Higher sales plus lower beef costs equaled a profitable quarter for Ruth’s Hospitality Group Inc. The company said on Friday that its fourth quarter net income increased nearly 19 percent in the period ended Dec. 27.
Ruth’s Hospitality Group said its net income was $9.5 million, or 28 cents per share, up from $8 million, or 23 cents, in the same period a year ago.
Same-store sales at the Winter Park, Fla.-based Ruth’s Chris Steak House chain increased 3.2 percent in the fourth quarter, the company said, though traffic in the three months fell 30 basis points. CEO Michael O’Donnell, however, said that traffic returned to positive territory in January.
“We closed out the year with strong financial results and many accomplishments we are proud of,” O’Donnell said on the company’s earnings call Friday morning.
Ruth’s stock rose 5 percent in morning trading on the news.
Food and beverage costs as a percent of sales fell 1.29 percentage points to 30.5 percent thanks to the higher sales leverage and lower beef costs. Ruth’s benefited from the increased supply of prime-rated beef cuts.
Prime beef typically represents 2 to 4 percent of the beef supply but last year increased to 5 to 6 percent of the beef supply, and that drove costs for those cuts down.
The company expects overall beef deflation of 2 to 4 percent in 2016, as ranchers continue increasing herd sizes, increasing the supply of beef.
But, chief financial officer Arne Haak said on the earnings call, “savings from an increase in the beef supply could be diminished if the quality of prime grading is not strong.”
Labor costs have not yet been a problem for the company. Ruth’s said that operating expenses as a percent of sales fell 46 basis points to 45.1 percent. Company executives said minimum wage hikes will cost the company $1.5 million — servers make minimum wage plus tips, executives noted, calling it “a bit of a headwind.”
So far, however, they said that competition for labor hasn’t increased the company’s costs. “I don’t think we have any challenges finding high-quality employees,” O’Donnell said.
Executives also said they haven’t felt any impact of mounting economic concerns. Stocks have been weak so far this year and O’Donnell noted that many of the chain’s higher-end customers pay more attention to stocks. But so far it’s not affecting sales.
“Historically, we can see some weakness when the stock market trades off,” O’Donnell said. “But we have not seen any weakness that we can point out.”
Revenues in the fourth quarter increased 5.9 percent to $104.7 million, from $98.9 million in the period a year ago. For the year, revenues increased 8 percent to $373.4 million, from $346.1 million in 2014.
The company operates 67 Ruth’s Chris Steak House locations, while franchisees operate 80.
Ruth’s continues to work on its Ruth’s 2.0 initiative, an effort to evolve the menu and facilities. The menu includes new premium items including a 40-ounce Tomahawk Steak and a seafood tower.
The new menu has been rolled out to all company-owned locations, and the chain has started adding the new menu to franchisee locations. That rollout is expected to be complete by the end of the second quarter.
The company has also kicked off a remodeling effort, expected to last three to five years. Ruth’s expects to complete as many as 10 of these remodels this year.
Contact Jonathan Maze at [email protected].
Follow him on Twitter: @jonathanmaze
