Ruth’s Hospitality Group, Inc. reported unaudited financial results for its second quarter ended June 25, 2017 and announced a quarterly cash dividend of $0.09 per share to be paid in the third quarter.
Highlights for the second quarter of 2017 compared to the second quarter of 2016 were as follows:
The company reported net income of $7.8 million, or $0.25 per diluted share, in the second quarter of 2017 compared to net income of $6.9 million, or $0.21 per diluted share, in the second quarter of 2016.
Income from continuing operations in the second quarter of 2017 was $7.8 million, or $0.25 per diluted share, compared to income from continuing operations of $7.0 million, or $0.21 per diluted share, in the second quarter of 2016.
Net income in the second quarter of 2016 included a $465 thousand expense related to disputed rent charges from 2006 through 2015 for a leased company restaurant, as well as a $99 thousand gain related to the sale of our closed Columbus, OH restaurant.
Excluding the disputed rent charges, gain on sale and results from discontinued operations, non-GAAP diluted earnings per share increased 13.6 percent to $0.25 in the second quarter of 2017 compared to $0.22 in the second quarter of 2016. The Company believes that non-GAAP diluted earnings per share provides a useful alternative measure of financial performance. Investors are advised to see the attached Reconciliation of Non-GAAP Financial Measure table for additional information.
During the quarter the company repurchased 400,000 shares of common stock under its current share repurchase program.
Michael P. O’Donnell, Chairman and Chief Executive Officer of Ruth’s Hospitality Group, Inc., says, “Our sales momentum accelerated in the second quarter and was driven by a traffic increase of 2.1 percent. These positive traffic trends in the quarter also positively impacted our year-to date traffic, which now sits in positive territory. I am pleased with the continued superior execution from our team members and franchise partners, which drove a 7.9 percent increase in total revenues and a 2.9 percent increase in company-owned comparable sales. This topline performance, combined with operating margin expansion and continued execution against our total return strategy, allowed us to generate a 13.6% increase in Non-GAAP earnings per share.”
Review of Second Quarter 2017 Operating Results
Total revenues in the second quarter of 2017 were $100 million, an increase of 7.9 percent compared to $92.7 million in the second quarter of 2016.
Company-Owned Sales
For the second quarter of 2017, company-owned comparable restaurant sales increased 2.9 percent, which consisted of an average check increase of 0.8 percent and a traffic increase of 2.1 percent, as measured by entrees. The calendar shift of Easter from the first quarter of 2016 into the second quarter of 2017 positively impacted second quarter comparable restaurant sales by approximately 70 basis points.
Average unit weekly sales were $103.5 thousand in the second quarter of 2017, compared to $101.1 thousand in the second quarter of 2016.
Seventy company-owned Ruth’s Chris Steak House restaurants were open at the end of the second quarter of 2017, compared to 67 Ruth’s Chris Steak House restaurants at the end of the second quarter of 2016. Total operating weeks for the second quarter of 2017 increased to 910 from 863 in the second quarter of 2016.
Franchise Income
Franchise income in the second quarter of 2017 was $4.3 million, an increase of 5.5 percent compared to $4.0 million in the second quarter of 2016.
81 franchisee-owned restaurants were open at the end of the second quarter of 2017 compared to 80 at the end of the second quarter of 2016.
Operating income in the second quarter of 2017 increased 10.4% to $11.5 million, compared to $10.5 million in the second quarter of 2016. As a percentage of total revenues, operating margin increased 25 basis points year-over-year to 11.5%.
Food and beverage costs, as a percentage of restaurant sales, increased 20 basis points in the second quarter of 2017 to 29.9 percent, primarily due to a 3.8% increase in total beef costs.
Restaurant operating expenses, as a percentage of restaurant sales, decreased 100 basis points in the second quarter of 2017 to 47.8 percent, primarily due to a $465 thousand expense in the second quarter of 2016 related to disputed rent charges.
General and administrative expenses, as a percentage of total revenues, increased 40 basis points in the second quarter of 2017 to 8 percent driven primarily by an increase in performance-based compensation.
Marketing and advertising costs, as a percentage of total revenues, increased 60 basis points in the second quarter of 2017, primarily due to the shift of marketing spend across the quarters.
Pre-opening costs, as a percentage of total revenues, decreased 60 basis points in the second quarter of 2017 to 0.2 percent driven by the timing of new restaurant openings.
Development Update
The company expects to open its third new company-owned restaurant of the year in suburban Denver, CO, during the fourth quarter of 2017. Additionally, the Company signed a lease for a new restaurant to open in the second half of 2018 in Jersey City, NJ.
Franchise partners are currently expected to open their second restaurant in China, a restaurant in Kauai, HI and relocate the restaurant in Mississauga, Canada during the second half of 2017. In addition, a new franchised restaurant is expected to open in Fort Wayne, IN in 2018.
Quarterly Cash Dividend
Subsequent to the end of the second quarter of 2017, the company’s Board of Directors approved the payment of a quarterly cash dividend to shareholders of $0.09 per share. This dividend will be paid on August 24, 2017 to shareholders of record as of the close of business on August 10, 2017, and represents a 29% increase from the quarterly cash dividend paid in August of 2016.
Share Repurchase Program and Debt
During the second quarter of 2017, the Company repurchased 400,000 shares of common stock under its current share repurchase program, for approximately $8.4 million or an average price of $21.08 per share.
At the end of the second quarter of 2017, the Company had $21 million in debt outstanding under its senior credit facility.
Financial Outlook
Based on current information, Ruth’s Hospitality Group, Inc. is updating its full year 2017 outlook based on a 53 week year ending December 31, 2017, as follows:
Food and beverage costs of 29 percent to 31 percent of restaurant sales
Restaurant operating expenses of 47 percent to 49 percent of restaurant sales
Marketing and advertising costs of 2.9 percent to 3.1 percent of total revenues
General and administrative expenses of $32 million to $34.0 million
Effective tax rate of 31 percent to 34 percent
Capital expenditures of $23 million to $25 million
Fully diluted shares outstanding of 31.2 million to 31.5 million (exclusive of any future share repurchases under the Company’s share repurchase program)
The foregoing statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer you 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.
