Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) today reported unaudited financial results for its first quarter ended March 31, 2019.
Highlights for the first quarter of 2019 were as follows:
- Restaurant sales in the first quarter of 2019 increased 2.4% to $113.0 million compared to $110.4 million in the first quarter of 2018. Average unit weekly sales were $111.4 thousand in the first quarter of 2019, an increase of 1.1% compared to $110.3 thousand in the first quarter of 2018.
- Net income in the first quarter of 2019 was $13.9 million, or $0.47 per diluted share, compared to net income of $13.6 million, or $0.45 per diluted share, in the first quarter of 2018.
- Net income in the first quarter of 2019 included $39 thousand in acquisition-related expenses associated with the acquisition of the three restaurants from our Philadelphia and Long Island franchisee, and a $0.5 million income tax benefit related to the impact of discrete income tax items. Net income in the first quarter of 2018 included $0.5 million in acquisition-related expenses associated with the acquisition of our Hawaiian franchisee, and a $0.4 million income tax benefit related to the impact of discrete income tax items.
- Excluding these adjustments, as well as the results from discontinued operations, non-GAAP diluted earnings per common share were $0.45 in the first quarter of 2019, compared to $0.45 in the first quarter of 2018. 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 first quarter of 2019, the Company returned $6.5 million through dividends, share repurchases and debt repayments.
- One new franchised Ruth’s Chris Steak House restaurant opened in the first quarter in China.
Cheryl Henry, President and Chief Executive Officer of Ruth's Hospitality Group, Inc., stated, “I’m pleased with our first quarter results, which included comparable restaurant sales growth, consistent margins year-over-year, and GAAP EPS of $0.47 despite weather challenges.”
Henry added, “I’m excited to announce the acquisition of three franchised restaurants and development territory from longtime franchise partner Marsha Brown. This acquisition includes two restaurants in the Philadelphia, PA area and one on Long Island, NY. Additionally, we purchased the development rights to these areas which will contribute to our long-term growth strategy by unlocking valuable territory. I am thrilled to welcome these restaurants and our new team members to the Ruth’s Chris corporate family.”
Review of First Quarter 2019 Operating Results
Total revenues in the first quarter of 2019 were $119.7 million, an increase of 2.8% compared to $116.5 million in the first quarter of 2018.
- Comparable restaurant sales at Company-owned restaurants increased 1.8% compared to the first quarter of 2018, which consisted of flat traffic, as measured by entrees, and an average check increase of 1.8%. Comparable restaurant sales and traffic were positively affected by approximately 200 basis points due to the shift of the New Year’s Eve holiday into the first quarter of 2019 from the fourth quarter of 2017, and negatively impacted by approximately 90 basis points due to the shift of Easter into the second quarter of 2019 from the first quarter of 2018.
- 78 Company-owned Ruth’s Chris Steak House restaurants were open at the end of the first quarter of 2019, compared to 77 Ruth’s Chris Steak House restaurants at the end of the first quarter of 2018. Total operating weeks for the first quarter of 2019 increased to 1,014 from 1,001 in the first quarter of 2018.
- Franchise income in the first quarter of 2019 was $4.6 million, an increase of 3.2% compared to $4.4 million in the first quarter of 2018. The increase in franchise income was driven primarily by a 3.1% increase in comparable franchise restaurant sales.
- 76 franchisee-owned restaurants were open at the end of the first quarter of 2019 compared to 74 at the end of the first quarter of 2018.
- Food and beverage costs, as a percentage of restaurant sales, decreased 30 basis points to 28.2% as compared to the first quarter of 2018, primarily driven by a 3.7% decrease in total beef costs, as well as an increase in average check of 1.8%.
- Restaurant operating expenses, as a percentage of restaurant sales, increased 60 basis points to 47.4% as compared to the first quarter of 2018. The increase in restaurant operating expenses as a percentage of restaurant sales was primarily due to higher labor costs.
- Marketing and advertising costs, as a percentage of total revenues, remained steady at 3.0% as compared to the first quarter of 2018.
- General and administrative expenses, as a percentage of total revenues, decreased 40 basis points to 7.3% as compared to the first quarter of 2018. The decrease as a percentage of total revenues, was primarily driven by $0.5 million in acquisition related expenses included in the first quarter of 2018.
- Income tax expense was $2.5 million in the first quarter of 2019 compared to $2.4 million in the first quarter of 2018.
The Company currently has four signed leases 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 the Oklahoma City restaurant is expected to open in 2020.
Franchise partners opened a new restaurant in Chongqing, China in the first quarter. Our franchise partners are currently expected to open a new restaurant in St. George, UT, now in the first half of 2020.
Share Repurchase and Debt
During the first quarter, the Company repurchased approximately 26 thousand shares for $0.6 million, at a $22.03 average price per share. The Company has approximately $31.5 million remaining under its share repurchase authorization.
The Company repaid $2 million in debt under its senior credit facility during the quarter. At the end of the first quarter, the Company had $39.0 million in debt outstanding under its senior credit facility, with an additional $46.8 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 June 6, 2019 to shareholders of record as of the close of business on May 23, 2019 and represents an 18% increase from the quarterly cash dividend paid in June of 2018.
On May 1, 2019, the Company entered into an asset purchase agreement to acquire the two franchised Ruth’s Chris Steak House restaurants in the Philadelphia area, one restaurant in Garden City, NY as well as development rights for these territories for approximately $19 million in cash. The purchase price for the restaurants is subject to adjustments for certain deposits, credits, inventory and prepaid amounts. The Company expects the transaction to close in the third quarter.
Based on current information and the aforementioned franchise acquisition, Ruth's Hospitality Group, Inc. is revising 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, exclusive of integration costs related to the franchise acquisition
- Effective tax rate of 17% to 19%, excluding discrete income tax items
- Capital expenditures of $54 million to $56 million, inclusive of the $19 million related to the franchise acquisition, resulting in depreciation expense of $20.0 million to $22.0 million
- Fully diluted shares outstanding of 29.9 million to 30.3 million (exclusive of any future share repurchases under the Company's share repurchase program)
The foregoing statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer you to the “Cautionary Note Regarding Forward-Looking Statements” section in this earnings press release and to our recent filings with the Securities and Exchange Commission for more detailed discussions of the risks that could impact our financial outlook and our future operating results and financial condition.
About Ruth’s Hospitality Group, Inc.
Ruth's Hospitality Group, Inc., headquartered in Winter Park, Florida, is the largest fine dining steakhouse company in the U.S. as measured by the total number of Company-owned and franchisee-owned restaurants, with over 150 Ruth’s Chris Steak House locations worldwide specializing in USDA Prime grade steaks served in Ruth’s Chris’ signature fashion – “sizzling.”
|RUTH'S HOSPITALITY GROUP, INC. AND SUBSIDIARIES|
|Condensed Consolidated Statements of Income - Preliminary and Unaudited|
|(Amounts in thousands, except share and per share data)|
|13 Weeks Ended|
|March 31,||April 1,|
|Restaurant sales||$ 112,986||$ 110,364|
|Other operating income||2,197||1,745|
|Costs and expenses:|
|Food and beverage costs||31,848||31,405|
|Restaurant operating expenses||53,603||51,679|
|Marketing and advertising||3,629||3,477|
|General and administrative costs||8,751||8,976|
|Depreciation and amortization expenses||4,969||4,461|
|Total costs and expenses||102,898||100,138|
|Other income (expense):|
|Interest expense, net||(405)||(380)|
|Income from continuing operations before income tax expense||16,440||16,020|
|Income tax expense||2,529||2,384|
|Income from continuing operations||13,911||13,636|
|Income (loss) from discontinued operations, net of income taxes||-||10|
|Net income||$ 13,911||$ 13,646|
|Basic earnings per common share:|
|Continuing operations||$ 0.48||$ 0.46|
|Basic earnings per share||$ 0.48||$ 0.46|
|Diluted earnings per common share:|
|Continuing operations||$ 0.47||$ 0.45|
|Diluted earnings per share||$ 0.47||$ 0.45|
|Shares used in computing net income per common share:|
|Dividends declared per common share||$ 0.13||$ 0.11|
|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 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|
|March 31,||April 1,|
|GAAP Net income||$ 13,911||$ 13,646|
|GAAP Income tax expense||2,529||2,384|
|GAAP (Income) loss from discontinued operations||0||(10)|
|GAAP Income from continuing operations before income tax expense||16,440||16,020|
|Franchisee acquisition costs||39||452|
|Adjusted net income from continuing operations before income taxes||16,479||16,472|
|Adjusted income tax expense (1)||(2,538)||(2,492)|
|Impact of excluding certain discrete income tax items||(483)||(358)|
|Non-GAAP net income||$ 13,458||$ 13,622|
|GAAP diluted earnings per common share||$ 0.47||$ 0.45|
|Non-GAAP diluted earnings per common share||$ 0.45||$ 0.45|
|Weighted-average number of common shares outstanding - diluted||29,903,511||30,384,180|
(1) Adjusted income tax 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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