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TheStreet Open House

Ruth's Chris a Well-Done Way to Profit

Stocks in this article: RUTH

NEW YORK ( TheStreet) -- My recent article on Ruth's Hospitality Group (RUTH - Get Report), which runs the popular chain Ruth's Chris Steak House, caused quite the stir.

I suppose it's because I decided to buy the stock after suggesting that the restaurant saved my marriage. I was accused of having committed a cardinal sin -- buying a stock on emotion. While (admittedly) a somewhat fair assessment, I think it is much more than that.

Indeed, the restaurant demonstrated to my wife and I what a first-class dining experience should feel like. But also, in its most recent earnings report, the company continues to show the value of a top-notch management team.

The Quarter That Was

For the second quarter that ended in June, the company reported net income of $5.8 million, or 17 cents per share, on revenue of $97.7 million, exceeding both its profits of $4.4 million and revenue of $92 million in the same quarter of a year ago. Excluding 2011 tax benefits for the second quarter, the company actually showed a 2012 second-quarter net income increase of 70% while second-quarter revenue climbed 6.2%

Founded in 1965, the company and its subsidiaries operate restaurants in the U.S. as well as internationally. Along with Ruth's Chris Steak Houses across the nation it owns Mitchell's Fish Market, Mitchell's Steakhouse and Cameron's Steak House. In all, it operates over 150 restaurants, company-owned as well as franchises.

In its report, its company-owned Ruth's Chris Steak House's comps increased 6% while its Mitchell's Fish Market comps increased 2.3%. The company said its operational expenses grew by 6.1%, or $5.1 million, compared to the second quarter of 2011.

On the flip side, it was able to decrease its restaurant operating expenses (as a percentage of revenue) by 60 basis points to 51.1%. It said this was attributable to increased sales leverage which helped offset higher premiums for health insurance.

The company also reported lower costs for marketing and advertising, which decreased by 90 basis points to 2.5% although its administrative expenses edged higher by just under $1 million to $6.2 million in the second quarter.

Clearly, this is a management team that understands what it needs to do to drive profitability and growth. Even more remarkable is that it continues to do this despite concerns of rising costs of beef, which continues to be one of the company's greatest challenges. Nonetheless, it is a challenge that it continues to overcome.

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