Ruth’s Hospitality Group keeps focus on traffic after 4Q sales grow

After recording a same-store sales gain at its namesake steakhouse chain for the 11th consecutive quarter, Winter Park, Fla.-based Ruth’s Hospitality Group said it would stick with value-focused strategies to maintain traffic growth and offset expected beef inflation in 2013.

The parent of several upscale-casual brands, including Ruth’s Chris Steak House and Mitchell’s Fish Market, reported traffic and sales growth for the fourth quarter of 2012. The company is also off to a strong start this year, with sales increasing in the mid-single digits through the middle of February, officials said.

“We believe our strategy of growing sales through traffic first and pricing second continues to pay dividends, as shown by the continuation of our healthy comp sales and traffic growth,” chief executive Mike O’Donnell said during the 150-unit company’s earnings call with investors. “While we believe we have additional pricing power, we expect to be thoughtful and prudent with respect to future increases.”

For the Dec. 30, 2012-ended fourth quarter, Ruth’s net income grew to $3.6 million, or 10 cents per share, compared with $1.9 million, or 4 cents per share, a year earlier. The latest quarter’s results also reflect an extra operating week compared with a year earlier.

Revenue increased 15.5 percent to $115.1 million, reflecting an extra operating week compared with a year earlier, as well as same-store sales gains of 5.4 percent at company-owned Ruth’s Chris Steak House locations and 3.4 percent at Mitchell’s Fish Market. Franchised locations of Ruth’s Chris logged a 3.4-percent increase in same-store sales during the fourth quarter.

Traffic moves at brisk pace

O’Donnell and chief financial officer Arne Haak noted that guest count growth contributed to the sales expansion at Ruth’s Chris Steak House and Mitchell’s Fish Market in the fourth quarter, an effect the company would focus on increasing in 2013.

At the 64 company-owned namesake steakhouses, the 5.4-percent same-store sales increase in the quarter comprised a 1.7-percent gain in traffic and a 3.6-percent lift in the average check.

Private dining and catering grew 12.2 percent in fourth quarter due to strong holiday bookings, O’Donnell said.

A 5.4-percent increase in guest counts offset a 1.9-percent decrease in the average check at the company’s 19 Mitchell’s Fish Market locations, officials added.

“With the current economic backdrop it is still our strategy to focus on growing sales through traffic gains and maintaining our value orientation,” O’Donnell said.

O’Donnell credited Ruth’s Chris’ Sizzle, Swizzle and Swirl happy hour — in place at two-thirds of company-owned units and one-third of franchised restaurants — and the Ruth’s Classics fixed-price offer for continuing to drive traffic in the fourth quarter and full year.

“These prix-fixe selections now comprise approximately 20 percent of sales, consistent with the trends we saw in the third quarter,” O’Donnell said. “Customers who select Ruth’s Seasonal Classics continue to exude a preference for the higher price of the two offerings.”

While total orders of the three-course Classics offer dipped slightly in the fourth quarter, 60 percent of those orders were placed in the higher of two available price tiers, he said.

“While there remains economic uncertainty,” O’Donnell added, “we feel the continued growth in comparable-store traffic and sales, the reduction in preference for Ruth’s Classics, and the increased preference for the higher-price items is a sign of continued improvement in consumer confidence.”

At Mitchell’s, a “Reel Delicious” lunch deal contributed to the decrease in average check, but brought about a 10-percent increase in lunch traffic.

Keeping the menu priced to sell

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At Ruth’s Chris, the menu currently reflects 2 percent of menu price increases taken in 2012 and the early part of 2013, officials said. One part of the total menu price increase was a broad but small hike last spring, and most recently, small tweaks have been made to Ruth’s Classics, bringing the low end of the two-tiered price point to $42.95.

But the brand likely would hold firm on prices in the near future, Haak said.

“We are not putting any more price increases on the Ruth’s Classics,” he said. “We feel that’s where we want it to be. … We’ve also pulled some of our price increases on appetizers. We’re very reluctant pricers. We’d prefer to offset our costs with traffic, and we’re mindful of the elasticity we observe in our customers, as well as what the competitors are pricing.”

Beef costs rose 5.1 percent year-over-year during the fourth quarter, Haak said, but Ruth’s largely managed through that inflation with the 2 percent of pricing, a higher sales mix for alcohol and easing costs of other commodities.

Beef inflation is “likely to be north of 10 percent” in 2013, Haak said.

Domestic development plans for 2013 include one new company-owned Ruth’s Chris unit and the relocation of another corporate restaurant, as well as four to five franchise openings. The company also announced a franchise deal for four restaurants in mainland China to open over the next three years.

For the full fiscal year 2012, Ruth’s recorded a $20 million net loss, or negative 58 cents per share, driven in large part by the company’s repurchase of its preferred shares in March from Bruckmann, Rosser, Sherrill & Co., which resulted in a one-time reduction of net income of $35.8 million.

Other non-cash charges included a $900,000 charge for legal fees, a $5 million charge to relocate one location, and asset impairment charges for two other units. In fiscal 2011, Ruth’s had logged a net profit of $16.7 million, or 39 cents per share.

Full-year revenue rose 7.9 percent to $398.6 million. On a 52-week basis, same-store sales increased 5.2 percent at company-owned Ruth’s Chris restaurants, 2.5 percent at Mitchell’s Fish Market and 4.6 percent at franchised Ruth’s Chris units.

Ruth’s Hospitality Group also operates Columbus Fish Market, Mitchell’s Steakhouse and Cameron’s Steakhouse.

Contact Mark Brandau at [email protected]
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