Profits rose nearly 9 percent in the second quarter at Ruth’s Chris Hospitality Group, the company said Friday, thanks to higher sales and a 2 percent decline in the price of beef.
But executives said on the chain’s second quarter earnings call Friday morning that beef costs should rise 3 percent to 6 percent the rest of the year.
Net income in the period was $7.5 million, or 22 cents per share, in the quarter ended June 28, up from $6.9 million or 19 cents per share in the same period a year ago.
Total revenues rose nearly 10 percent to $91 million, from $83 million a year ago. Same-store sales rose 4.2 percent, including a 0.7 percent increase in traffic for the quarter. The results beat investors’ expectations, and the company’s stock rose nearly 6 percent in morning trading.
“We were pleased to see a continuation of positive operating trends throughout the second quarter,” CEO Michael O’Donnell said. “Our topline momentum and strong operational execution enabled us to generate another quarter of strong earnings growth.”
Beef costs have been a problem for Ruth’s and other steak and beef-heavy concepts for the past couple of years, as low supply thanks to drought and a slow recovery period for cattle pushed prices to record levels.
Those costs seem to ease in the second quarter at Ruth’s. Food and beverage costs as a percent of sales fell 133 basis points, to 30.5 percent, thanks to a 2-percent decline in the price of beef.
Arne Haak, Ruth’s chief financial officer, there has been some deflation in prime cuts, though he noted that beef costs are up compared with the first quarter. And, he said, the company expects beef costs to be up for the rest of the year.
The chain does not have beef contracts. “We’re very content to keep buying at the market,” Haak said. But the company did have a contract last year, and part of the reason for the chain’s expectation of higher costs is due to its lapping of lower costs a year ago because of that contract.
Labor costs weren’t a problem for Ruth’s in the second quarter. Total restaurant operating expenses, including labor, fell 145 basis points to 46.9 percent of restaurant sales. Part of the reason for the decline was lower healthcare expenses.
Executives suggested that the company lures quality workers because of its reputation, and that it tends to keep those workers. “We’re in control of our own wage inflation,” O’Donnell said. “We believe we’re still an employer of choice. We provide very good benefits for full-time people. When we go to hire, we’re not having difficulty.”
Ruth’s is accelerating the pace of remodels under its 2.0 remodel plan. The chain, which has 145 locations, expects to complete three remodels in the third quarter and has nine to 11 remodels under way.
The company hasn’t given any indication about how those remodels impact sales, at least at the moment. But O’Donnell did say that guest check average is increasing and there has been a “modest” increase in traffic, but it’s still early. “We’ve seen well above system average performance on those restaurants, and not any degradation of margin,” O’Donnell said.
Both the company and its franchisees, which operate 79 of the chain’s locations, are working on developing new units. Franchisees opened two new locations in the second quarter, in Ann Arbor, Mich., and Charleston, S.C. Franchisees also plan to open new locations in San Antonio and Jakarta, Indonesia.
The company expects to open a second location in Dallas by early in the fourth quarter and expects to open locations in Albuquerque, N.M., Cleveland, Ohio, and El Paso, Texas in 2016.
Contact Jonathan Maze at [email protected].
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