Q2 2021 Ruth's Hospitality Group Inc Earnings Call

August 6, 2021

Good day.

[music].

Good morning, ladies and gentlemen, and welcome to today's Ruth's Hospitality group second quarter, 2021 and earnings conference call at <unk>.

This time all participants are in a listen only mode. Following the company's formal remarks, we will conduct a question and answer session.

And that will be provided at that time for you to queue up for questions. As a reminder, today's conference call all of it is being recorded.

I would now like to turn the conference over to Kristy Chip and Chief Financial Officer. Please go ahead.

Thank you and good morning, everyone. Joining me on the call today is Cheryl Henry our President and Chief Executive Officer, and share price and of the board of.

Before we begin I'd first like to remind you that part of our discussion today will include forward looking statements. These statements are not guarantees of our future performance and therefore undue reliance should not be placed upon them.

And we would also encourage you to refer to the Investor Relations section of our website at <unk> com as well as the SEC's website at SEC Gov for copies of today's earnings press release, and our recent filings with the SEC for a more detailed discussion of the risks that could impact our future operating and financial results.

During this call we will 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 and our press release for today's call I would now like to turn the call over to the company's Chief Executive Officer Cheryl Henry.

Thank you Christy good morning, and thank you for joining US today, let me begin by saying how proud I am of our team and franchise partners as they continue to put forth extraordinary at birth and outperform.

And a challenging and ever changing environment.

As you know the pace of recovery began to accelerate during the second quarter and we witnessed our guests enthusiastically coming back to dine and our restaurants.

With the opening of our restaurants to greater capacity and recent weeks our teams and franchisees have remained resilient and committed to providing our guests with the hospitality that Ruth's is known for.

And also making sure they feel safe and our restaurants.

I truly believe their focus on operational excellence and unparalleled hospitality is the reason our brand continued to recover well during the second quarter.

To that point I'm pleased to report and we achieved strong sales performance with comp sales up 5%. Despite capacity restrictions that were in place for much of the quarter exclude.

Excluding the impact of Boston, Hawaii, and Manhattan comps were up 11, 1%.

That sales momentum for the entire system continued in July with comps for the first 4 weeks of the period up approximately 17%.

And our franchise partners also performed well delivering comp growth of 7.5 per cent and domestic franchise comp sales increasing 17.3 per cent.

From a profitability standpoint, we continued to benefit from the labor efficiency initiatives. We implemented in late 2019, I'm thrilled that this has resulted and the strongest standalone quarter since Q4 of 2018 at.

It's also of the best Q2 margin and over 5 years.

Having said that we are keenly aware that the external environment remains uncertain and the short term and that inflationary pressures are challenging we are confident however that with the accelerated demand for our legendary experience. The trust our guests have and our brands and our team's ability to manage the business.

We will weather any near term impacts and remain committed to investing and the long term future of our business.

To that end, we are on schedule to open 2 to 3 company owned restaurants by year end, including sites and New Jersey, and Long Island, New York.

In addition, we recently signed and management agreement for a new restaurant that will open and the soaring Eagle Casino and Mount Pleasant, Michigan, and 2020.2.

Looking ahead, we expect to have 7 company owned or managed restaurant openings by the end of 2020, 2 and we'll continue to evaluate additional opportunities for development.

On our last call we reiterated the commitment we made in 2019 to invest strategically and our technology platforms and digital future.

As a reminder, and 2019, we stated that our focus for these investments are reducing the friction and the experience for both our guests and our team members.

Enhancing our hospitality to drive frequency and increasing productivity and efficiency to optimize margin.

We have made meaningful progress during the quarter.

Beginning with the implementation of fun day.

<unk> technologies, including New P O S and labor management systems.

We continue to focus on maintaining a healthy balance sheet, and we will evaluate all options to maximize shareholder value over the long term.

That means smartly allocating capital to grow and create value for all our stakeholders, which room.

<unk> goal.

On top of our list is further debt reduction for the remainder of this year.

Well as investing in and opening for 7 new units through calendar 2020.2 at the same time, we will continue that investment and data and digital transformation because of the future of Ruth's, Chris will be driven by better understanding our guests and the use of technology to improve their brand experience.

And finally, we will continue to evaluate reinstating our dividend as well as future share repurchases as we gain more visibility through the back half of the year.

We are fortunate at the performance of our teams has allowed us to satisfy our leverage covenants. So that we were able to consider these additional options going forward.

All in all we are of stronger and more nimble enterprise and we are excited about the future I'm grateful to our team members and franchise partners that deliver excellence every day.

Now I'll turn the call over to Kristy Chipman.

Thank you Charles for the second quarter ended June 27, 2021, we reported GAAP net income of $12.4 million for 36 cents per diluted share compared to a net loss of $17.6 million or of 59 loss per diluted common share of during the second quarter of 2020.

Net income and the quarter of 2021 included a $65000 employee retention and payroll tax credit, which reduced operating expenses.

It also included approximately $394000 of loss on impairment and restaurant closure costs and of $26000 income tax benefit related to the impact of excluding certain discrete income tax items.

Excluding these adjustments non-GAAP diluted earnings per common share was 36% compared to a loss per common share of 48, and the second quarter of 2020.

Total revenues for the quarter were $110.9 million compared to $110.2.002 million 19.

Company owned restaurant sales for $104.2 million compared to $104 million and 2019, despite operating 6 fewer restaurants in 2020.1.

Comp sales for the quarter were up 286, 6% versus 2020 compared to 2019 comp sales for the quarter increased 5% and 5 months were up 2.1 and April up 6% and May up 7.4% in June.

Average check for the quarter was up driven by menu pricing, that's discounting and and increased preference for larger entrees appetizers and fell as well.

While we have seen improvement across all regions during the second quarter, Texas, and Florida continue to be highlighted with comp sales of 46% and 24% respectively.

As noted last quarter, and Boston, Hawaii, and Manhattan have been slower to recover towards 2019 level.

With New York Theater District expected to open at September and International Tourism slowly returning to Hawaii, we are seeing positive signs of sales recovery in these areas.

As Cheryl mentioned earlier, our sales momentum has continued into the third quarter quarter to date as of July 25th comp sales increased approximately 17% compared to 2019 and average weekly sales were approximately of $104000. During what is historically a seasonally slower time for us.

Franchise income for the quarter was for $5 million and was up $100000 versus 2019, while other operating income was $2.2 million of zero point $4 million versus second quarter 2019.

Overall restaurant margins during the second quarter 2021 were better by 340 basis points compared to second quarter 2019, due to sales leverage from average check of increases as well as efficiencies and labor and lower other operating and occupancy expenses.

Food and beverage cost for the quarter were 33% as of.

As a percentage of restaurant sales these prices during the quarter increased approximately 27 per cent and 34% compared to last year and 2019, respectively.

And then and the impact of overall cost of sales was partially offset by deflation and produce theory, and a mix shift within and alcoholic beverages from line until liquor.

We've continued to see increasing beef cost pressure through July with preliminary period, 7 food and beverage costs as a percentage of restaurant sales of approximately 34%.

We recently locked approximately 10% of our total beef volume from mid September to mid March which will provide partial relief from what has been and record high beef pricing since the second quarter.

Labor continues to deliver savings above our original expectations.

As a percentage of sales labor improved 379 basis points compared to the pre COVID-19 second quarter of 2019.

Partly due to sales leverage against the management salaries and continued execution of our revised labor model.

We expect some of this benefit to be offset as we had management team members back into some restaurants.

We are revising our labor guidance from an improvement of 100 to 150 basis points that we shared in quarter, 1 to 250 to 300 basis points compared to a full year of 2019.

This guidance assumes the restaurants continue to operate with open dining room for the remainder of the year.

Marketing expenses as a percentage of revenue was 2.9% for the second quarter versus 3.7% and 2019.

We continue to expect a full year of marketing expenses to be and a range of $12 million to $14 million for the full year as our data and digital efforts accelerate.

G&A for the quarter was 7.9% of revenue and increased $1.7 million compared to the second quarter of 2020 due to increased performance based compensation related expenses.

As a percentage of revenue year to date G&A decreased 290 basis points to 8.1% full.

Full year G&A is expected to be between $32 million and $33.5 million.

This reflects an increase from earlier guidance due to higher incentive based compensation, resulting from better than anticipated results excluding.

Excluding the impact of this incremental incentive compensation G&A would be between 29, 5% and $30.5 million.

At the end of the quarter, we had $87 million and cash and throughout the quarter, we'd be repaid $45 million of debt, resulting in a balance of $70 million on our credit facility and.

As of August 4th our cash balance of approximately $95 million and our outstanding debt remained at $70 million.

Our strong recovery in the quarter was due to our guests trusting us with their health and safety as they enthusiastically returned to dining out.

The team members also remain diligent and focused to deliver incredible margins, while maintaining guest satisfaction and beyond pre pandemic levels I wanted to add my thanks to these restaurant teams for all they do daily to ensure the guest feel special when they come to our restaurants and.

And with that let me turn the call over for questions.

And.

And at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on of the TOEFL and keep it at a confirmation tone will indicate your line is and the question queue.

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Participants using speaker equipment at may be necessary to pick up your hands at before Christmas turkeys.

1 moment, please while we pull for questions.

Our first question is from Brian Vaccaro with Raymond James. Please proceed with your question.

Thank you and good morning and I.

And I appreciate that I guess, we'll start on sales of if that's okay. I appreciate the quarter to date update at the average weekly sales just under 100 for and comps up and the high teens and I would assume that it reflects some differences in seasonality versus pre COVID-19, but maybe if you could just provide some more color on what youre seeing in July versus May and June any regional con.

Tax day of the week differences and consumer behavior that are worth, noting and then if you back out or if it's possible to do this but I think for special occasions like mother's day and father's day had been quite strong moving through May and June is it possible to sort of back those out and and give us a sense of how different the underlying normal day of the week.

Trends are in June and July versus May and June.

Yeah, So Brian let me try to take the first part of your question you know gets going to July you mentioned, there's some seasonality. We're obviously very happy with what we're seeing and the consistency of the accelerated return of our guests into our restaurants as we increase capacity and you know at towards the end at for most of the second.

Quarter, we had restrictions still but we were able to.

Chart opening more towards the end of the second quarter and even so instead of third quarter. So I think youre, starting to see and some of that as well.

A question on region regional and I mentioned, the Boston, Hawaii, and New York market versus the Florida, Texas, California, and July I think it's interesting and I will share of this and this goes to some of the geography and and region. All of that you mentioned around and seeing that the group of restaurant, Florida, Texas and California.

Approximately 35, and still seeing kind of the Boston, Hawaii, New York markets on the flip side of that down and the mid thirties and so.

Not fully recovered and some of the markets that we've been talking about all year, we are slowly to christy's point, starting to see some of that recovery as things open up and and why you're obviously, a great deal around international travel and but still seeing some of the same trends we've been seeing earlier as far as the different markets and how geography at is impacting the sales overall.

Yeah.

Okay. Thanks, that's helpful and shifting gears to margins, if we could on the commodity inflation side I heard of beef up 27% I think you said in Q2, Christy what was the overall basket inflation that you saw in Q2.

Yes, it was about.

16 for 15% to 16% and we saw the benefit though and some of the liquor beer wine categories that offset.

Some of the the food and food costs that we thought and the basket.

Okay, Okay, and I heard your comments on on on able to lock in a little bit of of your beef exposure over the next I think 6 months it sounded like but obviously a dynamic environment, but can you walk through your Q3, and Q4 commodity inflation expectations and just curious what you're hearing as it relates to beef market fundamentals and how.

And the next few quarters could play out.

Yeah, I mean, what I can say is we share July because we obviously have more certainty and to that and as we look forward. There's still uncertainty I think you know you published some research that is the same thing that we're seeing right, which is part of our basket of starting to see and and in the beef category is starting to see some deflation.

Remember, we lag that a little bit right. So as prices come down it takes us 2 to 4 weeks before we start to see that and our overall basket and.

And it comes through our come through our restaurant P&L.

And then the rest of the basket is still kind of increasing where we haven't quite seen at top out yet so we're uncomfortable providing direct kind of pricing.

Pricing guy at at our I'm, sorry on Cogs guidance right now just because of that pricing volatility what I can share is that you know year over year debt, that's probably that 500, or so basis points that I shared bringing us from 2019% to 34% and 2021 is a combination.

Of the the lowest seasonal period that we typically see sort of this year continues to go as most years July would be the lowest seasonal period at the time and we expect that prices have peaked for US. We have started to see very early signs and the last week ish of July and the first week.

<unk> of August that our beef pricing per pound has started to come down a little bit, but its certainly a slower recovery than we would have originally anticipated and I think you'll recall, we guided 15% to 20% when we have some certainty into June and unfortunately.

As of June came in and it came in much stronger and higher prices than we had anticipated, which resulted and the increase versus our 15% to 20% guidance originally and it came in at 27 per cent.

Okay. That's that's great and very helpful last 1 of us sort of tied to that Cheryl and and the rest of the same what's your posture towards menu pricing and can you.

And remind us how much was in the menu and Q2 and and how do you see the next few quarters, playing out from a menu pricing standpoint.

Yeah, I think we mentioned this on the last call that we're looking at pricing and we did take pricing and Mei.

And we've all we've historically been strategically look at at pretty much every quarter and have done that even through the pandemic and into the recovery and obviously, we wait several factors and we're looking at that from you know pricing do we think it's it's permanent are more transitory do we believe that the guests and the consumer is willing to take the pricing.

And on and that we can see that flow through or do they start managing their check and so we're looking at that we will continue to look at it I think we are you know as we go into the back half depending on to Christy's point of what we see here with some of the moderation of beef costs, we'll take that into consideration as well but.

But we certainly look we can look at this point item by item and have a view into that and so and I think there's a willingness to continue to look at that and if we feel there's an opportunity to take price to offset some of these and we believe their longer term then we will we will do that.

Okay, and sorry, if I Miss at how much pricing did you take and may or what's the effect of pricing in the menu year on year of currently yes, yes for the effect of pricing in the menu right now was approximately 4%.

And that includes the 2 and a half a little over 2.5% that we took in may and coupled with some carryover price from the prior year that will begin to lap in Q4.

Excellent. Thank you.

Thank you Brian.

And our next question is from Andy Barish with Jefferies. Please proceed with your other question.

Hey, good morning.

And that subject and.

Can you give us the other components of.

The comp I know that the 1 year is kind of crazy, but maybe versus 19 or something.

For the for the quarter, Yeah in terms of in terms of entrees and and mix and addition to that pricing.

Yeah. So what I'll say is that we were at.

5 per cent for the quarter, we saw traffic.

And negative versus 2019 and April and May and June was the first positive traffic that we've seen.

Albeit it was.

Low single digit positive traffic and June and then as we entered into July where we continue to see check flow through along with slightly higher traffic increases.

Got it helpful and I don't know if you look at the Knapp track you know steak data I mean, you guys are so low that recovery that we've seen and that data is.

Is that do you think that's more of your geographic dispersion of if you you know if you take out those those big Hawaii, and New York and Boston locations.

Yeah, Andy we you know we look at at obviously as well and I do I think Theres. Some you know through the recovery just based on things you pre Covid you didn't see you weren't considering things about who was locked down when and which restriction blasted longer and all of that has an impact across the system and our footprint. So.

I think theres of relevancy issue for the time being around you know looking at them.

Systems in their entirety versus trying to break it out so I I mentioned, even in July you know, we see 3 regions that are up 35% and 3 regions that are down 35 per cent. So yes, I think of a great deal of it is related to.

Geography, as well as just the base of the base rate. So what was the a and b debt you're building from and so generally we.

We're finding that's the case and we backed out somebody's longer restricted markets or international tourism, we back those out and look at our system, but it's performing well.

Great and then just 1 other top line question on and I guess margin implication question as well on you mentioned lower discounting and that's just not something I really.

Kind of ever thought of with the brand is there an example, or 2 of kind of what's going on today and and now we're seeing that across the entire industry. There's just much less discounting and promotions but.

Anything specific to your brand and that.

That you'd call out.

Yeah. The 1 thing I can call out of just off the top is there its not necessarily traditional discounting like you would see we don't we don't bring people and for a discount at stake we have of classics menu that we refer to right at a discount and we are seeing preference for the classics being reduced.

Towards larger entrees.

So that's part of it.

The other part I would say could.

It could be related to.

Gift card discounts that might come through.

So.

And like a bounce back or a.

$100 gift card that we felt like Costco for $79.

So overall of that yes.

Helpful. Thank you.

Thanks, Andy.

Our next question is from James Rutherford with Stephens, Inc. Please proceed with your question great. Thank you Cheryl and I wanted to start with a bit of a higher level question of.

A lot of habits have changed during the pandemic and 1 of those positive dynamics has been because consumers have tried a lot of new things didn't before I'm. Just curious is there a way for you to measure the level of new guests that are coming into your restaurants and to the extent that you've seen an uptick and trial for Ruth.

During the recovery what are your thoughts on being able to retain some of those as regular customers for the future.

Yeah, Great question, and so I think the area that we can so we can track and most of the restaurant guests can opt in to a discussion of first time users. So that's helpful for on premise, where I think we've seen the most increase of first time users is actually and our Ruth's anywhere program. So we started to see a young.

Gert more affluent guests try and reached for the first time through our takeout and delivery program and to your 0.1 of the things I mentioned is about our data and digital initiatives and the investment we're making to ensure that as we are able to understand who those guests are that we are you know.

Ensuring we are building a relationship with them staying in touch with them and our ultimate goal is to take that first time guests and that 1 experience and translate it to a lifetime of usage. So that's really the foundation of the idea of the hospitality piece I mentioned and the knowing our guests piece of to drive frequency and so yes, we are interested.

And at we are investing in it and that is the intended goal of to make sure. We're capturing those new users and make them lifetime guest of routes.

Okay, perfect and <unk>.

I think there was a mention of the new Pos system.

System and I think previously we had talked about a new booking and management system that you're using as well can you talk about some of the specific benefits and if youre seeing those get on the P&L and where we should expect to see some of those benefits.

Yeah, So I'll take that 1 to start so from from just.

And just to levels that we are still implementing right. So this is it's a long process to get this implemented and we don't believe that we'll see full scale benefit of both of the labor management system, nor the Pos until the first part of next year.

And as we work through that its allowing us to streamline menu keys tie into better labor and demand forecasting using data from both the Pos and the labor management system will help us from a margin efficiency perspective, and then obviously, we've talked about data driven hospitality.

And knowing our guests knowing their preferences to a greater degree than we do today, we believe will drive frequency and <unk>.

Top line for us.

Alright, then my last 1 is on the cost of sales piece of this you're seeing about 500 basis points I think I heard of deleverage in July versus a couple of years ago.

With 4% menu pricing and pretty high commodity inflation clearly.

And you're thinking of big mixed benefit on a 2 year stack basis as well I'm just curious how much of that positive mix is impacting your cost of sales I would assume it's a positive to see more salads and more appetizers et cetera, but can you comment on the mixed benefit and helping offset some of those commodity headwinds.

Yes, certainly I mean to your point appetizers and salads have a higher gross margin gross profit than that of the larger entrees, but we are seeing also of shift up to larger excuse me for a larger entrees at offsetting some of the benefit and price that we're seeing and apps and salads.

Okay.

Thank you.

Okay.

And again as a quick reminder, if you have any questions you May press star 1 on your telephone keypad.

This way you will join the queue.

Our next question is from Nicole Miller from <unk>.

Per standard. Please proceed with your question.

Thank you good morning, and you touched on you know menu price increases and the opportunity for pricing how are the pricing power of that you'd probably.

Obviously, you have in terms of of brand equity perspective, I'm curious I'm talking about the behavior of consumers spending more of what is the average check our average transaction. These days.

How does it compare to where it was.

Yeah. So average check for the quarter was about 80, alright at $87 and I can't remember writing 88 at almost $88.80, 785, that's about a 5 dollar increase.

Okay, and essentially behind you.

And that was coming from they were people of sound like they're eating more right there right there certainly eating more.

They're adding for adding apps and salad and dessert.

2 what cause of the larger entrees as well, but they're off of purchasing.

And of course, I think kind of thing and we talked about this and the last quarter at the idea of it there's pent up celebratory occasion that people feel like this has been something they've missing they've known ruth's it hasn't necessarily been and our lives at the point of debit, so and they're coming and they're making that decision to choose.

And truly celebrate and build check and that's as Christie said and ordering additional items and trying different things and so we're seeing that continue through the second quarter. As we saw that continues for the second quarter as well.

And I'm not sure you have this but I was just thinking about how much pricing power must be must be on your system. We see everything let's say below you segment experiential at.

Picking anywhere from call it 5 to low.

And 10.2030 per cent and depending on the channel that they're operating and price.

And but there used to be a bunch of your peers public. So we could take a look at that average check and plenty of them are well north of 87 do you have any idea of where they stand today and.

How are you gauging your pricing power just you know on absolute basis first of your brand historically relative to what they're doing as well.

Yeah, So I'll start and end and Sheryl can add.

And if she has something so what I can tell you is you know as we did this latest pricing route and since then as we've seen commodity costs grow we are on a regular basis every 4 weeks or so shopping our competitors and looking at their pricing and comparing it against.

Unlike product on our menu and up until now so far we haven't seen broad scale price increases across entrees and so we're being very surgical about where we think our pricing power is at.

And making sure that we stay you know certainly on top of it and don't fall behind particularly on proteins. If if our competitors what we see in the marketplace from our competitive set is that they are raising prices. So far we have not seen that I think the benefits are coming from check billed.

More so than pricing power across the fine dining segment.

And of course, the other thing I'll add that on and I think you know it's historically, we've been at the lower end of our competitors and and tried to have more value opportunity on our menu for our guests as our broad base requires and we want to support going forward, but to Christy's point. We are we are on a regular more frequent basis I would say at them.

Pre COVID-19 and looking at the opportunities around price and where the how the consumer is behaving and how and how long celebratory type of occasions will will continue.

And then just a second and last topic for me I think we too have been tracking of Knapp track data and that is a fantastic question and topic, well, we're not able to do and I'm not sure. If you have done at maybe could be done is I would imagine youre dealing with the law of low numbers.

Let's say of that index versus casual dining to begin with and then you might've been I would imagine the strongest of the strong so the week that didn't completely fall out that actually like made it through or just having massive percentage changes. If you can eliminate that bottom cohort do you look like the app.

Or better is what I would be wondering.

Yeah, So and so I think your your hypothesis is correct, while we haven't necessarily run the exact numbers, yet I think youre right. The law of averages and smaller numbers for a review of these higher percentages that youre seeing and Knapp track I think the other thing I would say is.

And.

And looking at at other.

Releases and information on.

Credit seems to be what's bringing some of these competitive our competitors into more positive territory versus just on prem dining where our off premise of a little bit smaller share overall.

When we look at that.

Cool.

Just to add to that we have done some work and I think I mentioned at when Andy around you know trying to get the noise and some of the.

Average volumes of different different concepts and looking at where we are specifically and markets against it and we feel we feel positive about how we're performing at.

When we start to try to strip out some of the noise of of.

Smaller E vs versus where we are and the geography impact of it. So we are able to do that work and we are confident and really pleased with where our sales our year.

I'm, sorry, just to be clear of that that work. We've done is more against the black box view.

Net and you know Knapp track, we watch but.

We haven't quite gotten to that type of event.

And yet with Knapp track that's it for me.

Alright.

That's right and like some of that we were just not privy to so to the degree you can.

Even site some of those numbers, possibly into the future it could be beneficial but nonetheless, thank you very much for taking my question I appreciate it.

And a cool.

Okay.

Our next question is from Todd Brooks with CL King and Associates. Please proceed with your question.

Hey, good morning of few.

Few small wrap up questions here and if we talk about.

Off premise of retention.

And as same store sales are accelerating as you see this lift and the business from June.

How is the off premise revenue mixed maintaining and.

Where do you where do you anticipate that settling out versus fee.

And almost 5 fold increase that you saw during the pandemic.

Yeah. Thanks, Todd and this is this is Sarah let me just briefly say I think you know we have seen a fairly consistent as a restaurant that opened where it fell out I think we last mentioned around 8 to 10 per science the quarter saw that that level of of retention and the program I think where we expect at.

And to go with somewhere between 5 and 7% over time, which makes sense given the experience we offer and our 4 walls. So as we think about more people, especially through Q2 being willing to come out they want to experience the hospitality the the person to person relationship that we have with them.

And inside the restaurants, and it's I would say the 5 to 7 per cent is of is much larger than our pre COVID-19 number. So I do think theres, some stickiness and we built a new channel for our brands and we.

Wanna be there for people when they they feel like that's the best and that's the best approach for the experience. They can have on and give at night.

Our work pre Covid and told US at that is you know.

And additional visits and so we're looking to see if that holds out as we continue on this 5 to 7 per cent going forward, but we've definitely been able to enhance through of COVID-19 be the platform, where people can order and can pick up at Ruth's and so we're happy to be there and meet the meet the guests where they need us.

Okay, great. Thanks, Cheryl and then.

Can you talk about how the restaurants are set up now or I know.

The distance from spacing between tables, a lot of competitors of kind of backed off of kind of 6 foot socially distanced and dining room configurations, I guess over the course of of the quarter do you at any seats back into the restaurant and.

If not how much of an opportunity is that for incremental volume over time versus the strong results for saying no.

I'll start and then share I'll kind of kept hop on here so.

Obviously mid quarter, we saw California fully reopen and our restaurant started to increase capacity that was by.

Adding tables back into the reservation system and moving from 50 to 75, and now up to 100 per cent capacity and.

We are you know it takes time you don't just flip a switch so it's taking us a little bit of time for us to get from 50% to 100% I would say, we're a couple of weeks away from having all of our restaurants to open 2.100% capacity on the reservation system, but just remember that really is.

Past us on only a couple of of days of week, and we are still leveraging some of our excess.

<unk> guidance base for all of the card so we're getting capacity beyond what of pre COVID-19.

Number.

Of tables would be and that same time period and so we are also starting to see private guy and reemerge and so that's you know small slowly we're starting to see some positive signs there and so that space of being.

Used up overtime as well.

And the private dining it's great to hear of it that's where you're merging is it too early to be giving a sense of.

Demand for holiday for from groups and.

Ease of situation, just still too fluid with the adult of variant of up there right now yeah.

I think at its fluid so while we have seen calls and bookings for the fourth quarter and into the holidays, but I. You know I think we are monitoring at to be at behavior changes. You know, we we started to see and there's actually has changed over the years I've been with the company for 14 years, we used to see bookings start and as early as of July and August.

As I said, we have seen bookings for the fourth quarter at this point, but I you know more recently in recent years, we start to see that really kick in and the September time frame. So a little soon to tell yes to your point and it's still fluid, but to Christie mentioned earlier, we have seen an uptick and bookings and actually as a percentage of sales over time and so we'll.

Well monitor it as we go and and.

See how and how the consumer reacts throughout the next few weeks and next couple of months.

Okay, great. Thanks for the questions I appreciate it.

Thank you.

And our next question is from Brian Vaccaro with Raymond James. Please proceed with your question.

Thanks, just 2 quick follow ups first on on the 3 underperforming markets can you remind us how many units and and maybe more importantly, the percentage of company sales those markets historically contribute.

Yeah, Brian This is Joe at 6 units.

And the Boston market, and Hawaii as well at the Manhattan store and New York.

Sorry, Brian can you repeat the second question second part of your kind of yes, just I I believe those are obviously at Manhattan, and probably Boston as well are kind of very high volume units. So we're talking 6 units. It's about 7.8 per cent of your unit count, maybe but as a percentage of sales.

Normally so we're talking roughly maybe 10% of of company owned sales and a normal environment. Yeah, I think that's right about 10%.

Okay, Great and then.

Christy the increase and the labor efficiency target to $2.50 to 300 bps does that reflect additional efficiencies that you realized or expect to realize and if so could you provide more color there or maybe that's an increase and your sales for cats driving some of that increased leverage.

So so we have not changed our efficiency I think I shared our efficiency at 15%, we're probably going at 12% to 15% range of as we look at the back half of the year, Although we will start to comp over some of the games as we puts us and in Q4 and that's factored into the $2.50 to 300, we continue to see leverage.

And primarily I would say right now because of of overall sales.

And more so than any change and efficiency guidance that we have provided before.

Very helpful. Thank you.

And its Brian.

Yeah.

And we have reached the end of the question and answer session and I'll now turn the call over to Charlotte for closing remarks.

Thank you everyone for joining the call today, and we look forward to speaking with you again soon have a great day.

This concludes today's conference and you may disconnect your lines at this time thank.

Thank you for your participation.

[music] day.

Yeah.

[noise] exactly.

Any questions on average.

And.

[music].

Good morning, ladies and gentlemen, welcome to today's Ruth's Hospitality group second quarter, 'twenty, 'twenty, 1 and earning conference call. At this time all participants are in a listen only mode. Following the company's formal remarks, we will conduct a question and answer session.

And that will be provided at that time for you to queue up for questions and.

As a reminder, today's conference call of is being recorded.

I would now like to turn the conference over to Kristy Chip and Chief Financial Officer. Please go ahead.

Thank you and good morning, everyone. Joining me on the call today of Cheryl Henry President and Chief Executive Officer and share person of the board for.

Before we begin I'd first like to remind you that part of our discussion today will include forward looking statements.

Statements are not guarantees of our future performance and therefore undue reliance should not be placed upon them at all.

Also encourage you to refer to the Investor Relations section of our website at <unk> Dot com as well as the SEC's website at SEC Gov for copies of today's earnings press release, and our recent filings with the SEC for a more detailed discussion of the risks that could impact our future operating and financial results.

During this call we will refer to adjusted earnings per share. This non-GAAP measure and that was calculated by excluding certain items.

And a challenging and ever changing environment.

As you know the pace of recovery began to accelerate during the second quarter and we witnessed our guests enthusiastically coming back to dine and our restaurants.

While also making sure they feel safe and our restaurants.

Truly believes their focus on operational excellence and unparalleled hospitality is the reason our brand continued to recover well during the second quarter.

And to that point I'm pleased to report and we achieved strong sales performance with comp sales of 5%. Despite capacity restrictions that were in place for much of the quarter excluding.

Excluding the impact of Boston, Hawaii, and Manhattan comps were up 11, 1%.

And that sales momentum for the entire system continued in July with comps for the first 4 weeks of the period of approximately 17%.

Our franchise partners also performed well delivering comp growth of 7.5 per cent and domestic franchise comp sales increasing 17, 3%.

It's also of the best Q2 margin and over 5 years.

We will weather any near term impacts and remain committed to investing and the long term future of our bad debt.

To that end, we are on schedule to open 2 to 3 company owned restaurants by year end, including sites and New Jersey, and Long Island, New York.

In addition, we recently signed and management agreement for a new restaurant that will open and the soaring Eagle Casino and Mount Pleasant, Michigan, and 2020.2.

Looking ahead, we expect to have 7 company owned or managed restaurant openings by the end of 2020, 2 and we'll continue to evaluate additional opportunities for development.

On our last call we reiterated the commitment we made in 2019 to invest strategically and our technology platforms and digital future.

As a reminder, and 2019, we stated that our focus for these investments are reducing the friction and the experience for both our GAAP and our team members and enhancing our hospitality to drive frequency and increasing productivity and efficiency to optimize margin.

We have made meaningful progress during the quarter.

Beginning with the implementation of phone <unk> technologies, including New P O S and labor management systems.

We continue to focus on maintaining a healthy balance sheet and we'll evaluate all options to maximize shareholder value over the long term.

That means smartly allocating capital to grow and create value for all our stakeholders, which room on staff.

Ending goal.

On top of our list is further debt reduction for the remainder of this year as well as investing in and opening for 7 new units through calendar 2020..2 at the same time, we will continue that investment and data and digital transformation.

Because of the future of Ruth's, Chris will be driven by better understanding our guests and the use of technology to improve their brand experience.

Finally, we will continue to evaluate reinstating our dividend as well as future share repurchases as we gain more visibility through the back half of the year.

We are fortunate that the performance of our teams has allowed us to satisfy our leverage covenants. So that we were able to consider these additional options going forward.

Okay.

All in all we are of stronger and more nimble enterprise and we are excited about the future I'm grateful to our team members and franchise partners that deliver excellence every day.

I'll now turn the call over to Kristy Chipman.

Thank you Sarah for the second quarter ended June 27, 2021, we reported GAAP net income of $12.4 million for 36 cents per diluted share compared to a net loss of $17.6 million or of 59 cents loss per diluted common share during the second quarter of 2020.

Net income and the quarter of 2021 and included a $65000 employee retention and payroll tax credit, which reduced operating expenses.

It also included approximately $394000 of loss on impairment and restaurant closure costs and at $26000 income tax benefit related to the impact of excluding certain discrete income tax items.

Excluding these adjustments non-GAAP diluted earnings per common share was <unk> 36, compared to a loss per common share of 48, and the second quarter of 2020.

Total revenues for the quarter were $110.9 million compared to $110.2.002 million 19 company owned restaurant sales for $104.2 million compared to $104 million and 2019, despite operating 6 fewer restaurants in 2021.

Comp sales for the quarter were up 286, 6% versus 2020 compared to 2019 comp sales for the quarter increased 5% and 5 months were up 2.1 and April up 6% and May of 7.4% in June.

Average check for the quarter was up driven by menu pricing less discounting and and increased preference for larger entrees appetizers and palace.

While we have seen improvement across all regions during the second quarter, Texas, and Florida continued to be highlighted with comp sales of 46% and 24% respectively.

As noted last quarter, Boston, Hawaii, and Manhattan have been slower to recover towards 2019 level.

And with New York Theater District expected to open at September and International Tourism slowly returning to Hawaii, we are seeing positive signs of sales recovery in these areas.

Franchise income for the quarter was for $5 million and was up $100000 versus 2019, while other operating income was $2.2 million of zero point $4 million versus second quarter 2019.

Overall restaurant margins during the second quarter 2021 were better by 340 basis points compared to second quarter 2019, due to sales leverage from average check increases as well as efficiencies and labor and lower other operating and occupancy expenses.

Food and beverage cost for the quarter were 33% as of.

As a percentage of restaurant sales these prices during the quarter increased approximately 27% and 34 per cent compared to last year and 2019, respectively.

And then and the impact of overall cost of sales was partially offset by deflation and produce dairy and a mix shift with and alcoholic beverages from wind and silica.

We continue to see increasing these cost pressure through July with preliminary period, 7 and food and beverage costs as a percentage of restaurant sales of approximately 34%. We recently locked approximately 10% of our total beef volume from mid September to mid March which will provide partial relief from what has.

Bed and record highs of these pricing since the second quarter.

Labor continues to deliver savings above our original expectation.

As a percentage of sales labor improved 379 basis points compared to the pre COVID-19 second quarter of 2019.

Partly due to sales leverage against the management salaries and continued execution of our revised labor model.

We expect some of this benefit to be offset as we on management team members back into some restaurants.

We are revising our labor guidance from an improvement of 100 to 150 basis points that we shared in quarter, 1 to 250 to 300 basis points compared to a full year of 2019.

This guidance assumes the restaurants continue to operate with open dining rooms for the remainder of the year.

Marketing expenses as a percentage of revenue was 2.9% for the second quarter versus 3.7% and 2019.

We continue to expect full year of marketing expenses to be and a range of $12 million to $14 million for the full year as our data and digital efforts accelerate.

G&A for the quarter was 7.9% of revenue and increased $1.7 million compared to the second quarter of 2020 due to increased performance based compensation related expenses.

As a percentage of revenue year to date G&A decreased 290 basis points to 8.1% full.

Full year G&A is expected to be between $32 million and $33.5 million.

This reflects an increase from earlier guidance due to higher incentive based compensation, resulting from better than anticipated results excluding.

Excluding the impact of the incremental incentive compensation G&A would be between 29, 5% and $35 million.

At the end of the quarter, we at $87 million and cash and throughout the quarter, we repaid $45 million of debt, resulting in a balance of $70 million on our credit facility and.

As of August 4th our cash balance of approximately $95 million and our outstanding debt remained at $70 million.

Our strong recovery in the quarter was due to our guests trusting us with their health and safety at <unk>.

Physiatrics they've returned to dining out of the.

Team members also remain diligent and focused to deliver incredible margins, while maintaining guest satisfaction and beyond pre pandemic levels.

I wanted to add my thanks to these restaurant teams for all they do daily to ensure the guest feel special when they come to our restaurant and.

And with that let me turn the call over for questions.

Yes.

And at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad and confirmation tone will indicate your line is and the question queue.

You may price starting to if you would like to remove your question from the queue for participants using speaker equipment at may be necessary to pick up your handset before Christmas turkeys.

1 moment, please while we pull for questions.

Our first question is from Brian Vaccaro with Raymond James. Please proceed with your question.

Thank you and good morning.

I appreciate that I guess, we'll start on sales if that's okay. I appreciate the quarter to date update at the average weekly sales just under 100 for and comps up and the high teens and I would assume that does reflect some differences in seasonality versus pre COVID-19, but maybe if you could just provide some more color on what youre seeing in July versus May and June any regional con.

Tax day of the week differences and consumer behavior that are worth, noting and then if you back out on if it's possible to do this but I think for special occasions, like mother's day and father's day and have been quite strong moving through May and June is it possible to sort of back those out and and give us a sense of how different the underlying normal day of the week.

Trends are in June and July versus May and June.

Yeah, So right and let me try to take the first part of your question you know gets going into July you mentioned Theres. Some seasonality. We're obviously very happy with what we're seeing and the consistency of the accelerated return of our guests into our restaurants as we increase capacity as you know at towards the end at for most of the second.

Quarter, we had restrictions still but we were able to.

Start opening more towards the end of the second quarter and even into the third quarter. So I think youre, starting to see and some of that as well.

Question on region regional and I mentioned, the Boston, Hawaii, and New York market versus the Florida, Texas, California, and July I think it's interesting and I will share of this and this.

And to some of the geography, and and region all of that you mentioned around seeing.

For the group of restaurants, Florida, Texas, and California of approximately 35, and still seeing kind of the Boston, Hawaii, New York markets on the flip side of that down and the mid 30 and so.

Not fully recovered and some of the markets that we've been talking about all year, we are slowly to christy's point, starting to see some of that recovery as things open up and why you're obviously, a great deal around international travel, but still seeing some of the same trends we've been seeing earlier as far as the different markets and how geography at is impacting the sales overall.

Al.

Okay. Thanks, that's helpful and shifting gears to margins, if we could on the commodity inflation side I heard beef up 27% I think you said in Q2, Christy what was the overall basket inflation that you saw in Q2.

Yeah It was about.

<unk> for 15, and 16% and we saw benefit, though and some of the liquor beer wine categories that offset.

Some of the food and food costs that we saw on the basket.

Kind of the next few quarters could play out.

Yeah, I mean, what I can say is we share July because we obviously have more certainty and to that and as we look forward. There's still uncertainty I think you published some research that is the same thing that we're seeing right, which is part of our basket is starting to see and end of.

These category is starting to see some deflation and remember we lag that a little bit right. So as prices come down it takes us 2 to 4 weeks before we start to see that and our overall basket.

And come through or come through our restaurant P&L and then the rest of the basket is still kind of increasing where we haven't quite seen at top out yet so we're uncomfortable providing direct kind of.

Pricing guide at or Im sorry on Cogs guidance right now just because of that pricing volatility what I can share is that year over year, that's probably that 500, or so basis points that I share and bringing us from 2019% to 34% and 2021 is a combination.

And of the lowest seasonal period that we typically see so at this year continues to go as most years July would be the lowest seasonal period at the time when we expect that prices have peaked for US we have started to see.

Early signs and the last week of July and the first week of.

Of <unk>.

And that our beef pricing per pound has started to come down a little bit, but its certainly a slower recovery than we would have originally anticipated and I think you'll recall, we guided 15% to 20% when we have some certainty into June and Unfortunately as John as June came in at <unk>.

And much stronger and higher prices than we had anticipated, which resulted and the increase versus our 15% to 20% guidance originally and came in at 27%.

Okay. That's that's great and very helpful last 1 sort of types of that Cheryl and and the rest of the same what's your posture towards menu pricing.

Can you remind us how much was and the menu and Q2 and and how do you see the next few quarters, playing out from a menu pricing standpoint.

Yeah, I think we mentioned this on the last called and we're looking at pricing and we did take pricing and Mei.

Pricing do we think it's it's permanent are more transitory do we believe that the guests and the consumer is willing to take the pricing on and that we can see that flow through or do they start managing their check and so we're looking at that we will continue to look at it I think we are you know as we go into the back half depending on to Christy's point of what we see here with some of the moderation of <unk>.

These costs will take that into consideration as well.

Okay, and sorry, if I missed it how much pricing did you take and may or what's the effect of pricing in the menu year on year. Currently yes, yes for the effective pricing and the menu right now is approximately 4%.

That includes the 2 and a half a little over 2.5 per cent that we took in may and coupled with some carryover price from the prior year that will begin to lap and Q4.

Excellent. Thank you.

Thank you Brian.

And our next question is from Andy Barish with Jefferies. Please proceed with your question.

Hey, good morning.

And that subject.

Can you give us the other components of.

The comp I know that the 1 year, it's kind of crazy, but maybe versus 19 or something.

For the for the quarter, Yeah in terms of in terms of entrees and and mix and addition to that pricing.

Yes, so at what I'll say is that we were at.

5% for the quarter, we saw traffic.

And the negative versus 2019 and April and May and June was the first positive traffic that we've seen.

Albeit it was low single digit positive traffic and June and then as we entered into July where we continue to see check flow through of along with slightly higher traffic increases.

Got it helpful and I don't know if you look at the Knapp track.

<unk> steak data I mean, you guys are so low that.

Recovery that we've seen and that data.

Is that do you think that's more of your geographic Pittsburgh and then if you if you take out those those big Hawaii, and New York and Boston locations.

Yeah, Andy we you know we look at it obviously as well and I do I think Theres. Some you know through the recovery just based on things you pre Covid you didn't see you aren't considering things about who was locked down when and which restriction blasted longer and all of that has an impact of across the system and our footprint. So.

I think theres of relevancy issue for the time being around you know looking at.

Systems in their entirety versus trying to break it out so I mentioned, even in July you know, we see 3 regions that are up 35% and 3 regions that are down 35 per cent. So yes, I think of a great deal of it is related to <unk>.

Thiago fee as well as just the base of the base rates of what was the a and b debt.

And that you're building from and so generally we were finding thats the case and we back out some of these longer restricted markets or international tourism, we back those out and look at our system, but it's performing well.

Great and then just 1 other top line question on and I guess margin implication question as well on you mentioned lower discounting and that's just.

Not something I really.

You know kind of ever thought of with the brand is there. An example, or 2 of kind of what's going on today and and and now we're seeing that across the entire industry. There's just much less discounting and promotions but.

Anything specific to your brand that debt.

That you'd call out.

The 1 thing I can't call out of just off the top is there its not necessarily traditional discounting like you would see and we don't we don't bring people in for a discounted stake we have of classics menu that we referred to write at a discount and we are seeing preference for the classic is being reduced.

Towards larger entrees.

So that's part of it.

The other part I would say could.

Could be related to.

Gift card discounts that might come through.

So.

And like a bounce back or a.

$100 gift card that we sell at Costco for $79.

So overall of that yes.

Helpful. Thank you.

Thanks, Andy.

Our next question is from James Rutherford with Stephens, Inc. Please proceed with your question great. Thank you Cheryl I wanted to start with a bit of a higher level question lot of habits have changed during the pandemic and 1 of those positive dynamics has been the cause of the consumers who have tried a lot of new things didn't before I'm just curious.

Is there a way for you to measure the level of new guests that are coming into your restaurants and to the extent that you've seen an uptick and trial for roof on.

During the recovery what are your thoughts on being able to retain some of those as regular customers for the future.

Yeah, Great question, and so I think the area that weekend and we we can track and also the restaurant guests can opt into a discussion of first time users and so that's helpful for on premise, where I think we've seen the most of increase of first time users is actually and our Ruth's anywhere program. So we started to see of young.

Girl more affluent GAAP.

Try and reached for the first time through our takeout and delivery program and to your 0.1 of the things I mentioned is about our data and digital initiatives and the investment we're making to ensure that as we are able to understand who those guests are that we are and <unk>.

During we're building a relationship with them staying in touch with them and our ultimate goal is to take that first time guests and that 1 experience and translate it to a lifetime of usage. So that's really the foundation of the idea of the hospitality piece I mentioned and the knowing our guests piece of to drive frequency and so yes, we are interested and.

And we are investing in it and that is the intended goal is to make sure we're capturing those new users and make them lifetime guest at Ruth's.

Okay perfect.

And then you I think there was a mention of the new Pos.

And system and I think previously we had talked about a new booking and management system that you're using as well can you talk about some of those specific benefits and if youre seeing those yet on the P&L and where we should expect to see some of those benefits.

Yeah. So so I'll take that 1 to start so from from.

Just just to levels that we are still implementing right. So this is it's a long process to get this implemented and we don't believe that we'll see full scale benefit of both of the labor management system, nor the Pos until the first part of next year.

As we work through that it's allowing us to streamline.

And your keys tie into better labor and demand forecasting and using data from both the Pos and the labor management system will help us from a margin efficiency perspective, and then you know obviously, we've talked about data driven hospitality and knowing our guests knowing their preferences to a greater degree than we do today, we bill.

Aleve will drive frequency and.

Top line for us.

Alright, then my last 1 is on the cost of sales piece of this you're seeing about 500 basis points I think I heard of deleverage in July versus a couple of years ago.

With 4% menu pricing and pretty high commodity inflation clearly.

You're thinking of big mixed benefit on a 2 year stacked basis as well I'm just curious how much of that positive mix is impacting your cost of sales I would assume it's a positive to see more salads and more appetizers et cetera, but can you comment on the mix benefit and helping offset some of those commodity headwinds.

Yes, certainly I mean to your point appetizers and salads have a higher gross margin gross profit than.

The larger on trade, but we are seeing also of shifts up to larger excuse me for larger entrees, that's offsetting some of the benefit and price that we're seeing and absent of salads.

Okay.

Thank you.

Okay.

And again as a quick reminder, if you have any questions you May press star 1 on your telephone keypad.

The way you will join the queue.

Our next question is from Nicole Miller of Piper.

Piper Sandler. Please proceed with your question.

Thank you. Good morning, you touched on you know menu price increases and the opportunity for pricing power and the pricing power that you probably.

Obviously, you have in terms of of brand equity perspective, I'm curious I'm talking about the behavior of consumers spending more of what is the average check our average transaction. These days.

How does it compare to where it was.

Yes, so average check for the quarter was about 80, sorry at $87 and I can't read my on writing 80, 88, almost $88.80, 785, that's about a $5 increase.

Okay.

And that was coming from people of sound like they're eating more right.

Right, they're certainly eating mark.

They are adding sort of adding apps and salad and dessert.

To what.

For larger entrees as well as our alpha purchasing.

And of course, I think kind of thing and we talked about this and the last quarter is the idea of it. There's this pent up celebratory occasion that people feel like this has been something they've missing they've known ruth's it hasn't necessarily been and that lies at the point of debit, so and they're coming and they're making that decision to.

Truly celebrate and build check and that's as Christie said and ordering additional items and trying different things and so we're seeing that continue through the second quarter. As we saw that continues for the second quarter as well.

And I'm not sure you have this but I was just thinking about how much pricing power must be must be in your system. We see everything let's say below you segment experiential.

Taking anywhere from call it 5 to.

And even 10.2030 per cent and depending on the channel that they're operating and price them, but they're used to be a bunch of your peers public so we could tell.

Oh look at that average check and plenty of them are well north of 87 do you have any idea of where they stand today and how.

How are you gauging your pricing power just you know on absolute basis first of your brand historically for relative to what they're doing as well.

And so I'll start and I'm sure all Ken and.

Add on if she has something so what I can tell you is as we did this latest pricing round and since then and we've seen commodity costs grow we are on a regular basis every 4 weeks or so.

<unk>, our competitors and looking at their pricing and comparing it against.

Unlike product on our menu and.

And up until now so far we haven't seen broad scale price increases on.

Ross Entrees and so we're being very surgical about where we think our pricing power is and making sure that we stay you know certainly on top of it and don't fall behind particularly on proteins. If if our competitors what we see in the marketplace from our competitive set is that they are raising prices so far.

I've not seen that I think the benefits are coming from check and build more so than pricing power across the fine dining segment.

And of course, the only thing I'll add that on and I think you know at historically, we've been at the lower end of our competitors and and tried to have more value opportunity on our menu for our guests as our broad base.

Requires and we want to support going forward, but it's at Christie's point. We are we are on a regular more frequent basis I would say than pre COVID-19 looking at the opportunities around price and where they are how the consumer is behaving and how and how long celebratory type of occasions will will continue.

And then just a second and last topic for me I think we.

We too have been tracking of Knapp track data and that is a fantastic question and topic, well, we're not able to do and I'm not sure. If you have done at maybe could be done is I would imagine you're dealing with the law of low numbers, let's say of that index versus casual dining to begin with and then you.

Might of been I would imagine the strongest of the strong so the week that didn't completely fall out that actually like made it through or just having massive percentage changes. If you kind of eliminate that bottom cohort do you look like the average or better is what I would be wondering.

Yeah. So I think your your hypothesis is correct, while we haven't necessarily run the exact number as yet I think you are right. The law of averages of the smaller numbers for any view these higher percentages that youre seeing and Knapp track I think the other thing I would say is.

And and looking at at other.

Releases and information on.

Off premise seems to be what's bringing some of these competitive our competitors into more positive territory versus just on prem dining where our off premise of little bit smaller share overall.

When we look at that.

Just to add to that we have done some work and I think I mentioned at when Andy around you know trying to get the noise and some of the you know.

Average volumes of different different concepts and looking at where we are specifically and markets against it and we feel we feel positive about how we are performing.

When we start to try to strip out some of the noise of of.

Smaller E vs versus where we are and the geography impact of it. So we are able to do that work and we are confident and really pleased with where our sales are yes.

Yeah, and sorry, just to be clear of that that work. We've done is more of against a black box view.

Napster and Knapp track, we watch but.

And we haven't quite gotten to that type of a level yet with Knapp track that's for me.

On it.

That's right and like some of that we said, we're just not privy to so to the degree you can.

Even site some of those numbers, possibly into the future it could be beneficial but nonetheless, thank you very much for taking my question I appreciate it.

And a cool.

Okay.

Our next question is from Todd Brooks with CL King and Associates. Please proceed with your question.

Hey, good morning of few.

Few small wrap up questions here, if we talk about.

Off premise of retention.

And.

Same store sales are accelerating as you see this lift and the business in June.

How is the off premise revenue mixed maintaining and.

Where do you where do you anticipate that settling out for Sanofi.

And most fivefold increase that you saw during the pandemic.

Yeah. Thanks, Todd and this is this is Sarah let me just briefly say I think you know we have seen a fairly consistent as a restaurant that opened at where it fell out I think we last mentioned around 8 to 10 per stance the quarter saw that.

That level of of retention and the program I think where we expect it to go with somewhere between 5 and 7 per cent overtime, which makes sense given the experience we offer and our 4 walls. So as we think about more people, especially through Q2 being willing to come out they want to experience the heart.

Fatality at the the person to person relationship that we have with them inside the restaurants and it's.

I will say at a 5% to 7% as of is much larger than our pre COVID-19 number. So I do think theres, some stickiness and we've built a new channel for our brands and we want to be there for people when they they feel like that's the best and that's the best approach for the experience. They can have on and give at night.

At work pre Covid and told us at that is a.

And additional visits and so we're looking to see if that holds out as we continue on this 5 to 7 per cent going forward, but we've definitely been able to enhance through COVID-19. The the platform where people can order and can pick up at Ruth's and so we're happy to be there and meet the.

And the guests where they need us.

Okay, great. Thanks, Cheryl and then.

Can you talk about other restaurants are set up now or I know.

The distance from spacing between payables, a lot of competitors of kind of backed off of kind of 6 foot socially distanced.

And your room configurations, I guess over the course of for the quarter did you at any seats back into the restaurant and.

And if not how much of an opportunity is that for incremental volume over time versus the strong results for saying now.

I'll start and then share I'll kind of kept pop on here so.

Obviously mid quarter, we saw California of fully reopen and our restaurant started to increase capacity that was by.

Adding tables back into the reservation system and moving from 50 to 75 and now up to 100 per cent capacity.

We are at takes time, you don't just flip a switch so it's taking us a little bit of time for us to get from 50% to 100% I would say, we're a couple of weeks away from having all of our restaurants open to 100% capacity on the reservation system, but just remember that really.

Asks us on only a couple of of days of week, and we are still leveraging some of our.

Excess.

Divot guidance based for our cars, so we're getting capacity beyond what of pre COVID-19.

And number of tables would be and that same time period and so we are also starting to see private die and re emerge and so that's you know small slowly we're starting to see some positive signs there and so that space of being.

Used up overtime as well.

And the private dining it's great to hear that that's where you're merging is it too early to be giving a sense of.

Demand for holiday for from groups and.

Situation, just still too fluid with the delta bearing and out there right now yeah.

I think at its fluid so while we have seen calls and bookings for the fourth quarter and into the holidays, but you know I think we are monitoring at to see if behavior changes and we we started to see and there's actually has changed over the years I've been with the company for 14 years, we used to see bookings start and it's early as of July and on.

August and as I said, we have seen bookings for the fourth quarter at this point, but I you know more recently in recent years, we start to see that really kick in and the September time frame. So a little soon to tell yes to your point and it's still fluid, but to Christy's mentioned earlier, we have seen an uptick in bookings and actually as a percentage of sales over time and so.

And we'll we'll monitor it as we go in and.

See how and how the consumer reacts throughout the next few weeks and next couple of months.

Okay, great. Thanks for the questions I appreciate it.

Thank you.

And our next question is from Brian Vaccaro with Raymond James. Please proceed with your question.

Thanks, just 2 quick follow ups first of on the 3 underperforming markets and can you remind us how many units and and maybe more importantly, the percentage of company sales those markets historically contribute.

Yeah, Brian This is Cheryl at 6 unit.

And the Boston market, and Hawaii as well at the Manhattan store and New York.

Sorry, Brian can you repeat the second question second part of your kind of yeah. Just I believe those are obviously of Manhattan, and probably Boston as well are kind of at very high volume units. So we're talking 6 units. It's about 7 to 8 per cent of your unit count, maybe but as a percentage of sales normally so we're talking roughly.

And maybe 10% of of company owned sales and a normal environment, Yes, I think that's right about 10%.

Okay, Great and then.

Christy the increase and the labor efficiency target to $2.50 to 300 bps does that reflect additional efficiencies that you realize or expect to realize and if so could you provide more color there or maybe that's an increase and your sales for cats driving some of that increase leverage.

So so we have not changed our efficiency I think I shared our efficiency at 15%, we're probably going at 12% to 15% range as we look at the back half of the year, Although we will start to comp over some of the games as we puts us and in Q4, and that's factored into the $2, 50% of 300, we continue to see leverage.

And primarily I would say right now because of of overall sales.

More so than any change and efficiency guidance that we have provided before.

Very helpful. Thank you.

And its Brian.

And we have reached the end of the question and answer session and I'll now turn the call over to Cheryl Henry for closing remarks.

Thank you everyone for joining the call today, and we look forward to speaking with you again soon have a great day.

This concludes today's conference and you may disconnect. Your line at this time.

Thank you for your participation.

Q2 2021 Ruth's Hospitality Group Inc Earnings Call

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