Ruth’s Hospitality Group, Inc. Reports Second Quarter 2010 Financial Results

Highlights for the second quarter of 2010 compared to the second quarter of 2009 were as follows:

• Total revenues were $89.0 million compared to prior year at $86.4 million.
• Net income available to preferred and common shareholders was $3.7 million, or $0.09 per diluted share, compared to $2.3 million, or $0.10 per diluted share, in the second quarter of 2009. The second quarter of 2010 included a net benefit of $0.3 million or $0.01 per diluted share. The second quarter of 2009 included net charges of $0.7 million or $0.03 per diluted share.
• Company-owned comparable restaurant sales for Ruth’s Chris Steak House increased 2.9%. Company-owned comparable restaurant sales for Mitchell’s Fish Market increased 0.9%.
• Food and beverage costs, as a percentage of restaurant sales, increased 60 basis points to 29.3%, which was primarily driven by unfavorable beef costs.
• Restaurant operating expenses, as a percentage of restaurant sales, increased 20 basis points to 53.4%.
• General and administrative expenses were $0.2 million less than prior year at $5.4 million.
• Depreciation and amortization expenses, as a percentage of total revenues, decreased 50 basis points to 4.3% primarily due to the home office building sale in the fourth quarter of 2009.
• Interest expense decreased by $0.8 million to $1.0 million in the second quarter of 2010. The second quarter of 2010 included a gain of $0.3 million for a mark-to-market non-cash adjustment relating to an interest rate swap agreement. Interest expense was $1.8 million in the second quarter of 2009, and included a gain of $0.4 million for a mark-to-market non-cash adjustment relating to an interest rate swap agreement.
• At the end of the second quarter of 2010, the Company had $69.0 million in debt outstanding under its senior credit agreement. This represents a reduction of $5.0 million from the March 28, 2010 balance of $74.0 million.
• During the period, the Company opened a new Mitchell’s Fish Market restaurant in Winter Park, Florida. In addition, a franchise partner opened a new Ruth’s Chris Steak House restaurant in Salt Lake City, Utah.

Michael P. O'Donnell, President and Chief Executive Officer of Ruth’s Hospitality Group, Inc., stated, “We generated substantial improvement in net income compared to the year-ago period as positive comparable restaurant sales translated into solid operating leverage. We credit four-wall-execution and solid expense management that, over time, should position our brands for further bottom-line improvement. O'Donnell continued, “In addition, our balance sheet remains a competitive advantage, giving us the financial flexibility to pursue opportunistic development. Accordingly, we are actively evaluating restaurant locations on our own and through strategic alliances. In the near-term, any development will be modest, but as always, we will be diligent to only commit capital when the returns are justified.”

Review of Operating Results

Total revenues, which include Company-owned restaurant sales, franchise income, and other operating income, were $89.0 million compared to $86.4 million in the second quarter of 2009.

Company-owned restaurant sales increased 2.6% to $83.8 million for the second quarter of 2010 from $81.7 million in the same quarter last year. Total operating weeks increased 0.2% to 1,120 from 1,118.

Average weekly sales for Ruth’s Chris Steak House were $76.9 thousand in the second quarter of 2010 compared to $74.7 thousand in the second quarter of 2009. Average weekly sales at Mitchell’s Fish Market were $71.8 thousand compared to $71.1 thousand in the prior year second quarter.

For the second quarter of 2010, Company-owned comparable restaurant sales at Ruth’s Chris Steak House increased 2.9%, which consisted of an average check decrease of 0.3% and an entrée increase of 3.2%. Company-owned comparable restaurant sales at Mitchell’s Fish Market increased 0.9%, which consisted of an entrée increase of 0.9%.

Franchise income increased 13.5% to $2.8 million from $2.5 million. Comparable franchise-owned restaurant sales increased 6.1%.

Operating income was $8.3 million in the second quarter of 2010 and $4.5 million in the prior year second quarter.

The Company recognized a $1.1 million pre-tax benefit to operating income primarily related to the termination of a lease in the second quarter of 2010. The Company recognized a pre-tax charge in discontinued operations of $1.1 million during the second quarter of 2010 related to a change in estimate of lease exit costs for two closed restaurants.

Net income available to preferred and common shareholders was $3.7 million, or $0.09 per diluted share, compared to $2.3 million, or $0.10 per diluted share, in the second quarter of 2009. The second quarter of 2010 included a net benefit of $0.3 million or $0.01 per diluted share. The second quarter of 2009 included net charges of $0.7 million or $0.03 per diluted share.

Financial Outlook

Based on current information, Ruth's Hospitality Group, Inc. is updating its 2010 outlook as follows:

• Cost of goods sold of 29% to 30% of restaurant sales
• General and administrative expenses of $22 million to $24 million
• Effective tax rate of 25% to 30%
• Capital expenditures of $5 million to $6 million
• The Company completed its 2010 development plan with the opening of a Mitchell’s Fish Market in June and the opening of a franchised Ruth’s Chris Steak House in May.

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