Zacks_Analysts' Blog : Ruth's Reports in Line - Analyst Blog

Heathrow, Florida-based Ruth’s Hospitality Group Inc. (RUTH), reported fourth quarter 2010 adjusted earnings of 8 cents per share, in line with the Zacks Consensus Estimate, but below 11 cents delivered in the prior-year quarter. The results were driven by top-line growth and cost control initiates.

Total revenue spiked up 7.7% year over year to $94.1 million. Company-owned restaurant sales inched up 8.0% to $90.4 million whereas franchise income jumped 5.5% to $3.2 million.

For full fiscal 2010, earnings per share were 10 cents, down from 34 cents reported in 2009, while net sales plunged to $344.6 million from $357.6 million recorded in the prior year.

During the quarter, comparable restaurant sales at Ruth’s Chris Steak House grew 9.2%, driven by a 9.4% rise in entrées, partially offset by a 0.1% fall in average guest check, whereas comparable restaurant sales at Mitchell’s Fish Market slipped 2.1%, driven by a 4.4% decline in entrées, partially offset by a 2.4% upside in average guest check. Same-store sales at franchise-owned restaurant sales increased 9.5%.

During the quarter, restaurant operating expense dropped 180 basis points (bp) year over year to 50.9%, general and administrative expenses contracted 140 bp to 7.0% and depreciation and amortization slipped 70 bp to 4.0%. However, food and beverage costs upped 140 bp to 30.5%, due to unfavorable beef costs.

Financial Position

At the end of 2010, the company had cash and cash equivalents of $5.0 million and shareholder equity of $80.4 million. The company also strengthened its balance sheet through aggressive debt reduction. The long-term debt outstanding at the end of the year was $51.0 million.

Outlook

Ruth’s one of the leading upscale dining operators, initiated its fiscal 2011 outlook. The company expects cost of goods sold to be 30.5%-31.5% of restaurant sales and tax rate in a range of 25% to 30%. Capital expenditure for the year is expected in the range of $10 million to $12 million.

Our Take

The company’s 2010 holiday season was a huge success, implying that guest visits to upscale dining restaurants are improving. Ruth’s also expects to take pricing to minimize the impact of beef cost inflation on margins.

Hence, we believe the owner of Ruth’s Chris Steak House and Mitchell’s Fish Market restaurant concepts will be able to generate improved earnings. We expect estimates to go up in the coming days, based on the fourth quarter results.

One of Ruth’s competitors, Brinker International Inc. (EAT) reported second quarter 2011 adjusted EPS of 38 cents, surpassing the Zacks Consensus Estimate of 32 cents. The upside in earnings was driven by continued margin expansion at Chili's and top-line growth at Maggiano's.