Among open dining rooms in Q3, comps slid 21.6 percent.
Despite all the complications COVID-19 has caused for Ruth’s Chris Steak House, CEO Cheryl Henry said the game plan going forward boils down to one simple strategy—control what can be controlled.
With that perspective, sales and profits have continued to improve. Same-store sales have declined 26 percent quarter-to-date, an improvement from 43 percent in July. In addition, the 47 units that had open dining rooms throughout Q3 saw margin growth year-over-year despite lowering sales and achieved more than 95 percent of their year-ago operating profit.
What Ruth’s can’t control is COVID and capacity restrictions laid out by state and local governments. But the team has chosen how it can respond. For example, Henry said a store in Los Angeles had more than 100 people on the books one night and found out the same day that it needed to close its dining room. Instead of shutting down, the restaurant purchased a tent, made room for outdoor dining, and kept all of its reservations.
“I knew how great our team was,” Henry said during the company’s Q3 earnings call. “We have a tenured team in the field of leadership. It's truly impressive in the industry. The strength of that, when you are dealing with an ongoing crisis that this has been, I don't think can be underestimated. The way they have stepped up and again pivoted sometimes daily and back and forth and understanding their business and just the tenure and the experience of this team has been outstanding and really the foundation of why we've been as successful as we've been.”
Comp sales at corporate stores dropped 36.7 percent in Q3, including a 29.7 percent decrease in traffic and a 9.9 percent decline in average check. When excluding temporarily closed stores and those open for outdoor dining only, the comps improve to a slide of 21.6 percent.
Ruth’s finished Q3 with 77 company-owned units. Of that amount, 66 have open dining rooms, five have outdoor dining only, one can only do takeout and delivery, and five are temporarily closed.
Same-store sales at franchised units decreased 11.8 percent in the quarter after sliding 64 percent in Q2. Seventy-one franchises were offering limited capacity by the end of Q3 while one franchise remains temporarily closed.
The restaurant permanently closed four corporate stores in Q3. Ruth’s has closed nine total since the start of the pandemic and is evaluating one additional unit for a potential shut down. CFO Arne Haak said a majority of these units were near the end of their lease, faced economic turmoil, or both. Additionally, the stores had an average age of more than 20 years and contributed fewer than 2 percent of the company’s EBITDA in 2019.
“We don't believe, for us, we'll see more closures from here,” Henry said. “We'll continue to review it. I think as we all are seeing over the last couple of weeks there's kind of more volatility to come. I think in the space itself, it's early. I think there are a lot of estimates [of restaurant closures] out there. And I'll tell you each week, I read a different number of what's going to happen within the industry. It's unfortunate that this is taking place. And I think it's early. I think there's more time that's needed here to understand exactly what this landscape looks like in fine dining."
Henry said Ruth’s is benefiting from a diverse real estate portfolio as more than 60 percent of units are in suburban/mid-sized markets while fewer than 15 percent are in urban areas, which have seen lower sales across the industry. The CEO illustrated the difference with two stores in New York. In the Manhattan location, comp sales were down 77 percent in Q3, while the restaurant in Westchester, New York, saw growth in the quarter.
The CEO added that private dining sales are down, but the brand’s off-premises program has overcome almost 90 percent of that decrease in Q3. When Ruth’s was operating to-go only, it was capturing between 20 and 25 percent of prior year sales. As dining rooms have reopened, the chain is retaining about half of that.
Ruth’s is also seeing a rise in demand from nonbusiness customers; reservations for celebratory occasions have increased double digits.
“This is something that's really regulated to an extent on the local level,” Henry said. “And so oftentimes we're getting [business-related] inquiries and the local governments have certain restrictions around party size. And so we are adhering to all of those restrictions for the safety of our guests. So I'd say the inquiries are there. I would say what's been interesting is seeing a pickup in the social celebration … Some of it might be just because we're seeing people looking to get out. But I think the business side and certainly around meetings and so forth, we haven't seen a real pickup in that type of business. And again some of it is jurisdictional.”
Among open dining room units, average weekly sales were $74,500 in Q3, compared to $98,700 last year. Quarter-to-date, the brand is over $80,000.
The road will become more treacherous for Ruth’s in the next couple of months as Q4 is typically the brand’s highest private dining focused time of year. Historically average weekly sales are around $100,000 and reach $150,000 to $200,000 in the last two weeks of the year.
But again, while the decrease in private dining is out of operators’ control, Henry said teams across the country are displaying high levels of agility and have plans around things like offsite catering and delivery and larger bundled family meals.
Henry said Ruth’s has a great database of loyal customers, and the brand will tap into that during the holiday season.
“The loyalty and the dedication of the guest base to the brand has been outstanding,” Henry said. “I think that's something we can leverage going forward. I think both understanding what this team is capable of and understanding just how resilient the brand is and how people view it certainly has an opportunity.”