Market Overview

Ruth's Hospitality Group, Inc. Reports Fourth Quarter and Full Year 2017 Financial Results

Share:

– Fourth Quarter Comparable Restaurant Sales Increase 1.5% on a
Comparable 14-Week Basis–

– Company Announces 22% Increase in Quarterly Dividend to $0.11 per
Share –

– Completed Acquisition of Hawaii Franchised Operations –

Ruth's Hospitality Group, Inc. (the "Company") (NASDAQ:RUTH) today
reported unaudited financial results for its 14-week fourth quarter and
53-week full year ended December 31, 2017, and announced a quarterly
cash dividend of $0.11 per share to be paid in the first quarter of 2018.

Highlights for the 14-week fourth quarter of 2017 compared to the
13-week fourth quarter of 2016 were as follows:

  • The Company reported net income of $9.6 million, or $0.31 per diluted
    share, in the fourth quarter of 2017, compared to net income of $9.2
    million, or $0.30 per diluted share, in the fourth quarter of 2016.
    • Income from continuing operations in the fourth quarter of 2017
      was $9.6 million, or $0.31 per diluted share, compared to income
      from continuing operations of $9.4 million, or $0.31 per diluted
      share, in the fourth quarter of 2016.
    • The Company's fourth quarter of 2017 consisted of 14 weeks
      compared to 13 weeks in the fourth quarter of 2016. The Company
      estimates that the extra week increased earnings in the fourth
      quarter of 2017 by approximately $0.06 per share.
    • Net income in the fourth quarter of 2017 included a $3.9 million
      non-cash charge related to the impairment of assets at one
      restaurant location and $0.6 million in deal-related expenses
      associated with the acquisition of our Hawaiian franchisee.
    • The Tax Cuts and Jobs Act, also known as H.R. 1, was signed into
      law on December 22, 2017. This act will significantly lower the
      Company's tax rate and reduced the value of the Company's deferred
      tax assets by $1.1 million. Additionally during the fourth
      quarter, the Company recorded income tax expense of $0.1 million
      related to other discrete state income tax items. Combined, these
      discrete income tax items reduced net income by $1.2 million, or
      $0.04 per diluted share.
    • Excluding these adjustments, as well as the results from
      discontinued operations, non-GAAP diluted earnings per common
      share were $0.44 in the fourth quarter of 2017, compared to $0.31
      in the fourth quarter of 2016. The Company believes that non-GAAP
      diluted earnings per common share provides a useful alternative
      measure of financial performance. Investors are advised to see the
      attached Reconciliation of non-GAAP Financial Measure table for
      additional information.
  • During the fourth quarter the Company repurchased 450 thousand shares
    of common stock under its current share repurchase program.
  • One Company-owned Ruth's Chris Steak House restaurant opened in
    suburban Denver, CO in the fourth quarter of 2017.

Michael P. O'Donnell, Chairman and Chief Executive Officer of Ruth's
Hospitality Group, Inc., noted, "I am pleased to report a return to
positive traffic during the fourth quarter, and am proud that 2017
marked our 8th consecutive year of positive comparable
restaurant sales. These results would not be possible without our
incredibly dedicated team members and franchise partners."

O'Donnell added, "During the quarter we also welcomed our six Hawaii
restaurants to our corporate family and we are encouraged as we move
forward together in 2018."

Review of Fourth Quarter 2017 Operating Results

Total revenues in the 14-week fourth quarter of 2017 were $124.1
million, an increase of 15.3% compared to $107.6 million in the 13-week
fourth quarter of 2016.

Company-owned Sales

  • Company-owned comparable restaurant sales increased 1.5% on a
    comparable 14-week basis, which consisted of a traffic increase of
    0.8%, as measured by entrees, and an average check increase of 0.7%.
  • Average unit weekly sales were $117.4 thousand in the fourth quarter
    of 2017, compared to $114.5 thousand in the fourth quarter of 2016.
  • 77 Company-owned Ruth's Chris Steak House restaurants were open at the
    end of the fourth quarter of 2017, compared to 68 Ruth's Chris Steak
    House restaurants at the end of the fourth quarter of 2016. Total
    operating weeks for the fourth quarter of 2017 increased to 1,000 from
    884 in the fourth quarter of 2016.

Franchise Income

  • Franchise income in the fourth quarter of 2017 was $4.7 million, a
    decrease of 3.3% compared to $4.8 million in the fourth quarter of
    2016. The decrease in franchise income was driven primarily by the
    acquisition of the Hawaii restaurant locations, partially offset by a
    0.7% increase in comparable franchise restaurant sales.
  • 76 franchisee-owned restaurants were open at the end of the fourth
    quarter of 2017 compared to 80 at the end of the fourth quarter of
    2016.

Operating Expenses

  • Food and beverage costs, as a percentage of restaurant sales,
    increased 55 basis points to 29.3%, primarily driven by a 4% increase
    in total beef costs.
  • Restaurant operating expenses, as a percentage of restaurant sales,
    decreased 80 basis points to 44.6%. The decrease was primarily driven
    by leverage related to the 14th week and performance-based
    compensation.
  • General and administrative expenses, as a percentage of total
    revenues, decreased 115 basis points to 7.6% driven primarily by
    leverage of fixed costs related to the 14th week and a
    reduction in performance-based compensation, partially offset by $0.6
    million of deal-related expenses for the Hawaii acquisition.
  • Marketing and advertising costs, as a percentage of total revenues,
    decreased 100 basis points, primarily due to a planned shift of
    marketing spend across the quarters.
  • Pre-opening costs, as a percentage of total revenues, increased 14
    basis points to 0.4% driven by the timing of new restaurant openings.

Franchisee Acquisition

On December 12, 2017, the Company completed the previously announced
acquisition of six franchised Ruth's Chris Steak House restaurants in
Hawaii for approximately $35 million in cash. The acquisition was funded
with debt through the Company's senior credit facility.

Highlights for the 53-week Full Fiscal Year 2017 were as follows:

  • The Company reported net income of $30.1 million, or $0.97 per diluted
    share for the full fiscal year 2017, compared to net income of $30.5
    million, or $0.95 per diluted share for the full fiscal year 2016.
    • Income from continuing operations in 2017 was $30.2 million, or
      $0.98 per diluted share, compared to income from continuing
      operations of $30.8 million, or $0.96 per diluted share, in fiscal
      2016.
    • The Company's fiscal 2017 consisted of 53 weeks compared to 52
      weeks in fiscal 2016. The Company estimates that the extra week
      increased earnings in fiscal 2017 by approximately $0.06 per share.
    • Net income in 2017 included a $3.9 million non-cash charge related
      to the impairment of assets at one restaurant location and $0.6
      million in deal-related expenses associated with the acquisition
      of our Hawaiian franchisee.
    • The Tax Cuts and Jobs Act, also known as H.R. 1, was signed into
      law on December 22, 2017. This act will significantly lower the
      Company's tax rate and reduced the value of the Company's deferred
      tax assets by $1.1 million. Additionally, the Company recorded
      income tax expense of $0.1 million related to other discrete state
      income tax items. Combined, these discrete income tax items
      reduced net income by $1.2 million, or $0.04 per diluted share.
    • Net income in 2016 included a $0.2 million income tax charge
      related to certain discrete income tax items as well as an
      adjustment of $0.3 million related to restaurant closing costs and
      accrual of prior year's rent dispute costs.
    • Excluding these adjustments, as well as the results from
      discontinued operations, non-GAAP diluted earnings per common
      share were $1.10 in fiscal 2017, compared to $0.97 in fiscal 2016.
      The Company believes that non-GAAP diluted earnings per common
      share provides a useful alternative measure of financial
      performance. Investors are advised to see the attached
      Reconciliation of non-GAAP Financial Measure table for additional
      information.
  • During the year, the Company repurchased 1.2 million shares of common
    stock under its current and previous share repurchase programs.

Review of Fiscal Year 2017 Operating Results

Total revenues in fiscal 2017 increased 7.5% to $414.8 million compared
to $385.9 million in the prior year.

Company-owned Sales

  • For fiscal 2017, Company-owned comparable restaurant sales increased
    1.0% on a comparable 53-week basis, which consisted of an average
    check increase of 1.0%, and flat traffic.
  • Average unit weekly sales were $105.1 thousand for fiscal 2017, an
    increase of 1.0% compared to $104.1 thousand in fiscal 2016.
  • Total operating weeks for fiscal 2017 increased to 3,715 from 3,489 in
    fiscal 2016. Total operating weeks exclude discontinued operations.

Franchise Income

  • Franchise income in fiscal 2017 was up 1.4% to $17.5 million compared
    to $17.3 million in fiscal 2016. The increase in franchise income was
    due to new franchise restaurant openings in fiscal 2017 and a 1.3%
    increase in comparable franchise restaurant sales.

Operating Expenses

  • Food and beverage costs, as a percentage of restaurant sales,
    increased 32 basis points to 29.8%, primarily due to an increase in
    total beef costs of 4.2%.
  • Restaurant operating expenses, as a percentage of restaurant sales,
    decreased 14 basis points to 47.5% primarily driven by
    performance-based compensation.
  • Marketing and advertising costs, as a percentage of total revenues,
    increased 11 basis points to 3.1%.
  • General and administrative expenses, as a percentage of total
    revenues, decreased 28 basis points to 7.9% driven primarily by
    leverage related to the 53rd week.
  • Pre-opening costs in fiscal 2017 were flat year-over-year at $2.0
    million.

Development Update

During the fourth quarter of 2017, the Company opened its fourth new
Company-managed restaurant of the year in suburban Denver, CO. In 2018
the Company expects to open a new restaurant in Jersey City, NJ in the
third quarter.

Also during the fourth quarter of 2017, our franchisee in Hawaii opened
a restaurant on Kauai prior to the closing of the sale to the Company.
Additionally, a franchise partner relocated its restaurant in
Mississauga, Canada during the fourth quarter of 2017. Looking to 2018,
new franchised restaurants are expected to open in Fort Wayne, IN in the
second quarter, and in Markham, Ontario in the fourth quarter.

Share Repurchase and Debt

During the fourth quarter of 2017, the Company repurchased approximately
450 thousand shares of common stock under its current share repurchase
program, for approximately $9.3 million or an average price of $20.77
per share.

For the full year, the Company repurchased approximately 1.2 million
shares of common stock under its current share repurchase program, for
approximately $23.9 million or an average price of $20.43 per share. At
the end of 2017, the Company had approximately $50.7 million remaining
under its current authorization. Since the beginning of 2014, the
Company has repurchased an aggregate of 6.7 million shares for
approximately $108.1 million under the current and prior share
repurchase programs.

At the end of fiscal 2017, the Company had $50.0 million in debt
outstanding, and availability of $35.8 million under its senior credit
facility.

Quarterly Cash Dividend

Subsequent to the end of 2017, the Company's Board of Directors approved
the payment of a quarterly cash dividend to shareholders of $0.11 per
share. The dividend will be paid on March 22, 2018 to shareholders of
record as of the close of business on March 8, 2018, and represents a
22% increase from the quarterly cash dividend paid in March of 2017.

Accounting Policy and Standard Changes

In 2018, the Company will be adopting ASU number 2014-09, which is
generally referred to as the new revenue recognition standard. The new
standard will now require that advertising contributions received from
franchised restaurants be recognized as franchise income. In 2017, these
contributions were credited against marketing expenses. The impact of
this standard change will increase franchise income in 2018 by
approximately $1.5 million, and increase marketing and advertising
expense by a similar amount. Beginning in 2018, the Company will
recognize initial franchise fees ratably over the franchise agreement
term compared to the previous practice of recognizing the fees upon
completion of all material obligations, which generally occurred upon
the opening of the restaurant. The overall impact of the change to the
recognition of initial franchise fees is expected to be immaterial to
the Company's net results. The Company is also evaluating whether
certain discounts recognized on the sale of gift cards, historically
recognized as a marketing expense, may potentially be reclassified as a
reduction of revenue on the income statement.

The Company will also move administrative support costs that have been
historically allocated to general and administrative expenses into the
marketing line. The net impact of this reclassification is neutral, but
will increase marketing and advertising expenses and decrease general
and administrative expenses by a similar amount.

Also in 2018, the Company is making a change to its policy on comparable
restaurants. The current approach is that a new restaurant is placed
into the comp base in the first quarter after the restaurant is open for
15 months and this is measured quarterly. The Company will be shifting
to an 18 month period and will now measure annually. This means that a
restaurant will enter the comp group in the first quarter of the year if
it has been open for 18 months.

Financial Outlook

Based on current information, Ruth's Hospitality Group, Inc. is
providing its full year 2018 outlook based on a 52 week year ending
December 30, 2018, as follows:

  • The 53rd week of 2017 made a particularly strong contribution to the
    Company's earnings as it contained both Christmas Day and New Year's
    Eve. Subsequently, the quarter to date fiscal comparison began the
    year approximately $3 million lower than 2017 and will lower fiscal
    comparable sales in the first quarter by approximately 300 basis
    points.
  • The Easter holiday will shift back into the first quarter in 2018,
    from the second quarter in 2017. The Company believes that first
    quarter comparable sales last year decreased by approximately 70 basis
    points due to the shift of Easter.
  • The Hawaiian restaurants produced sales of nearly $35 million in 2017,
    and also generated $1.7 million in royalty revenues. Additionally,
    this acquisition will add an incremental $3 million in annual
    depreciation driven by the purchase accounting for the assets and
    franchise territory rights.
  • Food and beverage costs of 29.0% to 31.0% of restaurant sales with
    total beef inflation of 3-5%
  • Restaurant operating expenses of 47.0% to 49.0% of restaurant sales
  • Marketing and advertising costs of 3.8% to 4.0% of total revenue
  • General and administrative expenses of $32 million to $34 million
  • Effective tax rate of 19% to 21%
  • Capital expenditures of $29 million to $31 million
  • Fully diluted shares outstanding of 30.5 million to 31.0 million
    (exclusive of any future share repurchases under the Company's share
    repurchase program)

The foregoing statements are not guarantees of future performance, and
therefore, undue reliance should not be placed upon them. We refer you
to our recent filings with the Securities and Exchange Commission for
more detailed discussions of the risks that could impact our financial
outlook and our future operating results and financial condition.

Conference Call

The Company will host a conference call to discuss fourth quarter and
full year 2017 financial results on Wednesday, February 21, 2018 at 8:00
AM Eastern Time. Hosting the call will be Cheryl Henry, President and
Chief Operating Officer and Arne G. Haak, Executive Vice President and
Chief Financial Officer.

The conference call can be accessed live over the phone by dialing
323-794-2093. A replay will be available one hour after the call and can
be accessed by dialing 412-317-6671; the password is 4609068. The replay
will be available until Wednesday, February 28, 2018. The call will also
be webcast live from the Company's website at www.rhgi.com
under the investor relations section.

About Ruth's Hospitality Group, Inc.

Ruth's Hospitality Group, Inc., headquartered in Winter Park, Florida,
is the largest fine dining steakhouse company in the U.S. as measured by
the total number of Company-owned and franchisee-owned restaurants, with
over 150 Ruth's Chris Steak House locations worldwide specializing in
USDA Prime grade steaks served in Ruth's Chris' signature fashion –
"sizzling."

For information about our restaurants, to make reservations, or to
purchase gift cards, please visit www.RuthsChris.com.
For more information about Ruth's Hospitality Group, Inc., please visit www.rhgi.com.

Cautionary Note Regarding Forward-Looking Statements

This press release contains "forward-looking statements" that reflect,
when made, the Company's expectations or beliefs concerning future
events that involve risks and uncertainties. Forward-looking statements
frequently are identified by the words "believe," "anticipate,"
"expect," "estimate," "intend," "project," "targeting," "will be," "will
continue," "will likely result," or other similar words and phrases.
Similarly, statements herein that describe the Company's objectives,
plans or goals, including with respect to new restaurant openings,
strategy, financial outlook, capital expenditures, the reduction in our
effective tax rate and the expected benefits of the Hawaii franchisee
acquisition also are forward-looking statements. Actual results could
differ materially from those projected, implied or anticipated by the
Company's forward-looking statements. Some of the factors that could
cause actual results to differ include: reductions in the availability
of, or increases in the cost of, USDA Prime grade beef, fish and other
food items; changes in economic conditions and general trends; the loss
of key management personnel; the effect of market volatility on the
Company's stock price; health concerns about beef or other food
products; the effect of competition in the restaurant industry; changes
in consumer preferences or discretionary spending; labor shortages or
increases in labor costs; the impact of federal, state or local
government regulations relating to Company employees, the sale or
preparation of food, the sale of alcoholic beverages and the opening of
new restaurants; harmful actions taken by the Company's franchisees; a
material failure, interruption or security breach of the Company's
information technology network; repeal or reduction of the federal FICA
tip credit; unexpected expenses incurred as a result of the sale of the
Mitchell's Restaurants; the Company's ability to protect its name and
logo and other proprietary information; an impairment in the financial
statement carrying value of the Company's goodwill, other intangible
assets or property; the impact of litigation; the restrictions imposed
by the Company's Credit Agreement; changes in, or the discontinuation
of, the Company's quarterly cash dividend payments or share repurchase
program; unanticipated costs associated with the Hawaii franchisee
acquisition; and the Company's inability to successfully integrate the
Hawaii franchisee restaurants into its operations. For a discussion of
these and other risks and uncertainties that could cause actual results
to differ from those contained in the forward-looking statements, see
"Risk Factors" in the Company's Annual Report on Form 10-K for the
fiscal year ended December 25, 2016, which is available on the SEC's
website at www.sec.gov.
All forward-looking statements are qualified in their entirety by this
cautionary statement, and the Company undertakes no obligation to revise
or update this presentation to reflect events or circumstances after the
date hereof. You should not assume that material events subsequent to
the date of this presentation have not occurred.

Unless the context otherwise indicates, all references in this report to
the "Company," "Ruth's," "we," "us", "our" or similar words are to
Ruth's Hospitality Group, Inc. and its subsidiaries. Ruth's Hospitality
Group, Inc. is a Delaware corporation formerly known as Ruth's Chris
Steak House, Inc., and was founded in 1965.

 
RUTH'S HOSPITALITY GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income - Preliminary and
Unaudited
(Amounts in thousands, except share and per share data)
       
 
14 Weeks Ended   13 Weeks Ended 53 Weeks Ended   52 Weeks Ended
December 31, December 25, December 31, December 25,
2017 2016 2017 2016
 
Revenues:
Restaurant sales $ 117,392 $ 101,206 $ 390,434 $ 363,147
Franchise income 4,680 4,838 17,545 17,301
Other operating income 2,031 1,585 6,844 5,499
Total revenues 124,103 107,629 414,823 385,947
Costs and expenses:
Food and beverage costs 34,349 29,054 116,361 107,075
Restaurant operating expenses 52,398 45,973 185,444 172,999
Marketing and advertising 3,668 4,272 12,724 11,406
General and administrative costs 9,433 9,420 32,700 31,488
Depreciation and amortization expenses 3,906 3,527 14,995 13,434
Pre-opening costs 539 320 2,013 1,986
Loss on impairment 3,904 - 3,904 -
Total costs and expenses 108,197 92,566 368,141 338,388
Operating income 15,906 15,063 46,682 47,559
Other income (expense):
Interest expense, net (300) (355) (821) (1,154)
Other 19 (50) 53 10
Income from continuing operations before income tax expense 15,625 14,658 45,914 46,415
Income tax expense 6,036 5,250 15,669 15,660
Income from continuing operations 9,589 9,408 30,245 30,755
Income (loss) from discontinued operations, net of income taxes (8) (197) (108) (290)
Net income $ 9,581 $ 9,211 $ 30,137 $ 30,465
Basic earnings (loss) per common share:
Continuing operations $ 0.32 $ 0.31 $ 1.00 $ 0.97
Discontinued operations - (0.01) (0.01) (0.01)
Basic earnings per share $ 0.32 $ 0.30 $ 0.99 $ 0.96
Diluted earnings (loss) per common share:
Continuing operations $ 0.31 $ 0.31 $ 0.98 $ 0.96
Discontinued operations - (0.01) (0.01) (0.01)
Diluted earnings per share $ 0.31 $ 0.30 $ 0.97 $ 0.95
Shares used in computing earnings (loss) per common share:
Basic 29,947,096 30,609,313 30,346,999 31,670,189
Diluted 30,571,801 31,163,202 30,916,364 32,108,965
Dividends declared per common share $ 0.09 $ 0.07 $ 0.36 $ 0.28
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
We prepare our financial statements in accordance with U.S.
generally accepted accounting principles (GAAP). Within our press
release, we make reference to non-GAAP diluted earnings per common
share. This non-GAAP measurement was calculated by excluding certain
items and results from discontinued operations and certain discrete
income tax items. We exclude the impact of the results from
discontinued operations, restaurant closing costs acquisition
related expenses, impairment charges and the impact of certain
discrete income tax items because these items are not reflective of
the ongoing operations of our business, and we exclude the impact of
rent dispute costs because we do not expect to take similar accruals
in the future. This non-GAAP measurement has been included as
supplemental information. We believe that this measure represents a
useful internal measure of performance. Accordingly, where this
non-GAAP measure is provided, it is done so that investors have the
same financial data that management uses in evaluating performance
with the belief that it will assist the investment community in
assessing our underlying performance on a quarter-over-quarter
basis. However, because this measure is not determined in accordance
with GAAP, such a measure is susceptible to varying calculations and
not all companies calculate the measure in the same manner. As a
result, the aforementioned measure as presented may not be directly
comparable to a similarly titled measure presented by other
companies. This non-GAAP financial measure is presented as
supplemental information and not as an alternative to diluted
earnings per share as calculated in accordance with GAAP.
     
Reconciliation of Non-GAAP Financial Measure - Unaudited
(Amounts in thousands, except share data)
 
14 Weeks Ended   13 Weeks Ended 53 Weeks Ended   52 Weeks Ended
December 31, December 25, December 31, December 25,
2017 2016 2017 2016
GAAP net income $ 9,581 $ 9,211 $ 30,137 $ 30,465
GAAP Income tax expense 6,036 5,250 15,669 15,660
GAAP (Income) loss from discontinued operations 8 197 108 290
GAAP Income from continuing operations before income tax expense 15,625 14,658 45,914 46,415
Adjustments:
Restaurant closing costs - - - 148
Accrual of prior years' rent dispute costs - - - 130
Hawaii acquisition costs 619 - 619 -
Loss on impairment 3,904 - 3,904 -
Adjusted net income from continuing operations before income taxes 20,148 14,658 50,437 46,693
Adjusted income tax expense (1) (7,755) (5,250) (17,388) (15,769)
Impact of excluding certain discrete income tax items 1,160 239 913 165
Non-GAAP net income $ 13,553 $ 9,647 $ 33,962 $ 31,089
       
GAAP diluted earnings per common share $ 0.31 $ 0.30 $ 0.97 $ 0.95
       
Non-GAAP diluted earnings per common share $ 0.44 $ 0.31 $ 1.10 $ 0.97
 
Weighted-average number of common shares outstanding - diluted 30,571,801 31,163,202 30,916,364 32,108,965
(1) Adjusted income tax is calculated by multiplying the Non-GAAP
adjustments by our marginal federal and state income tax rates and
adding or subtracting the result to/from our GAAP income tax expense.

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