Ruth's Hospitality Group Inc. (RUTH)

Q2 2010 Earnings Call

July 30, 2010 08:30 am ET


Bob Vincent - EVP & CFO

Michael O’Donnell - President & CEO


Jeff Omohundro - Wells Fargo Securities

Jason West - Deutsche Bank

Nicole Miller - Piper Jaffray

Andy Kurita - Kettle Hill



Good day ladies and gentlemen. Thank you for standing by. Welcome to today’s Ruth Hospitality Group Inc. Second Quarter 2010 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Following the formal remarks, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. Hosting today’s conference is Bob Vincent, Chief Financial Officer of Ruth Hospitality Group Inc. As a reminder today’s conference is being recorded.

And now, I’d like to turn the conference over to Bob Vincent. Please go ahead sir.

Bob Vincent

Thank you and good morning. First of all, let me tell you that Michael O’Donnell, our President and Chief Executive Officer is stuck in traffic, and I will be hosting the entire call today.

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 today that the call may not be reproduced in any form without the express written consent of Ruth's Hospitality Group Inc. In terms of our second quarter, we are pleased with our performance from both a revenue and net earnings standpoint.

Comparable sales were positive at both brands. Net income grew 34% to 3.7 million as we benefited from the operational improvements we have made to our business model over the past year and a half. Comparable sales at Ruth's Chris Steak House were up 2.9%. The first time we have generated positive comparable store sales at the brand since the second quarter of 2007. Mitchell’s Fish Market similarly demonstrated sales improvement as comparable store sales for the quarter increased 0.9% the second consecutive quarter of positive results.

Commonly, July’s comp trends are positive in the low single digit range for Ruth's Chris Steak House. However Mitchell’s comp trends are running down in the low single digit range. On a geographic basis, Ruth's Chris’s two largest markets California and Florida had mixed results for the quarter. Florida generated sales declines of 0.7% for the quarter while California experienced an increase of 0.1%. This represented progress from a year ago when Florida and California were down 22.6 and 25.3 year-over-year respectively.

Our private dining sales increased by 16% for the quarter as we continue to make inroads with our catering and professional satellite businesses. During the quarter entrées which serves as a proxy for our traffic increased by 3.2% and were positive for the second time in three years.

While our average check decreased by 0.3%, our performance versus the Knapp-Track benchmark index for the Steak House segment declined by approximately 130 points in sales and approximately 340 basis points in traffic and we believe this is a product of continuing discounting by our competitors, as we have said in the past we won’t chase traffic for traffic sake and we feel good about our brand enhancing message. Our general managers tell us they are encouraged to see their regulars more often, and the guests are pleased with the value we are offering, so what is our intent to build on that.

In terms of our brand enhancing messengering, our campaign this year encourages people to savor the moment of life with sizzling stakes and genuine hospitality at Ruth’s Chris. We are spending 3% to 3.5% of sales using print, direct mail and radio to reach our targeted audiences, many of you have already probably seen our brand enhancing ads in the lifestyle section of the USA Today, where we can be found every other Thursday throughout the year.

In addition, we continue to offer our Ruth’s Classics with our 3995 and is 4995 prefix and these items continue to represent approximately 30% of our sales mix.

Just two final points with regards to Ruth’s Chris Steak House, we are not taking a price increase in over two years, but continue to test pricing and about half of our company markets will on a very limited number of menu items.

We have also been testing what we view as improvements to guest experience and atmosphere, from menu, service staff uniforms and background music at six locations in both cases we had not yet made a determination if the roll out volumes is warranted.

Turning to Mitchell's we are pleased that its comparable sales remained in positive territory including year-over-year traffic gains Mitchell's has great consumer acceptance within the polish seas food sector and is highly regarded for its significant point of differentiation and authenticity.

With the new leadership we put in place at the brand over a year ago, we are solidifying our reputation as seafood experts, and are involving the brand positioning with culinary promotions that encompass broader themes. These include our lobster duo and flavors of the pacific realm earlier this year; while this summer we are inviting our guests to enjoy our new flavors of New England, with a three course meal for $22.95. We have also improved our marketing efforts with our new ad agency as we focused on social media and enhanced community presence through PR and more impactful local activities.

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