Ruth's Hospitality Group (RUTH)

Q2 2011 Earnings Call

July 29, 2011 8:30 am ET


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

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 Second Quarter 2011 Earnings Conference Call. [Operator Instructions] Just as a reminder, today's conference is being recorded. At this time, I would like to turn things 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 discussion of the risks that could impact future operating results and financial conditions.

Finally, I would like to remind you today that this call may not be reproduced in any form without the expressed written consent of Ruth's Hospitality Group, Inc. I would now like to turn the call over to Michael O'Donnell, Chief Executive Officer, Ruth's Hospitality Group.

Michael O’Donnell

Thanks Bob, and thank you, all, for joining us today. Ruth's Chris Steak House restaurants continued the strong sales momentum during the second quarter, with comparable sales improving 5.8%. This marks the fifth consecutive quarter of positive comparable sales for company-owned restaurants and sixth straight quarters of traffic gains. Comparable sales at Mitchell's Fish Market decreased 1.4% during the second quarter, with results being positively impacted by approximately 50 basis points due to the Easter calendar shift.

Currently for July, comparable sales trends for Ruth's Chris remain positive in the mid-single digits, while Mitchell's sales are flat year over year. On a regional basis, Ruth's Chris 2 largest markets, Florida and California, continue to generate positive sales, as they outperformed the system average. Florida sales rose 6.3%, while California increased 7.5%.

Across the entire Ruth's Chris portfolio of 63 company locations, 53 restaurants reported positive comparable sales during the second quarter. Entrees with service as proxy for traffic increased by 3.3% during the second quarter and as we previously noted, have now been positive for 6 consecutive quarters. This is also the second quarter where traffic has increased against positive traffic in the prior year.

Average check also increased 2.4% for the period. Compared to the Knapp-Track benchmarked index for the Steak House segment, Ruth's Chris sales were lower relative to the index by 190 basis points and 180 basis points in traffic. We continue to believe the gap is driven by competitive discounting. As we said in the past, we are taking a different approach, stressing value over discounting and the centerpiece of this conservative pricing, which has served us well.

Private dining sales at Ruth's Chris Steak House increased approximately 16% during the second quarter, as we continue to benefit from interest in our catering business and the years of our professional satellite services. Our Ruth's Chris franchise-owned domestic comparable restaurant sales increased 5% during the quarter, while international comparable franchise-owned restaurants increased 16.2%, resulting in a blended increase of 7.1%.

Turning to Ruth's Chris brand, as we noted in our last call, we began testing TV spots this spring as part of our new experience-focused advertising campaign. We plan to expand our efforts in TV as our tests showed promise. We believe that television advertising combined with an improved social media presence will create increased enthusiasm from a broader customer base, although it's important to note that our spending maybe reallocated, we will stay within our annual guidance range.

Our Ruth's seasonal classic prefix remains a cornerstone of our featured promotional activity and continues to comprise roughly 30% of our sales mix. We believe that our diversed guest base appreciates the options of prefix classics, and that this strategy has supported our 6 consecutive quarters of traffic growth. While our results continue to show renewed enthusiasm for high-end dining, we appreciate the economic uncertainty that many consumers continue to face and our prefix strategy -- pricing strategy only reinforces the value that Ruth's Chris offers its guests.

At Mitchell's, we continue to work on our broad positioning and our brand positioning where menu marketing and operational excellence are key. While seafood will remain Mitchell's core offering, we are currently working on expanding our selection of non-seafood items, which we expect will be additive to sales as it helps us appeal to more guests.

At the present time, we have several items in the test market, and we will be evaluating opportunities for further roll out. In addition to broadening customer choice, we believe this can also benefit us with respect to productivity gains in the back of the house where we think we have some opportunity to improve execution at Mitchell's.

We are currently featuring a prefix price fixed at $19.95 and $24.95 as our value proposition and includes a variety of seafood offerings, as well as a 10-ounce rib eye. Given the seasonality of our seafood and our expanding non-seafood offerings, we see the prefix, as well as limited time offers, as a way to have guests always have something new to experience when dining with us.

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