Ruth's Outperforms in 4Q

Zacks

One of the leading upscale dining operators, Ruth’s Hospitality Group Inc. (RUTH) posted fourth quarter 2012 adjusted earnings of 18 cents, way ahead of the Zacks Consensus Estimate by 3 cents and prior-year quarter’s earnings of 9 cents. The current quarter’s earnings were driven by sales as well as comps growth. In full year 2012, the company’s adjusted earnings were 55 cents per share versus 32 cents per share in the prior year.

On a reported basis, fourth quarter earnings were 10 cents; ahead of the year-ago quarter’s earnings of 4 cents. In 2012, the company posted a net loss of 58 cents per share versus a net income of 39 cents per share in the year-earlier period.

Total revenues enhanced 15.5% year over year to $115.1 million in the quarter, just managed to beat the Zacks Consensus Estimate of $115 million. In 2012, revenues leaped 7.9% to $398.6 million.

4th Quarter Performance

Company-owned restaurant sales climbed 15.8% to $110.5 million, while franchise income jumped 7.9% to $3.9 million.

During the quarter, comparable restaurant sales at Ruth’s Chris Steak House grew 5.4%, driven by a 1.7% rise in entrées and a 3.6% upside in average guest check.

Moreover, comparable restaurant sales at Mitchell’s Fish Market crept up 3.4%, benefiting from a 1.9% and 5.4% rise in average guest check and entrées, respectively. Same-store sales at franchise-owned restaurant increased 3.4% in the quarter.

During the quarter, restaurant operating expense as a percentage of restaurant sales, dropped 310 basis points (bps) year over year to 47.8%, attributable to minimized benefit costs, increased sales on fixed costs and positive utilities costs. Food and beverage costs were 31.2%, down 40 bps owing to the rise in alcohol mix as well as beef pricing and reduced commodity costs.

General and administrative expenses stood at $9.2 million as against $5.8 million in the year-ago quarter. Operating margin expanded 110 bps year over year to 4.8% in the reported quarter.

Store Update

During the quarter, the company launched a franchised unit in Niagara Falls, Canada and a company-owned unit in Cincinnati, OH. In 2012, the company opened six Ruth’s Chris Steak Houses units.

Financial Position

At the end of 2012, the company had cash and cash equivalents of 7.9 million and shareholders’ equity of $82.4 million. Long-term debt outstanding at the end of 2012 was $45.0 million, down from $51.0 million in the previous quarter.

Outlook

Heathrow, Florida-based, Ruth’s provided its full year 2013 outlook. The company expects cost of goods to be 32.5%–33.5% and marketing and advertising expense to be 3.0% to 3.5%. Restaurant operating expenses will be within 50.0% and 51.0% and general and administrative expenses will be $27 million to $28 million. Capital expenditure for the same period is expected in the range of $14 million to $16 million and diluted share outstanding between 35.3 million and 36.0 million.

In 2013, the company is expected to introduce a company-owned restaurant in Denver, CO and nearly four to five frnachise-owned units. It is also likely to move its Houston, TX unit in 2013.

Moreover, the company has also entered into an agreement to launch four franchised Ruth's Chris Steak House units in China in the coming three years.

Our Take

The company continues to experience higher sales volume and comps growth. The company also remains focused on expanding its Ruth’s Chris brand, as it continues to perform well. However, rising commodity cost remains a concern.

Ruth’s Hospitality currently retains a Zacks Rank #4 (Sell). Another restaurateur AFC Enterprises Inc. (AFCE) recently declared its preliminary fourth quarter and full year 2012 results. The company projects its adjusted earnings per share for the full year of 2012 to be within $1.23-$1.24, up from 99 cents in 2011. AFC also provided an optimistic outlook for 2013. AFC currently holds a Zacks Rank #2 (Buy).

Other restaurateurs, which are expected to perform well moving ahead, include Krispy Kreme Doughnuts, Inc. (KKD) and Burger King Worldwide, Inc. (BKW). Both carry a  Zacks Rank #2 (Buy),

Read the Full Research Report on KKD

Read the Full Research Report on ^RUTH

Read the Full Research Report on AFCE

Read the Full Research Report on BKW

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