Ruth’s Hospitality Group Results

Ruth’s Hospitality Group, Inc. Reports Second Quarter 2019 Financial Results

Ruth’s Hospitality Group, Inc. (NASDAQ: RUTH) reported unaudited financial results for its second quarter ended June 30, 2019.

Highlights for the second quarter of 2019 were as follows:

  • Restaurant sales in the second quarter of 2019 increased 0.5% to $104.0 million compared to $103.5 million in the second quarter of 2018. Average unit weekly sales were $102.6 thousand in the second quarter of 2019, a decrease of 0.8% compared to $103.4 thousand in the second quarter of 2018.
  • Net income in the second quarter of 2019 was $9.3 million, or $0.31 per diluted share, compared to net income of $9.6 million, or $0.32 per diluted share, in the second quarter of 2018.

- Net income in the second quarter of 2019 included $71 thousand in acquisition-related expenses associated with the acquisition of the three restaurants from our Philadelphia and Long Island franchisee, and a $122 thousand income tax benefit related to the impact of discrete income tax items. Net income in the second quarter of 2018 included $409 thousand in acquisition-related expenses associated with the acquisition of our Hawaiian franchisee, and a $273 thousand 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 $0.31 in the second quarter of 2019, compared to $0.32 in the second 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 second quarter of 2019, the Company announced the acquisition of three franchised restaurants with two in the Philadelphia, PA area and one on Long Island, NY as well as development rights for this territory.

  • On July 29th, subsequent to the end of the quarter, the Company closed on this acquisition.
  • The Company returned $10.5 million through dividends and share repurchases during the second quarter of 2019.

Cheryl Henry, President and Chief Executive Officer of Ruth's Hospitality Group, Inc., stated, “I’m pleased with the work of our team. After seeing slower sales in April, our comparable restaurant sales saw sequential improvement throughout the quarter including positive comparable sales during our June period.”

Henry added, “We continue to lay the foundation for long-term growth within the framework of our total return strategy. Earlier this week, we closed on the previously announced acquisition of development territory and three restaurants in Philadelphia, PA and Long Island, NY from a long-time franchise partner. Additionally, we have recently signed two new leases for Company-owned restaurants in Short Hills, NJ and Worcester, MA. We remain excited about our opportunities to grow and evolve the iconic Ruth’s Chris Steak House brand.”

Review of Second Quarter 2019 Operating Results

Total revenues in the second quarter of 2019 were $110.2 million, an increase of 0.6% compared to $109.6 million in the second quarter of 2018.

Company-owned Sales

  • Comparable restaurant sales at Company-owned restaurants decreased 0.5% compared to the second quarter of 2018, which consisted of a 1.3% decrease in traffic, as measured by entrees, and an average check increase of 0.9%. Comparable restaurant sales and traffic were positively affected by approximately 50 to 70 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 second quarter of 2019, compared to 77 Ruth’s Chris Steak House restaurants at the end of the second quarter of 2018. Total operating weeks for the second quarter of 2019 increased to 1,014 from 1,001 in the second quarter of 2018.

Franchise Income

  • Franchise income in the second quarter of 2019 was $4.4 million, a decrease of 0.8% compared to $4.5 million in the second quarter of 2018. The decrease in franchise income was driven primarily by lower franchise development fees, offset by a 1.1% increase in comparable franchise restaurant sales.
  • 76 franchisee-owned restaurants were open at the end of the second quarter of 2019 compared to 75 at the end of the second quarter of 2018.

Operating Expenses

  • Food and beverage costs, as a percentage of restaurant sales, decreased 20 basis points to 27.9% as compared to the second quarter of 2018, primarily driven by an increase in average check of 0.9%, and slightly offset by a 0.8% increase in total beef costs.
  • Restaurant operating expenses, as a percentage of restaurant sales, increased 90 basis points to 49.2% as compared to the second quarter of 2018. The increase in restaurant operating expenses as a percentage of restaurant sales was primarily due to higher labor and occupancy costs.
  • Marketing and advertising costs, as a percentage of total revenues, decreased 50 basis points to 3.7% as compared to the second quarter of 2018. The decrease as a percentage of total revenues, was primarily driven by the shift of marketing tactics across the periods.
  • General and administrative expenses, as a percentage of total revenues, decreased 40 basis points to 8.1% as compared to the second quarter of 2018. The decrease as a percentage of total revenues, was primarily driven by $0.4 million in acquisition related expenses included in the second quarter of 2018.
  • Income tax expense was $1.9million in the second quarter of 2019 compared to $1.8 million in the second quarter of 2018.

Development Update

As previously reported, the Company has signed leases for new Company-owned restaurants in Columbus, OH, Washington DC, Somerville, MA and Oklahoma City, OK. The Columbus, Washington DC and Somerville restaurants are on track to open in the second half of 2019, while the Oklahoma City restaurant is expected to open in 2020.

In addition, the Company recently signed two new leases to open restaurants in Short Hills, NJ, and Worcester, MA which we expect to open in the second half of 2020.

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 second quarter, the Company repurchased approximately 251 thousand shares for $6.6 million, at an average price of $26.23 per share. Year to date, the Company has repurchased 276 thousand shares for $7.1 million, at an average price of $25.84 per share. The Company has approximately $25.0 million remaining under its share repurchase authorization.

At the end of the second quarter, the Company had $45.0 million in debt outstanding under its senior credit facility.

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 September 5, 2019 to shareholders of record as of the close of business on August 22, 2019 and represents an 18% increase from the quarterly cash dividend paid in September of 2018.

Financial Outlook

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 29.5% 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, inclusive of integration costs related to the acquired franchise restaurants in Philadelphia and Long Island,
  • Effective tax rate of 17% to 19%,
  • 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 29.8 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.

 
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

 

 

June 30,

 

July 1,

 

June 30,

 

July 1,

 

 

2019

 

2018

 

2019

 

2018

                 
Revenues:                
Restaurant sales  

$

104,017

 

 

$

103,538

 

 

$

217,003

 

 

$

213,902

 

Franchise income  

 

4,421

 

 

 

4,457

 

 

 

8,979

 

 

 

8,874

 

Other operating income  

 

1,805

 

 

 

1,640

 

 

 

4,002

 

 

 

3,384

 

Total revenues  

 

110,243

 

 

 

109,635

 

 

 

229,984

 

 

 

226,160

 

Costs and expenses:                
Food and beverage costs  

 

29,023

 

 

 

29,049

 

 

 

60,871

 

 

 

60,454

 

Restaurant operating expenses  

 

51,156

 

 

 

50,022

 

 

 

104,759

 

 

 

101,702

 

Marketing and advertising  

 

4,121

 

 

 

4,640

 

 

 

7,751

 

 

 

8,117

 

General and administrative costs  

 

8,929

 

 

 

9,274

 

 

 

17,681

 

 

 

18,248

 

Depreciation and amortization expenses  

 

5,124

 

 

 

4,673

 

 

 

10,092

 

 

 

9,134

 

Pre-opening costs  

 

244

 

 

 

272

 

 

 

341

 

 

 

412

 

Total costs and expenses  

 

98,597

 

 

 

97,930

 

 

 

201,495

 

 

 

198,067

 

Operating income  

 

11,646

 

 

 

11,705

 

 

 

28,489

 

 

 

28,093

 

Other income (expense):                
Interest expense, net  

 

(417

)

 

 

(403

)

 

 

(822

)

 

 

(783

)

Other  

 

13

 

 

 

22

 

 

 

15

 

 

 

34

 

Income from continuing operations before income tax expense

 

11,242

 

 

 

11,324

 

 

 

27,682

 

 

 

27,344

 

Income tax expense  

 

1,933

 

 

 

1,763

 

 

 

4,462

 

 

 

4,147

 

Income from continuing operations  

 

9,309

 

 

 

9,561

 

 

 

23,220

 

 

 

23,197

 

Income (loss) from discontinued operations,

net of income taxes

 

 

-

 

 

 

12

 

 

 

-

 

 

 

22

 

Net income  

$

9,309

 

 

$

9,573

 

 

$

23,220

 

 

$

23,219

 

Basic earnings per common share:                
Continuing operations  

$

0.32

 

 

$

0.32

 

 

$

0.79

 

 

$

0.78

 

Discontinued operations  

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Basic earnings per share  

$

0.32

 

 

$

0.32

 

 

$

0.79

 

 

$

0.78

 

Diluted earnings per common share:                
Continuing operations  

$

0.31

 

 

$

0.32

 

 

$

0.78

 

 

$

0.76

 

Discontinued operations  

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Diluted earnings per share  

$

0.31

 

 

$

0.32

 

 

$

0.78

 

 

$

0.76

 

Shares used in computing net income per common share:                
Basic  

 

29,252,651

 

 

 

29,713,825

 

 

 

29,264,076

 

 

 

29,701,847

 

Diluted  

 

29,726,102

 

 

 

30,375,306

 

 

 

29,768,702

 

 

 

30,377,194

 

Dividends declared per common share  

$

0.13

 

 

$

0.11

 

 

$

0.26

 

 

$

0.22

 

         

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   26 Weeks Ended
    June 30,   July 1,   June 30,   July 1,
   

2019

 

2018

 

2019

 

2018

GAAP Net income  

$

9,309

 

 

$

9,573

 

 

$

23,220

 

 

$

23,219

 

GAAP Income tax expense  

 

1,933

 

 

 

1,763

 

 

 

4,462

 

 

 

4,147

 

GAAP (Income) loss from discontinued operations  

 

-

 

 

 

(12

)

 

 

-

 

 

 

(22

)

GAAP Income from continuing operations before income tax expense

 

11,242

 

 

 

11,324

 

 

 

27,682

 

 

 

27,344

 

Adjustments:                
Franchisee acquisition costs  

 

71

 

 

 

409

 

 

 

110

 

 

 

861

 

Adjusted net income from continuing operations before income taxes  

 

11,313

 

 

 

11,733

 

 

 

27,792

 

 

 

28,205

 

Adjusted income tax expense (1)  

 

(1,950

)

 

 

(1,863

)

 

 

(4,488

)

 

 

(4,355

)

Impact of excluding certain discrete income tax items  

 

(122

)

 

 

(273

)

 

 

(605

)

 

 

(631

)

Non-GAAP net income  

$

9,241

 

 

$

9,597

 

 

$

22,699

 

 

$

23,219

 

                 
GAAP diluted earnings per common share  

$

0.31

 

 

$

0.32

 

 

$

0.78

 

 

$

0.76

 

                 
Non-GAAP diluted earnings per common share  

$

0.31

 

 

$

0.32

 

 

$

0.76

 

 

$

0.76

 

                 
Weighted-average number of common shares outstanding - diluted

 

29,726,102

 

 

 

30,375,306

 

 

 

29,768,702

 

 

 

30,377,194

 

                 
(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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