Ruth's Hospitality Group (RUTH)
Q1 2011 Earnings Call
April 29, 2011 8:30 am ET
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Robert Vincent - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Corporate Secretary and Member of Executive Committee
Michael O’Donnell - Chairman, Chief Executive Officer and President
Nicole Regan - Piper Jaffray Companies
Jeffrey Omohundro - Wells Fargo Securities, LLC
Andrew Barish - Jefferies & Company, Inc.
Jason West - Deutsche Bank AG
Unknown Analyst -
Bart Glenn - D.A. Davidson & Co.
Hello, good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Ruth's Hospitality Group First Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to Mr. Bob Vincent, Chief Financial Officer. Please go ahead, sir.
Thank you, and good morning. We need to remind everyone that part of our discussion today may include forward-looking statements. These statements are not guarantees of future performance and therefore, undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC for a more detailed discussions of the risk that could impact future operating results and financial conditions. Finally, I would like to remind you that today's call may not be reproduced in any form without the express written consent of Ruth's Hospitality Group Inc.
I would now like to turn the call over to Mike O'Donnell, Chief Executive Officer of Ruth's Hospitality Group.
Thanks, Bob, and good morning, and thank you all for joining us today as opposed to watching the wedding of the century. Our first quarter sales performance at Ruth's Chris Steak House underscores the positive momentum we have experienced over the last several quarters, and these improved sales volumes have allowed us to expand our restaurant operating margins despite the commodity pressure we faced during the quarter. Comparable sales at Ruth's Chris Steak House increased 5.2% versus the first quarter of 2010, while comparable sales at Mitchell's Fish Market decreased by 2.7% versus the prior year. Our Mitchell sales performance was negatively impacted by approximately 50 basis points, as Easter was celebrated in late April this year. The calendar shift resulted in three fewer Lenten Fridays in March, and those Fridays are typically fish-eating opportunities for those observers of Lent. Currently, comparable trends in April are positive at both brands. Ruth's Chris sales are up in the mid-single-digit range and Mitchell's sales are flat, and the Easter shift I just mentioned is reversed.
By geography, Ruth's Chris two largest markets, Florida and California, both generated positive sales, as Florida sales rose 1.1%, while California sales improved by 6.8%. Across the entire Ruth's Chris portfolio of 64 company locations, we were pleased that a full 54 restaurants reported positive comparable sales during the first quarter.
Entrées, which serves our proxy for traffic, increased by 3.9% during the first quarter. And we have now been positive for five consecutive quarters. Our average check was also up 1.2% in the first quarter. Compared to the Knapp-Track index benchmark for the Steak House segment, Ruth's Chris sales were lower relative to the index by 250 basis points and 388 basis points in traffic. We continue to believe the gap is driven by competitive discounting.
Private Dining at Ruth's Chris Steak House increased approximately 13% during the first quarter, continuing the momentum we've experienced during the holiday period. Although we did not employ any major new initiatives during the quarter, we continue to benefit from the interest in our Catering business, the use our professional services and the hard work of our people. Within the Ruth's Chris franchise system, domestic comparable franchise-owned restaurant sales increased 8.8%, while international comparable franchise-owned restaurant sales increased 11.7%. Systemwide, our franchisees had a blended comparable restaurant sales increase of 9.3%.
Turning to Ruth's Chris brand. We've begun testing TV spots late in the first quarter as part of our new experience-focused advertising campaign. We believe that the TV campaign, combined with an improved social media presence, will create even more enthusiasm from our broader customer base. To the extent that we get traction some TV compared to other media alternatives, we are likely to devote more resources to television in the second half of the year.
In terms of the menu, our Ruth's seasonal classics prefix remains our feature promotion and continues to comprise roughly 30% of our sales mix. We believe that our diverse guest base appreciates the outfit [ph] of the prefix classics, and this strategy's supported our five consecutive quarters of traffic growth. With renewed enthusiasm for high-end dining, this pricing strategy only reinforces the value that Ruth's Chris offers its guests.
At Mitchell's, we continue to work on fine-tuning our brand positioning. While sales trends were disappointing, we continue to be positive on the concept, and new menu innovation is one of the factors in determining our long-term success. We currently are featuring a lobster duo for $24.95, which consists of cold water rock lobsters served with a choice of lobster pot pie, lobster mac and cheese or sautéed lobster and shrimp cake. Given the seasonality of seafood, we are using prefix features and time-limited offers, so that our guests always have something new to experience when dining with us.
Our marketing efforts at Mitchell's are primarily focused on online and social media, although we have also increased our grassroot campaign through greater community involvement. More broadly, we're also working on developing and continuing to define a new brand campaign. With respect to company restaurant development, we remain active in evaluating real estate opportunities for 2012. I would say active and aggressive but do not have any signed leases at this time. Our Ruth's Chris Franchising business is projected to have two openings in the second half of the year. Inclusive of these locations, we currently have 17 commitments for future franchise restaurants over the next several years. And this pipeline should allow us to continue to generate consistent franchise income of $11 million to $12 million annually.