Q2 2020 Ruth's Hospitality Group Inc Earnings Call
Good morning, ladies and gentlemen, thank you for standard.
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Got it grew twice the 22nd quarter earnings Conference call.
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I would now like to turn the conference over to Arne Haak, Chief Financial Officer. Please go ahead Sir.
[music].
Thank you and good morning, everyone.
Joining me today on the call is Cheryl Henry our President and Chief Executive Officer.
Before we begin I'd like to remind you that part of our discussion today will include forward looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon.
We would also encourage you to refer to the Investor Relations section of our web site or each G.I. dot com. That's what was the Fccs web site <unk> FCC Dot com.
Piece of today's earnings press release, and our recent filings with the FCC well I'm more detailed discussion of the risks that could impact our future operating and financial results.
Those of you interested in our 10-Q filings we expect this document to be filed next week.
During this call we'll refer to adjusted earnings per share. This non-GAAP measurement was calculated by excluding certain items. We believe that this measure represents a useful internal measure of performance you can find a reconciliation of adjusted earnings per share in our press release for today's call I would now like to turn the.
Called over to the company's Chief Executive Officer, Cheryl Henry.
Thank you already good morning, and thank you for joining us for a second quarter 2020, <unk> earnings call. We appreciate your time today and hope that everyone is staying safe and healthy.
First and foremost as we continue to face this evolving cobot 19 crisis together I am proud of our team that resiliency their focus and their determination to emerge stronger from this pandemic, it's truly amazing.
This challenging environment, we have continued to elevate our safety standards, while maintaining the arc hospitality that makes it ruth's Chris dining experience so special.
The strength of our business continues to be grounded in the health and safety of our customers and our team members and they focus on operational excellence all of which are the foundation of our brands and long term success.
As you are aware the second quarter began with a highly uncertain environment as all of our restaurants Stakes mandatory dining room closures.
Our teams quickly transition to takeout and delivery only and more than two third of our company locations.
This included the addition of multiple third party delivery partners and the launching of online ordering and payment for company restaurants.
We also streamlined our menu choices and refined our to go packaging to provide quality and reheating capabilities for guests want you experienced the sizzle at home.
In may as local guidelines permitted we began to reopen our dining room and by the end of June 88% of our company owned restaurants were open.
89 restaurants were operating with open dining rooms, and 12 and take out and Georgia live remote only.
At the same time, 92% of our franchise locations, where it then.
It's been a great feeling to welcome guest and many of our team members back into our restaurants and our operating team had been equally thrilled to be able to provide the member both dining experience that we're known for their hard work has paid off as we have seen a meaningful improvement in sales throughout the quarter, including a tripling of our average.
Weekly sales from April to June.
This sales momentum comes from the strong demand, we're seeing in restaurants, which have been able to open their dining room, albeit with capacity restriction.
Since may restaurants that opened dining room have consistently averaged 70, 580% of prior year sales.
During June we were able to operate 24 restaurants with hoping dining rooms for the entire month.
The performance of this group of restaurants provides an early but meaningful insight into our near term performance.
These 24 restaurants had strong positive restaurant operating margins, which were consistent with a solid margin levels. We had during June 2019. Despite builds that were approximately 27, 20% below last year.
In fact 16 of the 24 restaurants had better margin then in June of 2019.
Our sales momentum in California took a step backwards in July as government officials re close indoor dining throughout the state. Our overall sales trends remain on track in or slightly better than the trends we experienced Jim.
Again, our team responded with tremendous speed and innovation.
And have now created some beautiful outdoor dining venues, where none existed before.
Well there may be starts and stops as we all work together to combat the buyers. It remains very clear to us that our customers have a solid desire for dining at Ruth's, Chris when we're able to open our dining room.
In this current environment, our focus is to ensure our guests feel safe and comfortable during their dining experience, including offering our dinner and why menus to be a QR code personal side option.
And limiting the number of different people, who are providing service to each table.
We have strategically re purpose some private dining areas from Maine dining rooms.
We continue to work to provide additional capacity with appropriate distancing, both inside and outside of our restaurant.
As the situation evolves, we will continue to provide our broad set of fine dining options.
Full service dining room outdoor seating dining in our bars, where possible as well as continuing our off premise offering to meet the needs of our guest.
Finally, I'd like to spend a few minutes updating you on our financial position.
We were fortunate in that our balance sheet in financial footing were solid before the start of the Cove at 19 crisis. We quickly took several actions to enhance our liquidity, including exercising the accordion on our credit facility and drawing down the remaining availability.
During the second quarter, we further solidified our position through the issuance of roughly $50 million, an equity of which 10 million was used to pay down debt.
The cash we raised has provided the company with the liquidity position can manage the future uncertainty we make base.
We have made significant decisions around reducing gross capital expenditures suspending our dividend and share repurchase as well is making permanent reductions in our operating in corporate expenses.
All of which has contributed to reinforcing our financial position.
Now before I turn the call over to already I want to reiterate how amazing it is to witness the dedication and resiliency of our team members our franchise partners in our community.
We will continue to build on the foundation, we created over the past 55 years. This means keeping Ruth Chris has a place where you can relax and be indulged and a welcoming unsafe comfortably elegant environment treating every guest with the touch a personal hospitality that they deserve and deliver.
During the best Steakhouse experience anywhere.
With our commitment to operational excellence and I'll focus on our communities, we will get through this together and continue to drive our long term success.
With that I would like to turn the call over to Arnie to discuss our liquidity further and review our second quarter results in more detail.
Thank you Sheryl.
Second quarter ended June 28, 2020, we reported a net loss of $17.6 million were 59 cents per diluted share.
Net loss in the second quarter 2020 included $330000 in one time severance payments $488000 gain.
Related to lease modifications.
4.3 billion dollar impairment loss related to inventory in long lived assets and 175000 dollar income tax expense related to the impact of discrete income tax items.
Excluding these adjustments are non-GAAP diluted loss per common share was 48 cents.
Total company owned restaurant sales for the second quarter were $27 million, which compares to $104 million 2090.
The decrease in sales was due to the local and state in dining room restrictions and restaurant closures, which are a result kogas 90.
Comparable restaurant sales for units, both open and close decreased 74% during the quarter and the Sheryl notice improved considerably as the quarter progressed.
Hi, mom comparable restaurant sales decreased 87% in April.
Decreased 80% in May and decreased 54% during June.
Average weekly sales for the same period were 19 point, $2000 30 point $5000 and $60000 respectively.
Over the last several weeks many states have begun to re tightened their dining room restrictions.
As of July 27th the company's restaurants are operating in several different buckets.
It is 8% of the 81 company managed restaurants are open.
52 restaurants are operating with open dining rooms with capacity restrictions.
15 company owned restaurants are operating with outdoor seating only and four restaurants are operating with takeout and delivery all.
94% of the company's 72 franchise owned restaurants are open and for remain close.
This includes 66 franchise restaurants with open dining room capacity restrictions and two franchise restaurants that are operating with takeout and delivery all.
Franchise income in the quarter was down 78% year over year as our franchisees were only required to <unk> royalties for sales when they're dining rooms were open.
Now turning to our expenses.
Food and beverage costs as a percentage of restaurant sales were 29, 20%, which reflects the new more focused menu and beef inflation, 5.5%.
Restaurant operating expenses were down 49% due to the low sales levels we experienced.
As we reopened our done we remain sharply focused on regaining sales leverage on our labor and other operating expenses.
Our sales marketing and DNA cost for the second quarter were down 34% year over year as reductions in marketing Egina were offset by higher professional fees and severance costs.
We also continue to work diligently on evaluating our real estate portfolio.
And the second quarter, we permanently closed five company owned locations and terminated leases.
At two of the seven new units, we were planning to open.
We continue to actively negotiate with Orlando.
There are at least five additional locations they could potentially be close if the patient recovery slows or if we were unable to secure sufficiently onboard concessions.
The income tax rate in the second quarter 2020 increased to 28.7% versus 16.1% in 2019.
The increase in our tax rate was due to the expectation that the company will hobby pre tax loss in 2020 versus pre tax income in 2090 as a result, our income tax credits increased our tax rate because they add to the tax benefit when we have pre tax income these tax credits will reduce our country.
At the end of the second quarter.
Companies cash balance was $96.1 million, which included approximately $6 million and right from the second quarter.
The company's average weekly cash burn rate during the second quarter was $1.2 million per week, which included approximately $3 million in rent payments during the entire core.
<unk> cash burn was significantly lower than our previous outlook due to higher sale levels and the timing of lease modifications and rent payments.
As we move through the third quarter, we now expect our cash burn rate, excluding closing costs, an out of period rent payments to be approximately $1 billion per week.
Due to the continued uncertainty surrounding the duration of the impact to cope with 90, we're not providing any additional guidance at this time.
With that operator, I'd now like to turn the call back to open up the line for any questions that people my hat.
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One moment, please let me call for questions.
Our first question is from Andy Barish Jefferies. Please go see which of course.
Good morning, guys good to hear from you.
And just a quick update on the cash burn or if the warranty.
I think you've mentioned negative you see was kind of.
Maybe getting close to enterprise breakeven and you know you saw better than that in infill why is there.
Is there something that's changed I don't imagine it's the cost side is it is it gets wherein the seasonally low average unit volume period or any any color on that would be helpful.
No that's right Andy I think the guidance that we had shared it on our last call was really around kind of two assumptions. One is an annual sales level and you're absolutely right. We are seasonally in our weakest quarter of the year, which is the third quarter.
And the second one it is kind of an assumption that you have your your restaurants are open and and I think we've seen that in June the restaurants that were open Oh had positive cash flow both at the restaurant and that's the enterprise level and so it's very consistent with what we've seen.
Saying, we've even kind of backed it out as sales decline.
Versus cash burn in margin and everything's kind of on track you know I think as we get into the fourth quarter is where as we get into seasonally stronger is where the cash burn should abate.
And just one other for me on that on the CLO jurors.
Anything any color you know or details you Wanna add on that or they will they help the cash burn I assume or they you know you be margin beneficial I.E. they work.
On a normalized basis lower volume lower margin stores.
Broadly speaking, yes, there, there's a kind of a couple of different flavors, there's really a handful that were kind of underperformers and then you have some that are they have kind of lease expirations or what kind of at the end of their term anyway, and there wasn't too much of a prize too.
Rebuild you know kind of the sales and those restaurants only to eventually close that a couple of years from now so yes incrementally they should help.
Okay. Thank you.
Our next question from James Weatherford with Stephens. Please proceed with your question.
Hey, good morning, and thanks for taking the questions. The first of all I have is on the margin front. Those units. There. We're open for the full month of June and had unit level margins similar to 2019 levels.
That seemed very strong in it surprised me just given the sales were.
Still down about 20% year over year I'm, just curious if this speak to your ability to achieve higher margins on lower sales levels going forward.
Where is this sort of a transitory effect it might dissipate as capacity limitations are lifted in your staffing returns to normal levels those restaurants.
Yeah, Great question, and so first let me just give complete credit teams in the restaurants. They you know a lot of these folks. It then what's it for years and years came out of 2008 with US then when it comes to being able to adjust their business at this point there really exports I think you know some of that they've been us taking a good look at where the opportunities and so.
I would say at the next I think there are some things that we've done inside the restaurant inside the four walls that will carry on free that's the around staffing and and the structure of our staffing in the restaurant, but again I get a great deal of credits the restaurant be able to understand how to manage and in a down sales environment. So yes, you're correct sales were running about down nine.
2% for that group and they were able to hang onto pretty impressive you know in excess of 20% well in excess of 20% margin. So I congratulate them on that.
Okay, that's great and then on the reopening cadence I think there was 10 that you mentioned a company owned units that are still close today, what are the things you're looking for before you're able to reopen those units.
Yeah. Some of that is there's a few different categories. Some our discussions we mentioned that we have potentially five more that kind of fall in RV viewed process of closures. So based on where we are with the landlords and then the the validity of the marketplace over the next couple of years.
Others, there are a based on the jurisdiction in the limitations that are placed on it. So you know were reviewing them on a daily basis, we obviously want our dining rooms open and we want our teams back in the dining rooms, but I think you know as we look at the viability in understanding the financials within the four walls that those locations will continue to monitor.
Right.
Perfect. Okay, and then just one last quick modeling question for those units. There were opened in June running at a negative 19 comp implied I think average weekly sales Rose 75000, correct me if im wrong on that but how does that 75000 split between dine in and off premise. Please.
Sure James you know over 80, probably you're talking about the mid 80% of those sales come from.
The died and experience.
Weve, even during the month or so little bit high there anymore kind of between.
Oh, I don't know depending on the restaurant, 10% to 15% are still kind of off premises.
But you definitely see the off premises sales drop when the the territories open up for in dining restaurant, so, but it's still there and there's certainly still some people that I think feel more comfortable eating off premises.
Perfect. Okay. Thank you very much.
Thank you.
Our next question from Brian Vaccaro with Raymond James. Please proceed with your question.
Thanks, and good morning, starting out with comps I just wanted to clarify the reported comps now. They include the impact of closed units. So you said quarter to date down 47, but that's that's really sort of 40 to 43. If you were to exclude the impact that closed units.
Yes, that's right five.
Okay. All right just wanted to clarify that and it could you comment a a little further on the regional sales trends, you're seeing more recently I guess, specifically, though on the two largest a company on markets, California and Florida.
Sure. So yes, you know, Florida had fan what we're obviously tracking it as situation environment changes in Florida, Florida is really held up as far as the performance of those restaurants from opening through where we currently are in the period, California has changed just isn't since the dining rooms of completely been closed in so as the team its transition.
And as I mentioned fairly rapidly and built these beautiful outdoor spaces I think we're seeing some slowing just based on that transition and capacity around having outdoor dining room space. So I think the <unk>. The impact is more in the California market, then with what we're seeing in Florida.
Okay, but you're continuing to see sort of some sequential improvement in the overall comp and would you attribute that to certain markets that might be reopening dining rooms like up in the northeast or maybe Illinois et cetera that are more than offsetting that California deceleration.
Yeah, Brian or somebody else you'd highlight.
No. There there's you know the northeast and started to open up and that has helped as well. They they were among the last group of restaurants, you know I think as you look at it what's really been impressive to US is there is a demand it's steady I'm, even the restaurants that opened up.
Oh, the longest had been open about 10 weeks you know, it's not cabin fever, it's sustained the 75% to 80%.
California as the state opens up their dining rooms, you know, California for the two three weeks was opened had very good sales bears demand. There you know they have kind of step back but in the meantime kind of the mid Atlantic in the North East have opened up Bob I think the biggest question Mark I guess is we look forward is.
You know one getting everyone comfortable with eating inside again in California, and then too I'm, probably our third biggest region is Hawaii and you know what happens there would would tourism we've opened up on the one but some of the outside ones I'm already in those kind of close your numbers as well because they're obviously very much based on tourism.
[noise] <unk> <unk> and I'm curious as Youve reopened dining rooms, just what you're seeing in terms of sales mix and what that might say about broader consumer behavior any color on their ruths classics alcohol mix or other other aspects you might point out.
Sure. Yeah. So you know we look at we've been looking at consumer behavior around kind of timing and how quickly the dining I'm, sorry, and then where they're going around the menu. We we put in a fairly streamline menu and some of the next I think the trick did see whether we can be open in bars as well. So I'll just put that out there I think you know classics is held steady we haven't seen.
A major increase though I think we look at that's I understand is it a consumer that you know driven strictly by value out certainly ruths classics is that but it's it held steady as far as the mix.
You know alcohol mix is a little bit there's the impact of having.
Hey, guys are piece of sales being to go. So there you know there's a bit of a shift from alcohol sales and it to go right now.
But not as significant inside the restaurant.
Okay, Okay and already what we're I'm, sorry, if I missed earlier, but what were franchise.
Comps in the quarter and what was the split domestic versus international.
[noise].
Well I I don't have that like <unk>, let me get that okay.
Okay, and I'm sure you never know problem.
Yeah, and then the last one just on the closures. The 10 company stores I think I saw some media reports, but maybe to have closed I think maybe king of Prussia and one of the Hawaii units in July I, just wanted to confirm that was accurate.
Yeah, Brian we've actually closed five.
So those two are in the five.
Correct.
Got it okay perfect. Thank you very much.
Thank you Brian.
Our next question is from Nicole Miller with Piper Salmon. Please proceed with your question.
Thank you good morning, I think in the prepared commentary surely you said there were a dozen or so maybe it was 16 restaurants with better margins I wanted to dig into that a little bit more so why is that and what parts are temporary and what might be permanent.
Yeah I'll speak over all now let me go into a little more detailed breakout the categories. I think it's really the largest piece is a reflection around you know structurally looking at labor I'm, an understanding at 19% down sales volume how do you enjoy the guest experience maintains and by the way we've done the worked around you know, it's it's anything we've done Empire.
And the guest experience and we're finding that are our guests sat scores actually inline or even better in this environment than we had previously so I think that take away. There is that you know we can make some of these changes some for safety and health reasons as far as the number of people that are catching table and others to understand what's truly required and at that level of fail.
I mean, that's probably where we've seen some of the significant opportunities around the margins in our if you have anything to add sleep. Please do.
No Nicole I think you know Sheryl gave a lot of credit to our operators and we see it across the piano food costs were good there where labor efficiencies and either even on the other operating costs, there where efficiencies and I think everybody. You know if you think about it they kind of set.
Out on the sidelines for six weeks, they're ready to go and they're focused and I think we're all encourage by won the demand and to the ability to work on the margins you know it's one month. So hopefully this is how you're saying the ball, but you know I think it's very encouraging.
Okay Fair. Thank you and then.
Well first of clarity destination, what are the communities like around deal.
Retail restaurants open open collectively if that's the case is that better or are there maybe permanent closure of yours or competition around him you're taking share.
Yeah, and it's a great question, Nicole and it really differs by market and so there really isn't enough DSIC trend that we can say some of it is driven by other closures in the marketplace because the offset to that is there a lot of things that are close around that's too. So even you know I'd point out Orlando is clearly driven by tourism and convention, but yet holding it sounds like.
In that same range of sales that were talking about so I don't I think it's early to say for sure where the you know drivers or takeaways are in each market out, but it's something we're looking at.
Thank you have a great day. Thanks.
Thanks Nicole.
Our next question is from Todd Brooks with C.L. King and Associates. Please proceed with your question.
Oh got or anyone you.
[noise] apologies everybody good morning.
When you were when you're talking about kind of the spread of outdoor dining as an adjunct to the dining experience how widespread does that across the train right now as it is really just California focused given the recent dining room closures are you doing us more broadly across the base.
Yeah. Great question. So we have looked for every opportunity as you know some markets started with outdoor only and then moved to having indoor dining room. So it mandated in California, right now and a new Jersey and a couple of other locations, but we have actually looked at it across the system. So I would guess I would say any preparatory phase.
That will there be others. We it has plans the teams done a fantastic job of going location by location and putting plans in place.
I have already been expanding that adds to the interior capacity outdoor patios that we had have been re works and though from a floor plan standpoint, and others have added capacity, even though maybe not mandated at this point.
Okay, great and going to the the class of 24 stores that were open for the entire.
Month of June My assumption and correct me, if I'm wrong as you're probably operating under capacity restrictions I would guess in 50% range.
Yet your same store sales were only down 19% tweaks, we talk about how you cheap that in a fit youre, saying capacity restriction weathered shoulder periods private dining rooms outdoor just like the drivers of getting to that type of same store sales performance.
Yeah, so little bit of all of the above and I say that capacity has ranged from 25% to 50 on when we first opened in May and that class and then somewhere actually rolled back from 15 to 25, but yes. So as we looked at it going in on several options, including outdoor dining faces, an expanding where we could using private dining state.
Isn't really reworking the entire floor plans at the restaurant to ensure the safety standards are being met but at the same time, allowing for a different approach to see they're going to your point I'm, including shoulder times that maybe start a little early and as you can imagine guests were certainly interested and and understanding where first venturing out.
The dining rooms that if they want it to kinda as early as for 30 that restaurants are open and available for them. So there was a demand in those areas and then some later at night as well so it's a mix of all of that.
Okay, Great and my final question and I know when you when you look at your customer mix.
Third is kinda that just because customer third is typically that business customer can we talk about both those segments, one business customer any sign of that customer returning and.
To the just because customer any sense or is it too early to know their frequency of visits I know that used to be a a customer that would use the restaurant often in a kind of a non <unk> non post covert environment [laughter]. So it just a bit early to determine I will tell you anecdotally were seeing the same types of celebrations in fact going back.
Your earlier question. When you asked about we've done a great deal of work of understanding party size, and then matching that against our lay out of seating and so.
We're seeing that you talked a lot of two top so a lot of celebrations around anniversaries birthdays date night out. So that is actually helps from a capacity standpoint, because previously we had put in the appropriate feeding to manage the demand for two tops out. So we added them into our restaurants not allows us to accommodate that and then this.
I guess you know, we certainly have that now as I mentioned transitions are private dining.
Rooms, more two main down into a lot for further capacity, we're starting to see some of that business the calls and requests coming in their request or a bit further out, but we're starting to see that picked up slightly as we move through the summer.
Okay, great. Thank you very much.
Again as a reminder, if you have any questions. You may proceed start once it into the Q.
Our next question is from Andy Barish with Jefferies. Please go see what your question.
Hey, guys I'm just a quick follow up on you know sort of extraordinary or onetime costs, maybe that you know ran through the two Q with.
Bonus payments or things like that and then is any of that continuing into the threeq you here.
Andy you know there there still will be I think as we go through gets into a re evaluate kind of the real estate portfolio. That's probably the biggest uncertainty there they'll also be.
In the third quarter as well.
Some onetime costs around.
Mike O'donnell's transition on retirement those are the kind of the two big things right now.
Okay and as long as I have it can you give us or kind of a quick update broadly speaking just in terms of the buckets of.
You know kind of landlord negotiations and whats.
What's happened there.
Yeah, I'll, just I'll say broadly I think we've seen as others have probably reporting a mix I think there you know weve been business were 55 years and give some long term partnerships and I'd say that it's worked well for US we had kind of an initial wave of landlords that partnered well understood. The environment, we understand the environment, they're working and and we were eight.
Well to negotiate and and get some abatements in other concessions around the leases.
I think there's you know as we mentioned Theres some that we're still talking to and those are areas, where the markets or potentially the most difficult and try to understand what that looks like and restructured the partnership for the long term and others that I think you know as we look over the next couple of my we'll find a then approach for the short term as well the long term with them.
Wow.
Thank you very much.
Thank you Andy.
You had reached the end of the question and answer session and I'll now turn the call normal to Cheryl Henry for closing remarks.
Thanks, Sheryl you start.
Sure enough, where you start let me just give a brian's his numbers.
On the franchise so everyone can have so Brian and apologize for stepping into your closing Cheryl franchise comp for the second quarter was for every one down six.
Was down 63, nine and it's very similar between domestic and international down 64, domestic inbound 63 international so I'm very consistent experience happening in our franchise markets, both domestically and internationally. So there you go through thanks, [laughter] banks Arnie and thank you all for joining us on the call. This.
Running I look forward to speaking with you again soon have a great day.
This concludes todays conference and you may disconnect. Your lines at this time. Thank you for your participation.
Thanks.