Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) today reported unaudited financial results for its second quarter ended July 1, 2018.
Highlights for the second quarter of 2018 were as follows:
- Restaurant sales in the second quarter of 2018 increased 10.0% to $103.5 million compared to $94.1 million in the second quarter of 2017.
- The Company reported net income of $9.6 million, or $0.32 per diluted share, in the second quarter of 2018, compared to net income of $7.8 million, or $0.25 per diluted share, in the second quarter of 2017.
- Income from continuing operations in the second quarter of 2018 was $9.6 million, or $0.32 per diluted share, compared to income from continuing operations of $7.8 million, or $0.25 per diluted share, in the second quarter of 2017.
- Net income in the second quarter of 2018 included a $0.3 million income tax benefit related to the impact of discrete income tax items.
- Net income in the second quarter of 2018 also included $0.4 million in deal-related expenses associated with the acquisition of the six restaurants of our Hawaiian franchisee.
- Excluding these adjustments, as well as the results from discontinued operations, non-GAAP diluted earnings per common share were $0.32 in the second quarter of 2018, compared to $0.25 in the second quarter of 2017. The Company believes that non-GAAP diluted earnings per common share provides a useful alternative measure of financial performance. Investors are advised to see the attached Reconciliation of non-GAAP Financial Measure table for additional information.
Michael P. O'Donnell, Chairman and Chief Executive Officer of Ruth's Hospitality Group, Inc., noted, “I am pleased with our second quarter results, which reflect the strength and consistency of our business. Financial results included revenue growth of 9.6%, comparable restaurant sales growth of 1.3%, and restaurant level margin expansion. Our Hawaiian restaurants are steadily achieving sales and profits ahead of our expectations, and we are in the final stages of a successful integration.”
O’Donnell continued, “I am incredibly proud of the team we have assembled here at Ruth’s Hospitality Group and of our many accomplishments over the last 10 years. The Company is well-positioned for continued success, due in large part to initiatives designed and implemented by Cheryl Henry, our new Chief Executive Officer. I remain extremely confident in the future of the Company, and look forward to supporting Cheryl in my new role as Executive Chairman.”
Review of Second Quarter 2018 Operating Results
Total revenues in the second quarter of 2018 were $109.6 million, an increase of 9.6% compared to $100.0 million in the second quarter of 2017.
- Calendar comparable restaurant sales at Company-owned restaurants increased 1.3%, which consisted of a traffic decrease of 0.1%, as measured by entrees, and an average check increase of 1.4%.
- The calendar shift of Easter from the second quarter of 2017 into the first quarter of 2018 negatively impacted second quarter 2018 comparable restaurant traffic and sales by approximately 70 basis points.
- Fiscal average unit weekly sales were $103.4 thousand in the second quarter of 2018, compared to $103.5 thousand in the second quarter of 2017.
- 77 Company-owned Ruth’s Chris Steak House restaurants were open at the end of the second quarter of 2018, compared to 70 Ruth’s Chris Steak House restaurants at the end of the second quarter of 2017. Total operating weeks for the second quarter of 2018 increased to 1,001 from 910 in the second quarter of 2017.
- Franchise income in the second quarter of 2018 was $4.5 million, an increase of 4.7% compared to $4.3 million in the second quarter of 2017. The increase in franchise income was driven by a 1.3% increase in comparable franchise restaurant sales as well as the impact of the new revenue recognition standard, partially offset by the acquisition of the Hawaii restaurant locations.
- 75 franchisee-owned restaurants were open at the end of the second quarter of 2018 compared to 81 at the end of the second quarter of 2017.
- Food and beverage costs, as a percentage of restaurant sales, decreased 180 basis points to 28.1%, primarily driven by a 10% decrease in total beef costs, as well as by an increase in average check of 1.4%.
- Restaurant operating expenses, as a percentage of restaurant sales, increased 50 basis points to 48.3%. The increase in restaurant operating expenses as a percentage of restaurant sales was primarily due to an increase in occupancy related expenses.
- General and administrative expenses, as a percentage of total revenues, increased 40 basis points to 8.5%. The increase as a percentage of total revenues was primarily driven by additional costs related to the integration of the recently acquired Hawaiian restaurants.
- Marketing and advertising costs, as a percentage of total revenues, increased 80 basis points. The increase in marketing and advertising costs in the second quarter of fiscal year 2018 was primarily attributable to a planned increase in advertising spending, in addition to the reclassification of certain administrative support costs that have been historically charged to general and administrative costs.
- Pre-opening costs in the second quarter of 2018 were $0.3 million compared to $0.2 million in the second quarter of 2017, driven by the timing of new restaurant openings.
- Income tax expenses declined from $3.6 million in the second quarter of 2017 to $1.8 million largely as a result of the enactment of the Tax Cuts and Jobs Act.
The Company expects to open two new restaurants during the balance of 2018. The first in Jersey City, NJ in the third quarter and another in Paramus, NJ in the fourth quarter. Additionally, a restaurant operating under a management agreement in Reno, NV is expected to open early in the first quarter of 2019.
Franchise partners opened one new restaurant and expect to open another new restaurant in 2018. The first in Fort Wayne, IN opened during the second quarter on May 7th, and another in Markham, Ontario is expected to open in the fourth quarter.
Share Repurchase and Debt
The Company repurchased 224,605 shares during the second quarter of 2018, for approximately $5.9 million or $26.46 per share. At the end of the quarter, the Company had approximately $44.7 million remaining under its share repurchase authorization.
At the end of the second quarter of 2018, the Company had $50 million in debt outstanding under that facility, with an additional $35.8 million of availability.
Quarterly Cash Dividend
Subsequent to the end of the quarter, the Company’s Board of Directors approved the payment of a quarterly cash dividend to shareholders of $0.11 per share. The dividend will be paid on September 6, 2018 to shareholders of record as of the close of business on August 23, 2018, and represents a 22% increase from the quarterly cash dividend paid in August of 2017.
Based on current information, Ruth's Hospitality Group, Inc. is revising its full year 2018 outlook based on a 52 week year ending December 30, 2018, as follows:
- Food and beverage costs of 28.0% to 30.0% of restaurant sales
- Restaurant operating expenses of 47.0% to 49.0% of restaurant sales
- Marketing and advertising costs of 3.8% to 4.0% of total revenue
- General and administrative expenses of $33 million to $35 million, exclusive of the integration costs related to the acquisition of the Hawaiian restaurants
- Effective tax rate of 17% to 19%, excluding discreet income tax items
- Capital expenditures of $30 million to $32 million
- Fully diluted shares outstanding of 30.5 million to 31.0 million (exclusive of any future share repurchases under the Company's share repurchase program)
The foregoing statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer you to our recent filings with the Securities and Exchange Commission for more detailed discussions of the risks that could impact our financial outlook and our future operating results and financial condition.
About Ruth’s Hospitality Group, Inc.
Ruth's Hospitality Group, Inc., headquartered in Winter Park, Florida, is the largest fine dining steakhouse company in the U.S. as measured by the total number of Company-owned and franchisee-owned restaurants, with over 150 Ruth’s Chris Steak House locations worldwide specializing in USDA Prime grade steaks served in Ruth’s Chris’ signature fashion – “sizzling.”
|RUTH'S HOSPITALITY GROUP, INC. AND SUBSIDIARIES|
|Condensed Consolidated Statements of Income - Preliminary and Unaudited|
|(Amounts in thousands, except share and per share data)|
|13 Weeks Ended||26 Weeks Ended|
|July 1,||June 25,||July 1,||June 25,|
|Other operating income||1,640||1,613||3,384||3,306|
|Costs and expenses:|
|Food and beverage costs||29,049||28,114||60,454||56,693|
|Restaurant operating expenses||50,022||45,005||101,702||90,452|
|Marketing and advertising||4,640||3,412||8,117||5,859|
|General and administrative costs||9,274||8,035||18,248||16,171|
|Depreciation and amortization expenses||4,673||3,731||9,134||7,236|
|Total costs and expenses||97,930||88,470||198,067||177,763|
|Other income (expense):|
|Interest expense, net||(403||)||(144||)||(783||)||(324||)|
|Income from continuing operations before income tax expense||11,324||11,415||27,344||27,505|
|Income tax expense||1,763||3,611||4,147||8,616|
|Income from continuing operations||9,561||7,804||23,197||18,889|
|Income (loss) from discontinued operations, net of income taxes||12||7||22||(30||)|
|Basic earnings per common share:|
|Basic earnings per share||$||0.32||$||0.26||$||0.78||$||0.62|
|Diluted earnings per common share:|
|Diluted earnings per share||$||0.32||$||0.25||$||0.76||$||0.60|
|Shares used in computing net income per common share:|
|Dividends declared per common share||$||0.11||$||0.09||$||0.22||$||0.18|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
We prepare our financial statements in accordance with U.S. generally accepted accounting principles (GAAP). Within our press release, we make reference to non-GAAP diluted earnings per common share. This non-GAAP measurement was calculated by excluding certain items and results from discontinued operations and certain discrete income tax items. We exclude the impact of the results from discontinued operations and restaurant closing costs, the impact of certain discrete income tax items and the impact of acquisition related costs because these items are not reflective of the ongoing operations of our business. This non-GAAP measurement has been included as supplemental information. We believe that this measure represents a useful internal measure of performance. Accordingly, where this non-GAAP measure is provided, it is done so that investors have the same financial data that management uses in evaluating performance with the belief that it will assist the investment community in assessing our underlying performance on a quarter-over-quarter basis. However, because this measure is not determined in accordance with GAAP, such a measure is susceptible to varying calculations and not all companies calculate the measure in the same manner. As a result, the aforementioned measure as presented may not be directly comparable to a similarly titled measure presented by other companies. This non-GAAP financial measure is presented as supplemental information and not as an alternative to diluted earnings per share as calculated in accordance with GAAP.
|Reconciliation of Non-GAAP Financial Measure - Unaudited|
|(Amounts in thousands, except share data)|
|13 Weeks Ended||26 Weeks Ended|
|July 1,||June 25,|| |
|July 1,||June 25,|
|GAAP Net income||$||9,573||$||7,811||$||23,219||$||18,859|
|GAAP Income tax expense||1,763||3,611||4,147||8,616|
|GAAP (Income) loss from discontinued operations||(12||)||(7||)||(22||)||30|
|GAAP Income from continuing operations before income tax expense||11,324||11,415||27,344||27,505|
|Hawaii acquisition costs||409||-||861||-|
|Adjusted net income from continuing operations before income taxes||11,733||11,415||28,205||27,505|
|Adjusted income tax expense (1)||(1,863||)||(3,611||)||(4,355||)||(8,616||)|
|Impact of excluding certain discrete income tax items||(273||)||-||(631||)||(247||)|
|Non-GAAP net income||$||9,597||$||7,804||$||23,219||$||18,642|
|GAAP diluted earnings per common share||$||0.32||$||0.25||$||0.76||$||0.60|
|Non-GAAP diluted earnings per common share||$||0.32||$||0.25||$||0.76||$||0.60|
|Weighted-average number of common shares outstanding - diluted||30,375,306||31,264,266||30,377,194||31,255,441|
|(1)||Adjusted income tax expense is calculated by multiplying the Non-GAAP adjustments by our marginal federal and state income tax rates and adding or subtracting the result to/from our GAAP income tax expense.|
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