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Heard on the Call: Ruth's Hospitality Group

Company to continue balancing value with high-end offerings after strong 4Q sales

Ruth's Hospitality Group Inc. swung to profit in its fourth quarter as customers started to return to higher-end dining.

However, in a conference call with analysts, Ruth’s executives said they planned to maintain a barbell pricing strategy this year of offering $39.95 and $49.95 fixed-price menus alongside the regular menu that produces a $70 check average.

Heathrow, Fla.-based Ruth's reported that net income for the quarter ended Dec. 26 totaled $3.9 million, or 9 cents per share, compared with a net loss of $2.7 million, or 11 cents per share, a year ago. Excluding a tax benefit, latest-quarter earnings were 8 cents per share.

Revenue in the fourth quarter rose 8 percent, to $94.1 million from $87.4 million a year ago, and restaurant sales increased to $90.4 million from $83.8 million. Ruth’s Hospitality operates or franchises more than 150 units under the Ruth's Chris Steak House, Mitchell's Fish Market, Mitchell's Steakhouse and Cameron's Steakhouse brands.

Same-store sales increased 9.2 percent at corporate Ruth's Chris Steak House units and fell 2.1 percent at Mitchell’s Fish Market in the quarter, the company said.

For fiscal 2010, Ruth's said earnings rose to $13.5 million, or 34 cents per share, from $2.4 million, or 10 cents per share, in 2009. Annual revenue increased 4 percent, to $357.6 million, from $344.6 million.

The company said it was optimistic about sales in 2011, with Mike O’Donnell, Ruth’s Hospitality’s chairman, president and chief executive, crediting “renewed enthusiasm for high-end dining by special occasion customers and business people alike.”

However, he said the company remained “mindful of a continued rise in commodity costs,” especially for beef.

Highlights from the conference call:

Regional sales improvements: Ruth's Chris’ two largest markets, California and Florida, generated strong positives sales. Florida sales rose 9.3 percent in the fourth quarter and California sales improved 7.8 percent. O’Donnell added, “Overall, in the Ruth's Chris portfolio, we are pleased that 60 of the 64 company locations generated positive comparable sales during the fourth quarter.”

Strong sales abroad: Among franchise units, the domestic system’s sales increased 8 percent while sales at international franchised units rose 15.5 percent. Blended franchise same-store sales increased 9.5 percent.

Changes at Mitchell’s: While the seafood concept suffered weakness in the Florida market, where sales were down 10.6 percent, a new Mitchell’s unit in Winter Park, Fla., performed slightly above the system average. “We are using it as test case for many of the design elements in system changes that we intend to implement in future development projects and retrofit within the existing system,” O’Donnell said. “In addition, Mitchell's Fish Market is also in the process of undergoing a number of changes with respect to the menu, Fresh Bar program and brand campaign.”

Commodity inflation: Robert Vincent, Ruth’s executive vice president and chief financial officer, said the company projected inflation between 6 percent to 7 percent for the year, “pretty much in line with what happened in 2010.”

Price increases: Vincent said the company took “a very modest” menu price increase last August, and that the menu mix has been stable. “We will be very selective in pricing in 2011,” he added. “We think the 50 basis points is fairly modest. Again, remember, that we really haven't taken a full price across our menu since March of 2008.”

Private dining revenues: Private dining was up 16 percent in the fourth quarter, the same as for the year.

Marketing changes: O’Donnell said the company would test television advertising after being focused on print and national radio, emphasizing a branding message rather than the fixed-price push. The company also plans to bolster its social-media efforts, which O’Donnell said was intended “to create more buzz around the Ruth's Chris brand, particular with a slightly younger demographic.” The company forecast spending 3 percent to 3.5 percent of sales on marketing, and part of that will continue to emphasize the “Ruth's Seasonal Classics” fixed-price offerings, which make up about 30 percent of sales.

Contact Ron Ruggless at [email protected].

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