Ruth's Hospitality Group Inc.
) reported second quarter 2012 earnings of 17 cents, in line with
the prior-year quarter adjusted earnings. However, the results
surpassed the Zacks Consensus Estimate of 13 cents. The
better-than-expected earnings were driven by higher traffic
resulting in higher revenue.
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Total revenue enhanced 6.2% year over year to $97.7 million beating
the Zacks Consensus Estimate of $95.0 million. Company-owned
restaurant sales climbed 5.6% to $91.8 million, while franchise
income jumped 12.6% to $3.2 million in the quarter.
During the quarter, comparable restaurant sales at Ruth's Chris
Steak House grew 6.0%, implying the ninth consecutive quarter of
comparable sales growth, driven by a 3.8% rise in entrées and a
2.1% upside in average guest check. The company also witnessed the
10th consecutive quarter of traffic growth in Ruth's Chris brand.
Moreover, comparable restaurant sales at Mitchell's Fish Market
jumped 2.3% year over year, due to a 3.2% rise in entrées,
partially offset by a 0.9% decline in average guest check.
Same-store sales at franchise-owned restaurants increased 4.4%, on
the back of a 0.2% and 4.2% rise in both entrée and an average
check, respectively. In the domestic market, comparable
franchise-owned restaurant sales climbed 6.1%.
During the quarter, restaurant operating expenses as a percentage
of restaurant sales plunged 60 basis points (bps) year over year to
51.1%, benefiting from higher sales leverage, partially offset by
health insurance costs. Food and beverage costs expanded 170
bps to 32.2%, owing to unfavorable beef costs.
General and administrative expenses stood at $0.9 million as
against $6.2 million in the year-ago quarter, attributed to higher
personnel costs. Operating Income contracted 7.2% year over year to
$8.9 million in the reported quarter.
At the end of the quarter, the company had cash and cash
equivalents of $4.5 million and shareholders' equity of $76.7
million. Long-term debt outstanding at the end of June 24, 2012 was
$71.0 million, up from $22.0 million at the end of December 25,
Heathrow, Florida-based, Ruth's reiterated its fiscal 2012 outlook.
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 million.
In May 2012, the company opened a new Ruth's Chris Steak House in
Cherokee, North Carolina and expects to open a company-owned Ruth's
Chris Steak House in Cincinnati, Ohio in November this year.
Additionally, management expects to open three franchise-owned
restaurants in 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
Given the better-than-expected second quarter results, continuous
growth momentum at Ruth's Chris brand, sales improvement at
Mitchell's Fish Market and reiteration of the outlook despite a
challenging environment, we expect the Zacks Consensus Estimates to
increase for fiscal 2012 and 2013.
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 #3 Rank, which
translates into a short-term 'Hold' rating. We are also maintaining
our long-term "Neutral" recommendation on the stock.