Ruth’s Hospitality Group Inc. (RUTH), a leading upscale dining operator, recently reported third quarter 2010 results. The company reported a loss of 1 cent per share compared with a loss of 4 cents delivered in the prior-year quarter. The company reported in line with the Zacks Consensus Estimate. The results were driven by top-line growth and cost control initiates.

Total revenue spiked up 4.6% year over year to $79.8 million. The upside in revenues was driven by strongest same-store sales growth the Ruth’s Chris brand since the fourth quarter of 2006 and 1.2% rise in operating weeks. Company-owned restaurant sales inched up 4.4% to $76.9 million whereas franchise income jumped 11.7% to $2.6 million.

Comparable restaurant sales at Ruth’s Chris Steak House grew 4.9%, driven by a 5.3% rise in entrées, partially offset by 0.3% fall in average guest check, whereas comparable restaurant sales at Mitchell’s Fish Market slipped 2.8%, driven by 0.3% fall in average guest check and 2.5% decline in entrées. Same-store sales at franchise-owned restaurant sales increased 6.8%.

During the quarter, restaurant operating expense dropped 40 basis points (bps) year over year to 56.1%, general and administrative expenses were flat year over year at 6.8% and depreciation and amortization slipped 60 bps to 4.8%. However, food and beverage costs upped 80 bps to 30.0%, due to unfavorable beef costs.

Financial Position

At the end of the third quarter, the company had cash and cash equivalents of $3.1 million and shareholder equity of $75.8 million. The long-term debt outstanding at the end of the quarter is $67.0 million.

Outlook

Ruth’s Hospitality reaffirmed its fiscal 2010 outlook. The company expects cost of good sold to be 29% to 30% of restaurant sales and tax rate in a range of 25% to 30%. Capital expenditure for the year is expected in the range of $5 million to $6 million.

Our Take

As the economy is showing signs of improvement, we believe the owner of Ruth’s Chris Steak House and Mitchell’s Fish Market restaurant concepts will be able to generate improved earnings. We expect estimates to go up in the coming days, based on the third quarter results.

 
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