Ruth’s Hospitality Group, Inc. (NASDAQ: RUTH) today reported unaudited financial results for its first quarter ended March 25, 2012.
For the first quarter of fiscal year 2012, the Company reported net income of $6.1 million. Due to the previously announced retirement of the Company’s preferred shares in March, the net income applicable to preferred and common shareholders was reduced by $35.8 million to a loss of $30.3 million or $0.89 loss per diluted share. The reduction reflects the excess of redemption value over the carrying value of preferred shares redeemed during the quarter. In the first quarter of 2011, the Company reported net income applicable to preferred and common shareholders of $6.2 million, or $0.14 per diluted share.
Highlights for the first quarter of 2012 compared to the first quarter of 2011 were as follows:
Total revenues in the first quarter rose 3.4% to $101.0 million compared to $97.7 million in the prior year.
- Company-owned comparable restaurant sales for Ruth’s Chris Steak House increased 3.7%.
- Company-owned comparable restaurant sales for Mitchell’s Fish Market were flat.
Total operating costs in the first quarter increased by 4.3% or $3.8 million, compared to the first quarter of 2011.
- Food and beverage costs, as a percentage of restaurant sales, increased 130 basis points in the first quarter to 32.0% driven by unfavorable beef costs.
- Restaurant operating expenses, as a percentage of restaurant sales, decreased 40 basis points in the first quarter to 48.8% as increased sales leverage offset higher health insurance costs.
- Marketing and advertising costs, as a percentage of total revenues, decreased 130 basis points to 1.7% in the first quarter due to a decrease in TV production costs and a shift in the timing of advertising campaigns.
- General and administrative expenses increased $1.0 million to $6.9 million in the first quarter due to increases in legal fees and personnel costs. The increased legal fees pertained to the amendment to our senior credit facility, the redemption of our preferred stock, and on-going litigation.
During the quarter the Company completed two significant financial transactions:
- In February of 2012, the Company successfully amended its senior credit facility, which among other items, extends the agreement until 2017 and results in increased financial flexibility and lower borrowing costs. In conjunction with the refinancing, the Company recorded a one-time pre-tax expense of $0.9 million related to legal fees and the write-off of financing costs previously deferred.
- In March of 2012, the Company repurchased and retired all of its Series A 10% Redeemable Convertible Preferred Stock for $60 million. The purchase was funded using borrowings from the Company’s amended senior credit facility. After the repurchase and retirement of the preferred stock, the Company’s fully diluted common share base decreased by approximately 8.6 million shares and the 10% annual dividend on the preferred stock, which amounted to $2.5 million in fiscal year 2011, was eliminated.
Management believes that non-GAAP earnings per diluted share, which excludes non-recurring and non-operating items from both periods provides a useful alternative measure of financial performance. Non-GAAP earnings per diluted share during the first quarter of 2012 increased 14% to $0.15 compared to non-GAAP diluted earnings per share of $0.13 for the prior year’s first quarter. Non-GAAP earnings per share excludes the impacts of the repurchase of the Company’s preferred stock, the associated debt refinancing expenses in the most recent quarter and a one-time restructuring benefit and the benefit associated with discontinued operations recorded a year-ago. See the attached Reconciliation of Non-GAAP Financial Measure table for additional information.
Michael P. O’Donnell, Chairman, President and Chief Executive Officer of Ruth’s Hospitality Group, Inc., stated, “We continue to be pleased with the overall strength of our business, in particular the ongoing momentum of the Ruth’s Chris brand. Same store sales at Ruth’s grew for the eighth consecutive quarter, while traffic grew for the ninth straight period. This growth helped offset higher beef costs and was a key driver of our year-over-year non-GAAP diluted earnings per share growth. During the quarter, we also significantly improved our capital structure with the refinancing of our credit facility and the repurchase and retirement of our preferred stock. We believe the two transactions reflect the tangible progress our entire team has made since the issuance of the preferred shares two years ago and positions the Company for improved earnings and cash flow, while the flexibility to invest in our business and create long-term value for our shareholders.”
At the end of the first quarter of 2012, the Company had $77 million in debt outstanding under its senior credit facility, an increase of $55 million from $22 million at the end of the fourth quarter of 2011.
Management expects to grow the number of Company-owned and franchise-owned restaurants. A new Ruth’s Chris Steak House located at Harrah’s casino in Cherokee, NC is targeted to be opened in May 2012 under a management agreement between the Company and the Eastern Band of Cherokee Indians. A Company-owned Ruth’s Chris Steak House is also scheduled to be opened in Cincinnati, Ohio in November 2012. Additionally a second franchise-owned restaurant located in Dubai was opened in April 2012. Management anticipates that an additional two to four franchise-owned restaurants will open in 2012.
Review of First Quarter 2012 Operating Results
Total revenues, which include Company-owned restaurant sales, franchise income, and other operating income, were $101.0 million in the first quarter of 2012 compared to $97.7 million in the same quarter last year.
Company-owned restaurant sales increased 3.3% to $97.3 million for the first quarter of 2012 from $94.2 million in the same quarter last year. Total operating weeks for all brands during the first quarter were flat year-over-year at 1,105, excluding restaurants that closed later in fiscal 2011.
Ruth’s Chris Steak House Sales
- 63 Company-owned Ruth’s Chris Steak House restaurants were open at the end of the first quarter of 2012 compared to 64 at the end of the prior year first quarter.
- Total operating weeks for the quarter were flat year-over-year at 819 and exclude discontinued operations in Santa Barbara, CA.
- Average weekly sales for Ruth’s Chris Steak House were $94.8 thousand in the first quarter of 2012 compared to $91.0 thousand in the first quarter of 2011.
- For the first quarter of 2012, Company-owned comparable restaurant sales at Ruth’s Chris Steak House increased 3.7%, which consisted of an entrée increase of 2.2% along with an average check increase of 1.5%.
Mitchell’s Fish Market Sales
- 19 Company-owned Mitchell’s Fish Market restaurants were open at the end of the first quarter of 2012 compared to 20 at the end of the prior year first quarter.
- Total operating weeks for the quarter were flat year-over-year at 247, and exclude discontinued operations in Glenview, IL.
- Average weekly sales at Mitchell’s Fish Market were flat year over year at $70.2 thousand in the first quarter.
- Comparable restaurant sales at Mitchell’s Fish Market were also flat due to an entrée increase of 0.1% and an average check decrease of 0.1%.
Franchise Income
- 68 franchise-owned Ruth’s Chris Steak House restaurants were open at the end of the first quarter of 2012 compared to 67 at the end of the prior first year quarter.
- Franchise income increased 13.1% to $3.5 million in the first quarter of 2012 from $3.1 million in the prior year first quarter, partially driven by the opening of two new locations in 2011: Grand Rapids, MI and Asheville, NC.
- Comparable franchise-owned restaurant sales increased 7.6% in the first quarter of 2012, which consisted of an entrée increase of 4.7% and an average check increase of 2.9%. The increase was driven by a 9.8% increase in international comparable franchise-owned restaurant sales.
Financial Outlook
The following statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could impact future operating results and financial conditions.
Based on current information, Ruth’s Hospitality Group, Inc. is revising its full year 2012 outlook:
- Cost of goods sold of 31.5% to 32.5% of restaurant sales
- Restaurant operating expenses of 51.0% to 52.0% of restaurant sales
- Marketing and advertising of 3.0% to 3.5% of total revenues
- General and administrative expenses of $25 million to $26 million
- Effective tax rate of 28% to 32%
- Capital expenditures of $10 to $12 million
- Basic shares outstanding of 34.0 million to 34.5 million
- Fully-diluted shares outstanding of 35.0 million to 36.0 million
About Ruth’s Hospitality Group, Inc.
Ruth’s Hospitality Group, Inc. (NASDAQ: RUTH) is a leading restaurant company focused exclusively on the upscale dining segment. The Company owns the Ruth’s Chris Steak House, Mitchell’s Fish Market, Mitchell’s Steakhouse and Cameron’s Steakhouse concepts. With more than 150 Company- and franchisee-owned locations worldwide, Ruth’s Hospitality Group, Inc. was founded in 1965 and is headquartered in Winter Park, Fla.
For further information about our restaurants, to make reservations, or to purchase gift cards, please visit: www.RuthsChris.com, www.MitchellsFishMarket.com, www.MitchellsSteakhouse.com and www.Camerons-Steakhouse.com. For more information about Ruth’s Hospitality Group, Inc., please visit www.rhgi.com.
