Ruth's Hospitality Group, Inc.

Good morning, ladies and gentlemen. Welcome to today's Roos Hospitality Group first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. Following the company's formal remarks, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to Christy Chipman, Chief Financial Officer and Chief Operating Officer. Please go ahead.

Thank you, Jason, and good morning, everyone. Joining me on the call today is Cheryl Henry, our President, Chief Executive Officer and Chairperson of the Board, and Mike Hines, Vice President of Finance and Accounting. Before we begin, I'd first like to remind you that part of our discussion today will include forward-looking statements. These statements are not guarantees of our future performance, and therefore, undue reliance should not be placed upon them. We would also encourage you to refer to the investor relations section of our website at rhgi.com, as well as the SEC's website at sec.gov for copies of today's earnings press release and our recent filings with the SEC for a more detailed discussion of the risks that could impact our future operating and financial results. During this call, we will refer to adjusted earnings per share. This non-GAAP measurement was calculated by excluding certain items. We believe that this measure represents a useful internal measure of performance. You can find a reconciliation of adjusted earnings per share in our press release for today's call. I would now like to turn the call over to the company's Chief Executive Officer, Cheryl Henry. Thank you, Christy, and good morning, everyone. Before we share the details of the quarter, I want to take a moment to acknowledge the efforts of our team members and our franchise partners over the past two years. Their hard work and commitment brought us through extremely challenging times and have positioned Ruth Chris as a clear leader in the fine dining category. As always, our success stems from serving the highest quality food with genuine hospitality. And with that as the company's foundation, we can better focus on and deliver the total return strategy that has benefited our shareholders over the years. That strategy starts with organic growth, and we're pleased to be investing more than $50 million this year into new restaurants, relocations, remodels, and digital technologies that drive that growth, improve our guest experience, and our restaurant operations. It also includes returning excess cash to our shareholders through debt paydowns, dividends, and share repurchases. Taken together, we believe these actions will sustain the underlying growth and profitability of the business while creating significant value along the way. As far as the first quarter, we're pleased to have delivered solid results with year-over-year earnings per share growth of 17%. This was driven by a sales recovery throughout the quarter and a continued focus on margins. And it's safe to say that despite ongoing challenges like inflation and supply chain disruptions, our team has delivered an impressive start to 2022. Our top line sales in Q1 beat 2019 levels and our momentum improved each month to end the quarter with comp sales exceeding 8%. This momentum continued, leading to double digit comp sales growth and positive traffic through April. This is especially encouraging given certain regions of the country and our private dining business remain below pre-pandemic levels. We attribute the recent demand compared to 2019 to a few factors. First, an increase in our Just Because and special occasion visits. Second, the continued contribution of our Roots Anywhere program. And finally, we've benefited from our digital transformation plan, which is now gaining traction. Moving on to profitability, we posted a solid restaurant margin as labor and cost of sales stabilized during the quarter. Christy will discuss our financial results, including labor and commodity expenses, in greater detail. But it's worth noting that changes in our labor model delivered savings of approximately 156 basis points during the quarter compared to 2019. All in all, our underlying business is strong, and we're confident that our current investments, which includes building new restaurants, will generate a solid return. Our focus for that development is to establish a dependable cadence of new units with the goal of five to seven new restaurants annually. In March, we successfully opened our first restaurant of 2022 in Aventura, Florida. And while early, we're pleased that it has outperformed the system and our sales expectations. Including Aventura, we remain on track to open a total of five new restaurants over the course of this year, with two expected to open in the third quarter and two in the fourth. In addition to those new restaurant openings, we have two relocations currently under construction, one in Winter Park, Florida, as well as one in Woodland Hills, California. These relocations reflect our new contemporary design that leverages outdoor dining spaces in larger bar areas as we expect these restaurants to open by end of year. In terms of future pipeline, we are finalizing the lease for a restaurant in Albany, New York and are in the final negotiations for two additional leases. When combined with leases previously signed, we expect to have a total of five restaurants in the pipeline for 2023 soon and continue our work to find the best sites for the future. Despite increased material and construction costs, we remain committed to returns consistent within our historical levels. Our investment in digital transformation is also a critical part of Roost's strategy. As we outlined in early 2020, we have focused our transformation initiatives on three key pillars, enhancing the guest experience, reducing friction, and increasing our team's productivity. I'm pleased to report that during the quarter, we rolled out our proprietary platform that uses restaurant-specific data to improve demand forecasts in our table management. While it's only been a few weeks, it has already resulted in high single-digit traffic increases on the weekend, which is encouraging. Of course, investments in new restaurants and new technologies won't be successful without the people behind it, and that is why we continue to invest in hiring, training, and deploying world-class team members. To that end, we made further progress during the quarter, adding managers to our restaurants, as nearly each of our locations are returning to pre-pandemic sales and traffic volume. Before I turn it over to Christy, let me quickly summarize where we stand on our total return strategy. As I mentioned earlier, we are investing over $50 million in capital with the majority of that investment supporting growth initiatives that we believe will generate a solid return for investors. To complement that investment, we are returning cash to shareholders through a 17 percent increase in our dividend payment, while also paying down $45 million in debt. We've done this while maintaining a net cash position of over $25 million and have roughly $25 million left on our most recent share reauthorization. So to keep our momentum, we will continue to focus on the details of execution, which includes providing an incredible dining experience for every guest every time they visit. We're not only confident that we can navigate external factors that might come our way, but also in delivering value for shareholders in the process. I will now turn the call over to Christy Chipman to cover the specifics of the quarter. Thank you, Cheryl. For the first quarter, ended March 27, 2024, Two, we reported gap net income of $10.4 million or $0.31 per diluted share. This represented a 14.1% and 16.5% increase respectively compared to the first quarter of 2021. Excluding adjustments, non-gap diluted earnings per common share was also $0.31. Total revenues for the quarter increased 44.5% to $126.1 million compared to $87.3 million in 2021. While company-owned restaurant sales increased 45.4% to $118.7 million compared to $81.6 million in the prior year. Comparable restaurant sales for the quarter increased 41.5% versus 2021 and increased 8.1% compared to 2019. As compared to 2019 by month, comp sales were negative 0.2 in January, positive 11.5 in February, and positive 14.4% in March. As Cheryl alluded to earlier, January demand was slowed by the Omicron variant, but as you can see, guests rapidly returned to our restaurants in February and March. As a reminder, we took a price increase in late March of approximately 3.4% on certain products, including beverages. We also recalibrated certain restaurants within pricing tiers. To date, we have not seen a noticeable change in mix or traffic due to this price increase. Franchise income for the quarter was $4.7 million of 24.7% versus the same period last year, driven by comparable domestic franchisee sales of 23.8% and international franchise comps of 29.5%. Other operating income was $2.7 million of 45% versus last year. Moving on to restaurant expenses, Food and beverage costs for the quarter increased 445 basis points versus 2021. The main driver of the increase was beef, which increased approximately 37% for the period, even though prices declined each month sequentially. As a reminder, we had a lock on approximately 70% of our beef purchases during the first quarter last year. Our total market basket increased approximately 28% compared to the first quarter of 2021, reflecting continued pressure in nearly all food categories, including beverages. During the quarter, we entered into a new forward pricing agreement, and we are now locked for approximately 20% of total beef volumes through mid-August of this year. Labor expense for the quarter versus 2021 increased approximately 150 basis points due to the operating restrictions that existed last year. However, when compared to 2019, labor expense for the quarter improved 156 basis points, driven by labor efficiencies, partly offset by increased wages. Our full year guidance of 200 basis points of improvement for the year versus 2019 remains intact as quarterly variations were considered in that guidance. Moving beyond restaurant expenses, Combined marketing and GNA as a percentage of total revenues was 11.2% compared to 10.5% in the first quarter of 2021, reflecting our investment in the digital transformation we have underway and adding resources back to the business. That said, we expect marketing and GNA to be in the range of 10.3% to 10.8% of total revenue. As of March 27th, we had 66.8 million in cash and our outstanding debt was 50 million. Since then, we've repaid an additional 25 million in debt for a total repayment of 45 million since the beginning of 2022. As of May 2nd, our net cash position was approximately $25 million. Finally, our board approved a second quarter dividend of 14 cents per share, and as Cheryl noted, we have approximately $25 million remaining on our share buyback authorization. I'll now turn the call back to Cheryl Henry for a few closing comments. Thank you, Christy. In closing, let me reiterate how pleased we are with a solid start to 2022 and the strong demand from our guests as they return to our dining room. This brand was established by a single working mom 57 years ago this month. We have veteran operators and franchise partners with decades of experience who have honed their skills and agility and have continued to elevate this business and our hospitality through every hardship and downturn. We believe the company is positioned for long-term success and would like to thank each of our team members, franchise partners, and shareholders for their continued support. Thank you for joining us on the call this morning, and I look forward to taking your questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Brian Vaccaro from Raymond James. Please go ahead.