Ruthís Hospitality Group Results

Ruthís Hospitality Group, Inc. Reports Fourth Quarter and Full Year 2018 Financial Results

Fourth Quarter GAAP EPS of $0.49 - Full Year GAAP EPS of $1.38 - Company Announces 18% Increase in Quarterly Dividend to $0.13 per Share

Ruth’s Hospitality Group

Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) today reported unaudited financial results for its 13-week fourth quarter and 52-week full year ended December 30, 2018.

Highlights for the 13-week fourth quarter of 2018 compared to the 14-week fourth quarter of 2017 were as follows:

  • Restaurant sales in the 13-week fourth quarter of 2018 increased 2.3% to $120.0 million compared to $117.4 million in the 14-week fourth quarter of 2017. Average unit weekly sales were $117.8 thousand in the fourth quarter of 2018, an increase of 0.4% compared to $117.4 thousand in the fourth quarter of 2017.
  • Net income in the fourth quarter of 2018 was $14.9 million, or $0.49 per diluted share, compared to net income of $9.6 million, or $0.31 per diluted share, in the fourth quarter of 2017.
    • Net income in the fourth quarter of 2018 included $0.3 million in acquisition-related expenses associated with the acquisition of the six restaurants from our Hawaiian franchisee. Net income in the fourth quarter of 2017 included a $3.9 million non-cash charge related to the impairment of assets at one restaurant location, $0.6 million in acquisition-related expenses associated with the acquisition of our Hawaiian franchisee, and a discrete income tax charge of $1.2 million primarily related to the reduction of deferred tax assets from the Tax Cuts and Jobs Act.
    • Excluding these adjustments, non-GAAP diluted earnings per common share were $0.50 in the 13-week fourth quarter of 2018, compared to $0.44 in the 14-week fourth quarter of 2017. The Company believes that non-GAAP diluted earnings per common share provides a useful alternative measure of financial performance to improve comparability of diluted earnings per common share between periods. Investors are advised to see the attached Reconciliation of non-GAAP Financial Measure table for additional information.
  • During the fourth quarter of 2018, the Company returned $28.9 million through its dividend program, debt repayment and the repurchase of 464 thousand shares of common stock for $12.6 million.
  • One Company-owned Ruth’s Chris Steak House restaurant, one new franchised restaurant and one restaurant operating under a contractual agreement opened in the fourth quarter.

Cheryl Henry, President and Chief Executive Officer of Ruth's Hospitality Group, Inc., stated, “I’m proud of all that our team accomplished in both the fourth quarter and the full year. For the full year, we grew revenue by 9%, expanded restaurant level margins to the highest levels in over 10 years, successfully integrated our six Hawaiian franchise locations, and opened 3 new Company-operated and 2 new franchise restaurants.”

Henry added, “In addition, 2018 marked the 9th consecutive year of comparable restaurant sales and earnings growth. This success has been driven by our intense focus on operational excellence, and I’d like to thank all of our team members and franchisees for their incredible work each and every day.”

Review of Fourth Quarter 2018 Operating Results

Total revenues in the 13-week fourth quarter of 2018 were $127.2 million, an increase of 2.5% compared to $124.1 million in the 14-week fourth quarter of 2017.

Company-owned Sales

  • Comparable restaurant sales at Company-owned restaurants decreased 0.1% compared to the fourth quarter of 2017, which consisted of a traffic decrease of 2.5%, as measured by entrees, and an average check increase of 2.5%. Comparable restaurant sales and traffic were negatively affected by approximately 150 basis points due to the shift of the New Year’s Eve holiday into 2019.
  • 78 Company-owned Ruth’s Chris Steak House restaurants were open at the end of the fourth quarter of 2018, compared to 77 Ruth’s Chris Steak House restaurants at the end of the fourth quarter of 2017. Total operating weeks for the fourth quarter of 2018 increased to 1,019 from 1,000 in the fourth quarter of 2017.

Franchise Income

  • Franchise income in the fourth quarter of 2018 was $5.0 million, an increase of 7.1% compared to $4.7 million in the fourth quarter of 2017. The increase in franchise income was driven by a 1.1% increase in comparable franchise restaurant sales, the impact of the changes related to the implementation of the revenue recognition standard of $0.3 million, partially offset by the loss of $0.3 million of franchise income related to the acquisition of our Hawaiian franchise restaurants.
  • 75 franchisee-owned restaurants were open at the end of the fourth quarter of 2018 compared to 76 at the end of the fourth quarter of 2017.

Operating Expenses

  • Food and beverage costs, as a percentage of restaurant sales, decreased 160 basis points to 27.7%, primarily driven by a 6.4% decrease in total beef costs, as well as an increase in average check of 2.5%.
  • Restaurant operating expenses, as a percentage of restaurant sales, increased 110 basis points to 45.8%. The increase in restaurant operating expenses as a percentage of restaurant sales was primarily due to the loss of sales leverage from the extra week in the fourth quarter of 2017 as well an increase in occupancy related expenses.
  • Marketing and advertising costs, as a percentage of total revenues, increased 80 basis points to 3.7%. The increase in marketing and advertising costs was primarily due to the partial re-investment of tax savings back into the business.
  • General and administrative expenses, as a percentage of total revenues, increased 40 basis points to 8.0%. The increase as a percentage of total revenues was primarily driven by the loss of sales leverage from the extra week in the fourth quarter of 2017 as well as an increase in performance-based compensation and costs related to the integration of the Hawaiian restaurants.
  • Pre-opening costs were $0.6 million compared to $0.5 million in the fourth quarter of 2017.
  • Income tax expense declined from $6.0 million in the fourth quarter of 2017 to $3.4 million largely as a result of the enactment of the Tax Cuts and Jobs Act.

Highlights for the 52-week Fiscal Year 2018 Compared to the 53-week Fiscal Year 2017 were as follows:

  • Restaurant sales in the 52-week fiscal year 2018 increased 9.5% to $427.4 million compared to $390.4 million in the 53-week fiscal year 2017. Average unit weekly sales were $106.1 thousand in 2018, an increase of 1.0% compared to $105.1 thousand in 2017.
  • Net income in 2018 was $41.7 million, or $1.38 per diluted share, compared to net income of $30.1 million, or $0.97 per diluted share in 2017.
    • Income from continuing operations in 2018 was $41.6 million, or $1.37 per diluted share, compared to income from continuing operations of $30.2 million, or $0.98 per diluted share, in 2017.
    • Net income in 2018 included $1.5 million in acquisition-related expenses associated with the acquisition of our Hawaiian franchisee and a $0.7 million benefit related to other discrete income tax items. Net income in 2017 included a $3.9 million non-cash charge related to the impairment of assets at one restaurant location, $0.6 million in acquisition-related expenses associated with the acquisition of our Hawaiian franchisee, and a discrete income tax charge of $1.2 million primarily related to the reduction of deferred tax assets from the Tax Cuts and Jobs Act.
    • Excluding these adjustments, as well as the results from discontinued operations, non-GAAP diluted earnings per common share were $1.39 in 2018, compared to $1.10 in 2017. The Company believes that non-GAAP diluted earnings per common share provides a useful alternative measure of financial performance to improve comparability of diluted earnings per common share between periods. Investors are advised to see the attached Reconciliation of non-GAAP Financial Measure table for additional information.
  • During the year, the Company returned $41.1 million through its dividend program, debt repayment and the repurchase of 689 thousand shares of common stock for $18.5 million.

Review of Fiscal Year 2018 Operating Results

Total revenues in the 52-week fiscal year 2018 were $452.3 million, an increase of 9.0% to compared to $414.8 million in the 53-week year 2017.

Company-owned Sales

  • For 2018, Company-owned comparable restaurant sales increased 1.4% on a comparable 52-week basis, which consisted of an average check increase of 1.7%, and 0.3% decrease in traffic counts. Comparable restaurant sales and traffic were negatively affected by approximately 50 basis points due to the shift of the New Year’s Eve holiday into 2019.
  • Total operating weeks for 2018 increased to 4,027 from 3,715 in 2017. Total operating weeks exclude discontinued operations.

Franchise Income

  • Franchise income in 2018 was up 2.1% to $17.9 million compared to $17.5 million in 2017. The increase in franchise income was driven by a 1.0% increase in comparable restaurant sales, as well as an increase of $1.5 million related to the new revenue recognition standard, partially offset by the loss of $1.6 million of franchise income related to the acquisition of our Hawaiian franchise restaurants.

Operating Expenses

  • Food and beverage costs, as a percentage of restaurant sales, decreased 170 basis points to 28.1%, primarily due to a decrease in total beef costs of 8.4% and an increase in average check of 1.7%.
  • Restaurant operating expenses, as a percentage of restaurant sales, increased 80 basis points to 48.3%. The increase in restaurant operating expenses as a percentage of restaurant sales was primarily due to the partial re-investment of tax savings back into the business as well an increase in occupancy related expenses.
  • Marketing and advertising costs, as a percentage of total revenues, increased 60 basis points to 3.7%. The increase in marketing and advertising costs was primarily due to the partial re-investment of tax savings back into the business, as well as the impact of the changes related to the implementation of the new revenue recognition standard.
  • General and administrative expenses, as a percentage of total revenues, increased 35 basis points to 8.2%. The increase, as a percentage of total revenues, was primarily driven by increased performance-based compensation of $3.5 million and $0.9 million of additional costs related to the integration of the Hawaiian restaurants.
  • Pre-opening costs were $1.9 million in 2018, compared to $2.0 million for full year 2017.

Development Update

The Company opened two new restaurants in the fourth quarter, one in Paramus, NJ and one in Reno, NV that operates under a management agreement.

The Company has signed a lease for a new Company-owned restaurant location in Somerville, MA which will open in late 2019. With that, there are now four leases signed for new Company-owned restaurants; one in Columbus, OH, one in Washington DC, one in Somerville, MA and one in Oklahoma City, OK. The Columbus, Washington DC and Somerville restaurants are expected to open in the second half of 2019, while Oklahoma City is expected to open in 2020.

Franchise partners opened a new restaurant in Markham, Ontario in the fourth quarter. For 2019, our franchise partners are currently scheduled to open two new restaurants. The first is expected to open in Chongqing, China in the first half of 2019 and another is expected to open in St. George, UT during the second half of the year.

Lastly, the Company closed one restaurant in Washington DC late in the fourth quarter of 2018 which was at the end of its lease term.

Share Repurchase and Debt

During the fourth quarter, the Company repurchased approximately 464 thousand shares for $12.6 million, at a $27.12 average price.

For the full year, the Company repurchased approximately 689 thousand shares for $18.5 million, at an average price of $26.91. The Company ended the year with approximately $32.1 million remaining under its share repurchase authorization. Since the beginning of 2014, the Company has repurchased an aggregate of 7.4 million shares for approximately $126.7 million under the current and previous share repurchase programs.

At the end of 2018, the Company had $41.0 million in debt outstanding under its senior credit facility, with an additional $44.8 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 $0.13 per share. The dividend will be paid on March 21, 2019 to shareholders of record as of the close of business on March 7, 2019, and represents a 18% increase from the quarterly cash dividend paid in March of 2018.

Financial Outlook

Based on current information, Ruth's Hospitality Group, Inc. is providing its full year 2019 outlook based on a 52 week year ending December 29, 2019, as follows:

  • Food and beverage costs of 28.0% to 30.0% of restaurant sales
  • Restaurant operating expenses of 48.0% to 50.0% of restaurant sales
  • Marketing and advertising costs of 3.4% to 3.6% of total revenue
  • General and administrative expenses of $35 million to $36 million
  • Effective tax rate of 17% to 19%, excluding discrete income tax items
  • Capital expenditures of $30 million to $32 million resulting in depreciation expense of $19.5 million to $21.5 million.
  • Fully diluted shares outstanding of 30.0 million to 30.5 million (exclusive of any future share repurchases under the Company's share repurchase program)
 
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

 

14 Weeks

Ended

 

52 Weeks

Ended

 

53 Weeks

Ended

    December 30,   December 31,   December 30,   December 31,
      2018       2017       2018       2017  
                 
Revenues:                
Restaurant sales   $ 120,043     $ 117,392     $ 427,433     $ 390,434  
Franchise income     5,014       4,680       17,919       17,545  
Other operating income     2,102       2,031       6,982       6,844  
Total revenues     127,159       124,103       452,334       414,823  
Costs and expenses:                
Food and beverage costs     33,219       34,349       120,112       116,361  
Restaurant operating expenses     54,930       52,398       206,258       185,444  
Marketing and advertising     4,709       3,668       16,639       12,724  
General and administrative costs     10,195       9,433       37,253       32,700  
Depreciation and amortization expenses     4,776       3,906       18,538       14,995  
Pre-opening costs     617       539       1,875       2,013  
Loss on impairment           3,904             3,904  
Total costs and expenses     108,446       108,197       400,675       368,141  
Operating income     18,713       15,906       51,659       46,682  
Other income (expense):                
Interest expense, net     (486 )     (300 )     (1,739 )     (821 )
Other     (42 )     19       (73 )     53  
Income from continuing operations before income tax expense     18,185       15,625       49,847       45,914  
Income tax expense     3,375       6,036       8,247       15,669  
Income from continuing operations     14,810       9,589       41,600       30,245  
Income (loss) from discontinued operations, net of income taxes     50       (8 )     80       (108 )
Net income   $ 14,860     $ 9,581     $ 41,680     $ 30,137  
Basic earnings per common share:                
Continuing operations   $ 0.50     $ 0.32     $ 1.40     $ 1.00  
Discontinued operations                 0.01       (0.01 )
Basic earnings per share   $ 0.50     $ 0.32     $ 1.41     $ 0.99  
Diluted earnings per common share:                
Continuing operations   $ 0.49     $ 0.31     $ 1.37     $ 0.98  
Discontinued operations                 0.01       (0.01 )
Diluted earnings per share   $ 0.49     $ 0.31     $ 1.38     $ 0.97  
Shares used in computing net income per common share:                
Basic     29,513,678       29,947,096       29,659,461       30,346,999  
Diluted     30,071,992       30,571,801       30,273,841       30,916,364  
Dividends declared per common share   $ 0.11     $ 0.09     $ 0.44     $ 0.36  
                                 

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, the impact of loss on impairment, the impact of acquisition related costs and the impact of certain discrete income tax items 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

 

14 Weeks

Ended

 

52 Weeks

Ended

 

53 Weeks

Ended

    December 30,   December 31,   December 30,   December 31,
      2018       2017       2018       2017  
GAAP Net income   $ 14,860     $ 9,581     $ 41,680     $ 30,137  
GAAP Income tax expense     3,375       6,036       8,247       15,669  
GAAP (Income) loss from discontinued operations     (50 )     8       (80 )     108  
GAAP Income from continuing operations before income tax expense     18,185       15,625       49,847       45,914  
Adjustments:                
Loss on impairment           3,904             3,904  
Hawaii acquisition costs     250       619       1,525       619  
Adjusted net income from continuing operations before income taxes     18,435       20,148       51,372       50,437  
Adjusted income tax expense (1)     (3,436 )     (7,755 )     (8,621 )     (17,388 )
Impact of excluding certain discrete income tax items           1,160       (711 )     913  
Non-GAAP net income   $ 14,999     $ 13,553     $ 42,040     $ 33,962  
                 
GAAP diluted earnings per common share   $ 0.49     $ 0.31     $ 1.38     $ 0.97  
                 
Non-GAAP diluted earnings per common share   $ 0.50     $ 0.44     $ 1.39     $ 1.10  
                 
Weighted-average number of common shares outstanding - diluted     30,071,992       30,571,801       30,273,841       30,916,364  
                 
(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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