Ruth’s Hospitality Group, Inc. reported unaudited financial results for its first quarter ended March 26,and announced a quarterly cash dividend of $0.09 per share to be paid in the second quarter.
Highlights for the first quarter of 2017 compared to the first quarter of 2016 were as follows:
The company reported net income of $11.0 million, or $0.35 per diluted share, in the first quarter of 2017 compared to net income of $10.8 million, or $0.33 per diluted share, in the first quarter of 2016.
Income from continuing operations in the first quarter of 2017 was $11.1 million, or $0.35 per diluted share, compared to income from continuing operations of $10.9 million, or $0.33 per diluted share, in the first quarter of 2016.
Net income in the first quarter of 2017 included a $0.2 million income tax benefit related to the impact of discrete income tax items.
Excluding these discrete income tax items, as well as the loss from discontinued operations and restaurant closing costs in the first quarter of 2016, non-GAAP diluted earnings per share were $0.35 in the first quarter of 2017 compared to $0.33 in the first 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.
Two company-owned Ruth’s Chris Steak House restaurants and one restaurant operating under a contractual agreement opened during the quarter.
Kevin Toomy, president and chief operating officer, Ruth’s Chris Steak House, plans to retire at the end of June 2018. Toomy will remain in his current position until September 2017 then will remain actively involved with the company engaged on special projects until he retires in 2018.
Michael P. O’Donnell, chairman and chief executive officer of Ruth’s Hospitality Group, Inc., says, “We delivered a solid start to the year, achieving both sales and earnings growth during the first quarter. Our results continue to be driven by execution against our total return strategy, through which we strive to maintain a healthy core of restaurants, grow our base in a disciplined fashion, and return excess capital to shareholders. Our ability to execute against this strategy is a testament to the dedication of our team members, who are committed to remaining the fine dining steakhouse leaders, and our franchise partners, who are the heart and soul of our business.”
O’Donnell adds, “I would also like to offer my sincere thanks to Kevin Toomy for his exemplary contributions in operational leadership. Kevin has expertly led the consistency in execution within our restaurants. His efforts and dedication over these past nine years have been instrumental in the delivery of the best steak house experience to our guests and the success of the Ruth’s Chris Steak House brand.
It speaks to the strength of this organization that we announce the internal promotions of Susan, Rik and Pete as we continue to identify, educate and promote from within. It is with great enthusiasm that I look forward to working with this management team with a continued focus on the execution of our total return strategy.”
Review of First Quarter 2017 Operating Results
Total revenues in the first quarter of 2017 were $105.5 million, an increase of 3.6% compared to $101.9 million in the first quarter of 2016.
For the first quarter of 2017, company-owned comparable restaurant sales increased 0.7 percent, which consisted of an average check increase of 2.4 percent, offset by a decrease in traffic, as measured by entrees, of 1.7 percent.
The calendar shift of Easter from the first quarter of 2016 into the second quarter of 2017 negatively impacted first quarter comparable restaurant sales by approximately 70 basis points. Additionally, due to the shift of Valentine’s Day from a more desirable Sunday last year, to a less desirable Tuesday this year, the quarter was negatively impacted by approximately 50 basis points.
Average unit weekly sales held steady during the first quarter of 2017 as compared to the prior-year period at $111 thousand.
70 Company-owned Ruth’s Chris Steak House restaurants were open at the end of the first quarter of 2017, compared to 66 Ruth’s Chris Steak House restaurants at the end of the first quarter of 2016. Total operating weeks for the first quarter of 2017 increased to 895 from 865 in the first quarter of 2016.
Franchise income in the first quarter of 2017 was $4.4 million, a decrease of 2.5 percent compared to $4.5 million in the first quarter of 2016. The decrease in franchise income was due to development fees from new franchise restaurants opened during the first quarter of 2016, slightly offset by a 3.6 percent increase in comparable franchise restaurant sales.
81 franchisee-owned restaurants were open at the end of the first quarter of 2017 compared to 80 at the end of the first quarter of 2016.
Operating income in the first quarter of 2017 decreased 1.2 percent to $16.2 million, compared to $16.4 million in the first quarter of 2016. As a percentage of total revenues, operating margin decreased 70 basis points year-over-year to 15.4 percent.
Food and beverage costs, as a percentage of restaurant sales, decreased 90 basis points in the first quarter of 2017 to 28.7 percent, primarily due to a 1.4 percent decrease in total beef costs and an increase in average check of 2.4 percent.
Restaurant operating expenses, as a percentage of restaurant sales, decreased 10 basis points in the first quarter of 2017 to 45.7 percent, primarily due to lower year over year healthcare claims.
General and administrative expenses, as a percentage of total revenues, increased 20 basis points in the first quarter of 2017 to 7.7 percent driven primarily by an increase in performance-based compensation.
Marketing and advertising costs, as a percentage of total revenues, increased 40 basis points in the first quarter of 2017, primarily due to the shift of marketing spend across the quarters.
Pre-opening costs, as a percentage of total revenues, increased 80 basis points in the first quarter of 2017 to 1.1 percent due to the opening of two company-owned restaurants and one restaurant operating under a contractual agreement during the quarter.
During the first quarter of 2017, the company opened two new company-owned Ruth’s Chris Steak House restaurants, in Waltham, MA, and Cleveland, OH as well as one restaurant operating under a contractual agreement in Tulsa, OK. The company expects to open its third new company-owned restaurant of the year in suburban Denver, CO during the fourth quarter of 2017.
Franchise partners are 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 first 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 June 1, 2017 to shareholders of record as of the close of business on May 18, 2017, and represents a 29 percent increase from the quarterly cash dividend paid in May of 2016.
Share Repurchase Program and Debt
The company did not repurchase any shares during the first quarter of 2017. The Company has approximately $26.6 million remaining under its share repurchase authorization.
At the end of the first quarter of 2017, the company had $14 million in debt outstanding under its senior credit facility.
Based on current information, Ruth’s Hospitality Group, Inc. is reaffirming 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 $32.0 million to $34.0 million
Effective tax rate of 31 percent to 34 percent
Capital expenditures of $24 million to $26 million
Fully diluted shares outstanding of 31.3 million to 32 million (exclusive of any future share repurchases under the Company’s share repurchase program)