- Raymond James analyst Brian Vaccaro downgraded Ruth’s Hospitality Group RUTH from Strong Buy to Market Perform.
- The analyst said the downgrade reflected a more cautious stance on the company’s margin outlook and to a lesser extent, slightly more conservative sales expectations after a modest deceleration in 3-year comparable sales trends in recent months.
- The company’s Q3 EPS miss was driven by lower store margins and slightly higher G&A, while sales were in-line with expectations.
- 4Q COGS guidance was much higher than anticipated (34%, up ~200 bp vs. 3Q) as beef inflation has returned earlier than the analyst had previously expected.
- Vaccaro said margins should ultimately recover to at least 2019 levels, though timing is now likely beyond 2023.
- He also said Ruth’s sales remain well-above 2019 levels (high single-digit %) with room for further improvement, and the company is in a strong B/S position and is returning cash to shareholders.
- The analyst cited his 4Q22 EPS estimate lowered by $0.12 to $0.39 on ~1% lower revenue, reflecting company-owned average weekly sales +9% vs 2019 and lower store margins.
- The company has realized solid efficiency gains during COVID, but the benefit has more recently been offset by much higher beef costs and other inflationary pressures, Vaccaro said.
- Price Action: RUTH shares are trading lower by 9.07% at $17.24 on the last check Monday.
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