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Ruth’s Hospitality: Sales decline stabilized

HEATHROW Fla. Ruth’s Hospitality Group Inc. gave investors a glimmer of stabilization late Monday as its fourth-quarter preliminary report indicated a slowing in its same-store sales slide.

The parent of Ruth’s Chris Steak House said same-store sales at corporate units of the signature brand for the Dec. 27-ended quarter fell 11.2 percent, compared with an 18.7 percent decline in the same quarter of 2008. At market close Tuesday, Ruth’s shares were up a penny from the day earlier, or 0.41 percent, to $2.43. A day earlier the stock had spiked after an analyst said business spending may be increasing and help boost fine-dining sales.

Nicole Miller Regan, senior research analyst at Piper Jaffray & Co., said Ruth’s fourth-quarter report indicated that the chain’s two-year same-store sales trends were stabilizing. She said that may reflect improvements in corporate travel spending, which typically would help the higher-end dining segment. Miller Regan noted that about a third of Ruth’s sales are attributed to corporate credit-card transactions.

She expressed concern, however, that a prolonged period of value offerings, such as the “bundling” in the Ruth’s Classics three-courses-for-$39.95 promotion, would limit overall same-store sales improvement. Many industry observers have noted that discounting — now prevalent at nearly every restaurant brand — may indeed hurt a restaurant’s long-term sales prospects by training consumers to expect lower prices.

Ruth’s Hospitality said total fourth-quarter sales from corporate restaurant fell 10.5 percent, to $83.7 million. Its corporate Mitchell’s Fish Market locations reported a same-store sales dip of 2.6 percent. Many analysts had expected a decline of as much as 10 percent.

“We believe our preliminary sales results for the fourth quarter suggest that the sales environment at our restaurants has stabilized,” Mike O’Donnell, chief executive and president of Ruth’s Hospitality, said in a statement. “While absolute sales volumes have declined from 2008, our unit-level cash flow and return on capital continue to be very solid given cost initiatives that have become a permanent part of our model.”

O’Donnell said the company’s recent steps to pay down debt will “provide us with the financial flexibility to improve our performance and competitive position.”

Ruth’s Hospitality announced plans late last month to garner as much as $69.7 million through a $25 million placement with the Bruckmann, Rosser, Sherrill & Co. private equity group, a stock offering to shareholders and the sale of its headquarters building.

The stock sales, which still must be approved by shareholders, will reduce the company’s leverage and increase flexibility, said Jeff Omohundro, an analyst with Wells Fargo Securities LLC.

“Given the uncertain macro environment we have a favorable view of Ruth’s efforts to strengthen its balance sheet,” he wrote in a report Tuesday. “However, there also appears to be potential earnings-per-share dilution associated with the proposed transactions, the magnitude of which will depend on the pricing and size.”

Ruth’s expects to release its full fourth-quarter earnings results in mid-February.

Ruth’s Hospitality Group has more than 150 company and franchised restaurants which include the Ruth’s Chris, Mitchell’s Fish Market Mitchell’s Steakhouse and Cameron’s Steakhouse brands.

Contact Ron Ruggless at [email protected].

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