Comparable Sales Up 3.7% Total Revenues Increased 16.3%
Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) today reported unaudited financial results for its third quarter ended September 30, 2018.
Highlights for the third quarter of 2018 were as follows:
- Restaurant sales in the third quarter of 2018 increased 17.7% to $93.5 million compared to $79.4 million in the third quarter of 2017.
- Net income in the third quarter of 2018 was $3.6 million, or $0.12 per diluted share, compared to net income of $1.7 million, or $0.05 per diluted share, in the third quarter of 2017.
- Income from continuing operations in the third quarter of 2018 was $3.6 million, or $0.12 per diluted share, compared to income from continuing operations of $1.8 million, or $0.06 per diluted share, in the third quarter of 2017.
- Net income in the third quarter of 2018 included $0.4 million in deal-related expenses associated with the acquisition of the six restaurants of our Hawaiian franchisee, as well as a $0.1 million income tax benefit related to the impact of discrete income tax items.
- Excluding these adjustments, as well as the results from discontinued operations, non-GAAP diluted earnings per common share were $0.13 in the third quarter of 2018, compared to $0.06 in the third quarter of 2017. The Company believes that non-GAAP diluted earnings per common share provides a useful alternative measure of financial performance. Investors are advised to see the attached Reconciliation of non-GAAP Financial Measure table for additional information.
Cheryl Henry, President and Chief Executive Officer of Ruth’s Hospitality Group, Inc., noted, “I am pleased to see our momentum continuing into the third quarter with double digit revenue growth and increased comparable restaurant sales of 3.7%. This growth, combined with our restaurant operating expense leverage, generated increased net income and diluted earnings per share of $0.13. We believe these results demonstrate the strength of our brand and the power of our total return strategy.”
Henry continued, “The foundation of our success is our people and I am proud of the results that they delivered in the third quarter. We are all stewards of this iconic and authentic brand. It is our job to protect it, to evolve it, and to grow it. I look forward to working with our team on this for many years to come.”
Review of Third Quarter 2018 Operating Results
Total revenues in the third quarter of 2018 were $99.0 million, an increase of 16.3% compared to $85.2 million in the third quarter of 2017.
- Comparable restaurant sales at Company-owned restaurants increased 3.7%, which consisted of a traffic increase of 1.5%, as measured by entrees, and an average check increase of 2.1%.
- During the third quarter of 2017, Hurricanes Harvey and Irma directly impacted 15 of our 70 restaurants and resulted in 64 lost operating days. The impact on Company-owned comparable restaurant sales in the third quarter of 2018 was a positive impact of approximately 150-200 basis points.
- Fiscal average unit weekly sales were $92.9 thousand in the third quarter of 2018, compared to $87.3 thousand in the third quarter of 2017.
- 78 Company-owned Ruth’s Chris Steak House restaurants were open at the end of the third quarter of 2018, compared to 70 Ruth’s Chris Steak House restaurants at the end of the third quarter of 2017. Total operating weeks for the third quarter of 2018 increased to 1,006 from 910 in the third quarter of 2017.
- Franchise income in the third quarter of 2018 was $4.0 million, a decrease of 4.5% compared to $4.2 million in the third quarter of 2017. The decrease in franchise income was driven by the acquisition of the Hawaii restaurant locations, partially offset by a 2.0% increase in comparable franchise restaurant sales as well as the impact of the new revenue recognition standard.
- 75 franchisee-owned restaurants were open at the end of the third quarter of 2018 compared to 81 at the end of the third quarter of 2017.
- Food and beverage costs, as a percentage of restaurant sales, decreased 360 basis points to 28.3%, primarily driven by a 20.5% decrease in total beef costs, as well as by an increase in average check of 2.1%.
- Restaurant operating expenses, as a percentage of restaurant sales, decreased 50 basis points to 53.1%. The decrease in restaurant operating expenses as a percentage of restaurant sales was primarily due to the timing of quarterly health care claims as well as an increase in average check of 2.1%.
- General and administrative expenses, as a percentage of total revenues, increased 60 basis points to 8.9%. The increase as a percentage of total revenues was primarily driven by increased performance based compensation and costs related to the integration of the recently acquired Hawaiian restaurants.
- Marketing and advertising costs, as a percentage of total revenues, increased 10 basis points. The increase in marketing and advertising costs was primarily attributable to a planned increase in advertising spending.
- Pre-opening costs were $0.8 million compared to $0.1 million in the third quarter of 2017, driven by the timing of new restaurant openings.
- Income tax expenses declined from $1.0 million in the third quarter of 2017 to $0.7 million largely as a result of the enactment of the Tax Cuts and Jobs Act.
The Company opened a restaurant in Jersey City, NJ in the third quarter, and expects to open a restaurant in Paramus, NJ in just a few weeks, here in November. A new restaurant in Reno, NV, which will operate under a management agreement and was previously expected to open in early 2019, is now expected to open in December of 2018.
The Company also announced the signing of two new leases; in Columbus, OH, and Oklahoma City, OK. The Columbus restaurant is expected to open in the second half of 2019, while Oklahoma City is expected to open in 2020. Additionally, the Company will relocate one restaurant in Washington, DC during 2019.
Franchise partners are expected to open a new restaurant in Markham, Ontario in the fourth quarter of 2018. During 2019, our franchise partners are currently scheduled to open two restaurants. The first in Chongqing, China in the first half of 2019 and another in St. George, UT during the second half.
Finally, subsequent to the end of the third quarter of 2018, our franchisee in Panama City, Panama has closed its one restaurant location.
Share Repurchase and Debt
The Company did not repurchase any shares during the third quarter of 2018, and ended the quarter with approximately $44.7 million remaining under its share repurchase authorization.
At the end of the third quarter of 2018, the Company had $54 million in debt outstanding under its senior credit facility, with an additional $31.8 million of availability.
Quarterly Cash Dividend
Subsequent to the end of the quarter, the Company’s Board of Directors approved the payment of a quarterly cash dividend to shareholders of $0.11 per share. The dividend will be paid on November 29, 2018 to shareholders of record as of the close of business on November 15, 2018, and represents a 22% increase from the quarterly cash dividend paid in November of 2017.
Based on current information, Ruth’s Hospitality Group, Inc. is revising its full year 2018 outlook based on a 52 week year ending December 30, 2018, as follows:
- Food and beverage costs of 28.2% to 28.8% of restaurant sales
- Restaurant operating expenses of 48.0% to 48.6% of restaurant sales
- Marketing and advertising costs of 3.7% to 3.9% of total revenue
- General and administrative expenses of $34 million to $36 million, exclusive of the integration costs related to the acquisition of the Hawaiian restaurants
- Effective tax rate of 17% to 19%, excluding discrete income tax items
- Capital expenditures of $30 million to $32 million
- Fully diluted shares outstanding of 30.3 million to 30.5 million (exclusive of any future share repurchases under the Company’s share repurchase program)
|RUTH’S HOSPITALITY GROUP, INC. AND SUBSIDIARIES|
|Condensed Consolidated Statements of Income – Preliminary and Unaudited|
|(Amounts in thousands, except share and per share data)|
|13 Weeks Ended||39 Weeks Ended|
|September 30,||September 24,||September 30,||September 24,|
|Other operating income||1,497||1,507||4,880||4,813|
|Costs and expenses:|
|Food and beverage costs||26,440||25,319||86,894||82,012|
|Restaurant operating expenses||49,626||42,595||151,328||133,046|
|Marketing and advertising||3,813||3,197||11,930||9,056|
|General and administrative costs||8,809||7,096||27,056||23,267|
|Depreciation and amortization expenses||4,628||3,852||13,762||11,089|
|Total costs and expenses||94,161||82,180||292,228||259,943|
|Other income (expense):|
|Interest expense, net||(470||)||(197||)||(1,253||)||(521||)|
|Income from continuing operations before income tax expense||4,319||2,784||31,663||30,289|
|Income tax expense||727||1,017||4,873||9,632|
|Income from continuing operations||3,592||1,767||26,790||20,657|
|Income (loss) from discontinued operations, net of income taxes||9||(71||)||30||(101||)|
|Basic earnings per common share:|
|Basic earnings per share||$||0.12||$||0.06||$||0.90||$||0.67|
|Diluted earnings per common share:|
|Diluted earnings per share||$||0.12||$||0.05||$||0.88||$||0.66|
|Shares used in computing net income per common share:|
|Dividends declared per common share||$||0.11||$||0.09||$||0.33||$||0.27|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
We prepare our financial statements in accordance with U.S. generally accepted accounting principles (GAAP). Within our press release, we make reference to non-GAAP diluted earnings per common share. This non-GAAP measurement was calculated by excluding certain items and results from discontinued operations and certain discrete income tax items. We exclude the impact of the results from discontinued operations, the impact of acquisition related costs and the impact of certain discrete income tax items because these items are not reflective of the ongoing operations of our business. This non-GAAP measurement has been included as supplemental information. We believe that this measure represents a useful internal measure of performance. Accordingly, where this non-GAAP measure is provided, it is done so that investors have the same financial data that management uses in evaluating performance with the belief that it will assist the investment community in assessing our underlying performance on a quarter-over-quarter basis. However, because this measure is not determined in accordance with GAAP, such a measure is susceptible to varying calculations and not all companies calculate the measure in the same manner. As a result, the aforementioned measure as presented may not be directly comparable to a similarly titled measure presented by other companies. This non-GAAP financial measure is presented as supplemental information and not as an alternative to diluted earnings per share as calculated in accordance with GAAP.
|Reconciliation of Non-GAAP Financial Measure – Unaudited|
|(Amounts in thousands, except share data)|
|13 Weeks Ended||39 Weeks Ended|
|September 30,||September 24,||September 30,||September 24,|
|GAAP Net income||$||3,601||$||1,696||$||26,820||$||20,556|
|GAAP Income tax expense||727||1,017||4,873||9,632|
|GAAP (Income) loss from discontinued operations||(9||)||71||(30||)||101|
|GAAP Income from continuing operations before income tax expense||4,319||2,784||31,663||30,289|
|Hawaii acquisition costs||415||–||1,275||–|
|Adjusted net income from continuing operations before income taxes||4,734||2,784||32,938||30,289|
|Adjusted income tax expense (1)||(829||)||(1,017||)||(5,185||)||(9,632||)|
|Impact of excluding certain discrete income tax items||(80||)||–||(711||)||(247||)|
|Non-GAAP net income||$||3,825||$||1,767||$||27,042||$||20,410|
|GAAP diluted earnings per common share||$||0.12||$||0.05||$||0.88||$||0.66|
|Non-GAAP diluted earnings per common share||$||0.13||$||0.06||$||0.89||$||0.66|
|Weighted-average number of common shares outstanding – diluted||30,358,284||30,877,192||30,370,193||31,040,640|
(1) Adjusted income tax expense is calculated by multiplying the Non-GAAP adjustments by our marginal federal and state income tax rates and adding or subtracting the result to/from our GAAP income tax expense.