Ruth's Outperforms 1Q Earnings, Rev

Zacks

One of the leading upscale dining operators, Ruth’s Hospitality Group Inc. (RUTH), posted first-quarter 2013 earnings of 25 cents per share, beating the Zacks Consensus Estimate of 20 cents by 25% and comparable year-ago quarter’s earnings by 66.7%. A higher top-line and margin expansion pushed up the earnings during the quarter.

Quarterly revenues climbed 7% year over year to $107.4 million and surpassed the Zacks Consensus Estimate of $106 million by nearly 1%. The company’s higher comparable restaurant sales (comps) growth, improved restaurant sales and increased franchise income drove the top-line during the quarter.

Behind the Headlines Numbers

Company-owned restaurant sales climbed 6.5% year over year to $110.5 million with traffic growth and higher comps gain at all of Ruth’s Hospitality’s restaurant concepts. 

During the quarter, comps at Ruth’s Chris Steak House grew 6.6%, driven by a 2.9% rise in entrées and a 3.6% increase in average guest check. Ruth’s Hospitality also gained from the time shift of Easter that was not included in the year-ago quarter. Moreover, comps at Mitchell’s Fish Market crept up 1.5%, benefiting from a 2.7% and a 1.2% rise in traffic and average guest check, respectively.

During the quarter, franchise income jumped 6.0% to $3.7 million, gaining from a rise in sales volumes.

The company’s operating margin expanded 230 basis points (bps) to 12.2% in the reported quarter, driven by top-line growth, better pricing and cost controlling initiatives.

During the quarter, restaurant operating expenses as a percentage of restaurant sales, dropped 72 bps year over year to 48.1%, attributable to minimized occupancy costs. Food and beverage costs as a percentage of restaurant sales were down 81 bps to 31.2% owing to improved pricing, offset by higher commodity costs.

Store Update

During the quarter, the company launched a Ruth’s Chris Steak House restaurant while shutting down a company-owned unit.

Share Repurchase & Dividend

Ruth’s Hospitality has also authorized a share repurchase program worth $30 million. Additionally, the company has decided to pay a quarterly dividend of 4 cents per share on May 30, 2013 to shareholders of record as of the close of business on May 16, 2013.

Outlook

Heathrow, Fla.-based, Ruth’s Hospitality has reiterated its full year 2013 outlook. Restaurant operating expenses, as percentage of restaurant sales, will be within 50.0% and 51.0% and general and administrative expenses will range from $27 million to $28 million.

In 2013, the company is expected to introduce a company-owned restaurant in Denver, Colo. and nearly two to three franchise-owned units. It is also likely to move its Houston, Texas unit in 2013.

Our Take

Despite a tough consumer environment, Ruth’s Hospitality’s ability to continuously register solid comparable sales is impressive. Ruth’s Hospitality continues to experience higher sales volume and earnings growth on the back of its various sales-driven initiatives. However, food cost pressure and wary consumer spending remain headwinds. Beef costs, to which the company is most exposed to, are expected to remain high in 2013.

Ruth’s Hospitality currently retains a Zacks Rank #2 (Buy).

Some other restaurateurs like McDonald’s Corp. (MCD) missed our estimates on both lines this season while Yum! Brands Inc. (YUM) beat earnings but missed out on revenues. Another restaurant chain, The Cheesecake Factory Inc. (CAKE) was ahead of the estimates on both counts.

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Read the Full Research Report on YUM

Read the Full Research Report on CAKE

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