Increased Sales Offset Traffic Decrease at Ruth’s Hospitality Group

Oct 31, 2016 Industry News
Industry News

Ruth’s Hospitality Group, Inc. reported unaudited financial results for its third quarter ended September 25.

Highlights for the third quarter of 2016 compared to the third quarter of 2015 were as follows:

The company reported net income of $3.6 million in the third quarter of 2016 compared to net income of $2.6 million in the third quarter of 2015.

Income from continuing operations was $3.5 million compared to income from continuing operations of $2.6 million in the third quarter of 2015.

Net income in the third quarter of 2016 included a non-recurring $335 thousand benefit related to the settlement of disputed rent charges from 2006 through 2015 for a leased company restaurant, which were incurred in the second quarter of 2016.

One company-owned Ruth’s Chris Steak House restaurant opened in the third quarter of 2016, in El Paso, Texas.

Michael P. O'Donnell, chairman and chief executive officer of Ruth's Hospitality Group, Inc., says, “I am pleased to report earnings per share of $0.11 in the quarter driven by top line growth, a favorable commodity environment, and our balanced shareholder return strategy. We have also seen improvement in our restaurant level margins driven by favorable food costs and the hard work of our team members to control operating costs. We believe our operational focus, along with our strategy of reinvesting in our core operations, driving disciplined growth, and returning excess capital, continues to be a formula for delivering long term value to our shareholders.”

O’Donnell adds, “During the third quarter, we opened our newest Ruth’s Chris Steak House, in El Paso, Texas. The restaurant’s comfortably elegant atmosphere is enhanced by a large open bar and an outdoor patio with beautiful city views. I am pleased with the early success of this restaurant and the focus of our team members as they were profitable in their very first month of operation.”

Review of Third Quarter 2016 Operating Results

Total revenues in the third quarter of 2016 were $83.8 million, an increase of 4.3 percent compared to $80.3 million in the third quarter of 2015.

Company-Owned Sales

For the third quarter of 2016, company-owned comparable restaurant sales increased 2.1 percent, which consisted of an average check increase of 3.6 percent, offset by a traffic decrease of 1.5 percent.

Average unit weekly sales were $89,800 in the third quarter of 2016, compared to $87,700 in the third quarter of 2015.

Sixty-eight company-owned Ruth’s Chris Steak House restaurants were open at the end of the third quarter of 2016, compared to 66 Ruth’s Chris Steak House restaurants at the end of the third quarter of 2015. Total operating weeks for the third quarter of 2016 increased to 877 from 858 in the third quarter of 2015.

Franchise Income

Franchise income in the third quarter of 2016 was flat year-over-year at $3.9 million.

Eighty franchisee-owned restaurants were open at the end of the third quarter of 2016 compared to 79 at the end of the third quarter of 2015.

Operating income in the third quarter of 2016 increased 34.8 percent to $5.6 million, compared to $4.2 million in the third quarter of 2015. As a percentage of total revenues, operating margin increased 150 basis points year-over-year to 6.7 percent. Third quarter 2016 results included a non-recurring $335,000 benefit related to the settlement of the disputed rent charges from 2006 through 2015 for a leased company restaurant, which were incurred in the second quarter of 2016 for $465,000.

Food and beverage costs, as a percentage of restaurant sales, decreased 140 basis points in the third quarter of 2016 to 30.1 percent, primarily driven by a 3.5% increase in average check and a 6.3 percent decline in total beef costs.

Restaurant operating expenses, as a percentage of restaurant sales, decreased 80 basis points in the third quarter of 2016 to 51.5 percent, due to the previously noted benefit for disputed rent costs and leverage from higher sales.

General and administrative expenses, as a percentage of total revenues, decreased 50 basis points in the third quarter of 2016 to 8.8 percent driven primarily by a decrease in performance based compensation.

Pre-opening costs were $0.6 million in the third quarter of 2016 compared to $0.1 million in the third quarter of 2015 driven by a new restaurant opening in El Paso, Texas, during the third quarter of 2016 as well pre-opening rent costs related to early 2017 restaurant openings.

Development Update

During the third quarter, the company opened one new Ruth’s Chris Steak House restaurant in El Paso, Texas. Subsequent to the end of the third quarter of 2016, the company signed an agreement to operate a new restaurant in Tulsa, Oklahoma, which is expected to open in the first quarter of 2017. This restaurant will be located in the River Spirit Casino and is under an operating agreement, similar to our Cherokee, North Carolina, restaurant. New Ruth’s Chris Steak House restaurants in Cleveland, Ohio, and Waltham, Massachusetts, are expected to open during the first quarter of 2017. As a result of early 2017 restaurant openings, we expect higher year over year pre-opening costs in the fourth quarter of 2016.

Subsequent to the end of the third quarter of 2016, new franchised restaurants opened in Odenton, Maryland, and Greenville, South Carolina. As a result of the opening of the new Odenton, Maryland, restaurant, one of the franchised locations in downtown Baltimore, Maryland, is expected to close in the fourth quarter of 2016. Franchisees are currently expected to complete the relocation of restaurants in Huntsville, Alabama, in the fourth quarter of 2016, and Mississauga, Canada, during the first half of 2017.

News and information presented in this release has not been corroborated by FSR, Food News Media, or Journalistic, Inc.