Ruth's Hospitality Group, Inc.

Good morning and welcome to the Roots Hospitality Group Inc. Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I will now turn the call over to your host, Mr. Mike Hines, Vice President of Finance and Accounting. Please go ahead, sir.

Thank you, Ryan, and good morning, everyone. Joining me on the call today is Cheryl Henry, our President, Chief Executive Officer and Chairperson of the Board, and Christy Chipman, our Chief Financial Officer and Chief Operating Officer. 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 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, Mike, and good morning, everyone. Our commitment to serving the highest quality food with genuine hospitality has always been the core of who we are, and I could not be prouder of our team members as they embody this commitment every day. Christy and I experienced this firsthand at our Long Beach, California, and Worcester, Massachusetts openings this past weekend as we watched our highly experienced, best-in-class opening teams work with our new team members to ensure they understood every tactical element of what's required for a flawless execution. That dedication is ingrained in our culture and is what drives our success. Turning to our second quarter results, we delivered exceptional performance as we continued to enjoy strong demand from our Just Because and Special Occasion guests and improved private dining sales. This results in strong top-line momentum demonstrated by double-digit comparable sales growth over both 2021 and 2019. For the period, we were also able to effectively manage costs resulting in strong year-over-year adjusted earnings per share growth of 20% and 41% versus the same quarter in 2019. Beyond these numbers, we continue to make progress growing our business organically, including investments in new restaurants, relocations, remodels, and digital technologies. Let's begin with an update on our development plan. For 2022, we kicked off the year with the opening of our Aventura Florida restaurant. And as I mentioned, we opened two new restaurants earlier this week in Long Beach, California and Worcester, Massachusetts. Additionally, we will open our fourth restaurant of the year in just a couple of weeks in Melville, New York. This development adds to the restaurants in our territory on Long Island, which as you recall, we repurchased from one of our franchisees in 2019. Lastly, we are working to open a fifth site by the end of 2022. However, due to construction delays, it may push a month or two into early 2023. In terms of 2023, we've already signed three leases with two additional agreements in their final negotiation stages. Moving on to our investments in digital technologies, we completed the installation of our booking and capacity data platform during the quarter. By capturing and analyzing more data, we're already improving demand forecast and table management, and that has positioned our restaurant to increase traffic on weekends and holidays. With this new platform, we experienced comp sales growth of between 25% and 30% versus 2019 on all three of our major holidays during the quarter, Easter, Mother's Day, and Father's Day. We also made progress with our new point of sale system in our nearing completion of our labor management system rollout. These technologies will serve as a foundation for continued efficiency and put our teams in a better position to deliver on our already world-class hospitality. Another key investment we are making is in the hiring, training, and development of our teams. Most recently, we completed GM and chef meetings across the country to ensure focus on back-to-basics operations staffing and training, and new restaurant technology. The goal was to provide our team members with the tools they need to ensure a superior guest experience in a competitive and dynamic market. Investing in new restaurants and other growth initiatives are part of our balanced capital allocation plan that also includes returning excess capital to our shareholders through debt reduction, dividends, and share repurchases. If you recall, we resumed the dividend in January of this year at 12 cents per share and increased it to 14 cents in Q2. We will be paying a Q3 dividend of 14 cents per share in September. In addition, we paid down 10 million in debt and repurchased 9.5 million worth of shares during the quarter. And I'm pleased to announce that our board has approved a new $60 million share repurchase authorization. which further demonstrates our commitment to long-term shareholder returns. In all, we believe our actions to date have positioned us to achieve sustainable growth through our investments and create significant long-term value. I'll now turn the call over to Christy to cover the specifics of the quarter. Thank you, Cheryl. For the second quarter ended June 26, 2022, we reported gas net income of $10.3 million or $0.31 per diluted share, compared to $12.4 million, or $0.36 per diluted share last year. Adjusted earnings per common share was $0.44, compared to $0.36 in the prior year quarter. Please refer to our earnings release for a reconciliation of gaps to adjusted EPS. Our strong quarterly results were driven by total revenue growth and company-operated restaurant sales growth of approximately 16% each. comp sales for the quarter increased 12.6% versus 2021 and increased 18.6% compared to 2019. With the lack of normal seasonal trends in 2021 as the country reopened, we continue to believe 2019 remains a relevant comparison for sales trends at this point. As compared to 2019 by month, comparable restaurant sales grew 24.4% in April, 20.1% in May, and 10.3% in June. While June comps softened compared to the prior two months, similar to the overall industry slowdown, we are pleased with the double-digit comp growth. July results will be similar to June, with comp growth expected to be positive in the low double digits. Franchise income for the quarter was $5.1 million, up 13.3% versus the same period last year. driven by comparable franchisee sales growth of 12.3%. Other operating income was $2.8 million, up 24.5% versus last year. Overall, restaurant margin as a percent of sales declined approximately 65 basis points versus 2021, primarily due to higher labor and other operating expenses, offset by lower food and beverage costs. While slightly lower than 2021, this quarter's restaurant margin is one of the highest quarterly margins we have run in our history. Food and beverage costs decreased 56 basis points for the quarter to 29.8% as beef prices eased versus last year, and we saw the benefit of the price increase we took towards the end of March. Overall, food and beverage inflation for the quarter was about 8% versus 2021, primarily due to beef deflation of approximately 6% and inflation in the rest of the basket of about 23%. As we move to the back half of the year, we expect beef deflation similar to this quarter and mid-single-digit inflation on the rest of the basket, resulting in relatively flat year-over-year food and beverage costs versus 2021. Labor expense for the quarter versus 2021 increased 84 basis points, primarily due to hourly wage increases of approximately 8% and increased management labor. Based on our results to date, we remain confident with our ability to maintain approximately 200 basis points of labor savings compared to 2019. That said, if conditions warrant additional staffing or increased training expenditures, we will make the necessary investments to protect the guest experience. Moving beyond restaurant expenses, combined marketing and G&A as a percent of revenues was 10.9% compared to 10.8% in the second quarter of 2021, reflecting the timing of expenses related to the implementation of our new data platform and the addition of certain key resources into the business. That said, we expect marketing and G&A to be in the range of 10.5% to 10.8% of total revenues for the full year. As of June 26th, we had $45 million in cash and our outstanding debt was 40 million. During the second quarter, we repaid 10 million in debt for a total repayment of 30 million since the beginning of 2022. And as of August 1st, our cash balance was approximately $47 million. I'll now turn the call back to Cheryl for a few closing comments. Thank you, Christy. In closing, the solid performance in the first half of 2022 is a testament to the hard work and dedication of our teams. They are comprised of veteran operators and franchise partners with decades of experience, and I believe they are the best in the business at understanding how great food and genuine hospitality directly link to business success. They have also managed through numerous cycles over the last two decades, and as demonstrated by the pandemic, can pivot and adjust accordingly. Thank you for joining us on the call this morning. We continue to invest in the future and believe Ruth Chris is ideally positioned to capture the many opportunities ahead. We look forward to taking your questions. Brian, can you please open the lines for those questions?