RUTH - Earnings call transcript Q4 2018 | Ruths Hospitality Group Inc

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Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Ruth's Hospitality Group 2018 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.

Following the formal remarks, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

conference recorded. today's reminder, a is being As I to Financial Mark like to Planning conference over turn the Taylor, Analysis. would now and Vice President of Please go ahead, sir.

Mark Taylor

everyone. Marguerite, good you, morning, Thank and

Cheryl Joining Henry, and me Haak, President Officer. Vice Chief Executive call on today Arne President Chief Executive the and Officer; Financial and are

section a undue of include be to for the copies our statements These are at upon guarantees of detailed Before like risks that the would refer more with of and impact statements. as remind we sec.gov SEC's earnings today's like begin, well not filings press release discussion our future Investor you forward-looking results. part performance of our reliance as financial Web and them. We to therefore future could you placed Relations operating site and of our I'd discussion that at should today for Web our SEC will to site not recent rhgi.com the the

During was calculated refer this a measure measurement as certain measure as items We that This excluding losses this of to per well share. internal believe call, represents adjusted discontinued by non-GAAP operations. earnings useful we from performance. will

per find for in a can to Executive Cheryl Henry. adjusted call Chief officer, earnings reconciliation call. over of press the You release I turn our share today's now like would to our

Cheryl Henry

you for a House. thank for us call. our joining and Steak Ruth’s everyone all to of at Chris end fitting marks morning another strong fourth team Good quarter on the year The results

Eve which week the This through you a the and Arne includes operating will lot less will of holiday, are walk Year’s moving quarter. As of you the New loss in see, one there shortly. parts

by positive and each Eve Thanksgiving, strength the holiday, Eve the Christmas The key of across of Christmas led segments New was were up day loss the three year-over-year. special our business. of Excluding occasion our all growth revenue Year’s holidays

would adjusting After in the growth Year’s have X.X% of the October. out for accelerated comparable increased New back sales quarter quarter. restaurant half Eve in comparable starting holiday, the the after Our sales of our loss for flat

Fine performance had We continued to the franchisees pleased sales outperform for of who and both with Black traffic strong our our our both the quarter. performance also and and a Dining Index Box

side, enhancing have members with to in Their The to while double-digit focus restaurants dedication on the generated drove $X.XX guests margins. growth proud of with the we On the had and deflation our margins operating in per the years. EPS ongoing excellence continue diligently level managing adjusted over operational in consistency particularly efforts, at restaurants, and XX operations highest combined of I the savings of annual our experience. tax team focus level our restaurant our execute acquisition Hawaii guest highest on beef the these the share. am quarter pleasing their the

Let’s now turn to development.

During opening that in and the in for year; operates quarter, were a under the this in Jersey of two company agreement. restaurants Reno, the the first we which accelerated of the targeted New Nevada second first management quarter Paramus, opening originally

of in late term. the Washington the restaurant one fourth closed which in at was its we Additionally, end quarter DC, lease

XXXX. year. in the Looking fourth announcement expect Columbus, new to in ahead today’s lease of open of includes We Ohio; a the restaurants of strong have plans. development we expect pipeline and a This Massachusetts for half open in to of in to now new XXXX, second DC restaurant we restaurant new Massachusetts, Washington a quarter Somerville, Somerville, this which

additional work openings. on lease opportunities restaurant for restaurant We in continue have expect we that Oklahoma a XXXX. a And we new City to in for also open to

restaurant partners Markham, Ontario. in our side, the On one the quarter franchise in new opened fourth

the of in year. one expected our of in are first partners in half year George, and St. to China the one open two restaurants; XXXX, new during currently the half For Utah the second

proud back two XXXX, We new seamlessly this has franchise team franchise restaurants. the integrated year. and am our three accomplished extremely of locations, all I company-operated opening Looking new at six Hawaiian

ninth year year incredible XXXX highest and our addition, This do thank of earnings be our at and each success and to our restaurant like of in operational X% our members work comparable XX%. marked of they level, adjusted including growth, day. team franchisees revenue continues of for by the I’d sales driven consecutive In executing EPS restaurants to and full the approach

returned core that year our I success strategy form I’ll share brand financials. the it’s these we to predicated review paydowns. to and strength and shareholders capital disciplined and our that, XX XXXX quarter Lastly, full is million reflect and results Arne back return people and the repurchases our million of of our our on invested still over With back of think noting turn to dividends, debt fourth details XX over We business our to in total worth a approach which in CapEx into believe over it in the allocation. of

Arne Haak

Thank you, Cheryl.

at of the fourth Net of reported related of expenses Hawaiian For related of income franchisee and assets acquisition $XX.X XXXX, location, million franchisee. or quarter XX-week in $X.X the December the from Tax of Cuts associated $XXX,XXX to diluted net fourth charge $XXX,XXX XXXX expenses of the the fourth discrete tax assets Jobs we Net Act. ended of in and to the our million in XXXX included the share or fourth share acquisition million a associated charge net of the income the $X.X quarter during reduction compared our in Hawaiian deferred $X.XX primarily income of quarter with included of XX, income XX-week income one to per with non-cash impairment restaurant $X.XX diluted tax quarter XXXX. per $X.X million

million last operations, year. was driven of as Total quarter $X.XX from to acquired those expenses, were increase per The compared as including contribution in the new the were diluted of restaurants by restaurants sales quarter XXXX company-owned in the for our these million XX.X% non-GAAP Hawaii. up results XXXX. fourth $XXX in compared well $XXX.X share discontinued the Excluding $X.XX common earnings from our fourth to to

versus the the $X from and as was were X.X% from X.X% been in have X.X% franchise sales entrees in restaurant increased in Traffic for from change the Eve income during income the up in X.X% million, up Eve, measured comparable quarter headwind restaurant Our approximately fourth impacted increase Comparable and Total down a year. the sales quarter quarter. check Eve X.X%. quarter our restaurant and New prior week negatively New sales quarter franchise million result was by comparable decreased traffic shift the was would approximately openings. during as XXrd New new domestic in franchise well driven sales the in quarter the included and up in X.X% by Franchise approximately company-owned contribution new fourth holiday. X.X%. of sales the was Company-owned year-over-year. as revenue X.X% basis The our of $X comp Year’s point up international sales quarter. Year’s restaurant restaurants down sales standard were the loss Year’s an XXX accounting last Adjusting the the the by of holiday. restaurant as increase restaurant and franchise the in in franchise also X.X% restaurants comparable were year’s sales comparable loss recognition of Comparable fourth restaurant the

the food sales our by total costs to as points was a as to decreased by cost, well driven and in check. basis beverage turning XX.X%. in a expenses, decrease XXX percentage X.X% average Now beef X.X% year-over-year as of This restaurant primarily decrease increase

planned sales restaurant to extra was For our sales percentage the percentage year-over-year well loss due XXX restaurant from in points in increase the as occupancy-related in The expenses sales restaurant quarter, increase of as operating leverage of XX.X%. operating increased as as a XXXX expenses. a quarter to the of restaurant fourth primarily the week basis expenses of the

restaurants. G&A percentage week XXXX up year-over-year total loss basis driven the the XX from million advertising of the compensation a revenues of of was and extra This of to XX $X declined X%. sales of the well Jobs Our as primarily Income enactment revenues the to increase and as total of Tax $X.X by in expenses of tax an as a performance-based quarter total the a the integration quarter basis from a fourth of in percentage Hawaiian percentage fourth X.X%. Marketing the points to XXXX increased revenues and as related leverage increase result cost in expenses million, Cuts as were as points to costs largely Act.

initiatives. core we reminder, tax form into savings and a XX% of driving sales our business in of these reinvested As XX% brand, to the people approximately

fourth the price million outstanding. average During quarter, quarter million per had we share. we At approximately $XX.X XXXX, an fourth end for in XXX,XXX the of the shares of $XX.XX of debt $XX repurchased at

the quarterly of Additionally, quarter, subsequent March over end Directors share approved which the an XX% cash fourth dividend increase of of represents our a in dividend to paid XXXX. Board $X.XX the per

outlook like extra our for traditionally year’s the XXXX the Now, Eve, XXXX of of week, day to the was I’d based Because us, year into from of some XXXX. fourth quarter Year’s on pushed financial our key for for of full current provide of a quarter last information metrics. first New strong

been in points. of of sales XXX As by have impacted a quarter result the approximately positively first XXXX comp shift, the basis

We in believe to XXXX the from holiday first that Easter. quarter XX will last due Easter benefitted comparable addition, XXXX. the of the second first year the In shift by into in points basis shift approximately sales quarter quarter back

from in the of as a country Aside we New of the market some holiday, headwinds shift parts Minneapolis Atlanta. weather early in as winter from market northern franchise the from benefits Bowl the Super have in Year’s well a of to company Eve the the seen unusual

New be of low-single weather, running Year’s up Excluding would our the and traffic sales impact and digits. Eve comp

cost expected percentages. by full prices In see and supply prices. down in beef up overall of XXXX, of ultimately saw we This we uncertain deflation improved volatility driven goods prime of the For prime be driven we cuts X% terms by XX.X%. high beef record the to an year year of were sold, was which and beef grading

prime supply at to the year expected beef levels, beef expect continues resulting modest XXXX. to is currently to year. We total high and the the through average of inflation in remain for accelerate continue inflation X% historically retail to X% Although to demand full beef for

be XX% range of XX% sales. in sold restaurant of and cost sales. annual our the our to to be of XX% expect expect operating restaurant expenses to XX% We restaurant goods currently of We between

to total We be costs marketing and advertising expect of X.X% our between and X.X% revenues.

While advertising our full for investments. in we we in over be will year-over-year tactics costs continue slight quarter the spend first increase in marketing marketing expect year, focus as XXXX the down and slightly a to

our G&A $XX expect to between expenses We be million. $XX and million

impact the excluding annual tax discrete items. We effective of between be our XX% XX%, to expect income rate tax and

We expect our $XX to capital expenditures between million million between and and $XX.X million. $XX expense to depreciation be million to be $XX.X

XX.X between closing the that, We Cheryl to full outstanding to repurchase of for and repurchases call expect share program. now some our turn additional now XX to diluted exclusive any shares million under With the shares company’s share like back million I’d remarks.

Cheryl Henry

Arne. you, Thank

We has generations generated broad have XX through intense built amazing the in loyalty. and excellence an people. resulting operational an years appeal last over across foundation demographics strong focus group on and of incredible a brand focus This

you one to our evolve our operational clear our things; productivity our deliver the with looking set and with reducing that for of innovation connection year to mind, to remains efforts least enhancing potential increase any creating our criteria of We cornerstone opportunities our we guest ways efficiencies needing on search strategic progresses. three excellence the in While a guests. With to at while on improve we continually those continue efforts, for our team. at number directions update new for the we experience friction of as initiatives will are guests, brand

questions about strategy. future, like excited call create I now turn you look iconic opportunities evolve With to and grow for shareholder our to Marguerite the the I’d value and strong and brand our to building may the foundation total that, ahead As XXXX back any this I return have. to to upon through am

Operator

Instructions]. [Operator Nicole first go from can you. Miller Piper from take Please Thank ahead. question We now our Jaffray.

Nicole Miller Regan

you. Thank update. for morning had the Good two you questions. I and thank

and some pipeline a I’m some relatively in as The are growth smaller first is, you It’s and and in industry specifically could talk about for year? up you cities. the objectives thinking major are great this cities just your frame

industry? there the smaller So competition into how peers you the And you frame cities, in you your the do there? as go are overall up other entrance of first just Thanks. or then those are

Cheryl Henry

Hi, Nicole.

to ability think past and markets the able I the to we’ve development, brand about the believe the markets. two you’re a are referencing. into the given just I generally smaller so our about think national talked first awareness and have or So I the we be Generally, in that brand marketplace, talking the the of go maybe specifically in. be those broad of you’re smaller one independents an markets from but There’s brand one standpoint. look at There that more opportunity been in strength to

there. costs, hitting before look because it just do of We attractiveness right return So patient. for development, make constructing said kind has larger we’re especially I all want been sites. market smaller company the of that’s our are of markets, think our on sure certainly development We From we we’ve that and traditional given part it’s our the the years. on side that. won’t hurdles over the And the of environment around the strategy. We to

that a where look they’re we as our brands ones I way to existing independent about to is there’s if an them markets in. or kind whether so may be then opportunity what at be standard marketplace smaller think first where there’s the of national one think And competitors differently, there but

Nicole Miller Regan

X% And you. how any the true labor. then or over is the just price inflation right I the about this more. be a it’s overall beef, industry’s And wanting and beef make would have just now Thank really that overall And across if that basket? you it beef was to cost asset basket? the second seems sure I then wanted to talk bit little is helpful. X%, to That’s understood

for or beef inflate, either down do an if specifically total think margins just so go to cover? go or as industry And does ourselves will in that we prices up Thanks.

Arne Haak

Nicole. Sure,

turn all to then Let think me Cheryl take the it of about first beef margins. and I’ll talk and question price to we about over how

the you just years we the But this go we inflation I year for beef back was see beef of last ago. we think because in we inflation. to do it food basket passed April will we us have And way we certainly we’re that think inflation inflation, was don’t two see see kind through Like the year we as likely We in snapping beef So it see terms have all don’t those March, back. got there. and I modest when of that of get from benefit see, to that giving likely some beef some the all particularly year. where

it to part So for Cheryl second over let the of turn me the question.

Cheryl Henry

as To had we’ve your that. had question in go years of on on price, both we seen labor and the inflation our the we side X% past about we outside between Traditionally to beef X%, the on talk target haven’t as well side. where price

experts I reluctantly. take there. under We the there’s an for have price at brings it to. I quality They X% enormous managing plan year. but also the experience opportunity have there’s understanding and the certainly top guests slightly become And we need think labor restaurant the understanding We take the that if drives credit. will we opportunity, I line. But we between managing amount margins, give an it’s will just that the at if say it of level back teams balance

some top able so foremost that of against experience, focus not the our on be inflation. cutting to on line, that’s the and cost driving but And delivering and delivering guest necessarily labor leverage first line is top understanding, the

Nicole Miller Regan

Thank you.

Operator

our from Thank Jefferies. go you. next can now Barish question We ahead. Please [Operator take Instructions]. from Andy

Andrew Barish

Good was sorry, morning. I’m I muted there.

after fourth with a assuming positive there the as some bar on XQ? of going X in quarter the like kind On that. well XQ year negative was sales, pricing if things in looked and of during menu of turned something mix Was like that mix composition program same-store it there actually I’m the the the around changed the

Cheryl Henry

Andy. No,

and had I saw back of started think some we kind the flowing I QX through of see on in at of going bar said in it, just half program. QX. settle beginning we We the think with you year the mix that to the that out

And you X over to do and about add? have up so right Arne, anything we slightly picked were that.

Arne Haak

Cheryl of trip round year did middle we the about. think I the Andy, what talked

I the think Those record is days and kind other see it is on and those thing the on last well. again spending bit in well terms particularly occasions we little occasion special or year sales have we as beat than comp menu. more this more we’re you of on people year doing consumer, a price of special what the you the a set seeing days, that really

Cheryl Henry

That’s a good point.

menu. holidays the are the move people of the getting check you’re not On to traffic the also some things around but willing just feet those and around

Andrew Barish

for on out on we that of realize It as kind sort makes think or longer of of shift And as just period early over time? should anything should been generally it’s 'XX, sense. a we mix about flattening

Arne Haak

tried any particular the when always and But get put any any item we’re it second. to there thoughtful if disruptive we think mix. traffic generally We to we from be we’re we’re is about for then we risk, aside we big nothing – hope – pushing get what in taking there’s very to It’s moving. we’ve But we in, we if and think how going put that know in put programs. currently what we price

Andrew Barish

you flattish little aren’t operating rents from that occupancy that’s of what’s driving the do those. good item just there continue. you wage we been on just is I 'XX no on X%, the a this labor was expect expected guys line, I actually and of expected mentioned ton higher the increases was a a Hawaii did that or or it was and Was restaurant expense openings for particularly job and sense I is get then what of shifting a in I inflation mention quarter guess kind surprised why And were Okay. continue? if intentional new don’t on X%? And increases to think occupancy given inflating at please? – comps line to the labor But that has

Arne Haak

there’s kind two there. So of questions

First bit on and a can labor. little about talk the the we then occupancy

of occupancy, big as longer piece of renegotiate upward the – a new some right. a is have on as are our underlying an – to First, – intuition restaurants some we There we of and that your pressure A is go Hawaii. lease bit is term. little

coming high we You’re what of for of seeing the you in And in now are at range of terms at newer pay little bit look the as a percentage – probably the of of right if that. rent a restaurants occupancy sales. end

Going into other a that people this, the new it’s share about maybe we’ll line not little a pressure XXXX couple standard. and if but you’ve as heard on well It’s see lease entirely big. talk from $X.XX a

kind that’s So couple biggest one a – year different the pieces of moving there, but there’s was last the Hawaii.

on In labor, kind out. it several of for really terms going of call years. didn’t we been It’s

planning, the and going really X%. we’re be As this been. I through a goalpost their that year the to it’s on it’s of productivity year, kind our is did little we’ve full picked X%, of nice a is team going another job In X% up a kind bit like basis. think to XXXX, X% actually

that we to just So we one on. keep of keep managing those it’s pushing and things have

big. if we’re face And it’s you And the probably at and look overall of we’re labor, kind we restaurant of pressure as It’s out lower if we we’re certainly of to and rest certainly play as And think be some a at they lower, percentage our Marketing’s a so little going things. other the will to in well. bit food very should not things margin G&A sales scaling costs way manageable. manage some guidance, little there. of a terms level, the back trying you’ll the kind see of –

Andrew Barish

Thank you.

Arne Haak

Sure.

Cheryl Henry

Andy. Thanks,

Operator

our James. take from can Raymond We question Brian now go ahead. Please Vaccaro next from

Brian Vaccaro

net you in through through said just Hi. headwind. how Arne, model back change walk I comment Could will $X.XX rules 'XX? flow the that Good morning lease you and that the on thank you. to about standard, lease think accounting into a the

Arne Haak

on expense. will sale lose quarter don’t the have That it’s to of in been is the not gain leasebacks, throughout amortizing sale up we but leasebacks the we’re that we’ve full lot into – year. a lease show kind first recent It and of going

Brian Vaccaro

right. that all I understand dynamic. certainly Okay,

you savings the It reinvesting spend Okay. and the a 'XX could marketing in guests? spend into little as you wanted tactics on down And on might the guess I you they strategy to in communicating in a versus how 'XX expectations coming performed be sales. how comment with adjusting how looks with marketing like percent I you’re the increased bit where broader just the some spending, the you’re ask. whether quarter be fourth and 'XX advertising, heading of of tax

Cheryl Henry

Hi, Brian.

talked to making in our give initiatives won’t full marketing was lines a tactics. about of say and more along that investment. It I playbook our year the plan do things foundational is I’ll we on was So the building an XXXX What for want the we future.

looking So allows whether that us new in that e-commerce be something cards sell at. be to now just we’ll we and site invested that experiences a that’s gift versus

so were of And XXXX. really types in investments

is think see of okay, shift a you’ll in what to, let’s now of some place. those I get back kind

our cetera. Let’s go to them email, in approach them use in, and of kind for digital traditional roll we et that test addition

Brian Vaccaro

in labor I this, fourth said pricing backdrop check you was missed to much the quarter quarter menu the how before? sorry approaching the mentioned How into about if 'XX Okay. that pricing certain in given comp, was average are Arne the but you fourth And thinking or you had and back X.X. pricing the up

Cheryl Henry

Yes, fourth so the under quarter. about – X.X%, right just pricing was X.X% in

on do to As regular But we that, an will to 'XX, pricers. and looking that. reluctant the right opportunities, take we there if to towards being that’s is now. we for a the Nicole as year is through year do review X% under something do look it just I go we need And again, basis where mentioned opportunity we

Arne Haak

quarter first The is price X.X, around Brian.

Brian Vaccaro

inflation you But to inflation one put context help was in the Andy ask Okay, and in what you great. And about inflation. just does what about can wage 'XX wanted us in and then wage wage was I look asking last like 'XX? just labor

Arne Haak

They’re X% 'XX think to In It the just pretty is minimum wage. of similar And half we numbers. goalpost that about X%. coming inflation are under for X% of us. was from kind

Brian Vaccaro

to that and last maybe me, for sort manager give great. playing both – level, compared you. the in XX And the where with that And that is XX of the are you through it or or at hourly Okay, any to hopefully the absolute theme, one is for XX and And last to 'XX works XX an that’s Thank on over currently months? us that initiatives sticking drive update can retention going level how forward? turnover me.

Cheryl Henry

Brian. Thanks, Sure.

So and it’s investing about about that people talked benefits initiatives from developing them as invest we some well standpoint we something a taking tax turnover, Those our talk of as our for in of our are and in efforts around frequently we savings retention ongoing. providing our the people.

as years. it as the is level for for fine the something below Our the hourly invest dining again, And category in turnover well is at well. we management it’s

of investment So for the and market quite an been service level level is people for labor I of our of important produce realize tighter topic guests, for and have always us. Because what the we the become a everyone. our getting

retention that’s monetary training, more or continues on year. team side. so that for form that the education, actual again the opportunities whether development are a And every And efforts of

Brian Vaccaro

you. Thank

Operator

to host any or the back That today’s closing for the like Q&A turn additional call concludes would session. I remarks. now to

Cheryl Henry

look joining to us call future. speaking I with you you and the near all forward all on a this morning the Have thank Again, great day. in for

Operator

That concludes ladies conference. you your gentlemen. and for participation, you. Thank today’s Thank

now may You disconnect.

Ruths Hospitality (RUTH) 22 Feb 192018 Q4 Earnings call transcript