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| RUTH > SEC Filings for RUTH > Form 10-Q on 5-Nov-2009 | All Recent SEC Filings |
5-Nov-2009
Quarterly Report
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" that reflect, when made, our expectations or beliefs concerning future events that involve risks and uncertainties. Forward-looking statements frequently are identified by the words "believe," "anticipate," "expect," "estimate," "intend," "project," "will be," "will continue," "will likely result" or other similar words and phrases. Similarly, statements herein that describe our objectives, plans or goals also are forward-looking statements. Actual results could differ materially from those projected, implied or anticipated by our forward-looking statements. Some of the factors that could cause actual results to differ include: changes in economic conditions and general trends; the loss of key management personnel; the effect of market volatility on our stock price; our ability to integrate the restaurants acquired in the Mitchell's acquisition; our ability to realize the anticipated benefits of acquired restaurants; health concerns about beef or other food products; the effect of competition in the restaurant industry; changes in consumer preferences or discretionary spending; reductions in the availability of, or increases in the cost of, USDA Prime grade beef, fish and other food items; labor shortages or increases in labor costs; the impact of federal, state or local government regulations relating our employees, the sale or preparation of food, the sale of alcoholic beverages and the opening of new restaurants; harmful actions taken by our franchisees; our ability to protect our name and logo and other proprietary information; the impact of litigation; the restrictions imposed by our credit agreement; failure of internal controls over financial reporting; and the portion of voting power controlled by one principal stockholder. For a discussion of these and other risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in
this report and in our Annual Report on Form 10-K for the fiscal year ended December 28, 2008 filed by us, as well as our other filings with the Securities and Exchange Commission (the "SEC"), all of which are available on the SEC's website at www.sec.gov. All forward-looking statements are qualified in their entirety by this cautionary statement, and we undertake no obligation to revise or update this Quarterly Report on Form 10-Q to reflect events or circumstances after the date hereof.
Unless the context otherwise indicates, all references in this report to the "Company," "Ruth's," "we," "us", or "our" or similar words are to Ruth's Hospitality Group, Inc. and its subsidiaries. Ruth's Hospitality Group, Inc. is a Delaware corporation formerly known as Ruth's Chris Steak House, Inc., and was founded in 1965.
Overview
We are a leading restaurant company focused on the upscale dining segment. As of September 27, 2009, there were 129 Ruth's Chris Steak House restaurants, of which 64 were company-owned and 65 were franchisee-owned, including 14 international franchisee-owned restaurants in Aruba, Mexico, Hong Kong, Taiwan, Japan, Canada and the United Arab Emirates.
As of September 27, 2009, there were 19 Mitchell's Fish Market locations operating under the names of Mitchell's Fish Market and Columbus Fish Market, and three Cameron's Steakhouses operating under the names of Cameron's Steakhouse and Mitchell's Steakhouse.
The following table summarizes the changes in the number of Ruth's Chris Steak House, Mitchell's Fish Market and Cameron's Steakhouse company-operated and franchised restaurants during the thirteen and thirty-nine weeks ended September 27, 2009:
13 Weeks Ended 39 Weeks Ended
September 27, 2009 September 27, 2009
Ruth's Chris Steak House Company Franchised Total Company Franchised Total
Beginning of period 64 64 128 66 64 130
New - 2 2 - 4 4
Closed - 1 1 2 3 5
End of period 64 65 129 64 65 129
% of system 50 % 50 % 100 % 50 % 50 % 100 %
Mitchell's Fish Market Company Franchised Total Company Franchised Total
Beginning of period 19 - 19 19 - 19
New - - - - - -
Closed - - - - - -
End of period 19 - 19 19 - 19
% of system 100 % 0 % 100 % 100 % 0 % 100 %
Cameron's Steakhouse Company Franchised Total Company Franchised Total
Beginning of period 3 - 3 3 - 3
New - - - - - -
Closed - - - - - -
End of period 3 - 3 3 - 3
100 % 0 % 100 % 100 % 0 % 100 %
Consolidated
Total system 86 65 151 86 65 151
% of system 57 % 43 % 100 % 57 % 43 % 100 %
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Our Annual Report on Form 10-K for the fiscal year ended December 28, 2008 provides additional information about our business, operations and financial condition.
Results of Operations
The table below sets forth certain operating data expressed as a percentage of
total revenues for the periods indicated, except as otherwise noted. Our
historical results are not necessarily indicative of the operating results that
may be expected in the future.
13 Weeks Ended 39 Weeks Ended
September 28, September 27, September 28, September 27,
2008 2009 2008 2009
Revenues:
Restaurant sales 96.5 % 97.2 % 95.9 % 96.4 %
Franchise income 3.4 % 3.0 % 3.2 % 2.9 %
Other operating income 0.1 % (0.2 )% 0.9 % 0.7 %
Total revenues 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses:
Food and beverage costs
(percentage of restaurant
sales) 31.8 % 28.5 % 31.5 % 28.6 %
Restaurant operating
expenses (percentage of
restaurant sales) 53.4 % 57.5 % 50.4 % 54.9 %
Marketing and advertising 3.6 % 2.3 % 3.6 % 3.1 %
General and
administrative costs 6.8 % 7.0 % 7.8 % 6.3 %
Depreciation and
amortization expenses 4.6 % 5.3 % 4.0 % 4.7 %
Pre-opening costs 1.1 % - 0.8 % -
Loss on impairment - - - 0.1 %
Restructuring expenses - 0.5 % - 0.2 %
Loss on the disposal of
property and equipment,
net 0.1 % 0.1 % - 0.4 %
Operating income 1.7 % 1.2 % 5.2 % 4.7 %
Other income (expense):
Interest expense, net (2.5 )% (2.5 )% (2.3 )% (2.3 )%
Other 0.2 % (0.1 )% 0.3 % 0.1 %
Income (loss) from
continuing operations
before income tax expense (0.6 )% (1.3 )% 3.2 % 2.5 %
Income tax expense
(benefit) (0.4 )% (0.1 )% 0.8 % 0.5 %
Income (loss) from
continuing operations (0.3 )% (1.2 )% 2.3 % 2.1 %
Loss on discontinued
operations, net of income
tax benefit 0.3 % - 0.1 % 0.1 %
Net income (loss) (0.5 )% (1.2 )% 2.2 % 1.9 %
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Third quarter Ended September 27, 2009 (13 Weeks) Compared to Third quarter Ended September 28, 2008 (13 Weeks)
Restaurant Sales. Restaurant sales decreased $19.8 million, or 20.8%, to $75.6 million in the third quarter of fiscal 2009 from $95.4 million in the third quarter of fiscal 2008. Company-owned comparable restaurant sales for Ruth's Chris Steak House decreased 24.0%, compared to a 6.9% decrease in 2008. This decrease was primarily due to an entrée reduction of 21.5% and a decrease in average check of 3.3%. Company-owned comparable restaurant sales for Mitchell's Fish Market decreased 12.3%. This decrease was primarily due to an entrée reduction of 9.7% and a decrease in average check of 2.8%.
Franchise Income. Franchise income decreased $1.0 million, or 30.5%, to $2.4 million in the third quarter of fiscal 2009 from $3.4 million in the third quarter of fiscal 2008. The decrease was driven primarily by a decline in blended comparable franchise-owned restaurant sales of 20.0%.
Other Operating Income. Other operating income was a $0.2 million loss in the third quarter of fiscal 2009 compared to $0.1 million of income in the third quarter of fiscal 2008. This decrease was due primarily to additional sales incentives associated with gift card sales programs.
Food and Beverage Costs. Food and beverage costs decreased $8.9 million, or 29.3%, to $21.5 million in the third quarter of fiscal 2009 from $30.4 million in the third quarter of fiscal 2008. As a percentage of restaurant sales, food and beverage costs decreased to 28.5% in the third quarter of fiscal 2009 from 31.8% in the third quarter of fiscal 2008. This decrease in food and beverage costs as a percentage of restaurant sales was primarily due to favorable beef costs.
Restaurant Operating Expenses. Restaurant operating expenses decreased $7.5 million, or 14.7%, to $43.4 million in the third quarter of fiscal 2009 from $50.9 million in the third quarter of fiscal 2008. Restaurant operating expenses, as a percentage of restaurant sales, increased to 57.5% in the third quarter of fiscal 2009 from 53.4% in the third quarter of fiscal 2008 due to deleveraging from our lower comparable store sales. Deleveraging, as it pertains to us, occurs when sales decline and a large portion of the associated costs are fixed; therefore the related costs have a larger impact as a percentage of sales.
Marketing and Advertising. Marketing and advertising expenses decreased $1.7 million, or 48.6%, to $1.8 million in the third quarter of fiscal 2009 from $3.5 million in the third quarter of fiscal 2008. As a percentage of total revenues, marketing and advertising decreased to 2.3% in the third quarter of fiscal 2009 from 3.6% in the third quarter of fiscal 2008.
General and Administrative. General and administrative costs decreased $1.3 million, or 19.4%, to $5.4 million in the third quarter of fiscal 2009 from $6.7 million in the third quarter of fiscal 2008. General and administrative costs as a percentage of total revenues increased to 7.0% in the third quarter of fiscal 2009 from 6.8% in the third quarter of fiscal 2008 due to deleveraging from our lower comparable store sales.
Depreciation and Amortization. Depreciation and amortization expense costs decreased $0.4 million, or 8.9%, to $4.1 million in the third quarter of fiscal 2009 from $4.5 million in the third quarter of fiscal 2008. The decrease was due primarily to the fixed assets that were impaired in the fourth quarter of fiscal 2008.
Pre-opening Costs. There were no pre-opening costs in the third quarter of fiscal 2009 due to the timing of company-owned restaurant openings. There were pre-opening costs of $1.1 million in the third quarter of fiscal 2008. There were no new company-owned restaurant openings in the third quarter of fiscal 2009. We opened two new company-owned restaurants in the third quarter of fiscal 2008.
Restructuring Expenses. Restructuring expenses of $0.4 million were recognized in the third quarter of fiscal 2009 related to lease termination charges for two restaurant locations. These charges relate to our decision in 2008 not to build any new restaurants in 2009. There was no comparable expenditure in the third quarter of fiscal 2008.
Loss on the disposal of property and equipment, net. Loss on the disposal of property and equipment was $0.1 million in the third quarter of fiscal 2009 and the third quarter of fiscal 2008.
Interest Expense.Interest expense decreased $0.6 million, or 24.0%, to $1.9 million in the third quarter of fiscal 2009 from $2.5 million in the third quarter of fiscal 2008. Interest expense for the quarter included a gain of $0.4 million for a mark-to-market non-cash adjustment relating to interest rate swap agreements. During the third quarter of 2008, we recorded a charge of $0.1 million for a mark-to-market adjustment relating to interest rate swap agreements.
Income Tax Expense (Benefit). Income tax benefit decreased $0.2 million, or 66.7%, to a net benefit of $0.1 million in the third quarter of fiscal 2009 from a net benefit of $0.3 million in the third quarter of fiscal 2008. The decrease is due to a decline in the estimated annual effective rate for fiscal 2009 resulting from an increase in the impact of federal tax credits combined with a decrease in income before income tax.
Income (Loss) from Continuing Operations. Loss from continuing operations increased $0.6 million, or 200%, to a net loss of $0.9 million in the third quarter of fiscal 2009 from a net loss of $0.3 million in the third quarter of fiscal 2008.
Discontinued Operations, net of Income Tax Benefit. There were no losses from discontinued operations, net of income tax benefit, in the third quarter of fiscal 2009 compared to losses of $0.3 million in the third quarter of fiscal 2008. These losses relate to our former operations in New York, New York, and Naples, Florida.
During the third quarter of fiscal 2007, we were notified that the replacement tenant in the Manhattan-UN, New York, location was placed in default by the landlord and as a result, we resumed lease payments with respect to this property during the third quarter of fiscal 2008. Payments will equal $0.6 million in the aggregate per fiscal year through September 2016. We will attempt to sublease the property in order to recover some or all of the amounts paid with respect to the lease. At September 27, 2009, we maintained a contingent lease liability of $0.7 million related to this property. We accounted for our exit costs in accordance with the provisions of "Exit or Disposal Cost Obligations," FASB Accounting Standards Codification Topic 420 (Topic 420), which required that such costs be expensed in the periods whereby such costs are incurred. All of the losses incurred are included in discontinued operations in the accompanying condensed consolidated income statements.
During the second quarter of fiscal 2009, we recorded a contingent lease liability of $0.4 million related to our decision to close the Ruth's Chris Steak House located in Naples, Florida. Lease payments for this location will equal $0.2 million in the aggregate per fiscal year through January 2022. We will attempt to sublease the property in order to recover some or all of the amounts paid with respect to the lease. We accounted for our exit costs in accordance with Topic 420. All of the losses incurred with respect to this location are included in discontinued operations in the accompanying condensed consolidated income statements.
Thirty-Nine Weeks Ended September 27, 2009 Compared to Thirty-Nine Weeks Ended September 28, 2008
Restaurant Sales. Restaurant sales decreased $38.0 million, or 13.0%, to $253.8 million in the first thirty-nine weeks of fiscal 2009 from $291.8 million in the first thirty-nine weeks of fiscal 2008. The Mitchell's acquisition generated $58.7 million in restaurant sales during the first thirty-nine weeks of fiscal 2009, compared to $55.1 million in restaurant sales from February 19, 2008, the acquisition closing date, through September 28, 2008. Company-owned comparable restaurant sales for Ruth's Chris Steak House decreased 21.9%, compared to a 7.0% decrease in 2008. This decrease was primarily due to an entrée reduction of 18.0% and a decrease in average check of 4.8% offset by changes in product mix.
Franchise Income. Franchise income decreased $2.2 million, or 22.7%, to $7.5 million in the first thirty-nine weeks of fiscal 2009 from $9.7 million in the first thirty-nine weeks of fiscal 2008. The decrease was driven primarily by a decline in blended comparable franchise-owned restaurant sales of 22.5%.
Other Operating Income. Other operating income decreased $0.7 million, or 25.9%, to $2.0 million in the first thirty-nine weeks of fiscal 2009 from $2.7 million in the first thirty-nine weeks of fiscal 2008. This decrease was primarily due to additional sales incentives associated with gift card sales programs.
Food and Beverage Costs. Food and beverage costs decreased $19.4 million, or 21.1%, to $72.5 million in the first thirty-nine weeks of fiscal 2009 from $91.9 million in the first thirty-nine weeks of fiscal 2008. As a percentage of restaurant sales, food and beverage costs decreased to 28.6% in the first thirty-nine weeks of fiscal 2009 from 31.5% in the first thirty-nine weeks of fiscal 2008. This decrease in food and beverage costs as a percentage of restaurant sales was primarily due to favorable beef costs.
Restaurant Operating Expenses. Restaurant operating expenses decreased $7.8 million, or 5.3%, to $139.3 million in the first thirty-nine weeks of fiscal 2009 from $147.1 million in the first thirty-nine weeks of fiscal 2008. Restaurant operating expenses, as a percentage of restaurant sales, increased to 54.9% in the first thirty-nine weeks of fiscal 2009 from 50.4% in the first thirty-nine weeks of fiscal 2008 due to deleveraging from lower comparable store sales.
Marketing and Advertising. Marketing and advertising expenses decreased $2.7 million, or 24.8%, to $8.2 million in the first thirty-nine weeks of fiscal 2009 from $10.9 million in the first thirty-nine weeks of fiscal 2008. As a percentage of total revenues, marketing and advertising decreased to 3.1% in the first thirty-nine weeks of fiscal 2009 from 3.6% in the first thirty-nine weeks of fiscal 2008.
General and Administrative. General and administrative costs decreased $6.9 million, or 29.2%, to $16.7 million in the first thirty-nine weeks of fiscal 2009 from $23.6 million in the first thirty-nine weeks of fiscal 2008. General and administrative costs as a percentage of total revenues decreased to 6.3% in the first thirty-nine weeks of fiscal 2009 from 7.8% in the first thirty-nine weeks of fiscal 2008. This decrease in general and administrative expenses as a percentage of revenue was primarily due to the corporate restructuring in the fourth quarter of fiscal 2008.
Depreciation and Amortization. Depreciation and amortization expenses increased $0.1 million, or 0.8%, to $12.4 million in the first thirty-nine weeks of fiscal 2009 from $12.3 million in the first thirty-nine weeks of fiscal 2008. The increase was due primarily to the addition of new company-owned restaurants in 2008 and remodel investments at our existing company-owned restaurants in 2009, offset by the fixed assets that were impaired in the fourth quarter of fiscal 2008.
Pre-opening Costs. There were no pre-opening costs in the first thirty-nine weeks of fiscal 2009 due to the timing of company-owned restaurant openings. There were pre-opening costs of $2.5 million in the first thirty-nine weeks of fiscal 2008. There were no new company-owned restaurant openings in the first thirty-nine weeks of fiscal 2009. We opened four new company-owned restaurants in the first thirty-nine weeks of fiscal 2008.
Loss on impairment. Loss on impairment was $0.3 million in the first thirty-nine weeks of fiscal 2009 due to impairment charges related to the closure of the Ruth's Chris Steak House location in San Juan, Puerto Rico, on February 28, 2009, due to an expired lease term in February 2009. We elected not to renew the lease and are currently seeking a franchise partner to acquire the remaining assets, which have an estimated fair value of $0.1 million.
Restructuring Expenses. Restructuring expenses of $0.4 million were recognized in the third quarter of fiscal 2009 related to lease termination charges for two restaurant locations. These charges relate to our decision in 2008 not to build any new restaurants in 2009. There was no comparable expenditure in the third quarter of fiscal 2008.
Loss on the disposal of property and equipment, net. Loss on the disposal of property and equipment was $1.0 million in the first thirty-nine weeks of fiscal 2009 due primarily to the sale of our former home office land and building in Metairie, Louisiana.
Interest Expense. Interest expense decreased $0.8 million, or 11.6%, to $6.1 million in the first thirty-nine weeks of fiscal 2009 from $6.9 million in the first thirty-nine weeks of fiscal 2008. During the first thirty-nine weeks of fiscal 2009, we recorded a gain of $1.1 million for a mark-to-market non-cash adjustment relating to interest rate swap agreements. During the first thirty-nine weeks of fiscal 2008, we recorded a charge of $0.1 million for a mark-to-market adjustment relating to interest rate swap agreements.
Income Tax Expense. Income tax expense decreased $1.4 million, or 53.8%, to $1.2 million in the first thirty-nine weeks of fiscal 2009 from a $2.6 million expense in the first thirty-nine weeks of fiscal 2008. The decrease is due to a decline in the estimated annual effective rate for fiscal 2009 resulting from an increase in the impact of federal tax credits combined with a decrease in income before income tax.
Income from Continuing Operations. Income from continuing operations decreased $1.6 million, or 22.5%, to $5.5 million in the first thirty-nine weeks of fiscal 2009 from $7.1 million in the first thirty-nine weeks of fiscal 2008.
Discontinued Operations, net of Income Tax Benefit. Losses from discontinued operations, net of income tax benefit, remained unchanged at $0.4 million in the first thirty-nine weeks of fiscal 2009 compared to $0.4 million in the first thirty-nine weeks of fiscal 2008. These losses relate to our former operations in New York, New York, and Naples, Florida.
During the third quarter of fiscal 2007, we were notified that the replacement tenant in the Manhattan-UN, New York, location was placed in default by the landlord and as a result, we resumed lease payments with respect to this property during the third quarter of fiscal 2008. Payments will equal $0.6 million in the aggregate per fiscal year through September 2016. We will attempt to sublease the property in order to recover some or all of the amounts paid with respect to the lease. At September 27, 2009, we maintained a contingent lease liability of $0.7 million related to this property. We accounted for our exit costs in accordance with the provisions of "Exit or Disposal Cost Obligations," FASB Accounting Standards Codification Topic 420 (Topic 420), which required that such costs be expensed in the periods whereby such costs are incurred. All of the losses incurred are included in discontinued operations in the accompanying condensed consolidated income statements.
During the second quarter of fiscal 2009, we recorded a contingent lease liability of $0.4 million related to our decision to close the Ruth's Chris Steak House located in Naples, Florida. Lease payments for this location will equal $0.2 million in the aggregate per fiscal year through January 2022. We will attempt to sublease the property in order to recover some or all of the amounts paid with respect to the lease. We accounted for our exit costs in accordance with Topic 420. All of the losses incurred with respect to this location are included in discontinued operations in the accompanying condensed consolidated income statements.
Liquidity and Capital Resources
The following table presents a summary of our net cash provided by (used in)
operating, investing and financing activities:
39 Weeks Ended
September 28, September 27,
2008 2009
(unaudited)
Net cash provided by (used in):
Operating activities $ 25,198 $ 15,309
Investing activities (104,861 ) (2,494 )
Financing activities 69,070 (14,043 )
Net decrease in cash and cash equivalents $ (10,593 ) $ (1,228 )
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Our principal source of cash during the first thirty-nine weeks of fiscal 2009 was cash provided by operations. Principal uses of cash during the first thirty-nine weeks of fiscal 2009 included capital expenditures related to existing restaurants and debt service. We expect that our principal use of cash in the future will be to finance capital expenditures and to service debt.
Our operations have not required significant working capital and, like many restaurant companies, we have been able to operate with negative working capital. Restaurant sales are primarily for cash or by credit card and . . .
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