Q2 2022 Ruth's Hospitality Group Inc Earnings Call
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Good morning and welcome to the Ruth's Hospitality Group Inc. 2nd quarter 2022 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I will now turn the call over to your host Mr. Mike Hines, Vice President of Finance and Accounting.
Please go ahead sir.
Thank you, Ryan, and good morning, everyone.
Joining me on the call today is Cheryl Henry, our president, chief executive officer, and chairperson of the board, and Christie Chippman, our chief financial officer, and chief operating officer.
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.
We would also encourage you to refer to the Investor Relations section of our website at rhdi.com for copies of today's earnings press release and our recent filings with the SEC for a more detailed discussion of the risk 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 would now like to turn the call over to the company's Chief Executive Officer, Cheryl Henry.
Thank you, Mike, and good morning, everyone. Our commitment to serving the highest quality food with genuine hospitality has always been the core of who we are, and I could not be prouder of our team members as they embody this commitment every day.
Christie and I experienced this first hand at our Long Beach, California, in Worcester, Massachusetts opening this past weekend. As we watched our highly experienced best-in-class opening teams work with our new team members to ensure they understood every tactical element.
of what's required for a flawless execution.
That dedication is ingrained in our culture and is what drives our success.
Turning to our second quarter results, we delivered exceptional performance as we continued to enjoy strong demand from our Just Because and special occasion guests.
and improved private dining sales. This results in strong top line momentum demonstrated by double digit comparable sales growth over both 2021 and 2019. And most importantly, the
For the period, we were also able to effectively manage costs resulting in strong year over year adjusted earnings for share growth of 20%, and 41% versus the same quarter in 2019.
Beyond these numbers, we continue to make progress growing our business organically, including investments in new restaurants, relocations, remodels, and digital technologies.
Let's begin with an update on our development plan.
For 2022, we kicked off the year with the opening of our Aventura Florida restaurant. And as I mentioned, we opened two new restaurants earlier this week in Long Beach, California, in Worcester, Massachusetts.
Additionally, we will open our fourth restaurant in Beere in New York. This is the first restaurant in Beere. This is the first restaurant in New York. This is the first restaurant in New York.
This development adds to the restaurants in our territory on Long Island, which as you know, we repurchased from one of our franchisees in 2019.
Lastly, we are working to open a fifth site by the end of 2022. However, due to construction delays, it may push a month or two into early 2023. It may push a month or two into early 2023.
In terms of 2023, we've already signed three leases with two additional agreements in their final negotiation stages.
Moving on to our investments in digital technologies, we completed the installation of our booking and capacity data platform during the quarter.?ewing.
By capturing and analyzing more data, we're already improving demand forecast and table management. And that has positioned our restaurant to increase traffic on weekends and holidays. Lelio.
With this new platform, we experience comp-sales groups of between 25 and 30% versus 2019 on all three of our major holidays during the quarter. Easter, Mother's Day, and Father's Day.
We also made progress with our new point of sale system in our nearing completion of our labor management system roll out.
These technologies will serve as a foundation for continued efficiency and put our teams in a better position to deliver on our already world-class hospitality.
Another key investment we are making is in the hiring, training, and development of our teams.
Most recently, we completed GMs and CHEF meetings across the country.
to ensure focus on back-to-basic operations, staffing and training, and new restaurant technology. Staffing and training, and new restaurant technology.
The goal was to provide our team members with the tools they need to ensure superior guest experience in a competitive and dynamic market.
Investing in new restaurants and other growth initiatives are part of our balanced capital allocation plan. That also includes returning excess capital to our shareholders through debt reduction, dividends, and share repurchases.
If you recall, we resumed the dividend in January of this year at 12 cents per share and increased it to 14 cents in Q2.
We will be paying a Q3 dividend of 14 cents per share in September .
In addition, we paid down $10 million in debt and repurchased $9.5 million worth of shares during the quarter.
And I'm pleased to announce that our board has approved a new $60 million share repurchase authorization.
which further demonstrates our commitment to long-term shareholder returns.
In all, we believe our actions to date have positioned us to achieve sustainable growth through our investments and create significant long-term value.
I'll now turn the call over to Christy to cover the specifics of the quarter.
Thank you, Cheryl. For the second quarter ended June 26, 2022, we reported gas net income of 10.3 million or 31 cents per diluted share compared to 12.4 million or 36 cents per diluted share last year. For 36 cents per diluted share last year.
Adjusted earnings per common share with 44 cents compared to 36 cents in the prior year quarter. Compared to 36 cents in the prior year quarter.
Please report to our earnings release for a reconciliation of gaps to adjusted ETS.
The strong quarterly results were driven by total revenue growth and company-appel-rated restaurant sales growth of approximately 16% each. and
Comp sales for the quarter increased 12.6% versus 2021 and increased 18.6% compared to 2019.
With the lack of normal seasonal trends in 2021 as the country reopened, we continue to believe 2019 remains a relevant comparison for sales trends at this point.
As compared to 2019 by month, comparable restaurant sales grew, 24.4% in April , 20.1% in May, and 10.3% in June .
Well, June camp suffans compared to the prior two months, similar to the overall industry's lowdown, we are pleased with the double digit camp growth.
July results will be similar to June with camp growth expected to be positive in a low double digits.
Franchise income for the quarter was $5.1 million, up 13.3% versus the same period last year.
Driven by comparable franchisee sales growth of 12.3%.
Other operating income was $2.8 million, up 24.5% versus last year.
Overall, restaurant margin as a percent of sales declined approximately 65 basis points versus 2021, primarily due to higher labor and other operating expenses, offset by lower food and beverage costs. 2 fish 3 fish 4 fish 4 fish 5 fish 4 fish 6 fish 7 fish 8 fish driven by goTo Quail Quail
Well, slightly lower than 2021, this quarter's restaurant margin is one of the highest quarterly margins we have run in our history.
Food and beverage costs decreased 56 basis points for the quarter to 29.8% as beef prices eased versus last year and we saw the benefit of the price increase we took towards the end of March. Here is the Showmaker Piece ageing moaning
Overall, food and beverage inflation for the quarter was about 8% versus 2021, primarily due to beef deflation of approximately 6% and inflation in the rest of the basket of about 23%.
As we move to the back half of the year, we expect these deflation similar to this quarter and bid single digit inflation on the rest of the basket, resulting in relatively flat year over year which would him beverage cost versus 2021.
Labor expense for the quarter versus 2021 increased 84 basis points primarily due to hourly wage increases of approximately 8% and increased management labor. Compared to the previous two increases, raining benefits compared to the
Based on our results to date, we remain confident with our ability to maintain approximately 200 basis points of labor savings compared to 2019.
That said, if conditions warrant additional staffing or increased training expenditures, we will make the necessary investments to protect the guest experience.
Moving beyond restaurant expenses, combined marketing and G&A as a percent of revenues was 10.9% compared to 10.8% in the second quarter of 2021, reflecting the timing of expenses related to the implementation of our new data platform and the addition of certain key resources into the business.
That said, we expect marketing and G&A to be in the range of 10.5 to 10.8 percent of total revenues for the full year.
As of June 26, we had $45 million in cash, and our outstanding debt was $40 million. During the second quarter, we repaid $10 million in debt for a total repayment of $30 million since the beginning of 2022. And as of August 1, our cash balance was approximately $47 million. For more information, visit www.fema.gov
I'll now turn the call back to Cheryl for a few clothing comments.
Thank you, Kristy. In closing, the solid performance in the first half of 2022 is a testament to the hard work and dedication of our team.
They are comprised of veteran operators and franchise partners with decades of experience, and I believe they are the best in the business at understanding how great food and genuine hospitality directly linked to business success.
They have also managed through numerous cycles over the last two decades, and as demonstrated by the pandemic, can pivot and adjust accordingly.
Thank you for joining us on the call this morning. We continue to invest in the future and believe Ruth Kriss is ideally positioned to capture the many opportunities ahead. We look forward to taking your questions. Ryan, can you please open the lines for those questions?
Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session.
If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
For participant using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment please, while we poll for questions.
Our first question is from the line of Nicole Miller from Piper Sandler. Please go ahead.
Thank you so much and good morning. First, Cheryl, I want to ask about your comment, not about comps and total, but if I understood this comment correctly, you talked about the three holidays in the quarter and comping up significantly on those days. Is that a point you're making about?
Still having excess capacity and the ability to drive volumes even higher. I just wanted to dig a little bit more into that.
Yeah, thanks to Cole, great question, because I think historically, as you know, those holidays have been some of our highest from a volume standpoint. And when you think about that number versus 2019, certainly there was more capacity and guess the demand was there. And so that is a testament to the teams using the new tools we've given them. And I think going forward, as we think about it, and this was the first real big holiday season that we've had those tools in place, we will continue to balance the guest experience with using that additional.
areas or just specifically from efficiencies in turning a table.
It really was the latter, Nicole, and so we did not expand operating hours significantly. This was really about being thoughtful and managing the flow of the guests in the restaurants and allowing the teams to staff accordingly, understand where the demand is, and spreading that out throughout the day.
Awesome. And then just the last question on 2023 development. Obviously, excuse me, a good head start. Can you talk a little bit high level about the geography, so existing markets, new markets, filling in acquired markets has certainly been a goal? And then since you're getting such an early jump, would it be the normal cadence for development still always back and loaded or would potentially a couple stores open a little?
bit earlier next year. Thank you. Yeah and so we've announced the three and so you mentioned one of the markets Florida obviously Florida is a great market for us and we are looking for infill opportunities there and also in some of our existing markets just looking for those infill and one of the things we talked about was looking for second-gen space especially in this inflationary time where construction costs
We know of escalated and so finding existing restaurant space that we can you know remodel and work with that was that's the third opportunity we've talked about in the New York market.
Thank you.
Thank you.
Our next question is from the line of Brian Maccaro from Raymond James. Please go ahead.
Thanks and good morning. I was hoping to circle back on sales and obviously very strong trends there but could you elaborate on what you saw moving through June ? I'm curious if that's primarily a traffic or check dynamic and maybe you could touch on any changes you're seeing among different consumer cohorts, changes in behavior, order patterns, etc.
So I think what we actually saw go back to March, sorry, April and May, really strong, right, coming out of what I think was the Omicron wave and people taking advantage of another opportunity to get back out. And so while June softened, we were still double digits of growth, so we were glad to see that. You know, we look on a regular basis to understand are people trying to manage check? Are we seeing softening because people are feeling the effect of inflation?
Maybe I think you mentioned July , Combs running up low single digits here on here. Could you just level set that versus 19, or maybe give us a sense of where average weekly sales were in July ?
So, it's low double digits, first of all, similar to June , that low single digits for July .
Yeah, versus 2019, just to be clear.
And then as far as, would they, would they, what are you looking for? 2019?
or what we think it's going to do. I'm sorry, just average weekly sales in July . Yeah, about, somewhere between 102 and 103,000.
I just wanted to circle back on the COGS front just to make sure I understood the message there. Did you say that you expect your second half COGS ratio to be similar to the level that you saw in the second quarter, around 30%?
No, I said, you know, if beef continues to be, you know, deflated relative to last year, similar to what we saw this quarter, we are starting to lap over some higher commodity inflation in the back half of last year. So we expect our overall inflation to be relatively flat year over year versus 21 for the last six months of 2021.
Okay, okay, so you're on your inflation on the basket, expected to be relatively flat. Okay, thank you for clarifying that. And then I guess just, I'm sorry, Brian , including bees.
including these. Yes. Right, right. Okay. That's great. Thank you for clarifying that. And then I guess within the other operating cost line, some very strong leverage there compared back to 19. Can you just unpack that a little bit further and maybe tie in or elaborate on how some of the efficiency initiatives that you have executed and still seem to be on the way with some of the initiatives you talked about on the call, can you just talk about how that's...
costs versus 2019. Some inflation there, but really we're benefiting from the higher check, which is giving us more leverage beyond the inflation we're seeing for those costs.
All right, thank you all, Pat Salam.
Thank you
Our next question is from the line of Andy Barish from Jeffries. Please go ahead.
Hey, good morning. Just wondering if you could share the, kind of the impact of some of the bigger cities that you've called out in the past that have lagged in the quarter end.
How far back are you on sort of that private event or corporate business if you will? Or corporate business if you will?
Yeah, so I'll take the first part and then I sure I'll take private dining or I can jump in there as well. So we're about 560 basis points still depressed due to Boston Hawaii manhattan for the quarter. So getting a little bit better versus our prior trends, they're making up a little bit of ground, but they still create a pressure on our overall comp base.
I'll start, private dining, overall private dining improved significantly in Q2, primarily April and May. It softened a little bit again in June , but it is probably back about, I'll say about 75% of what it was in 2019 during the quarter, which compares to about 50% in Q1. So we still have some room there, and we're doing everything we can right now to make sure we capture it for the holiday season.
And I'll just add a little color, Andy. You know, we watch it by market, and we do have some markets that are close to fully back to 2019, some that are over, and then you have some that are, you know, significantly lagging and kind of pulling the rest down. And so we are fortunate to be able to target those markets with resources, especially going into the back half to try to use that as an opportunity for growth.
And our.
The resumption of wine dinners, has that been part of that? Is that in that revenue bucket as you look at that?
Yes, it is. So the wine dinners are counted as part of the private dining revenue center and the demand for those has been strong. We've got a couple more coming in the back half and we're working now on our calendar for 2023. So we're glad to have those. The guests are thrilled that they're back. We get a lot of comments on that and we'll keep building that program.
Gotcha.
I was interested in the kind of remodel comments on some of the new unit growth. How many of the five or so do you think for next year are remodels?
So we're going to open five new restaurants next year. We are still looking at what our overall reinvestment plan is for existing locations. I would imagine that we'll have one to two, maybe upwards of three full remodeled next year and then we'll continue to do refreshes to the existing restaurant base as well.
Andy, you might have been talking about what I mentioned second generation space, is that, is that what you were referencing? Yeah, I'm sorry, I asked that. I'm not. I'm not. I'm not. I'm not.
Yeah.
So two of the ones we've talked about having three are actually second-gen space.
At edan.
You know, I know each of those is kind of an individual case. And most of the time, you know, they are, they do have some advantages, but obviously sometimes there's some surprises. Is there any?
You know any scent on how much that could help, you know, on the investment cost side of things? So, you know, it's a great experience. And I'm sure you know, you know, it's a great experience. Thank you.
So, I mean, relative to, you know, Lake Grove is one of those sites for us that we recently opened and the capital cost for that was almost half, it was about half of what a new restaurant would be. And so there's significant benefit from an investment perspective as long as when you get in and you start, you know, tearing up the walls, you don't find anything unforeseen, which, you know, we try to do a good job when we're looking at these locations. So I think, you know, from an overall return perspective, these are very good sites for us because they are lower investment and they tend to hit.
know, average unit volumes, maybe slightly under what our average is, but not significantly.
Okay, helpful. Thank you.
Thank you.
Ladies and gentlemen, if you wish to ask a question, please press star one.
Our next question is from the line of Todd Brooks from the Benchmark Company. Please go ahead.
Hey, good morning everybody and congrats on the quarter. And I certainly want to second Cheryl's comments about Worcester. It's a great addition to the city here and we did great experience our first time visiting. So welcome to Worcester, certainly. So welcome to Worcester, certainly.
Thank you.
A few follow-up questions, not much left here. But on the table management side, as you look at the benefits that you got across the three holidays and Q2, how are you translating that to additional capacity you think you can squeeze out of?
that kind of post Thanksgiving for the end of the year holiday season. For the end of the year holiday season.
Yeah, so it's a couple things. One, we're doing it every weekend on a weekly basis. And so it really is about the attention and detail of the teams and the restaurants on it every single week basis to make sure we're doing the same, having the same philosophy around our weekends. And so certainly we know as we go into the traditionally and historically busy holiday times, it's an opportunity. I think what we learned from the first round is that we want to make sure we are balancing the opportunity to completely...
maximize versus optimize and that's really the balance of using every single you know moment and and seat against what does the experience the guests want. So it is absolutely part of our planning for the back half of the year but we'll do it on a very balanced basis.
Okay, great. Second question, you talked about Hawaii and the Boston, New York bucket, but I was just wondering in the second quarter, as you saw lifting of some of the pre-testing requirements to come into the US in the more tourist focused markets, are you seeing a lift from travel related customers at all? That's the lifting of that requirement.
So Hawaii, it's a little bit sporadic at this point, so I don't know that I can attribute it exactly to what you're describing. Across the board, I think we would say that the July , or June was what it was from a strong start to a slowdown in the back half of the year, or back half of the month, sorry about that. So.
Yeah, and I don't know that we can attribute anything to particularly travel alone. Hey everybody! Who I want to do with out a bit of people speaking with me that they just think of and I want to know why entertaining you
It's not not bad. Why are you still not back? And I think that's an opportunity for us as the market really starts to open up more for people to start to travel, but that's still to come for us.
Okay, great. And the final one, if I can, you talked about...
The beef costs in the quarter and he gave some forward thinking on the basket. Are you seeing any more willingness on the part of your supplier partners to lock in kind of supply at a price? Are you able to, I think some of your existing hedges run off in the August time frame of our member correctly? What's the, what's the hedge outlook for Prime B from the back half? What's the, what's the hedge outlook for Prime B from the back half?
Great, great question. So we were able to extend that lock that we had to root August into the November timeframe. And so we are locked down about 20% of our overall beef. Prime grading is down, so beyond that, I don't necessarily expect that our suppliers are going to be looking to offer many more locks beyond what we've already taken. But again, I think we expect that we are starting to come over record level beef prices from last year.
Thank you, Ryan, and thank you all for joining us on the call this morning. We look forward to speaking with you again soon.
Thank you. The conference of Ruth Hospitality Group Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.
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