Tag Archives: RUTH




Shake Shack is returning the $10M they had been granted by the PPP program. Turned out their their potential sale of $75M of equity was expanded to raise $136M (before underwriting expenses on Friday. The public outcry, which these days is almost instantaneous, arose over the weekend, with observers complaining that the PPP  was not intended to help companies such as SHAK, who can raise capital in other ways. Legendary founder Danny Meyer and CEO, Randy Garutti, published a letter outlining their desire to  support employees every way they can. They therefore applied immediately when the program was established because SHAK qualified according to the guidelines. They are returning the $10M now because they have otherwise accessed the capital market, with less than 10% equity dilution it turns out, and they want the $10M to be given to more needy restaurant operators. Shake Shack has always been very good at public relations and the brand remains a cult in some quarters. Meyer and Garutti emphasized their dedication to their employees, and Garutti (on CNBC this morning) indicated that employees are going to get a raise in pay and bonuses in this current quarter, regardless of store sales.


Meyer and Garutti, with this very  public situation, have indicated, appropriately, that the hastily prepared PPP has some problems. One of the most serious problems, which we described here last week, is that the funds have to be spent within eight weeks if the loan is to be forgiven. The restaurants aren’t fully opened, if at all, and business will not return to previous levels for months, at least. Operators  will therefore be torn between their desire to “keep their (government) powder dry” and the requirement to spend 75% of the money on payroll, rent and utilities within eight weeks. Meyer and Garutti suggested a simple fix, which we hope will be adopted. The period in which the funds must be applied should be extended from eight weeks to six months. Meyer and Garutti have a high enough profile that maybe Kudlow, Mnuchin, et.al. will take this to heart.


The guidelines for PPP, and all government “entitlement” programs always leave room for questioning as to who is needy enough to deserve the money. Shake Shack (SHAK) “qualifies” but is not “needy” enough. Ruth’s Chris (RUTH) received $20M, Fogo De Chao (Privately held) received $20M and J.Alexanders (JAX) received $15.4M. All are profitable companies and have access to various forms of capital (at a price). Should they also return the government money? Everybody can use more capital. Some are more needy than others. Should a Jimmy John’s franchisee or a franchisee of  McDonald’s, Burger King, Wendy’s or Dunkin’ get help. All are operating within successful systems that can presumably keep them going. At another level, perhaps a McDonald’s franchisee in Utah doesn’t need help as much as a McDonald’s on Long Island, NY.

There will always be questions, potential inconsistencies and outcomes that can be considered unfair. You can count on the fact that when trillions of dollars are distributed quickly there will be unintended consequences. We are all in a situation that is uncomfortable at many levels, in some cases desperately uncomfortable. Our advice, relative to this discussion is that we would take the capital we have qualified for, publicize it as little as possible while doing our best for various stakeholders. We would then hope for the best in terms of public reaction, if any, and react reasonably, knowing that you can’t please every observer. Shake Shack has reacted appropriately and productively under the circumstances, as we would expect from this highly respected company.

Roger Lipton



In the last few days, five prominent restaurant companies, with company operated locations, have reported fourth quarter results. These data points give us a reasonably accurate view into current trends, and allows us a best guess as to what 2020 might look like. While franchising companies such as Wingstop and Domino’s have also reported, with excellent results it so happens, precise store level margins are not reported and we are not commenting here on those results. We have also not included Chipotle, which has become very much of a “special situation”, still recovering from the problems of several years ago, at the same time establishing themselves as a leader with off-premise sales, and it’s the four wall economics that primarily concerns us here.

The table just below shows the five companies listed above, with their Q4 results at the store level. We will fill in the other blanks later, with full updated writeups on these companies, but a quick look at four wall economics can tell us a lot quickly.

We’ve been saying for some time that a couple of points of comp sales is not enough to overcome higher store level expenses, wage inflation most notably but also higher occupancy and other store expenses. That conclusion is pretty clearly demonstrated by these results.

Only Texas Roadhouse (TXRH) improved same store sales materially (+4.4%), and that was accompanied by the best traffic trend among the five companies (+1.5%).  That allowed TXRH to leverage the sales trend into a 117 bps increase in their store level margin. The other four companies , even with slightly better comp sales, suffered material deterioration of store level EBITDA margin.  Labor Expense was higher by varying degrees, most notably at BJ’s, with Texas Roadhouse, again, being the only company to hold the line in this regard.  Cost of Goods was not much changed across the board, except at RUTH with their heavy dependence on beef costs.

We have indicated also, at the bottom of the table, the indication as far as Q1’20 sales to date, or guidance for 2020. Once again, Texas Roadhouse leads the pack with a 6.4% comp sales increase in Q1 to date. BJ’s gave us a 1.7% number for Q1 to date. The others provided guidance for 2020 as a whole, very much in line with the modest recent increases. It is worth noting that the weather this winter so far has been fairly good on a comparative basis, and each of us can make our own judgements as to what effect this is having on Q1  results to date and management’s guidance for 2020.

In summary, there is no tangible reason to expect a material change in operating trends at company operated restaurant chains. Outliers can exist at special situations, but the overriding factors that have challenged the industry are still in place.

Roger Lipton

ICR CONFERENCE – report from last week’s widely attended three day restaurants/retail event in Orlando

ICR CONFERENCE – report from last week’s widely attended three day restaurants/retail event in Orlando

There is lots more detail to follow in the next week or so, but it is safe to say that it is still tough out there in restaurant/retail land. Labor costs continue to be a huge issue, food delivery is a major subject and already in a shakeout phase, traffic is flat to down (mostly down) at almost all restaurant chains, especially “dine-in”. Since costs are rising and pricing power is limited, there is no margin relief to come at restaurant chains, unless they are recovering from depressed results, which is in fact the case in a few situations. We will be doing updates on many of the publicly held chains that will provide more details.

On the plus side, it is always interesting to hear from the chains that present on “privately held day”.  While many of the publicly held chains are “mature” and coping with the inevitable pressures of maintaining their original “cultures”, it is always exciting to hear about the success at younger companies, still run by their energetic founders. That’s not to say that all the public companies have lost that youthful enthusiasm, but the job has inevitably become more complex and multi-dimensional.

As far as our coverage is concerned:

Among publicly held companies, we expect to do NEW writeups on Noodles, One Hospitality, and Denny’s.

We will do UPDATED writeups on Kura Sushi, Ruth’s Chris, Chuy’s, Del Taco, Red Robin, Pollo Loco,  Dave & Buster’s, and Shake Shack. 

The section on our website devoted to “Up & Comers” is largely an outgrowth of exposure at ICR and those articles get more readership because we all hear from the public participants every ninety days.

Our previous writeups on &Pizza, Barcelona Wine Bar (which is part of Barteca, now owned by Del Frisco’s), Fitlife Foods, and Fogo de Chao (which was public a couple of years ago) can now be updated.

Private companies we learned more about, in alphabetical order,  include: Benihana (used to be public), Black Bear Diner, Bolay,  Fogo de Chao (used to be public), Just Salad, Punch Bowl Social (now owned by Cracker Barrel), TGI Friday’s,  and we hope to provide writeups on these companies in the near future.

Roger Lipton

RUTH – UPDATED WRITEUP – click above at “publicly held companies”

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COMPANY OVERVIEW (2018 8-K; Investors’ Update 2017):

Based in Winter Park, FLA, and led since late 2008 by experienced CEO, Michael O’Donnell, Ruth’s Hospitality Group, Inc. develops and operates fine dining restaurants and chain. While getting to be ancient history, early in 2015 RUTH sold the Mitchell Restaurants for $10,000,000 (purchased by previous management in 2008 for $92M).  The Company, as of January 2018, consists of 160 Ruth’s Chris Steakhouses in total; 77 company operated in the US, the rest franchised, including 20 international units in Aruba, Canada, China, Hong Kong, Indonesia, Japan, Mexico, Panama, Singapore, Taiwan and the United Arab Emirates. Locations currently range in size from 6,000 – 13,000 square feet. Future locations are planned to be in the 8,000 – 10,000 square foot range.

Company operated locations averaged $5,570,300 in 2017. Restaurant level EBITDA margins were 22.7% for 2017; a significant growth from 17.5% 6 years ago. Ruth franchisees pay $150,000 franchisee fee and an ongoing royalty of 5% plus 1% advertising. RUTH was recapitalized after weathering the economic crisis of 2008 and 2009 (compounded by the disappointed Mitchell’s acquisition) and has grown steadily since the recapitalization. First and fourth quarters are typically the strongest seasonal periods due to special occasions, holidays and business events are more prevalent during these time frames. Ruth’s Chris competes with: Flemings, Capital Grille, Smith and Wollensky, Del Frisco’s Double Eagle Steakhouse, Fogo de Chao, and Morton’s Steakhouse.


The company believes that the key strengths of its business model are the following:

  • Premier Upscale Steakhouse Brand
    • The Ruth’s Chris Steakhouse brand is one of the strongest in the upscale steakhouse segment of the restaurant industry, with high levels of brand awareness. The company has been recognized for its award-winning core wine list, for which a majority of the company-owned restaurants received “Awards of Excellence” from Wine Spectator magazine.
  • Appealing Dining Experience
    • At Ruth’s Chris restaurants, the company seeks to exceed guests’ expectations by offering high-quality food with warm, friendly service. The company’s entire restaurant staff is dedicated to ensuring that guests enjoy a superior dining experience. The company’s team-based approach to table service is designed to enhance the frequency of guest contact and speed of service without intruding on the guest experience.

The company’s strategy is to deliver a total return to shareholders by:

  1. Maintaining a healthy core business,
  2. Growing the business with a disciplined investment approach, and
  3. Returning excess capital to shareholders.

Ruth’s Chris relies on multiple levers to drive shareholder returns:

  • To maintain a healthy core RUTH’s attention is on growing sales through traffic, leveraging their infrastructure and using pricing power to manage margins.
  • For disciplined growth RUTH focuses on finding great real estate to meet a goal of three to five new restaurants per year and to acquire franchise territory at attractive prices.
  • For returning excess capital RUTH’s disciplines are to pay a dividend, return excess capital through debt repayment and share purchases.

In 2015 RUTH created Ruth 2.0 with an aim to revamp restaurants and to attract a new generation of consumers while retaining its current customers. Ruth 2.0 consists of menu refresh program, new modern design, expanded bar and enhanced private dining spaces. To compliment this, the company created a “culture for growth”; an improvement in its training and leadership development program. Ruth 2.0 was expected to take 3-5 years to complete. As of Qtr-2 2016 menu design changes are in all company locations and most of the franchise locations. As of the end of 2016, nine remodels have been completed.


Ruth’s Hospitality Group’s sources of revenue are derived from company restaurant sales, franchise income and other income. Other income consists primarily of income associated with gift cards and includes fees earned from management agreements, banquet related guarantees and service fees. In 2017, company owned restaurants contributed $390.4M of revenues, obviously dominating the income statement.


Target company operated  unit economics include involve buildings that are 8-10,000 square feet, a net cash investment of $2.5-$3.5M, a sales target from $4M-6M, with a restaurant level EBITDA margin of at least 20%. Site demographics are typically medium and large markets with a population over 1 million in the designated market area.


 The Company has been steadily repurchasing shares since 2014, totaling 6.7M shares at a cost of $108.1M ($16.13/share). Including dividends of $40M over the last six years, a total of $210M has been returned to shareholders. During fiscal year 2016, 2,824,322 shares were repurchased at an aggregate cost of $45.1 million or an average cost of $15.96 per share. An additional $1.2 million shares were purchased in fiscal 2017, at an average price of $20.43, and there is still $50.7M remaining under the current authorization. The stock has made steady progress in the same four years, increasing from about $14.00 to the current level which is at an all time high. It is interesting to note that RUTH bottomed in early 2009 around $1.00 per share, as a result of the general stock market but mostly due to the poor results that included disappointment with the Mitchell’s acquisition. Just goes to show ? there is always hope.

RECENT DEVELOPMENTS – Per 12/31/17 Corporate Release and Conf.Call

The fourth quarter of ’17 was fourteen weeks versus thirteen weeks a year earlier, and the extra week contributed $.06 of EPS. Net income in Q4 was affected by a $3.9M non-cash charge related to impairment of assets of one location and $0.6M of expenses related to purchase of Hawaiian franchisee. Additionally, tax related adjustments penalized EPS by $0.04. Excluding these adjustments, non-GAAP EPS was $0.44 VS. $0.31 in Q4.

Same store sales were up 1.5% on a comparable 14 week basis, and with an average price increase of 0.7% provided a return to positive traffic of 0.8%. On a yearly basis, 2017 was the 8th consecutive year of positive SSS. Average weekly sales were $117.4M in Q4, vs. $114.5 a year earlier. There were 77 company operated stores at 12/31, including the six Hawaiian franchised stores that were acquired and the one new company location in Denver, CO. The Company noted a change, starting in 2018, relating to SSS reporting. Previously, a new restaurant has entered the comp base in the first quarter after being opened for 15 months. The new policy will shift to an 18 month policy, adjusted annually. Therefore, a new restaurant will enter the comp base in the first quarter of a year in which it has previously been opened for 18 months. Since, rapid unit growth is not a feature here, we don’t expect this new policy to affect SSS results materially.

Food and beverage costs increased 55 basis points to 29.3% in Q4, due to a 4% increase in beef costs. Other restaurant operating expenses, including labor, decreased 80 bp to 44.6%, thanks to the extra week and performance based compensation. G&A expenses, decreased 115 bp to 7.6%, also due to leverage from the extra week, partially offset by the deal related expenses. Marketing expenses decreased 100 bp due to scheduling, and pre-opening expenses increased 14 bp also due to timing.

The Hawaiian acquisition of six stores cost $35M in cash, funded through the Company’s credit facility. Also during Q4, 450,000 shares of stock were repurchased, bringing the year’s total to 1.2M shares. Subsequent to the end of ’17, the quarterly dividend was increased 22% to $0.11, providing a current yield of about 1.7%.

Expansion plans for 2018 currently include one company location in Jersey City, NJ and two new franchisee units, in Markham, Ontario and Fort Wayne, IN. Additional locations could emerge in the course of ’18. Seven to ten remodels are scheduled.

Company Guidance for 2018:

The extra week of 2017, which included Christmas and New Year’s, will affect Q1’18 by about $3M YTY, and lower Q1’18 SSS by about 300 basis points. The Easter holiday will shift back to Q1’18 from Q2’17, helping SSS for Q1’18 by 70 bp.

The inclusion of the Hawaiian restaurants will reduce calendar ’18 royalties by $1.7M, increase depreciation by $3M, and contribute revenues and profits from the acquired stores. It would therefore require an EBIT of at least 13.4% ($4.7M) on the $35M revenue base to offset those charges, plus interest on the $35M of borrowing. The weighted average interest rate on debt was 2.7% through Q3’17, so assuming an interest rate of 3%, the store level contribution to pretax earnings would have to be 16.4% to be accretive. Since the Company indicated on the conference call that these restaurants produce above “average sales and strong restaurant level margins”, we suggest that the acquisition will likely be accretive to overall results in ‘18.

Food & beverage expense is expected to be 29.0-31.0%, including beef inflation of 3-5%, vs. 29.8% in ’17. Restaurant operating expense will by 47.0-49.0% of sales, vs. 47.5% in ’17. Marketing expense is expected to be 3.8-4.0%, vs. 3.1% in ’17. G&A expenses will be $32-$34M vs. $32.7M in ’17. The effective tax rate will be 19-21%, vs. 34.1% in ’17. Fully diluted shares outstanding will be 30.5-31.0 (exclusive of further purchases) vs. an average of 30.9 for ’17. In terms of current trends in Q1, the company indicated on the conference call that calendar comps are running “flat”, apparently affected by the stock market volatility.