Overview

The Company is an owner, operator and franchisor of upscale steakhouses. As of April 1, 2007, there were 105 Ruth's Chris Steak House restaurants, of which 52 are company-owned and 53 are franchisee-owned, including ten international franchisee-owned restaurants in Mexico, Hong Kong, Taiwan and Canada.

The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006, provides additional information about the Company's business, operations and financial condition.

Hurricane and Relocation Costs.

During the third quarter of fiscal 2005, the Company's corporate office building in Metairie, Louisiana was damaged by Hurricane Katrina and the Company subsequently relocated its corporate offices to Heathrow, Florida. The Company's restaurants in New Orleans and Metairie, Louisiana, were also damaged by the hurricane. The New Orleans restaurant has not reopened and the Metairie restaurant reopened in December, 2005. The Company had completed the construction and preopening activities for a new restaurant in Biloxi, Mississippi, that was also lost due to Hurricane Katrina. Related to these events, the Company incurred expenses of $0.1 million and $0.2 million in the first quarter of fiscal 2006 and fiscal 2007, respectively. These expenses include severance and relocation payments to employees and insurance deductibles for the two New Orleans, Louisiana area restaurants; severance payments, insurance deductibles and preopening costs associated with the Biloxi, Mississippi location; and temporary living, relocation costs and other expenses for the Company's relocation from Metairie, Louisiana to Heathrow, Florida. During the first quarter of 2007, the Company finalized its claim and does not expect any significant expenses or proceeds related to the Hurricane Katrina in the future.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards ("SFAS") 123R. Under the provisions of SFAS 123R, share-based compensation cost is estimated at the grant date based on the award's fair-value as calculated by an option pricing model and is recognized as expense ratably over the requisite period. The option pricing models require judgmental assumptions including volatility, forfeiture rates, and expected option life. If any of the assumptions used in the model change significantly, share-based compensation expense may differ in the future from that recorded in the current period.

Results of Operations

The table below sets forth certain operating data expressed as a percentage of total revenues for the periods indicated. The Company's historical results are not necessarily indicative of the operating results that may be expected in the future.

                 RUTH'S CHRIS STEAK HOUSE, INC AND SUBSIDIARIES

      Results of Operations - Percentage Table - Tied to Condensed IS Tab



                                                                  13 Weeks Ending
                                                             March 26,        April 1,
                                                               2006             2007
Revenues:
Restaurant sales                                                  95.1 %          95.9 %
Franchise income                                                   4.7 %           3.9 %
Other operating income                                             0.2 %           0.2 %

Total revenues                                                   100.0 %         100.0 %

Costs and expenses:
Food and beverage costs (percentage of restaurant sales)          32.1 %          32.6 %
Restaurant operating expenses (percentage of restaurant
sales)                                                            43.6 %          44.1 %
Marketing and advertising                                          2.4 %           2.9 %
General and administrative costs                                   7.6 %           8.0 %
Depreciation and amortization expenses                             3.1 %           3.6 %
Hurricane and relocation costs                                     0.2 %           0.3 %
Pre-opening costs                                                  0.6 %           1.7 %

Operating income                                                  13.8 %          10.1 %

Other income (expense):
Interest expense                                                  (0.7 )%         (1.3 )%
Loss on the disposal of property and equipment, net               (0.1 )%         (1.4 )%
Insurance proceeds, net                                             -              4.6 %
Other                                                               -              0.2 %

Income from continuing operations before income tax
expense                                                           13.0 %          12.2 %

Income tax expense                                                 4.0 %           4.0 %

Income from continuing operations                                  9.0 %           8.2 %
Discontinued operations, net of income tax benefit                  -               -

Net income                                                         9.0 %           8.2 %

First Quarter of Fiscal 2007 (13 Weeks) Compared to First Quarter of Fiscal 2006
(13 Weeks)

Restaurant Sales. Restaurant sales increased $16.6 million, or 27.0%, to $78.1 million in the first quarter of fiscal 2007 from $61.5 million in the first quarter of fiscal 2006. The increase was due to an additional $1.1 million in sales from comparable restaurants, $5.5 million in incremental sales from new company-owned restaurants that opened in 2006 or in the first quarter of 2007, as well as $10.0 million contributed by the previously franchised restaurants acquired during 2006. Company-owned comparable restaurant sales increased 1.9% from the first quarter of 2006. The growth consisted of an average check increase of 5.2% driven by non-entree increases in bar and lounge traffic, menu selection shifts, and year over year pricing of approximately 2.5%. This was partially offset by an entree reduction of 3.1% that was primarily due to the fiscal calendar shift of the seasonally high volume week of New Years moving to the fourth quarter of 2006.

Franchise Income. Franchise income increased $0.2 million, or 6.7%, to $3.2 million in the first quarter of fiscal 2007 from $3.0 million in the first quarter of fiscal 2006. The increase in franchise income was due to a $1.2 million increase in franchisee-owned restaurant sales from the franchisee-owned restaurants open throughout both periods, representing a comparable franchisee-owned restaurant sales growth of 2.5%, as well as the impact of seven new franchisee-owned restaurants that opened during fiscal 2006 and three new franchisee-owned restaurants that opened in the first quarter of fiscal 2007. These increases were partially offset by the acquisition of seven franchisee-owned restaurants by the Company and the closing of one franchise location in the third and fourth quarters of fiscal 2006.

Food and Beverage Costs. Food and beverage costs increased $5.7 million, or 28.9%, to $25.4 million in the first quarter of fiscal 2007 from $19.7 million in the first quarter of fiscal 2006. As a percentage of restaurant sales, food and beverage costs increased by 0.5% to 32.6% in the first quarter of fiscal 2007 from 32.1% in the first quarter of fiscal 2006. This increase in food and beverage

costs as a percentage of restaurant sales was due to higher produce and dairy costs, partially offset by various sales mix initiatives, slightly favorable beef costs, and modest price increases.

Restaurant Operating Expenses. Restaurant operating expenses increased $7.6 million, or 28.4%, to $34.4 million in the first quarter of fiscal 2007 from $26.8 million in the first quarter of fiscal 2006. Restaurant operating expenses, as a percentage of restaurant sales, increased to 44.1% in the first quarter of fiscal 2007 from 43.6% in the first quarter of fiscal 2006. This increase in restaurant operating expenses as a percentage of restaurant sales was due to higher management education costs, credit card fees and property insurance.

Marketing and Advertising. Marketing and advertising expenses increased $0.8 million, or 53.3%, to $2.3 million in the first quarter of fiscal 2007 from $1.5 million in the first quarter of fiscal 2006. As a percentage of total revenues, marketing and advertising increased by 0.5% to 2.9% in the first quarter of fiscal 2007 from 2.4% in the first quarter of fiscal 2006. This percentage increase was primarily due to additional local restaurant advertising and to the timing of expenditures as the 2007 marketing plan is more evenly distributed throughout the fiscal year.

General and Administrative. General and administrative costs increased $1.6 million, or 32.0%, to $6.6 million in the first quarter of fiscal 2007 from $5.0 million in the first quarter of fiscal 2006. General and administrative costs, as a percentage of total revenues, increased by 0.3% to 8.0% in the first quarter of fiscal 2007 from 7.6% in the first quarter of fiscal 2006. This increase was primarily due to the recruitment and hiring of staff personnel in several functional areas in the second half of fiscal 2006 and the first quarter of 2007, additional costs associated with initiating and maintaining operations at the Company's Heathrow headquarters, as well as higher Sarbanes-Oxley compliance costs and stock option compensation expense under FAS123R.

Depreciation and Amortization. Depreciation and amortization expense increased $0.9 million, or 45.0%, to $2.9 million in the first quarter of fiscal 2007 from $2.0 million in the first quarter of fiscal 2006. The increase was due primarily to the addition of new company-owned restaurants and seven acquired restaurants during 2006 through the first quarter of 2007 as well as investments at the Company's existing company-owned restaurants and corporate headquarters.

Interest Expense. Interest expense increased $0.5 million, or 100.0%, to $1.0 million in the first quarter of fiscal 2007 from $0.5 million in the first quarter of fiscal 2006. This increase was primarily due to the additional borrowings for the seven acquired restaurants as well as higher interest rates on those borrowings.

Insurance Proceeds, net. During the first quarter of fiscal 2007, the Company recognized income of $3.7 million from insurance proceeds related to the Company's business interruption losses and property losses in New Orleans and Metairie, Louisiana and Biloxi, Mississippi as a result of Hurricane Katrina. During the first quarter of 2007, the Company finalized its claim and does not expect any significant expenses or proceeds related to the Hurricane Katrina in the future.

Loss on the disposal of property and equipment, net. During the first quarter of fiscal 2007, in an effort to improve the suitability for lease of our former home office building in Metairie, Louisiana, the first level was returned to its original parking use from an enclosed office space. As a result, the company disposed of all improvements and assets related to this first level of the building totaling $645,000. Additionally, the Company elected to donate the New Orleans restaurant property to a non-profit organization and recorded a donation of $512,000.

Income Tax Expense. Income tax expense increased to $3.2 million in the first quarter of fiscal 2007 from $2.6 million in the first quarter of fiscal 2006. The increase was primarily due to an increase in income before income tax partially and an increase in the estimated annual effective tax rate of 32.3% from 30.0%.

Income from Continuing Operations. Income from continuing operations increased $0.9 million, or 15.3%, to $6.8 million in the first quarter of fiscal 2007 from $5.9 million in the first quarter of fiscal 2006.

Discontinued Operations, net of Income Tax Benefit. Discontinued operations resulted in a $14,000 expense in the first quarter of fiscal 2007 compared to a recovery of $11,000 in the first quarter of fiscal 2006. On June 25, 2006 the Company closed its Cleveland, Ohio restaurant whose lease term ended in September 2006. The Company determined that the closed restaurant should be accounted for as discontinued operations because the Company does

not expect any further direct or indirect cash inflows from the discontinued restaurant as the restaurant has completely ceased operation. During August 2005, the Company entered into an agreement with the Manhattan-UN, New York landlord whereby: (1) the Company made a one-time payment of $0.3 million to the landlord for rent, commission on replacement lease, and attorneys fees; (2) the existing lease was terminated; (3) the Company allowed the landlord to contract with a third party replacement tenant; and (4) the Company and the landlord adjusted the remaining contingent lease term from eleven years to six years. Under the agreement, after the third anniversary, if the replacement tenant defaults on the new lease anytime during the remaining six years, the Company will be required to enter into a new agreement with the landlord for the remaining term. This agreement resulted in a reduction of previously recorded rental liability. At April 1, 2007, the Company maintained a contingent lease liability of $0.2 million related to this property.

Liquidity and Capital Resources

The following table presents a summary of the Company's net cash provided by
(used in) operating, investing and financing activities:



                                                               13 Weeks Ending
                                                           March 26,      April 1,
                                                             2006           2007
                                                                 (unaudited)
   Net cash provided by (used in):
   Operating activities                                   $     7,864     $   3,362
   Investing activities                                        (3,703 )     (14,417 )
   Financing activities                                        (4,769 )      12,664

   Net increase (decrease) in cash and cash equivalents   $      (608 )   $   1,609

The Company's principal sources of cash during the first quarter of fiscal 2007 were cash provided by operations and proceeds of long-term financing. Principal uses of cash during the first quarter of fiscal 2007 included capital expenditures related to existing and in-process restaurants. The Company expects that its principal uses of cash in the future will be to finance capital expenditures and to service debt.

The Company's operations have not required significant working capital and, like many restaurant companies, it has been able to operate with negative working capital. Restaurant sales are primarily for cash or by credit card, and restaurant operations do not require significant inventories or receivables. In addition, the Company receives trade credit for the purchase of food, beverage, and supplies, thereby reducing the need for incremental working capital to support growth.

Net cash provided by operating activities was $3.4 million in the first quarter of fiscal 2007, compared to cash provided of $7.9 million in the first quarter of fiscal 2006. The decrease in net cash provided by operating activities was due primarily to a decrease in accounts payable and deferred revenues, partially offset by an increase in net income.

Net cash used in investing activities was $14.4 million in the first quarter of fiscal 2007, compared to $3.7 million in the first quarter of fiscal 2006. The increase resulted from capital expenditures associated with new restaurant construction and capital expenditures of existing restaurants.

Net cash provided by financing activities was $12.7 million in the first quarter of fiscal 2007, compared to $4.8 million used in the first quarter of fiscal 2006. This increase was due to $12.5 million of additional borrowings for the aforementioned capital expenditures associated with new restaurant construction.

Capital expenditures totaled $14.5 million in the first quarter of fiscal 2007, compared to $3.7 million in the first quarter of fiscal 2006. The increase was primarily due to expenditures associated with new restaurant construction. During the first quarter of fiscal 2007 the Company opened two new restaurants in Lake Mary and Naples, FL and opened a new restaurant in Anaheim, CA in April 2007.

The Company anticipates capital expenditures in the future will increase to the extent it opens additional company-owned restaurants and opportunistically acquires franchise-owned restaurants and related rights. See Note (9) in the Notes to Condensed Consolidated Statements regarding the anticipated franchise acquisition. The Company currently expects to open seven to eight company-owned restaurants in 2007. In 2007, the Company expects its capital expenditures to be approximately $58.0 million to $63.0 million, substantially all of which will relate to planned restaurant openings, maintenance capital, and possible acquisitions of franchisee-owned restaurants. These capital expenditures will primarily be funded by cash flows from operations and, if necessary, by the use of the Company's revolving credit facility, depending upon timing of expenditures.

Off-Balance Sheet Arrangements

As of April 1, 2007, the Company does not have any off-balance sheet arrangements as defined by the SEC.

Critical Accounting Policies and Estimates

The preparation of the Company's financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the periods presented. The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006 includes a summary of the critical accounting policies the Company believes are the most important to aid in understanding its financial results. There have been no material changes to these critical accounting policies that impacted the Company's reported amounts of assets, liabilities, revenues or expenses during the first quarter of fiscal 2007.

Recent Accounting Pronouncements For Future Application

In September 2006, the FASB issued SFAS 157, Fair Value Measurements. SFAS 157 clarifies the definition of fair value, describes methods used to appropriately measure fair value, and expands fair value disclosure requirements. This statement applies under other accounting pronouncements that currently require or permit fair value measurements and is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact that SFAS 157 will have on the consolidated financial statements and expects the adoption of this standard will not have a material impact on its consolidated balance sheet, statements of income or cash flows.

Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.