Ruth's Reports Favorable 3Q Results - Analyst Blog
02 Novembre 2012 - 5:17PM
Zacks
Florida-based Ruth’s Hospitality Group Inc.
(RUTH) recently reported third quarter 2012 earnings of 2 cents, a
penny ahead of the Zacks Consensus Estimate. The current quarter
earnings also outperformed the prior-year quarter’s break-even
earnings. The better-than-expected earnings were driven by higher
traffic resulting in higher revenue.
Total revenue climbed 5.7% year over year to $84.8 million, beating
the Zacks Consensus Estimate of $84.0 million. Company-owned
restaurant sales ascended 5.5% to $81.4 million, while franchise
income jumped 11.2% to $3.3 million in the quarter.
Quarter Performance
During the quarter, comparable restaurant sales at Ruth’s Chris
Steak House grew 5.9%, implying the 10th consecutive
quarter of comparable sales growth, driven by a 3.6% rise in
traffic and a 2.2% upside in average guest check. The company also
witnessed the 11th consecutive quarter of traffic growth
in Ruth’s Chris brand.
Moreover, comparable restaurant sales at Mitchell’s Fish Market
leaped 4.6%, driven by a 5.2% hike in traffic, partially offset by
a 0.6% drop in average guest check. Same-store sales at
franchise-owned restaurants increased 3.1%, on the back of a 2.9%
upside in the domestic market and a 3.9% hike in the international
market.
During the quarter, restaurant operating expenses as a
percentage of restaurant sales plunged 80 basis points (bps) year
over year to 55.5%, benefiting from higher sales leverage and cost
control efforts. Food and beverage costs spiked 70 bps to
31.8%, owing to unfavorable beef costs.
Marketing and advertising costs increased 38% to $2.2 million,
attributed to a shift in advertising expense from the second
quarter to the third and fourth quarters of 2012. General and
advertising costs stretched 3% to $6.0 million. However, operating
income enhanced 10.0% year over year to $1.8 million in the
reported quarter.
Liquidity
At the end of the quarter, the company had cash and cash
equivalents of $3.9 million and shareholders’ equity of $78.0
million. Long-term debt outstanding at the end of September 23,
2012 was $69.0 million, up from $22.0 million at the end of
December 25, 2011.
Outlook
Ruth’s reiterated its fiscal 2012 outlook again. The company
expects cost of goods to be 31.5% to 32.5% of restaurant sales.
Further, it expects marketing and advertising expense to be 3.0% to
3.5% of the total revenue. Capital expenditure for the same period
is expected to be in the range of $10 million to $12 million.
Store Update
In October 2012, the company opened a new Ruth's Chris Steak
House in Cincinnati, Ohio and in August, franchisees unveiled
Ruth’s Chris Steak House in Singapore and El Salvador.
Additionally, management expects to open one franchise-owned
restaurant in late 2012.
The company remains focused on unit growth. In 2013, it expects
to open a new company-owned restaurant in Denver, CO and four to
five franchised restaurants.
Our Take
We are impressed by Ruth’s third-quarter results, its ability to
drive traffic in an uncertain economic environment and the second
consecutive sales improvement at Mitchell’s Fish Market. The
company also remains focused on expanding the Ruth’s Chris brand,
as the brand continues to perform well.
However, on the flip side, rising beef costs, lower consumer
spending and intense competition from peers like Brinker
International inc. (EAT) and Red Robin Gourmet
Burgers Inc. (RRGB) remain concerns.
Ruth’s Hospitality currently retains a Zacks #2 Rank, which
translates into a short-term Buy rating. We are also maintaining
our long-term Neutral recommendation on the stock.
BRINKER INTL (EAT): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
RUTHS HOSPITLTY (RUTH): Free Stock Analysis Report
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