Ruth's Hospitality Group Inc.
) recently reported third quarter 2012 earnings of 2 cents, a
penny ahead of the Zacks Consensus Estimate. The current quarter
earnings also outperformed the prior-year quarter's break-even
earnings. The better-than-expected earnings were driven by higher
traffic resulting in higher revenue.
Total revenue climbed 5.7% year over year to $84.8 million,
beating the Zacks Consensus Estimate of $84.0 million.
Company-owned restaurant sales ascended 5.5% to $81.4 million,
while franchise income jumped 11.2% to $3.3 million in the
During the quarter, comparable restaurant sales at Ruth's
Chris Steak House grew 5.9%, implying the 10
consecutive quarter of comparable sales growth, driven by a 3.6%
rise in traffic and a 2.2% upside in average guest check. The
company also witnessed the 11
consecutive quarter of traffic growth in Ruth's Chris brand.
Moreover, comparable restaurant sales at Mitchell's Fish
Market leaped 4.6%, driven by a 5.2% hike in traffic, partially
offset by a 0.6% drop in average guest check. Same-store sales at
franchise-owned restaurants increased 3.1%, on the back of a 2.9%
upside in the domestic market and a 3.9% hike in the
During the quarter, restaurant operating expenses as a
percentage of restaurant sales plunged 80 basis points (bps) year
over year to 55.5%, benefiting from higher sales leverage and
cost control efforts. Food and beverage costs spiked 70 bps
to 31.8%, owing to unfavorable beef costs.
Marketing and advertising costs increased 38% to $2.2 million,
attributed to a shift in advertising expense from the second
quarter to the third and fourth quarters of 2012. General and
advertising costs stretched 3% to $6.0 million. However,
operating income enhanced 10.0% year over year to $1.8 million in
the reported quarter.
At the end of the quarter, the company had cash and cash
equivalents of $3.9 million and shareholders' equity of $78.0
million. Long-term debt outstanding at the end of September 23,
2012 was $69.0 million, up from $22.0 million at the end of
December 25, 2011.
Ruth's reiterated its fiscal 2012 outlook again. The company
expects cost of goods to be 31.5% to 32.5% of restaurant sales.
Further, it expects marketing and advertising expense to be 3.0%
to 3.5% of the total revenue. Capital expenditure for the same
period is expected to be in the range of $10 million to $12
In October 2012, the company opened a new Ruth's Chris Steak
House in Cincinnati, Ohio and in August, franchisees unveiled
Ruth's Chris Steak House in Singapore and El Salvador.
Additionally, management expects to open one franchise-owned
restaurant in late 2012.
The company remains focused on unit growth. In 2013, it
expects to open a new company-owned restaurant in Denver, CO and
four to five franchised restaurants.
We are impressed by Ruth's third-quarter results, its ability
to drive traffic in an uncertain economic environment and the
second consecutive sales improvement at Mitchell's Fish Market.
The company also remains focused on expanding the Ruth's Chris
brand, as the brand continues to perform well.
However, on the flip side, rising beef costs, lower consumer
spending and intense competition from peers like
Brinker International inc.
Red Robin Gourmet Burgers Inc.
) remain concerns.
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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