Ruth’s Chris Hospitality Group Inc. reported Friday a 19.8-percent increase in net income during the first quarter ended March 29, amid higher sales and an unexpected decline in beef costs.
Beef costs fell 4.3 percent during the quarter, driving down food and beverage costs, the company said.
“We were pleasantly surprised by the trend in beef,” CFO Arne Haak said during a call Friday discussing earnings. “That’s in sharp contrast to broader trends.”
Beef costs have risen considerably in recent years amid low supplies. While costs have moderated, the company expects increases in beef costs of about 3 percent to 6 percent for the year. Haak said Ruth’s has worked with suppliers to contract on beef costs, but has been “unwilling to secure prices at the levels that have been offered.”
The company reported net income of $10.4 million, or 30 cents per share, during the quarter, rising from $8.9 million, or 25 cents per share, the previous year. Revenue increased 7.7 percent, to $97.3 million, from $90.4 million the previous year.
Same-store sales at company restaurants rose 2.8 percent, but traffic fell 0.5 percent. Executives attributed the problems to poor weather during the quarter, noting that severe weather in February and March hurt traffic at company restaurants.
Ruth’s president and CEO Michael O’Donnell said traffic has returned to positive territory in April, and same-store sales have risen in the low-to-mid single digits.
“The health of our customer remains strong, as traffic returned to positive low-single-digits in April,” O’Donnell said.
The company plans to expand a test of its Ruth’s 2.0 initiative, he said. Ruth’s is testing the redesign in two locations, and it wants to expand the effort to five units by the end of the second quarter.
O’Donnell called 2.0 a “dynamic effort to evolve Ruth’s facilities, menu and operations.”
Ruth’s chief branding officer Cheryl Henry said the program is the culmination of two years of work on every phase of the business, including menu, service, design and technology.
But O’Donnell said the chain won’t go too far on the technology front.
“We’re a high-touch business,” he said. “We don’t have technology replacing people.”
Ruth’s opened a location in St. Petersburg, Fla., in February, and expects to open a second unit in Dallas during the third quarter, and a restaurant in Albuquerque, N.M., by the end of the year. Franchisees plan to open four restaurants this year.
Operating income increased 16.2 percent during the quarter, to $16.2 million, compared with $14 million the previous year. The company’s operating margin increased 121 basis points. Food and beverage costs were 30.5 percent of revenue, a decline of 83 basis points, in part due to falling beef costs.
Restaurant operating expenses were 45.3 percent of sales, a decrease of 37 basis points. General and administrative expenses were 6.6 percent of sales, falling 27 basis points.
Contact Jonathan Maze at [email protected].
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