loss of 89 cents per
share versus earnings of 14 cents per share in the year-ago
quarter, due to the heavy charge of 35.8 million related to the
redemption of preferred shares.
Total revenue enhanced 3.4% year over year to $101.0 million.
Company-owned restaurant sales climbed 3.3% to $97.3 million, while
franchise income jumped 13.1% to $3.5 million in the quarter.
During the quarter, comparable restaurant sales at Ruth's Chris
Steak House grew 3.7%, implying the eighth consecutive quarter of
comparable sales growth, driven by a 2.2% rise in entrées and a
1.5% upside in average guest check. The company also witnessed the
ninth consecutive quarter of traffic growth in the Ruth's Chris
Moreover, comparable restaurant sales at Mitchell's Fish Market
were flat year over year, due to a 0.1% rise in entrées, partially
offset by a 0.1% decline in average guest check. Same-store sales
at franchise-owned restaurant increased 7.6%, on the back of a 4.7%
and 2.9% rise in both entrée and an average check, respectively. In
the international market, comparable franchise-owned restaurant
sales climbed 9.8%.
During the quarter, restaurant operating expense as a percentage
of restaurant sales, decreased 40 basis points (bps) year over year
to 48.8%, benefiting from higher sales leverage, partially offset
by health insurance costs. Food and beverage costs expanded
130 bps to 32.0%, owing to unfavorable beef costs.
General and administrative expenses stood at $6.9 million as
against $5.9 million in the year-ago quarter, attributed to higher
legal fees and personnel costs. Operating Income contracted 4.6%
year over year to $10.0 million in the reported quarter.
At the end of the quarter, the company had cash and cash
equivalents of $3.1 million and shareholders' equity of $69.8
million. Long-term debt outstanding at the end of March 25, 2012
was $77.0 million, up from $22.0 million at the end of December 25,
Heathrow, Florida-based, Ruth's revised its fiscal 2012 outlook.
The company expects cost of goods to be 31.5% to 32.5% of
restaurant sales, up from previous expectation of 31.0%-32.0% and
marketing and advertising expense to be 3.0% to 3.5% of the total
revenue. Capital expenditure for the same period is expected in the
range of $10 million to $12 million and diluted share outstanding
between 35.0 million and 36.0 million, down from the earlier
projection of 43.3 million to 44.0 million.
In April 2012, the company opened a second franchise-owned
restaurant in Dubai. The company remains focused on unit growth.
The company plans to open a new Ruth's Chris Steak House in
Cherokee, North Carolina later in May and expects to open a
company-owned Ruth's Chris Steak House in Cincinnati, Ohio in
November this year. Additionally, management anticipates to open
two to four franchise-owned restaurants in 2012.
The company's remains encouraged by the growth momentum of
Ruth's Chris brand and improved capital structure. The company also
remains focused on unit growth and expansion through
However, on the flip side, rising beef cost, lower consumer
spending and intense competition from peers like
Brinker International inc.
Red Robin Gourmet Burgers Inc.
) remain concerns. Given the company reported loss on a GAAP basis
during the quarter, we expect the analysts to reduce their
estimates for fiscal 2012 and 2013. The Zacks Consensus Estimates
for 2012 and 2013 are pegged at 46 and 56 cents per share
Ruth's Hospitality, currently retains a Zacks #2 Rank, which
translates into a short-term 'Buy' rating. We are also maintaining
our long-term "Neutral" recommendation on the stock.
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