Ruth's Hospitality Group, Inc. Provides Business Update and Reports Third Quarter 2020 Financial Results
Third quarter comparable restaurant sales at Company-owned restaurants decreased 36.7% compared to the third quarter of 2019.
Ruth’s Hospitality Group, Inc. (NASDAQ: RUTH) last week provided a business update on the impact of the COVID-19 pandemic and reported unaudited financial results for its third quarter ended September 27, 2020.
Business and Liquidity Update:
- By the end of the third quarter, the Company was able to re-open 94% (72 of 77) of its Company-owned and managed restaurants, which included 71 restaurants offering limited capacity dining service and one restaurant offering to-go and delivery service only.
- 99% (71 of 72) of the Company’s franchisee-owned restaurants were open with capacity restricted dining rooms as of the end of the third quarter.
- Third quarter comparable restaurant sales at Company-owned restaurants decreased 36.7% compared to the third quarter of 2019. As a result of the increased number of open restaurants, sales trends improved throughout the third quarter. Year over year monthly comparable sales at Company-owned restaurants improved to down 28% in September from down 38% in August and down 43% in July.
- Third quarter comparable sales for Company-owned and managed restaurants with open dining rooms decreased 21.6% compared to the third quarter of 2019.
- During August and September 2020, the Company’s cash balance increased by a total of $8.8 million primarily due to improved sales and operating margins. As of September 27, 2020, the Company’s cash balance was approximately $103.1 million, with $135.2 million of debt outstanding under its senior credit facility and outstanding letters of credit of $4.8 million.
- Subsequent to the end of the third quarter, the Company repaid $20.2 million in debt, and secured a term extension to February 2023 on its senior credit facility.
- During the quarter, the Company permanently closed four Company-owned restaurants, which brings the total number of Company-owned locations closed during the year to nine.
Highlights for the third quarter of 2020 were as follows:
- Total revenue in the third quarter of 2020 was $63.4 million, compared to $103.0 million in the third quarter of 2019.
- Net loss in the third quarter of 2020 was $5.3 million, or ($0.15) per diluted share, compared to net income of $4.5 million, or $0.16 per diluted share, in the third quarter of 2019.
- Net loss in the third quarter of 2020 included $1.2 million in severance costs and accelerated stock expense; $0.3 million in losses related to lease modifications; a $3.3 million impairment loss related to restaurant closures, long-lived assets and inventory; and a $0.2 million income tax expense related to the impact of discrete income tax items. Net income in the third quarter of 2019 included $0.3 million in acquisition-related expenses associated with the acquisition of the three restaurants from our Philadelphia and Long Island franchisee, and a $0.3 million income tax benefit related to the impact of discrete income tax items.
- Excluding these items, non-GAAP diluted loss per common share was ($0.04) in the third quarter of 2020, compared to a non-GAAP diluted earnings per common share of $0.15 in the third quarter of 2019. 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.
Cheryl Henry, President and Chief Executive Officer of Ruth's Hospitality Group, Inc., stated, “Our operations team has worked tirelessly to adapt to an ever changing regulatory environment and I’m thrilled with the continued sales trend improvement since the end of the second quarter that was the driver of our positive cash flow during the quarter. In addition to the sales improvement, we were also able to produce higher restaurant-level margin on lower sales compared to last year once our dining rooms have been reopened with capacity restrictions. As we look forward to the end of the year, we are cautiously optimistic about the health of our business and feel prepared with proven business models to operate in a variety of regulatory scenarios. All of these accomplishments would not have been possible without the tireless efforts from all of our Ruth’s Chris team members and our franchise partners.”
Review of third quarter 2020 operating results
Restaurant sales in the third quarter of 2020 were $58.6 million compared to $97.2 million in the third quarter of 2019. Average unit weekly sales for restaurants with open dining rooms were $74.5 thousand in the third quarter of 2020, compared to $98.7 thousand in the third quarter of 2019.
Company-owned Sales
- Comparable restaurant sales at Company-owned restaurants decreased 36.7% compared to the third quarter of 2019, which consisted of a 29.7% decrease in traffic, as measured by entrees, and a 9.9% decrease in average check, which was largely due to lower alcohol sales and our current streamlined menu offerings.
- At the end of the third quarter of 2020, 72 Company-owned and managed Ruth’s Chris Steak House restaurants were in operation, which included 71 restaurants offering limited capacity dining service and one restaurant offering to-go and delivery service only. Five Company-owned restaurants remained temporarily closed as of September 27, 2020. At the end of the third quarter of 2019, 81 Ruth’s Chris Steak House restaurants were in operation.
Franchise Income
- Franchise income in the third quarter of 2020 was $3.5 million compared to $3.9 million in the third quarter of 2019. The reduction in franchise income was due to a decrease in sales from franchise operations.
- At the end of the third quarter, 71 franchisee-owned Ruth’s Chris Steak House restaurants were in operation offering limited capacity dining room service. One franchise restaurant remains temporarily closed and a franchisee has permanently closed one location in Charleston, SC. At the end of the third quarter of 2019, 73 franchisee-owned restaurants were open.
Operating Expenses
- Food and beverage costs decreased $12.9 million (44.8%) from the third quarter of 2019. As a percentage of restaurant sales, food and beverage costs were 27.1% compared to 29.6% in the third quarter of 2019. Total beef costs decreased 12% from the third quarter of 2019.
- Restaurant operating expenses decreased $16.3 million (31.9%) from the third quarter of 2019.
- Marketing and advertising costs decreased $2.3 million (72.0%) from the third quarter of 2019.
- General and administrative expenses decreased $763 thousand (9.2%) from the third quarter of 2019.
- Pre-opening costs were $403 thousand in the third quarter of 2020, compared to $535 thousand in the third quarter of 2019. The pre-opening costs in 2020 were related to rent accruals for unopened locations where the Company has taken possession of the property.
Financial Outlook
As a reminder, due to the ongoing uncertainty around the duration and severity of the COVID-19 pandemic, the Company previously withdrew its financial guidance for fiscal year 2020.
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 140 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 Operations - Preliminary and Unaudited | ||||||||||||||||
| (Amounts in thousands, except share and per share data) | ||||||||||||||||
| 13 Weeks Ended |
| 39 Weeks Ended | ||||||||||||||
| September 27, |
| September 29, |
| September 27, |
| September 29, | ||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||||
| Revenues: | ||||||||||||||||
| Restaurant sales | $ | 58,594 |
| $ | 97,226 |
| $ | 188,611 |
| $ | 314,229 |
| ||||
| Franchise income |
| 3,511 |
|
| 3,928 |
|
| 8,094 |
|
| 12,907 |
| ||||
| Other operating income |
| 1,318 |
|
| 1,855 |
|
| 3,671 |
|
| 5,857 |
| ||||
| Total revenues |
| 63,423 |
|
| 103,009 |
|
| 200,376 |
|
| 332,993 |
| ||||
| Costs and expenses: | ||||||||||||||||
| Food and beverage costs |
| 15,908 |
|
| 28,817 |
|
| 54,563 |
|
| 89,688 |
| ||||
| Restaurant operating expenses |
| 34,868 |
|
| 51,216 |
|
| 117,224 |
|
| 155,974 |
| ||||
| Marketing and advertising |
| 889 |
|
| 3,174 |
|
| 5,285 |
|
| 10,925 |
| ||||
| General and administrative costs |
| 7,572 |
|
| 8,335 |
|
| 22,668 |
|
| 26,016 |
| ||||
| Depreciation and amortization expenses |
| 5,316 |
|
| 5,361 |
|
| 16,660 |
|
| 15,453 |
| ||||
| Pre-opening costs |
| 403 |
|
| 535 |
|
| 1,185 |
|
| 876 |
| ||||
| Loss (gain) on lease modifications |
| 310 |
|
| — |
|
| (178 | ) |
| — |
| ||||
| Loss on impairment |
| 3,272 |
|
| — |
|
| 16,253 |
|
| — |
| ||||
| Total costs and expenses |
| 68,538 |
|
| 97,438 |
|
| 233,660 |
|
| 298,932 |
| ||||
| Operating income (loss) |
| (5,115 | ) |
| 5,571 |
|
| (33,284 | ) |
| 34,061 |
| ||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net |
| (1,422 | ) |
| (638 | ) |
| (3,341 | ) |
| (1,460 | ) | ||||
| Other |
| (48 | ) |
| 18 |
|
| (12 | ) |
| 33 |
| ||||
| Income (loss) before income taxes |
| (6,585 | ) |
| 4,951 |
|
| (36,637 | ) |
| 32,634 |
| ||||
| Income tax expense (benefit) |
| (1,284 | ) |
| 423 |
|
| (9,920 | ) |
| 4,886 |
| ||||
| Net income (loss) | $ | (5,301 | ) | $ | 4,528 |
| $ | (26,717 | ) | $ | 27,748 |
| ||||
| Basic earnings (loss) per share | $ | (0.15 | ) | $ | 0.16 |
| $ | (0.87 | ) | $ | 0.95 |
| ||||
| Diluted earnings (loss) per share | $ | (0.15 | ) | $ | 0.16 |
| $ | (0.87 | ) | $ | 0.94 |
| ||||
| Shares used in computing net income per common share: | ||||||||||||||||
| Basic |
| 34,240,318 |
|
| 28,951,612 |
|
| 30,826,304 |
|
| 29,159,922 |
| ||||
| Diluted |
| 34,240,318 |
|
| 29,191,076 |
|
| 30,826,304 |
|
| 29,563,396 |
| ||||
| Dividends declared per common share | $ | — |
| $ | 0.13 |
| $ | 0.15 |
| $ | 0.39 |
| ||||
| 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 acquisition costs, accelerated stock compensation and severance payments, loss (gain) on lease modifications, loss on impairment and certain discrete income tax items. We exclude the impact of the acquisition related costs, accelerated stock compensation and severance payments, loss (gain) on lease modifications, loss on impairment 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 and per share data) | ||||||||||||||||
| 13 Weeks Ended |
| 39 Weeks Ended | ||||||||||||||
| September 27, |
| September 29, |
| September 27, |
| September 29, | ||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||||
| GAAP Net income (loss) | $ | (5,301 | ) | $ | 4,528 |
| $ | (26,717 | ) | $ | 27,748 |
| ||||
| GAAP Income tax expense (benefit) |
| (1,284 | ) |
| 423 |
|
| (9,920 | ) |
| 4,886 |
| ||||
| GAAP Income (Loss) from continuing operations before income taxes |
| (6,585 | ) |
| 4,951 |
|
| (36,637 | ) |
| 32,634 |
| ||||
| Adjustments: | ||||||||||||||||
| Franchisee acquisition costs |
| — |
|
| 302 |
|
| — |
|
| 412 |
| ||||
| Accelerated stock compensation and severance payments |
| 1,172 |
|
| — |
|
| 1,502 |
|
| — |
| ||||
| Loss (gain) on lease modifications |
| 310 |
|
| — |
|
| (178 | ) |
| — |
| ||||
| Loss on impairment |
| 3,272 |
|
| — |
|
| 16,253 |
|
| — |
| ||||
| Adjusted net income before income taxes |
| (1,831 | ) |
| 5,253 |
|
| (19,060 | ) |
| 33,046 |
| ||||
| Adjusted income tax expense (1) |
| 89 |
|
| (496 | ) |
| 5,502 |
|
| (4,985 | ) | ||||
| Impact of excluding certain discrete income tax items |
| 217 |
|
| (280 | ) |
| 313 |
|
| (885 | ) | ||||
| Non-GAAP net income | $ | (1,525 | ) | $ | 4,477 |
| $ | (13,245 | ) | $ | 27,176 |
| ||||
| GAAP diluted earnings (loss) per common share | $ | (0.15 | ) | $ | 0.16 |
| $ | (0.87 | ) | $ | 0.94 |
| ||||
| Non-GAAP diluted earnings (loss) per common share | $ | (0.04 | ) | $ | 0.15 |
| $ | (0.43 | ) | $ | 0.92 |
| ||||
| Weighted-average number of common shares outstanding - diluted |
| 34,240,318 |
|
| 29,191,076 |
|
| 30,826,304 |
|
| 29,563,396 |
| ||||
| (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. | ||||||||||||||||
