Q4 2021 Ruth's Hospitality Group Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to today's Ruth's Hospitality group fourth quarter 2021 earnings 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 instructions will be.
Find it at that time for you to queue up for questions.
As a reminder, today's conference is being recorded I would now like to turn the conference over to Kristy Chapman, Chief Financial Officer, and Chief Operating Officer. Please go ahead.
Thank you Sherry and good morning, everyone. Joining me on the call today is Cheryl Henry our President and Chief Executive Officer, and chairperson of the Board and Michael Hi, Vice President of Finance and accounting.
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 our future performance and therefore undue reliance should not be placed upon them. We would also encourage you to refer to the Investor Relations section of our website at <unk> Dot com as well as the <unk>.
He sees 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 in our press release for today's call.
I'd now like to turn the call over to the company's Chief Executive Officer, Cheryl Henry.
Thank you Christie and good morning, everyone. Let me begin by expressing my gratitude to all our team members and franchise partners for their continued hard work and dedication during this past year.
Our success is a direct result of their ability to adapt to a changing environment and deliver on our strategic initiatives.
Our performance in 2021 has demonstrated that our iconic brand remains relevant across generations and our underlying business is strong.
To that end, we've returned to positive sales in the second half of the year as well as new unit growth.
Strengthened our balance sheet and liquidity position reinstated our share repurchase program and more recently reinstated our dividend.
Highlights for the fourth quarter included a 61% increase in comparable sales driving restaurant sale Junior 120 million with adjusted earnings of 34 cents per share.
Notably comparable sales were positive in October strengthened further in November before softening in December due to the emergence of all.
Late in the quarter.
Comps were also impacted by approximately 640 basis points due to the underperformance of our restaurants, and Boston Manhattan and Hawaii.
Looking to the first quarter of 2022 January continues to feel the effects from the virus, but I am pleased to report that we've seen a rebound in sales in February with comp sales are positive four 3% to eight weeks of the quarter.
With that we believe our underlying business remains strong and based on our accomplishments in 2021, and thus far in 2022, we're committed to investing in the long term growth and health of our business.
As we look to the remainder of 'twenty, two and beyond our strategy is to return to a more consistent cadence of new restaurant development with the goal of opening between five and seven new restaurants each year.
To that point, we are currently scheduled to open five new restaurants in 2020 to the first of which opens in two weeks in Aventura, Florida.
We also recently signed two new leases for 2023 and are continuing to fill the pipeline.
We will continue to invest in data and digital technologies and a team to support those initiatives.
We began this transformation in 2021 and believe it's a key catalyst for maintaining our core customer base as well as introducing new guests to our brand.
The nature of our high touch hospitality requires us to be very deliberate in how we introduce technology to our business.
We want to ensure that it not only enhances guest experiences in an authentic way, but also reduces friction in our restaurants and increases our productivity.
We continue to expand both our commercial and operational tests that include in and out of restaurant personalization.
As well as capacity management, using a proprietary platform to provide real time detailed insights into each individual restaurant.
The early read on these tests is positive and we rolled out our capacity management initiatives system wide in late January .
We look forward to sharing more on the system wide results on future calls.
With our focus on investing for the future and more importantly team members and franchise partners, who are committed to operational excellence. We believe we are well positioned for continued success.
I'll now turn the call over to Christie to cover the specifics of the quarter.
Thank you Cheryl before I move into details of the quarter I want to call out that it will make many references to 2019 versus 2020 for comparable purposes. Please refer to our earnings release supplemental disclosures and 10-K, which will be filed later today for additional information.
Comparisons to 2020.
For the fourth quarter ended December 26, 2021, we reported GAAP net income of $13 8 million or <unk> 40 per diluted share compared to a net income of $1 4 million or four cents per diluted common share during the fourth quarter of 2020.
Excluding adjustments non-GAAP diluted earnings per common share was 34.
Appeared to three in.
In the fourth quarter of 2020.
Total revenues for the quarter were $126 7 million compared to 77 4 million in 2021 company owned restaurant sales increased to $118 7 million compared to $72 2 million in the prior year.
Comparable restaurant sales for the quarter versus 2020 increased 61, 2% and increased positive 5% compared to 2019 as.
As compared to 2019 by month comp sales were positive two eight in October positive, 6% in November and negative five three in December .
Yes.
Despite the temporary cutback guests have shown us when they are ready to eat out again, we are a destination, where they feel safe and appreciate the welcoming experience we provide in our restaurants, which resulted in a positive comp for the full quarter as well as a rebound over 96% of 2019 comparable <unk>.
Restaurant sales for the full year.
Franchise income for the quarter was $5 5 million up 52% versus the same quarter last year, while operating income was $2 6 million.
Food and beverage costs for the quarter were 34, 1%.
These prices during the quarter increased approximately 39% compared to 2019.
Including feed the market basket experienced inflation of 24%.
Third quarter four of 2019, which also compared to quarter three inflation of 29, 29% as a reminder, we have locked 10% of our total deal volume from mid September to mid March of 2022, and we recently entered into a new forward pricing agreement for.
Approximately 10% of our beef volume through mid August 2022.
In January we began to see decreases in the cost of beef.
However, it will take a few weeks for this to be recognized in the P&L as we work through our higher cost inventory with that we are anticipating cost of goods sold for the quarter to be in the range of 32, and a half to 33, 5%.
Next let's touch on pricing.
And you've heard me say before we are surgical and pricing and are committed to ensuring that we price to provide value to our guests while being cognizant of our responsibility to protect our restaurant operating income.
As a reminder, we took our latest price increase of one 3% in mid November .
Based on the current inflationary environment, we will be taking an additional price increase in March of approximately 3%.
This higher pricing reflects the continued high inflationary environments.
Introduction of a new tier and some restaurants and price increases on liquor beer and wine a category that we did not take significant price increases on during 2021.
Based on our analysis, we believe that price increase will be accepted by our guests as they understand the value they are getting when dining in our restaurants.
Labor as a percentage of sales improved 321 basis points compared to 2019 during the quarter as we continued to benefit from the efficiencies in front and back of house as well as management labor.
In 2022, we remain committed to maintaining these hourly efficiencies and we will continue to invest in adding back one manager into most of our restaurants to support the restaurant teams and protect the guest experience.
To that end, we expect to have an average of five managers and these restaurants by about mid year.
As we add back these managers and manage through labor inflation, we reiterate our previous guidance of 200 basis points of improvement in labor versus 2019 levels. Because we are confident in our team members' ability to continue to deliver the.
Fear the efficiency, we experienced last year.
Fourth quarter, combined marketing and G&A was $14 6 million or 11.
6% of revenues this quarter reflects an increase in performance based compensation as well as spending associated with our investment in our data and digital transformation.
In addition, we have started to add back certain positions in the home office to ensure we have the team members and the expertise to take advantage of the growth opportunities we see in the future.
In 2022, we will continue to invest in these areas and expect combined marketing and G&A to be in the range of 10 to 10, 5% of total revenues for the full year.
As Sheryl mentioned, we are committed to a healthy balance sheet that provides us with liquidity and flexibility.
Which is an important consideration as we entered into our message private agreement during the fourth quarter of 2021.
At the end of this quarter, we had $92 $1 million in cash and outstanding debt was that $70 million.
Since then we repaid $20 million of our debt, leaving a debt balance of $50 million and our cash balance as of February 22nd 2022 was $84 6 million.
With that let me turn the call back to Cheryl.
Thanks Christine.
We entered 2022, we are optimistic about the health of our business and we will continue to focus on investing in our long term success through hiring and retaining the best team members growing our footprint and utilizing data and digital technology to further improve on the Ruth's experience. We believe we are positioning our company.
We need to deliver solid long term financial performance, which will create value for our shareholders.
Well have to call them out.
Questions.
And we are ready for questions.
Yes, we are.
Yeah.
He was I used to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Nicole Miller with Piper Sandler. Please proceed.
Good morning.
Wanted to ask first about <unk>.
The managers being added back and just what they'll do in terms of execution no managers weren't necessarily on the floor doing the swarm service, but I think about you know that was an unintended benefit for I think for the platform.
When you kind of went away from that and just wondering where are you going to ask your managers to focus as you bring them back in in terms of consumer facing elements.
Thanks, Nicole for the question. So just to ensure we understand as we think about the volume of the restaurants growing as they did throughout 2021 is how we determine when these managers go back into the restaurant I think where you'll see us focus is ensuring that the proper amount of training is taking place with our hourly.
And that has a huge impact to the guest facing experience and so just overall these are kind of utility managers. They are great at any position on the restaurant. They can work front of house back of house.
Our area, but really what we expect our managed to managers to do is lead the excellent leaders in the store and that's where you'll see them focus on the other team members and ensuring we are delivering the experience we've been known for for almost 57 years now.
Thank you for that and then just a second and last question in terms of the pricing.
Can you just talk about how sophisticated.
<unk> seen the art and the science because it can't all be science.
Maybe not all art, but are there any tools you're using in terms of pricing are you looking at peers. So what peer group are you looking at maybe a little bit more on that thanks.
Sure. So we also work with external vendors that help us look at pricing across the board to help us look at competitors menu items by menu item a region by region of the country to understand where the sensitivities exist and where they don't which is why we came to.
Our position, where we are increasing our new tier across the board because we found that our tiers were starting to compress a little bit too much. This time, but it is across the board when you look at who.
Who do we look at it certainly our major competitors that you would say come from Knapp track and Black box as well as looking at you know in some areas. Some locals just to get a flavor for how some local independent operators would be pricing similar types of products. We also make sure that we're comparing like for like.
Products for them.
Binding everybody again, we are a prime beef.
We're a prime beef.
And so we wanted to make sure that we're comparing that as well when we're thinking about price.
Okay.
Thank you.
Thanks Nicole.
Our next question is from Brian Vaccaro with Raymond James. Please proceed.
Hi, Thanks, and good morning, I want to ask about the quarter to date trends that you're seeing and Christine could you help us convert that into average weekly sales and perhaps you could give a little more perspective on sort of how much of a headwind omicron was to January and maybe how much of the improvement that you've seen in more recent weeks.
Yeah, so that that is a little bit volatile right. When you start to think about particularly as we head into February January we still had the alma crime and then as you head into February and you have the differences in weeks related to the Valentines day holiday is a little bit difficult.
Early to be able to take care of your weekly sales on that.
Okay, but could you give us maybe what were quarter to date average weekly sales understanding that January looks very different from February .
Yeah, we're going to have to get back to Brian . Okay. Alright, no problem. We can follow up offline and then I guess one other thing on average weekly sales before moving on can you just remind us the historical seasonality you typically see I know I believe February is it outsized months for.
Are you in Q1, given Valentine's day, but if you have that handy, perhaps just to make sure. We're all on the same page.
Yeah. So when you look at Ah and Nash.
On a more chronic COVID-19 tapes seasonality.
Anywhere.
So January is pretty normalized both quarters about.
5% under the index of 100% for 97% February is about 110%.
So.
Okay, Great. That's helpful. Thank you for that.
On the menu pricing front I heard youre looking at an additional 3% I think in March.
Can you just remind us what was the effective pricing for the fourth quarter and sort of level set us on what your effective pricing will be moving through 'twenty two assuming you take no additional price.
Sure so for the fourth quarter, we were at five 9%.
As we.
Just a reminder, we took that incremental one ish a little over one in November and so we're going to be carrying about six four this is al versus 2019, we'll be carrying six four into.
Oh, we have carrying six four into the new year, we will have the incremental three that we're taking in in March and then the roll off.
No radically won't happen because we're comparing to 2019, but as a reminder, we took two five in may of 'twenty one.
September we took 1.6 and then in November as I, just mentioned 1.3.
Alright, that's super helpful. Yeah that robot.
Yes, yes, that's great. Thank you for that and then I guess last one then I'll turn it over but you know given your plans to accelerate unit growth I was hoping you could just elaborate on your return expectations that you're underwriting I know it varies by location, but could you walk through your unit economic targets and maybe drill down a little on the average cost.
Bill do you see for the class of 'twenty, two and 'twenty three.
Yeah. So you hit the you hit the nail on the head with the costs there, Brian because we've talked a lot about the input cost as it relates to the P&L, but we've not talked much about input cost across sales and we have seen some increases as you would expect and items across.
All of the bills product as well whether that be you know timber sale just general inflationary pressures in labor that affects the overall investment cost, which we have built in to the capital expenditures that you are seeing us guide on in their release.
I would say that we're at the higher end of the ranges that we've historically provided for bills after you're not some of the <unk>.
Tenant allowances that we have our return expectations are still you know 20 above 20%.
That is feasible and we're still able to do that given the price that we're taking is still <unk>.
Sufficient enough to be able to deliver on those levels of returns in most cases and certainly as you look across the portfolio of new restaurants.
It's not it's hard for us to predict what 'twenty three will look like from an inflationary environment, but they also want to remind you that we are adjusting the size of our restaurants, we are value engineering them as well to make sure that we bring the costs in line and meet the continued return expectation.
I will ask Christy that was great I think as you know we are we have a rigorous process for ensuring that our sites are successful and so as we go forward knowing the pressures that we're facing Brian very cautious and careful about how we are selecting their sights on understanding their performance.
We've seen that in our recent opening in short hills as well as Lake Grove that they are at the market outperforming our expectations and therefore offsetting some of that that additional input costs.
Alright, thanks, very much I'll pass it along.
As a reminder, it is star one on your telephone keypad, if he would like to ask a question. Our next question is from Andy Barish.
Chris with Jefferies. Please proceed.
Hey, good morning.
Just a couple of questions on kind of.
You know demand out there I guess historically.
The business has been impacted more by you know kind of stock market and headlines then than anything.
Are you seeing any choppiness or you know kind of outsize Khalid.
Holiday days like Valentine's day, that's kind of you know keeping.
Keeping the sale in good shape, but otherwise you know maybe there is some underlying.
Challenges out there just with the stock market and obviously the stuff going on in Russia and Ukraine.
Yeah, I don't have enough capital Christie.
We really haven't seen that volatility I think if anything and we experienced since I guess in June and July is probably as an industry.
Things start to open up to some of the headlines are saying in addition to those that you mentioned are the removal of some mandates in some of the markets that has taken us longer to come back.
And so theres a bit of a positive and that we're starting to see but not necessarily related to at this point related to other headlines.
And how should we.
How should we kind of think of.
The December .
Comp number is that.
Dine in you know kind of core business, you know was basically higher than that and the weakness in private events. You know our group business kind of offset that just just trying to.
Tease out.
How that that played out during December .
Yes, exactly what you said that's about that's where we saw there was an offset.
Great News was the demand for just because smaller party to top sports hot celebratory around the holidays, but we did see and somewhat impacted by omicron as well when you think about group dining and private dining events and.
Rooms and larger groups.
With with soft during especially the second half of December .
And I'll just remind you that you know there was a trading day shift in our year as well that that had an impact on the quarter overall.
About 1%.
The negative 1% Christie.
Negative, 1%, so we went about 1% higher.
Okay.
Understood. Thank you very much.
Our next question is from Todd Brooks with the benchmark company. Please proceed.
Hey, good morning, everyone.
Couple of questions for you.
In the remarks, you talked about.
Beef seeing some moderation here.
In the first quarter, taking a little while to work through inventory can you give us a sense of how much of a moderation you've seen so that we can start to.
Maybe dimensionalize some normalization in Prime and then you talked about the new hedges agreement for a 10% through August but can you talk about supply availability if demand remains strong for for prime.
Are you are you at least lock from a supply standpoint, if you're not locked from a pricing standpoint.
Okay.
Sure. Thanks for the question.
I will I will refer you to the range of guidance that we provided at this point as it relates to <unk>.
What's happening with beef we have three.
Three or four weeks of visibility into invoicing for beef and there's a lot that is challenging right now and are in the supply market and continues to be challenging and you referenced a couple of dollars right. What it what is the supply and demand, particularly for prime beef I would love to see a few more weeks.
Of consistency in pricing.
Before I would would want to provide specific per pound level and be able to forecast that forward for too far.
Just as you as we continue in this environment that it remains uncertain week by week.
There's a little bit more volatility than I would like to see so I'm going to leave that part of your question there and your.
I'm, sorry can you repeat your second half.
As far as the.
The supply availability hedged on price into August .
There was availability of product, yes, so we've had.
No we have great partners, who supply us with our B, we don't foresee any issues with supply availability.
Okay, Great and then just one final question.
I think when we talked about reluctant pricing when inflation started to rear its head in 'twenty one.
You talked about dynamic where maybe you were less hedged on prime than some of the competitors were coming into 'twenty, one and that you hadn't seen a lot of competitive pricing actions.
You talked about your outside.
Outside resources that use on pricing I guess, what are you seeing from peers as far as menu pricing now that they are probably rolling off lockup.
Lots of positions and what type of pricing slash value umbrella does that give roots as we're moving through 22.
Yeah, and I'll make a just a general comment because obviously theyre going to need to speak to their businesses, but I think you've heard in the most recent days some not direct competitors reference that they are starting to move to market. We you know we are we were pretty much on market for at least 90% of <unk>.
Our beef starting in may of last year, and so I find us a little bit less exposed them. This year as we start to lap the back half of the year, where we were already taking higher prices and so you know depending on how these first five or six weeks hold we could see you know flat to <unk>.
Official pricing year over year as it relates to beef costs, where others are going to start to have greater impact than we would if they are unable to hedge is a way in a way that they had in the past.
Okay, Great that's helpful.
Our next question is from James Rutherford with Stephens. Please proceed.
Hello, Good morning, I apologize if I ask questions that have already been asked I was bouncing between calls.
But I wanted to start on the unit growth side.
Sure over the last few years, you've acquired a small number of franchise restaurants.
All the disruption in the industry do you expect to have more opportunities to buy out different franchisees in the future.
Yeah and the.
One that you're referencing I think the most of it has been and we actually have opened two restaurants. This past year in this territory was the Marsha Brown long Island territory.
We purchased it for not only the existing units, but also to your point to have opportunities to grow the brand further within that territory and we've been able to successfully do that with the two new unit you know we look at it he can.
And as we say, we look for the opportunity we're talking to our franchisees as we come out of the pandemic to understand where they are and you know we've done a great deal of work around C addressable market and understanding what markets going forward, our franchise versus company and if theres an opportunity and that is we're talking with them.
We'll take advantage of it but no specific plan at this point.
Okay, and then did you mentioned why you chose to close.
Does the Maryland in the Hawaii location, and maybe more broadly what comment are you, making on kind of the recovery of some of those markets that had been a bit more troubled.
Yeah. So the furniture was actually end of lease and so we decided to terminate in that in that marketplace.
And then as far as the impact of I think the market as I mentioned during my remarks from Manhattan, Boston, and Hawaii, which had been the markets. We've been calling out through 2021 about a 640 basis point impact in Q4.
No.
At one point it was around 700.
We're starting to see we mentioned some of the trends.
Year to date for Q1 were <unk>.
Starting to see small signs of improvement as we make it through period too.
Okay, and then just one last one for me.
In the absence of the normal level of business occasions, which has been consistent throughout.
Last couple of years, you spend a lot of success, serving more personal celebratory occasions.
Have you seen any.
Cracks in that demand it all doesn't seem like so but is there any indication that some of the growth you've had in that category was driven by stimulus and perhaps starting to wane or is it really just as strong as ever kind of coming back after the latest search. Thank you very much.
So I'll start and Charles can clean up after me, but no I mean, we've been actually very pleased I think that that is a testament to our teams our capacity management initiatives are.
Reopening to the right hours for individual restaurants to ensure that where they're.
Open early or late as the guests you uses up and so at this point in time, we have not seen a decline in those types of diners. Thank you know.
Last year, you would have heard us talk little bit about how this will come in ways. We haven't seen the top end of this wave and we.
We are anticipating business travelers coming back.
Offices start to reopen and then we'll see what happens as we start to lap some of the stimulus that was.
Out there in the end of first and second quarter of last year.
Yeah, that's great because you have nothing to add okay. Thank you Cheryl Thank you Christy.
Our next question is a follow up from Brian Vaccaro with Raymond James. Please proceed.
Hi, Thanks, just a quick one on food cost and sorry, if I missed it but the first quarter 'twenty to Cogs guidance, Christy what level of inflation does that assume for your basket and for beef.
Yeah pretty much assume.
That will stay for the rest of the basket at where we where we trended Bush was about up 16% versus last year and beef will.
We're coming up more coming over the last that we had from last year. So I'd have to get you. The exact number on the beef side Brian Okay.
Okay, but the basket, you're assuming is up 16% in the first quarter in the basket was up in fourth quarter. I think you said something in the low twenties.
Yes.
I'm sorry, the basket, excluding beef will be up and that was up 16%, including B 24, I don't see them got it and just.
To that end the.
Outside of that you know you can.
<unk> up against a.
Loss from last year.
Okay. Okay. That's great and then last one for me on the beef contract I believe in the past you've typically locked in tenderloin, when you've been able to lock in a portion of your beef is that the case with this new contract and I'm just curious what level of inflation you were able to lock in on this 10% through August .
Yeah, we don't we don't share that information right.
Alright, thank you.
Okay.
Thanks, Brian .
We have reached the end of our question and answer session I would like to turn the conference back over to management for closing comments. Thank.
Thank you Shari and thank you all for joining us on the call. This morning, and we look forward to speaking again soon.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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