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RUTH > SEC Filings for RUTH > Form 10-Q on 5-Aug-2013All Recent SEC Filings

Show all filings for RUTHS HOSPITALITY GROUP, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for RUTHS HOSPITALITY GROUP, INC.


5-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" that reflect, when made, the Company's 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 the Company's objectives, plans or goals also are forward-looking statements. Actual results could differ materially from those projected, implied or anticipated by the Company's 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 the Company's stock price; 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 to Company employees, the sale or preparation of food, the sale of alcoholic beverages and the opening of new restaurants; harmful actions taken by the Company's franchisees; the Company's ability to protect its name and logo and other proprietary information; the impact of litigation; and the restrictions imposed by the Company's Amended and Restated Credit Agreement. 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 the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2012, which is available on the SEC's website at www.sec.gov. All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes 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

Ruth's Hospitality Group, Inc. is a leading restaurant company focused on the upscale dining segment. The Company owns the Ruth's Chris Steak House, Mitchell's Fish Market, Columbus Fish Market, Mitchell's Steakhouse and Cameron's Steakhouse concepts.

As of June 30, 2013, there were 138 Ruth's Chris Steak House restaurants, of which 63 were Company-owned, 74 were franchisee-owned, and one location was operating under a management agreement. The franchisee-owned restaurants include eighteen international franchisee-owned restaurants in Aruba, Canada, China (Hong Kong), El Salvador, Japan, Mexico, Singapore, Taiwan, and the United Arab Emirates. Two new Ruth's Chris Steak House locations opened during the twenty-six weeks ended June 30, 2013, including a second franchise restaurant located in San Juan in April 2013 and a franchise restaurant opened in early 2013 in Las Vegas under a licensing agreement with Harrah's Casino under which we receive a fee as a percentage of sales. Due to an expiring lease term, we closed our Ruth's Chris Steak House company-owned restaurant in Phoenix, AZ, on March 31, 2013. Our Ruth's Chris Steak House in Houston, TX was relocated in July 2013. We are targeting to open a new company-owned restaurant in Denver in late 2013 . We expect that franchisees will open approximately three to four new restaurants during the remainder of 2013.

The Company operates 19 Mitchell's Fish Markets and three Cameron's Steakhouse restaurants, located primarily in the Mid-west and Florida.

In January 2013, we signed an agreement with the Ko Group for the development of four new franchised Ruth's Chris Steak House restaurants to be opened in People's Republic of China over the next three years. The new restaurants are planned for Shanghai and Beijing and will be the first Ruth's Chris Steak House restaurants in People's Republic of China. The Ko Group has had success as an existing franchisee with seven restaurants in Hong Kong, Japan, Taiwan, and Singapore.

Our business is subject to seasonal fluctuations. Historically, our first and fourth quarters have tended to be the strongest revenue quarters due, in part, to the year-end holiday season. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year and comparable restaurant sales for any particular period may decrease.

Our Annual Report on Form 10-K for the fiscal year ended December 30, 2012 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                26 Weeks Ended
                                            June 30,       June 24,       June 30,       June 24,
                                              2013           2012           2013           2012
Revenues:
Restaurant sales                                93.4%          93.9%          94.6%          95.1%
Franchise income                                 3.6%           3.3%           3.5%           3.4%
Other operating income                           3.0%           2.7%           1.9%           1.5%

Total revenues                                 100.0%         100.0%         100.0%         100.0%

Costs and expenses:
Food and beverage costs (percentage of
restaurant sales)                               30.4%          32.2%          30.8%          32.1%
Restaurant operating expenses
(percentage of restaurant sales)                50.3%          51.0%          49.1%          49.9%
Marketing and advertising                        3.5%           2.5%           2.7%           2.1%
General and administrative costs                 7.2%           6.4%           7.0%           6.6%
Depreciation and amortization expenses           3.1%           3.7%           3.2%           3.7%
Pre-opening costs                                0.1%           0.1%           0.1%           0.1%
Restructuring benefit                            0.0%           0.0%           0.0%           0.0%
Total costs and expenses                        89.3%          90.8%          88.6%          90.5%

Operating income                                10.7%           9.2%          11.4%           9.5%


Other income (expense):
Interest expense, net                           (0.4% )        (0.6% )        (0.4% )        (0.5% )
Debt issuance costs written-off                  0.0%           0.0%           0.0%          (0.4% )
Other                                            0.0%          (0.0% )         0.0%          (0.0% )

Income from continuing operations before
income tax expense                              10.3%           8.5%          11.0%           8.5%

Income tax expense                               2.6%           2.5%           3.1%           2.5%

Income from continuing operations                7.7%           6.0%           7.9%           6.0%

Income (loss) from discontinued
operations, net of income taxes                 (0.1% )        (0.0% )        (0.6% )         0.0%

Net income                                       7.6%           6.0%           7.4%           6.0%

Preferred stock dividends                        0.0%           0.0%           0.0%           0.3%
Accretion of preferred stock redemption
value                                            0.0%           0.0%           0.0%           0.0%
Excess of redemption value over carrying
value of preferred shares redeemed               0.0%           0.0%           0.0%          18.1%

Net income (loss) applicable to
preferred and common shareholders                7.6%           6.0%           7.4%         (12.4% )

Second Quarter Ended June 30, 2013 (13 Weeks) Compared to Second Quarter Ended June 24, 2012 (13 Weeks)

Overview. Second quarter fiscal year 2013 operating income increased from the second quarter fiscal year 2012 level by $2.0 million to $10.9 million. Second quarter fiscal year 2013 operating income was favorably impacted by a $3.9 million increase in restaurant sales which was somewhat offset by increased restaurant operating expenses. Higher restaurant sales were attributable both to an increase in the number of customers as measured by an increase in entrées and an increase in average check. Net income for the second quarter of fiscal year 2013 increased by $2.0 million to $7.8 million as compared to the second quarter of fiscal year 2012.

Restaurant Sales. Restaurant sales increased $3.9 million, or 4.3%, to $95.1 million in the second quarter of fiscal year 2013 from the second quarter of fiscal year 2012. Company-owned comparable restaurant sales for Ruth's Chris Steak House increased 4.6%, which consisted of an entrée increase of 2.1% and an average check increase of 2.5%. Company-owned comparable restaurant sales at Mitchell's Fish Market decreased 1.4%, which consisted of an entrée decrease of 2.8% and an average check increase of 1.5%. Our total company comparable sales growth in the second quarter of this year was adversely affected by the shift of the Easter Holiday from the second quarter of fiscal year 2012 to the first quarter of fiscal year 2013.


Franchise Income. Franchise income increased $0.4 million, or 12.5%, to $3.6 million in the second quarter of fiscal year 2013 from the second quarter of fiscal year 2012. The increase was driven by five new locations which opened since June 2012 and an increase in comparable franchise-owned restaurant sales of 3.5%.

Other Operating Income. Other operating income increased $0.4 million to $3.0 million in the second quarter of fiscal year 2013 from the second quarter of fiscal year 2012. The increase was attributable to our management fee and our share of income at the Cherokee location and higher gift card breakage income in the second quarter of fiscal year 2013. Our management fee and our share of income from our Cherokee location was $0.2 million in the second quarter of fiscal year 2013 and $0 in the second quarter of fiscal year 2012.

Food and Beverage Costs. Food and beverage costs decreased $0.4 million, or 1.5%, to $28.9 million in the second quarter of fiscal year 2013 from the second quarter of fiscal year 2012. As a percentage of restaurant sales, food and beverage costs decreased to 30.4% in the second quarter of fiscal year 2013 from 32.2% in the second quarter of fiscal year 2012. This decrease in food and beverage costs as a percentage of restaurant sales was primarily due to the favorable impact of higher restaurant sales and lower beef costs.

Restaurant Operating Expenses. Restaurant operating expenses increased $1.3 million, or 2.8%, to $47.8 million in the second quarter of fiscal year 2013 from the second quarter of fiscal year 2012. Restaurant operating expenses, as a percentage of restaurant sales, decreased to 50.3% in the second quarter of fiscal year 2013 from 51.0% in the second quarter of fiscal year 2012 due to leveraging higher comparable restaurant sales.

Marketing and Advertising. Marketing and advertising expenses increased $1.2 million to $3.6 million in the second quarter of fiscal year 2013 from the second quarter of fiscal year 2012. The increase in marketing and advertising expenses in the second quarter of fiscal 2013 was attributable to planned television advertising spending.

General and Administrative. General and administrative expenses increased $1.1 million to $7.3 million in the second quarter of fiscal year 2013 from the second quarter of fiscal year 2012 primarily due to increases in performance-based compensation, stock compensation and professional fees.

Depreciation and Amortization Expenses. Depreciation and amortization expense decreased $0.5 million to $3.1 million in the second quarter of fiscal year 2013 from the second quarter of fiscal year 2012 due to certain property and equipment becoming fully depreciated.

Interest Expense. Interest expense decreased $0.2 million to $0.4 million in the second quarter of fiscal year 2013 from the second quarter of fiscal year 2012. The decrease in expense was primarily due to a lower average debt balance in the second quarter of fiscal year 2013.

Income Tax Expense. During the second quarter of fiscal year 2013, we recognized income tax expense of $2.6 million. During the second quarter of fiscal 2012 we recognized income tax expense of $2.4 million. The effective tax rate decreased to 24.9% in the second quarter of fiscal year 2013 compared to 29.1% in the second quarter of fiscal year 2012. During the second fiscal quarter of fiscal year 2013, the Company recognized a state income tax benefit for employment related tax credits aggregating $1.0 million generated during the years 2006 through 2012. These prior year state tax credits resulted in a discrete $600 thousand reduction (net of federal and state tax consequences) in income tax expense and lowered the effective income tax rate by 5.7% in the second quarter of fiscal year 2013.

Income from Continuing Operations. Income from continuing operations of $7.9 million in the second quarter of fiscal year 2013 increased by $2.0 million compared to the second quarter of fiscal year 2012.

Net Income (Loss) Applicable to Preferred and Common Shareholders. Net income applicable to preferred and common shareholders was $7.8 million in the second quarter of fiscal year 2013 compared to $5.8 million in the second quarter of fiscal year 2012.

Twenty-six weeks ended June 30, 2013 compared to twenty-six weeks ended June 24, 2012

Overview. The first twenty-six weeks of fiscal year 2013 operating income increased from the first twenty-six weeks of fiscal year 2012 by $5.1 million to $23.9 million. The first twenty-six weeks of fiscal year 2013 operating income was favorably impacted by a $10.1 million increase in restaurant sales which was somewhat offset by increased food and restaurant operating expenses. Higher restaurant sales were attributable both to an increase in the number of customers as measured by an increase in entrées and an increase in average check. Income from continuing operations increased from the first twenty-six weeks of fiscal year 2012 by $4.7 million to $16.6 million. Net income for the first twenty-six weeks of fiscal year 2013 was adversely impacted by loss from discontinued operations. The first twenty-six weeks of fiscal year 2013 $1.2 million loss from discontinued operations, net of income taxes, includes a $1.1 million loss attributable to property we lease near the United Nations in Manhattan. We recognized the loss as a consequence of a remeasurement of our lease exit costs due to the subtenant abandoning the property subleased from us. The first twenty-six weeks of fiscal year 2013 net income increased from first twenty-six weeks of fiscal year 2012 by $3.5 million to $15.4 million.


Preferred stock requirements are deducted from net income to arrive at net income (loss) applicable to preferred and common shareholders. During the first twenty-six weeks of fiscal year 2012, we reported a $24.4 million loss applicable to shareholders due to the repurchase of all of the Company's Preferred Stock. We recorded a reduction of net income applicable to shareholders of $35.8 million in the first twenty-six weeks of fiscal year 2012 to reflect the excess of the redemption value over the carrying value of the preferred shares redeemed.

Restaurant Sales. Restaurant sales increased $10.1 million, or 5.4%, to $197.9 million in the first twenty-six weeks of fiscal year 2013 from the first twenty-six weeks of fiscal year 2012. Company-owned comparable restaurant sales for Ruth's Chris Steak House increased 5.7%, which consisted of a traffic increase of 2.5% and an average check increase of 3.1%. Company-owned comparable restaurant sales at Mitchell's Fish Market was relatively flat to the first twenty-six weeks of fiscal year 2012. Mitchell's Fish Market traffic decreased 0.1% and the average check increased 0.1%.

Franchise Income. Franchise income increased $0.6 million, or 9.1%, to $7.3 million in the first twenty-six weeks of fiscal year 2013 from the first twenty-six weeks of fiscal year 2012. The increase was driven by five new locations which opened since June 2012 and an increase in comparable franchise-owned restaurant sales of 2.1%.

Other Operating Income. Other operating income increased $1.0 million to $3.9 million in the first twenty-six weeks of fiscal year 2013 from the first twenty-six weeks of fiscal year 2012. The increase was attributable to higher gift card breakage income in the first twenty-six weeks of fiscal year 2013. Our management fee and our share of income from the Cherokee location was $0.3 million in the first twenty-six weeks of fiscal year 2013 and $0 in the first twenty-six weeks of fiscal year 2012.

Food and Beverage Costs. Food and beverage costs increased $0.7 million, or 1.2%, to $60.9 million in the first twenty-six weeks of fiscal year 2013 from the first twenty-six weeks of fiscal year 2012. As a percentage of restaurant sales, food and beverage costs decreased to 30.8% in the first twenty-six weeks of fiscal year 2013 from 32.1% in the first twenty-six weeks of fiscal year 2012. This decrease in food and beverage costs as a percentage of restaurant sales was primarily due to the favorable impact of sales increasing proportionally more than beef costs.

Restaurant Operating Expenses. Restaurant operating expenses increased $3.6 million, or 3.8%, to $97.2 million in the first twenty-six weeks of fiscal year 2013 from the first twenty-six weeks of fiscal year 2012. Restaurant operating expenses, as a percentage of restaurant sales, decreased to 49.1% in the first twenty-six weeks of fiscal year 2013 from 49.9% in the first twenty-six weeks of fiscal year 2012 due to leveraging higher comparable restaurant sales.

Marketing and Advertising. Marketing and advertising expenses increased $1.5 million to $5.6 million in the first twenty-six weeks of fiscal year 2013 from the first twenty-six weeks of fiscal year 2012. The increase in marketing and advertising expenses in the first twenty-six weeks of fiscal year 2013 was attributable to planned television advertising spending.

General and Administrative. General and administrative expenses increased $1.5 million to $14.6 million in the first twenty-six weeks of fiscal year 2013 from the first twenty-six weeks of fiscal year 2012 primarily due to increases in performance-based compensation, stock compensation and professional fees.

Depreciation and Amortization Expenses. Depreciation and amortization expense decreased $0.6 million to $6.7 million in the first twenty-six weeks of fiscal year 2013 primarily due to certain property and equipment becoming fully depreciated.

Interest Expense. Interest expense decreased $0.2 million to $0.9 million in the first twenty-six weeks of fiscal year 2013 from the first twenty-six weeks of fiscal year 2012. The decrease in expense was due to lower interest rates and a lower average debt balance in the first twenty-six weeks of fiscal year 2013.

Income Tax Expense. During the first twenty-six weeks of fiscal year 2013, we recognized income tax expense of $6.4 million. During the first twenty-six weeks of fiscal 2012 we recognized income tax expense of $5.0 million. The effective tax rate decreased to 27.9% in the first twenty-six weeks of fiscal year 2013 compared to 29.5% in the first twenty-six weeks of fiscal year 2012. During the second fiscal quarter of fiscal year 2013, the Company recognized a state income tax benefit for employment related tax credits aggregating $1.0 million generated during the years 2006 through 2012. These prior year state tax credits resulted in a discrete $600 thousand reduction (net of federal and state tax consequences) in income tax expense and lowered the effective income tax rate by 2.6% in the first twenty-six weeks of fiscal year 2013.


Income from Continuing Operations. Income from continuing operations of $16.6 million in the first twenty-six weeks of fiscal year 2013 increased by $4.7 million compared to the first twenty-six weeks of fiscal year 2012.

Income (Loss) from Discontinued Operations, net of income taxes. Income (loss) from discontinued operations, net of income taxes for the first twenty-six weeks of fiscal year 2013 was a loss of $1.2 million. The loss includes a $1.1 million loss, net of income tax benefit, attributable to property we lease near the United Nations in Manhattan. We recognized the loss as a consequence of the remeasurement of our lease exit costs due to the subtenant abandoning the property subleased from us.

Net Income (Loss) Applicable to Preferred and Common Shareholders. Net income applicable to preferred and common shareholders was $15.4 million in the first twenty-six weeks of fiscal year 2013 compared to $24.4 million net loss in the first twenty-six weeks of fiscal year 2012. Net income applicable to preferred and common shareholders in the first twenty-six weeks of fiscal year 2012 included charges for preferred stock dividends of $0.5 million and accretion of preferred stock redemption value of $0.1 million. We also recorded a reduction of net income applicable to shareholders of $35.8 million in the first fiscal twenty-six weeks of 2012 to reflect the excess of the redemption value over the carrying value of the preferred shares redeemed.

Liquidity and Capital Resources

Overview

Our principal sources of cash during the first twenty-six weeks of fiscal year 2013 were net cash provided by operating activities and borrowings under our $100 million senior credit facility. Our principal uses of cash during the first twenty-six weeks of fiscal year 2013 were for capital expenditures, principal repayments on our senior credit facility and dividends.

On March 8, 2012, we repurchased all of our issued and outstanding shares of Preferred Stock for $60.2 million in cash. The purchase price, which included all accrued and unpaid dividends owed on the preferred stock, was funded using borrowings under our $100 million senior credit facility. We believe the repurchase of all of the outstanding Preferred Stock enhanced our capital structure by reducing our potentially fully diluted common share base and eliminating the preferred dividends. As a result of the repurchase, our potential fully diluted common share base decreased by approximately 8.6 million shares and the 10% dividend on the preferred stock, which amounted to $2.5 million in fiscal year 2011, was eliminated.

On May 3, 2013, we announced that our Board of Directors approved a common stock repurchase program. Under the program, we may from time to time purchase up to $30 million of our outstanding common stock. The share repurchases will be made at our discretion in the open market or in negotiated transactions depending on share price, market conditions or other factors. The share repurchase program does not obligate us to repurchase any dollar amount or number of shares. As of June 30, 2013, no shares have been repurchased under the common stock repurchase program.

On May 30, 2013, we paid a quarterly cash dividend of $0.04 per share, $1.4 million in the aggregate. On August 2, 2013, we announced that our Board of Directors declared a quarterly cash dividend of $0.04 per share, $1.4 million in aggregate, to be paid on August 29, 2013 to stockholders of record as of the close of business on August 15, 2013. Future dividends will be subject to the approval of our Board of Directors.

We have reduced borrowing under our senior credit facility by $5.0 million since the end of fiscal year 2012 and by $31.0 million since the end of the second quarter of fiscal year 2012. As of June 30, 2013, we had an aggregate of $40.0 million of outstanding indebtedness under our senior credit facility at a weighted average interest rate of 3.09% with approximately $55.9 million of borrowings available, net of outstanding letters of credit of approximately $4.1 million. The 3.09% weighted average interest rate includes a 2.50% interest rate on outstanding indebtedness, plus fees on our unused borrowing capacity and outstanding letters of credit. As of June 30, 2013, we were in compliance with all the covenants under our senior credit facility. We amended our senior credit agreement in May 2013 to reset the limit applicable to junior stock payments, which include both cash dividend payments and repurchases of common and preferred stock. As a result of the amendment, we are now permitted to make up to $100 million in junior stock payments; $1.4 million of such payments had been made as of June 30, 2013.

We anticipate capital expenditures for fiscal year 2013 will aggregate approximately $14 million to $16 million. We believe that our borrowing ability under our senior credit facility coupled with our anticipated cash flow from operations should provide us with adequate liquidity in fiscal year 2013.


Sources and Uses of Cash

The following table presents a summary of our net cash provided by (used in) operating, investing and financing activities (in thousands):

                                                             26 Weeks Ended
                                                         June 30,      June 24,
                                                           2013          2012
Net cash provided by (used in):
     Operating activities                                $   9,455     $  17,346
     Investing activities                                   (4,633 )      (4,653 )
     Financing activities                                   (7,201 )     (12,129 )
Net increase (decrease) in cash and cash equivalents     $  (2,379 )   $     564

Operating cash inflows pertain primarily to restaurant sales and franchise income. Operating cash outflows pertain primarily to expenditures for food and beverages, restaurant operating expenses, marketing and advertising and general and administrative costs. Operating activities provided cash flow during the first quarters of both fiscal years 2013 and 2012 primarily because operating revenues have exceeded cash-based expenses. Cash provided by operating activities was lower in the first twenty-six weeks of fiscal year 2013 compared to the first twenty-six weeks of fiscal year 2012 primarily due to the fiscal year 2013 payments of fiscal year 2012 performance based compensation liabilities and a $2.5 million payment to settle certain liabilities pertaining to unclaimed property.

Cash used in investing activities in both periods pertained primarily to restaurant remodel projects. Investing activities in the first twenty-six weeks of fiscal year 2013 also included the cost of relocating our Houston restaurant.

Financing activities used cash in both periods. During the first twenty-six weeks of fiscal year 2013 we reduced the debt outstanding under our senior credit facility by $5.0 million. We also paid dividends of $1.4 million during the first twenty-six weeks of fiscal year 2013. During the first twenty-six . . .

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