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Heathrow, Florida-based Ruth’s Hospitality Group Inc. (RUTH) reported first quarter 2011 adjusted earnings of 13 cents per share, in line with the Zacks Consensus Estimate, but missed the prior-year quarter earnings of 16 cents. The results were driven by top-line growth.

Total revenue spiked 4.3% year over year to $9.3 million. Company-owned restaurant sales inched up 4.5% to $95.3 million, while franchise income jumped 4.3% to $3.1 million.

During the quarter, comparable restaurant sales at Ruth’s Chris Steak House grew 5.2%, driven by a 3.9% rise in entrées and a 1.2% upside in average guest check, however, comparable restaurant sales at Mitchell’s Fish Market slipped 2.7%, due to a 6.1% decline in entrées, partially offset by a 3.5% upside in average guest check. Same-store sales at franchise-owned restaurant increased 9.3%.

During the quarter, restaurant operating expense dropped 190 basis points (bps) year over year to 49.4% and depreciation and amortization slipped 30 bps to 3.8%. However, food and beverage costs expanded 140 bps to 30.7%, due to unfavorable beef costs.

Financial Position

At the end of the first quarter, the company had cash and cash equivalents of $2.6 million and shareholders’ equity of $86.9 million. The company also strengthened its balance sheet through aggressive debt reduction. The long-term debt outstanding at the end of the quarter was $45.0 million.

Outlook

One of the leading upscale dining operator, Ruth’s reaffirmed its fiscal 2011 outlook. The company expects cost of goods sold to be 30.5%–31.5% of restaurant sales and tax rate in the range of 25% to 30%. Capital expenditure for the year is expected in the range of $10 million to $12 million.

Our Take

The company’s sales volume increased during the quarter, implying that guest visits to upscale dining restaurants are improving. Moreover, despite food cost inflation, restaurant margin enhanced during the quarter. Ruth’s also implemented pricing in late March to minimize the impact of cost inflation on margins.

Hence, we believe Ruth’s will be able to generate improved earnings. We expect estimates to go up in the coming days, based on the first quarter results.

One of Ruth’s competitors, BJ’s Restaurants, Inc. (BJRI) reported first quarter 2011 adjusted earnings of 25 cents per share, exceeding the Zacks Consensus Estimate of 19 cents driven by strong comparable restaurant sales growth.

 
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