Ruth's Hospitality Group (RUTH)

Q4 2010 Earnings Call

February 18, 2011 8:30 am ET

Executives

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

Analysts

Nicole Regan - Piper Jaffray Companies

Ross Haberman - Harberman Funds

Jeffrey Omohundro - Wells Fargo Securities, LLC

Andrew Barish - Jefferies & Company, Inc.

Jason West - Deutsche Bank AG

Bryan Elliott - Raymond James & Associates

Bart Glenn - D.A. Davidson & Co.

Presentation

Operator

Hello. Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Ruth's Hospitality Group Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Bob Vincent, Chief Financial Officer. Please go ahead, sir.

Robert Vincent

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 Michael O'Donnell, Chief Executive Officer of Ruth's Hospitality Group.

Michael O’Donnell

Thanks, Bob, and thank you all for joining us today. For more of the sales and profitability standpoint, the fourth quarter was solid for Ruth's Hospitality Group and we're pleased to have ended 2010 on a high note. Looking ahead, we're optimistic for 2011 given the renewed enthusiasm for high-end dining by special occasion customers and business people alike. But having said that, we are mindful of a continued rise in commodity costs.

During the fourth quarter, comparable sales at Ruth's Chris Steak House increased 9.2% versus the prior-year period. While Mitchell's Fish Market comparable sales decreased 2.1% versus the prior-year period. Currently, January's comps were in the positive in the mid-single digit range for Ruth's Chris, while for Mitchell's remained in the negative low single digit range. Inclusive of the weather challenges thus far this winter, our trends, we believe, have held up well.

At Ruth's Chris approximately 1.6% of our fourth quarter comp result was attributable to additional restaurants. They were opened on Thanksgiving Day in 2010 compared to 2009. With our leadership position at special location dining, we believe that Thanksgiving is a natural for our brand. We also opened a limited number of restaurants on Christmas in 2010 and may consider expanding that this year as well.

On a geographic basis, Ruth's Chris two largest markets, California and Florida, both generated strong positives sales, as Florida sales rose 9.3%, while California sales improved 7.8%. Overall, in the Ruth's Chris portfolio, we are pleased with 60 of the 64 company locations generated positive comparable sales during the fourth quarter.

Entrées, which serves us our proxy for traffic increased by 9.4% during the fourth quarter and we were positive in all four quarters in 2010. Our average check was essentially flat at down 0.1% in the fourth quarter. Compared to the Knapp-Track benchmark index for the Steak House segment, Ruth Chris sales were off versus the index by 50 basis points and 380 basis points in traffic, which we believe were driven by aggressive competitive discounting.

Private Dining sales at Ruth's Chris Steak House increased approximately 16% during the fourth quarter, which helped make the recent holiday season our most successful since 2007. For the full year, our Private Dining business grew by approximately 16% as our initiatives in the Catering and Professional Satellite business gained traction.

For the last few quarters, we have also been testing some brand enhancing initiatives, which center on remodeling several of our locations to a more contemporary and upbeat atmosphere, along with making improvements to the guest experience, menu design, service staff uniform style and background music. While we were encouraged by what we have seen so far, it is still too early to say what implications these efforts could have on the rest of our portfolio.

Within the Ruth's Chris franchise system, domestic comparable franchise-owned restaurant sales increased 8%. While international comparable franchise-owned restaurant sales increased 15.5%. System-wide, our franchisees had a blended comparable restaurant sales increase of 9.5%.

In terms of Ruth's Chris marketing strategy, we've tested and will be rolling out in Q1 a new experience-focused advertising campaign. Our objective is to attract more people for more occasions. We will also be testing TV in Q1 as part of that campaign. On a related note, we will also be strengthening our online effort using broadband video display, social media to create more buzz around the Ruth's Chris brand, particular with a slightly younger demographic.

Similar to last year, we intend to spend 3% to 3.5% of sales on an annualized basis on marketing. With respect to the menu, we continue to feature our Ruth's Seasonal Classics prefixed, which remains approximately 30% our sales mix. As part of our effort to broaden our appeal, we continue to innovate our core menu while utilizing our Bistro menu and sushi test to entice potential new guests. Turning to Mitchell's. The negative comparable sales trends were driven by continued weakness in our Florida market where sales were down 10.6%, while all other regions of the brand improved. As I stated at the investor conference last month, our newest restaurant located in Winter Park, Florida has performed slightly above the system average. We are using it as test case for many of the design elements in system changes that we intend to implement in future development projects and retrofit within the existing system. In addition, Mitchell's Fish Market is also in the process of undergoing a number of changes with respect to the menu, Fresh Bar program and brand campaign. Together these items should have a positive impact on same-store sales, unit volumes and operating margins on a sequential basis.

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