Ruth’s Hospitality Group, Inc. reported unaudited financial results for its fourth quarter and full year ended December 25, 2016 and announced a quarterly cash dividend of $0.09 per share to be paid in the first quarter.
Highlights for the fourth quarter of 2016 compared to the fourth quarter of 2015 were as follows:
The company reported net income of $9.2 million, or $0.30 per diluted share, in the fourth quarter of 2016 compared to net income of $9.5 million, or $0.28 per diluted share, in the fourth quarter of 2015.
Income from continuing operations in the fourth quarter of 2016 was $9.4 million, or $0.31 per diluted share, compared to income from continuing operations of $9.1 million, or $0.27 per diluted share, in the fourth quarter of 2015.
Net income in the fourth quarter of 2016 included a $0.2 million income tax charge and net income in the fourth quarter of 2015 included a $0.3 million income tax benefit, each related to the impact of certain discrete income tax items.
Excluding these discrete income tax items, as well as the loss from discontinued operations, non-GAAP diluted earnings per common share were $0.31 in the fourth quarter of 2016 compared to $0.26 in the fourth quarter of 2015. The company believes that non-GAAP diluted earnings per common 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.
Two franchisee-owned Ruth’s Chris Steak House restaurants were opened during the quarter.
Michael P. O’Donnell, chairman and chief executive officer of Ruth’s Hospitality Group, Inc., says, “Our fourth quarter results capped off our fifth consecutive year of earnings growth. These results would not be possible without the dedication to operational excellence from our franchisees and team members.”
O’Donnell says, “Looking ahead to 2017, we are excited about our development plans. So far this year, we have opened two new Company-owned Ruth’s Chris Steak House restaurants, one in Waltham, Massachusetts, and one in Tulsa, Oklahoma, and we have one more expected to open in the first quarter in Cleveland. Additionally, we will open a fourth company-operated restaurant in Denver later this year, the most company restaurants that we have opened in a single year since 2008.”
Review of Fourth Quarter 2016 Operating Results
Total revenues in the fourth quarter of 2016 were $107.6 million, an increase of 2.8 percent compared to $104.7 million in the fourth quarter of 2015.
Company-owned Sales
For the fourth quarter of 2016, company-owned comparable restaurant sales were flat year-over-year, which consisted of an average check increase of 2.3 percent, offset by a traffic decrease of 2.2 percent.
Average unit weekly sales were $114,500 in the fourth quarter of 2016, compared to $114,200 in the fourth quarter of 2015.
68 company-owned Ruth’s Chris Steak House restaurants were open at the end of the fourth quarter of 2016, compared to 67 Ruth’s Chris Steak House restaurants at the end of the fourth quarter of 2015. Total operating weeks for the fourth quarter of 2016 increased to 884 from 865 in the fourth quarter of 2015.
Franchise Income
Franchise income in the fourth quarter of 2016 was $4.8 million, an increase of 6.1 percent compared to $4.6 million in the fourth quarter of 2015. The increase in franchise income was due to a 2.4 percent increase in comparable franchise restaurant sales and development fees from new franchise restaurants opened during the quarter.
81 franchisee-owned restaurants were open at the end of the fourth quarter of 2016 compared to 80 at the end of the fourth quarter of 2015.
Operating income in the fourth quarter of 2016 increased 15.9 percent to $15.1 million, compared to $13.0 million in the fourth quarter of 2015. As a percentage of total revenues, operating margin increased 160 basis points year-over-year to 14 percent.
Food and beverage costs, as a percentage of restaurant sales, decreased 180 basis points in the fourth quarter of 2016 to 28.7 percent, primarily driven by a 2.3 percent increase in average check and a 6.4 percent decline in total beef costs.
Restaurant operating expenses, as a percentage of restaurant sales, increased 30 basis points in the fourth quarter of 2016 to 45.4 percent, primarily due to an increase in labor expenses.
General and administrative expenses, as a percentage of total revenues, increased 25 basis points in the fourth quarter of 2016 to 8.8 percent driven primarily by an increase in stock based compensation.
Review of Full Year 2016 Operating Results
Net income was $30.5 million, or $0.95 per diluted share, for the full year of 2016 compared to net income of $30.0 million, or $0.87 per diluted share for the full year of 2015.
Income from continuing operations was $30.8 million, or $0.96 per diluted share, for the full year of 2016 compared to income from continuing operations of $30.2 million, or $0.87 per diluted share, for the full year of 2015.
Net income in 2016 included a $0.2 million income tax charge related to certain discrete income tax items as well as an adjustment of $0.3 million related to restaurant closing costs and accrual of prior year’s rent dispute costs. Net income in 2015 included a $0.4 million income tax benefit related to discrete income tax benefits.
Excluding these adjustments as well as earnings from discontinued operations, non-GAAP diluted earnings per common share increased 11.8 percent to $0.97 for the full year of 2016, compared to $0.87 in the full year of 2015. The company believes that non-GAAP diluted earnings per common 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.
Total revenues in 2016 increased 3.4% to $385.9 million compared to $373.4 million in the prior year. The increase in revenues was due to new Company and franchise restaurants opened within the last twelve months as well as an increase in comparable restaurant sales.
Company-owned Sales
For the full year 2016, company-owned comparable restaurant sales increased 1.6 percent, which consisted of an average check increase of 2.5 percent, partially offset by a traffic decrease of 0.8 percent.
Average unit weekly sales were $104,100 for the full year 2016, an increase of 1.5 percent compared to $102,500 in the full year 2015.
Total operating weeks for the full year 2016 increased to 3,489 from 3,433 in the full year of 2015. Total operating weeks exclude discontinued operations.
Franchise Income
Franchise income in the full year of 2016 was up 3.8 percent to $17.3 million compared to $16.7 million in the full year of 2015. The increase in franchise income was due to new franchise restaurant openings during the last 12 months and a 1 percent increase in comparable franchise restaurant sales.
Operating income in 2016 increased 6.2 percent to $47.6 million, compared to $44.8 million in 2015. As a percentage of total revenues, operating margin increased 30 basis points year-over-year to 12.3 percent.
Food and beverage costs, as a percentage of restaurant sales, decreased 120 basis points in 2016 to 29.5 percent, primarily due to a 2.5 percent increase in average check and a decrease in total beef costs of 5.5 percent.
Restaurant operating expenses, as a percentage of restaurant sales, increased 50 basis points to 47.6 percent primarily due to increased labor costs.
Marketing and advertising costs, as a percentage of total revenues, were relatively flat year-over-year at 3 percent.
General and administrative expenses, as a percentage of total revenues, were relatively flat year-over-year at 8.2 percent.
Pre-opening costs in 2016 increased $1 million to $2 million compared to $1 million in 2015 driven by the timing of new restaurant openings.
Development Update
Subsequent to the end of the fourth quarter of 2016, the company opened two new Ruth’s Chris Steak House restaurants, one in Waltham and one in Tulsa in January 2017. Additionally, during the first quarter of 2017, the company expects to open a new Ruth’s Chris Steak House restaurant in Cleveland. The company plans to open our fourth new company-owned restaurant in 2017 in the Denver Tech Center during the fourth quarter.
During the fourth quarter, Ruth’s Chris Steak House franchisees opened two new restaurants, one in Odenton, Maryland, and one in Greenville, South Carolina. As previously announced, due to the opening of the new Odenton, Maryland, restaurant, one of the franchised locations in downtown Baltimore, MD was closed in the fourth quarter of 2016. Franchisees also completed the relocation of a restaurant in Huntsville, Alabama during the fourth quarter of 2016. Franchise partners are slated to open their second restaurant in China and relocate the restaurant in Mississauga, Canada during the second half of 2017, as well as open a new restaurant in Fort Wayne, Indiana in 2018.
