Ruth’s Hospitality posts strong Q2 sales, lower food costs, as Cheryl Henry assumes CEO post
Ruth’s Hospitality Group, the operator of the fine-dining Ruth’s Chris Steak House chain, reported Q2 2018 results, posting total revenue of $103.5 million, up 9.6 percent from last year. Company-operated stores posted comparable sales growth of 1.3 percent from last year, comprising a 0,1 percent decrease in traffic, offset by a 1.4 percent increase in average check. Net income rose to $9.6M, compared to $7.8M in the same period last year. This is $0.32 per diluted share, compared to $0.25 per diluted share in the period late last year. Included in net income is a $0.3 million deal-related charge attributable to the $35M-acquisition of six restaurants, and full-state development rights, in Hawaii late last year from franchise group Desert Island Restaurants.
Ruth’s management believes the 1.3 percent comparable-sales growth was negatively impacted by 70 basis points due to the shift of Easter this year into the first quarter of 2018 (Last year, the holiday benefited the second quarter, in which Easter was celebrated.)
There were 75 franchise-owned restaurants in the second quarter, compared to 81 last year, due to the six restaurants acquired in Hawaii. Despite that, franchise income increased 4.7 percent to $4.3M due to a comparable franchise sales growth of 1.3 percent and new revenue recognition standards.
During Q2, there were 77 company-operated units, compared to 70 during the same quarter last year.
On the expense side, food and beverage costs decreased by 180 basis points to 28.1 percent, as a percentage of sales, primarily due to a 10 percent decrease in beef costs and an increase of 1.4 percent of average check. Operating expenses increased by 50 basis points to 48.3 percent, primarily driven by occupancy expense as result of the Hawaiian restaurant acquisition. Marketing & advertising expense also increased. Advertising spend was up and some marketing expenses were reclassified from G&A to marketing, resulting in a hit of 80 basis points to marketing & advertising costs.
According to an investor conference call, 20 to 30 percent of the tax savings, as a result of the Tax Cuts and Jobs Act, which total nearly $1.8M compared to last year, will be reinvested into sales driving, the brand and people. In addition to compensation, marketing and G&A will see a benefit in additional spend due to tax-savings utilization, said Arnie Haak, Ruth’s Hospitality executive vice president and chief financial officer.
“The Company is well-positioned for continued success, due in large part to initiatives designed and implemented by Cheryl Henry, our new Chief Executive Officer,” said Michael P. O’Donnell, Ruth’s Hospitality executive chairman in a statement. “I remain extremely confident in the future of the Company, and look forward to supporting Cheryl in my new role as Executive Chairman.”
Henry said that revenues were up in all three segments of the business tracked—special occasions, fine dining and “just because” occasions. Although competition has been discounting, Ruth’s has been executing well on the “brand experience,” she noted. Sales during both the Mother’s Day and Father’s Day holidays were up from last year, Henry said. O’Donnell projected seven to nine restaurants will be remodeled in 2018 as part of the Ruth’s 2.0 remodel initiative.
Ruth’s Steak Houses are certainly growing sales and traffic more so than the overall restaurant index composed by intelligence firm Black Box. According to its TDn2K report data, May to July overall restaurant comparable sales increased 0.5 percent compared to last year, and comparable traffic dropped 2 percent.
The three buckets for the 2.0 initiative are brand, capacity and bar changes. Those Ruth’s Steak House remodels that have addressed capacity are the most opportunistic remodels and have played a role in sales performance, noted Haak.
Henry’s promotion to the role of CEO was announced in June, and became effective August 10. Moving forward, she is taking on the reins of the company and joining Ruth’s Board of Directors, after more than a decade of spearheading field operations for Ruth’s Hospitality and being involved in all commercial aspects of the business.
Ruth’s will open two new company-owned restaurants during the remainder of 2018—both in New Jersey. In the third quarter, a restaurant will open in Jersey City, the chain’s first there, and then, there will be a fourth quarter restaurant opening in Paramus. Under a management agreement, a restaurant will also open in Reno, Nev. in early 2019.
Q2 2018 average weekly sales for Ruth’s Chris were $103.4M, compared to $103.5M last year, a slight decrease and attributable to the Easter Shift. Total revenue year-to-date is $226.2M, up 10 percent from last year. Year-to-date diluted earnings per share are $0.76, compared to $0.60 last year, representing an increase of 23.1 percent. According to O’Donnell, there was no management turnover in Hawaii after the Desert Island restaurants acquisition, , which helped keep performance at expectations in that particular portfolio.
Photo credit: Ruth’s Hospitality