Ruth’s Chris Steak House, Inc. ( RUTH) Q3 2010 Earnings Conference Call October 29, 2010 8:30 AM ET Executives Bob Vincent – EVP and CFO Michael O’Donnell – President and CEO Analysts Jeffrey Omohundro – Wells Fargo Securities Jason West – Deutsche Bank Andy Barish – Jefferies Bart Glenn – D.A. Davidson Presentation Operator
Currently October’s comp trends are positive in the middle single digit range for Ruth’s Chris while Mitchell’s trends remain in a negative low single digit range. On a geographic basis, Ruth’s Chris two largest markets California and Florida, both generated positive sales for the quarter as Florida sales rose 3.4% while California sales improved by 2.6%. Overall in the Ruth’s Chris portfolio, 50 of the 64 company locations generated positive comparable sales in the third quarter, which underscores the stability of the brand’s top line recovery. In the Ruth’s Chris Franchise system, domestic comparable franchise-owned restaurant sales increased 6.2% while international comparable franchise-owned restaurant sales increased 9.2%, which combined for a blended comparable franchise-owned restaurant sales increase of 6.8%.Private dining sales at Ruth’s Chris Steakhouse increased approximately 18% during a three-month period. So we continue to make inroads with our catering and professional satellite businesses. Given the traction we have generated in private dinings throughout this year along with the fact that our holiday private dining reservations are up approximately 17% over last year, we’re looking forward to what should be our most successful holiday private dining season since 2007. Entrees, which serve as a proxy for traffic increased by 5.3% were positive for the third consecutive quarter while their average check decreased by 0.3. Compared to the Knapp Track benchmark index for the Steakhouse segment, Ruth’s Chris outperformed the index by 20 basis points in sales but lacked by 180 points in traffic. Still we narrowed the gap in traffic by 220 basis points from the previous quarter. Relative discounting certainly remains a factor to Ruth’s Chris in this environment but we are comfortable with our current strategy, execution, and messaging. By 2010 Ruth’s Chris campaign encouraged people to savor the moments of life with sizzling steak and genuine hospitality, which we believe is resonating with our intended demographic. While our marketing spend rose in the third quarter compared to the second quarter due to timing, we are still spending 3% to 3.5% of sales on an annualized basis in the form of print, direct mail radio placement.
In addition, our Ruth’s Classics with its $39.95, $49.95 price fix have become main stays in our menu. As of November 1, we’re updating the offerings under this program on a seasonally adjusted basis. We would expect classics to continue to represent approximately 30% of our sales mix. As we discussed in our previous call, we did implement a very modest price increase on a limited number of items during the third quarter of 2010. The benefit will be approximately $1 million in sales. On an annualized basis given no change in mix, it will positively impact our sales by approximately 1%.We also continue to test the brand enhancing initiatives at seven locations, which center on improvements to the guest experience and atmosphere, the menu, the service desk, uniforms and background music. Turning to Mitchell’s comparable sales trends reversed direction from the previous two quarters, and this was in part driven by our weakness in the Florida market where sales were down 6.5%. Additionally, we had a shift in our promotional strategy that may have had a negative impact during the quarter but we view this as temporary. Although we’re not ready to discuss our specific development plans for Mitchell’s, we are pleased with the sales at the Winter Park, Florida opened in June and are incorporating many of its design elements in our current development work. We remain focused in Florida for expansion as we look to replicate the performance of our existing Tampa and Jacksonville restaurant at future sites. Both of these restaurant locations generate volumes in excess of $4 million. Read the rest of this transcript for free on seekingalpha.com