RUTH'S HOSPITALITY GROUP, INC.

(RUTH)
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RUTHS HOSPITALITY GROUP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/05/2022 | 12:07pm EDT

Cautionary Note Regarding Forward-Looking Statements




This Quarterly Report on Form 10-Q contains "forward-looking statements" that
reflect, when made, the Company's expectations or beliefs concerning future
events that involve risks and uncertainties. Forward-looking statements
frequently are identified by the words "anticipate," "assume," "believe,"
"continue," "could," "estimate," "expect," "forecast," "future," "intend,"
"likely result," "may," "might," "plan," "potential," "predict," "project,"
"seek", "should," "target," "will be," "will continue," "will likely result,"
"would" and other similar words and phrases. Similarly, statements herein that
describe the Company's objectives, plans or goals, including with respect to
restaurant openings/re-openings and acquisitions or closures, capital
expenditures, strategy, financial outlook, liquidity outlook, our effective tax
rate, and the impact of inflation and recent accounting pronouncements, also are
forward-looking statements. Actual results could differ materially from those
projected, implied or anticipated by the Company's forward-looking statements.
Some of the factors that could cause actual results to differ include: the
negative impact the COVID-19 pandemic has had and will continue to have on our
business, financial condition, results of operations and cash flows; reductions
in the availability of, or increases in the cost of, USDA Prime grade beef, fish
and other food items; impacts from the conflict in Ukraine, including potential
supply disruptions, and changes in economic conditions and general trends; the
loss of key management personnel; the effect of market volatility on the
Company's stock price; health concerns about beef or other food products; the
effect of competition in the restaurant industry; changes in consumer
preferences; the ability to respond to anticipated inflationary pressures,
including reductions in consumer discretionary income and our ability to pass
along rising costs through increased selling prices, and unfavorable global or
regional economic conditions, including economic slowdown or recession; labor
shortages or increases in labor costs; the impact of federal, state or local
government regulations relating to income taxes, unclaimed property, Company
employees, the sale or preparation of food, the sale of alcoholic beverages and
the opening of new restaurants; political conditions, civil unrest or other
developments and risks in the markets where the Company's restaurants are
located; harmful actions taken by the Company's franchisees; the inability to
successfully integrate franchisee acquisitions into the Company's business
operations; economic, regulatory and other limitations on the Company's ability
to pursue new restaurant openings and other organic growth opportunities; a
material failure, interruption or security breach of the Company's information
technology network; the Company's indemnification obligations in connection with
its sale of the Mitchell's Restaurants; the Company's ability to protect its
name and logo and other proprietary information; an impairment in the financial
statement carrying value of our goodwill, other intangible assets or property;
gains or losses on lease modifications; the impact of litigation; the
restrictions imposed by the Company's credit agreement; changes in, or the
suspension or discontinuation of the Company's quarterly cash dividend payments
or share repurchase program; and the inability to secure additional financing on
terms acceptable to the Company. For a discussion of these and other risks and
uncertainties that could cause actual results to differ from those contained in
the forward-looking statements, see "Risk Factors" in Part II Item 1A of this
Form 10-Q and the Company's Annual Report on Form 10-K for the fiscal year ended
December 26, 2021, which is available on the SEC's website at www.sec.gov. All
forward-looking statements are qualified in their entirety by this cautionary
statement, and the Company undertakes no obligation to revise or update this
Quarterly Report on Form 10-Q to reflect events or circumstances after the date
hereof. You should not assume that material events subsequent to the date of
this Quarterly Report on Form 10-Q have not occurred.



Overview



Ruth's Hospitality Group, Inc. is a restaurant company focused on the upscale
dining segment. Ruth's Hospitality Group, Inc. operates Company-owned Ruth's
Chris Steak House restaurants and sells franchise rights to Ruth's Chris Steak
House franchisees giving the franchisees the exclusive right to operate similar
restaurants in a particular area designated in the franchise agreement. As of
June 26, 2022, there were 151 Ruth's Chris Steak House restaurants, including
74 Company-owned restaurants, three restaurants operating under contractual
agreements and 74 franchisee-owned restaurants. Subsequent to the end of the
quarter two new Company-owned Ruth's Chris Steak House restaurants were opened
in Worcester, MA and Long Beach, CA.



The Ruth's Chris menu features a broad selection of USDA Prime and other
high-quality steaks and other premium offerings served in Ruth's Chris'
signature fashion - "sizzling" and topped with butter - complemented by other
traditional menu items inspired by our New Orleans heritage. The Ruth's Chris
restaurants reflect over 55 years of commitment to the core values instilled by
our founder, Ruth Fertel, of caring for our guests by delivering the highest
quality food, beverages and service in a warm and inviting atmosphere.





All Company-owned Ruth's Chris Steak House restaurants are located in the United States. The franchisee-owned Ruth's Chris Steak House restaurants include 23 international franchisee-owned restaurants in Aruba, Canada, China, Hong Kong, Indonesia, Japan, Mexico, Philippines, Singapore and Taiwan.




In March 2020 the World Health Organization declared the novel coronavirus 2019
(COVID-19) a pandemic and the United States declared it a National Public Health
Emergency, which has resulted in a significant reduction in revenue at the
Company's restaurants due to mandatory restaurant closures, capacity
limitations, social distancing guidelines or other restrictions mandated by
governments across the world, including federal, state, and local governments in
the United States. As a result of these developments, the Company has
experienced a significant negative impact on its revenues, results of operations
and cash flows compared to periods prior to the onset of the pandemic. As of
June 26, 2022, all of the Company-owned and -managed restaurants were open. This
continues to be an unprecedented event in the Company's history, and as the
COVID-19 pandemic continues to evolve, it remains uncertain how the conditions
surrounding COVID-19 will continue to change. The Company has had and could
continue to experience macroeconomic impacts arising from the long duration of
the COVID-19 pandemic, including labor shortages and supply chain disruptions.
The extent to which COVID-19 will continue to impact the Company will depend on
future developments, which are highly uncertain and cannot be predicted with
confidence, including the unknown duration and severity of the COVID-19
pandemic, which may be impacted by new and evolving variants of the COVID-19
virus, the adoption rate of the COVID-19 vaccines and boosters in the
jurisdictions in which the Company operates, actions taken to contain the impact
of COVID-19, and further actions that may be taken to limit the resulting public
health and economic impact.



Following increases in the number of cases of COVID-19 throughout the United
States and a spike in COVID-19 cases as a result of the Omicron and subsequent
variants, some of our restaurants are subject to COVID-19-related restrictions
such as mask requirements for team members, guests or both. We continue to
monitor state, local, and federal government regulatory and public health
responses to the COVID-19 pandemic.



Our business is subject to seasonal fluctuations. Historically, our first and
fourth quarters have tended to be the strongest revenue quarters due largely to
the year-end holiday season and the popularity of dining out during the fall and
winter months. Due to the impacts of COVID-19, it is uncertain whether future
quarters will be stronger or weaker than the second fiscal quarter fiscal year
2022 or the first twenty-six weeks of fiscal year 2022. Consequently, results
for any one quarter are not necessarily indicative of results to be expected for
any other quarter or for any year, and comparable restaurant sales for
any period may decrease.



Our Annual Report on Form 10-K for the fiscal year ended December 26, 2021 provides additional information about our business, operations and financial condition.





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Results of Operations



The table below sets forth certain operating data expressed as a percentage of
total revenues for the periods indicated, except as otherwise noted. Our
historical results are not necessarily indicative of the operating results that
may be expected in the future.



                                                 13 Weeks Ended                  26 Weeks Ended
                                            June 26,        June 27,        June 26,        June 27,
                                              2022            2021            2022            2021
Revenues:
Restaurant sales                                 93.9 %          93.9 %          94.0 %          93.7 %
Franchise income                                  4.0 %           4.1 %           3.9 %           4.2 %
Other operating income                            2.1 %           2.0 %           2.1 %           2.1 %
Total revenues                                  100.0 %         100.0 %         100.0 %         100.0 %

Costs and expenses:
Food and beverage costs (percentage of
restaurant sales)                                29.8 %          30.3 %          31.1 %          29.3 %
Restaurant operating expenses
(percentage of restaurant sales)                 44.9 %          43.6 %          45.5 %          44.7 %
Marketing and advertising                         3.7 %           2.9 %           3.8 %           2.6 %
General and administrative costs                  7.3 %           7.9 %           7.3 %           8.1 %
Depreciation and amortization expenses            4.0 %           4.6 %           3.9 %           5.1 %
Pre-opening costs                                 0.6 %           0.1 %           0.6 %           0.3 %
Loss on legal settlement                          4.7 %             -             2.4 %             -
Loss on impairment                                  -             0.4 %             -             0.2 %
Total costs and expenses                         90.3 %          85.3 %          90.0 %          85.7 %
Operating income                                  9.7 %          14.7 %          10.0 %          14.3 %
Other income (expense):
Interest expense, net                            (0.2 %)         (1.0 %)         (0.2 %)         (1.2 %)
Other                                             0.0 %           0.0 %           0.0 %           0.0 %
Income before income taxes                        9.5 %          13.7 %           9.8 %          13.1 %
Income tax expense                                1.5 %           2.5 %           1.7 %           2.2 %
Net income                                        8.0 %          11.2 %           8.1 %          10.9 %





Second Quarter Ended June 26, 2022 (13 Weeks) Compared to Second Quarter Ended June 27, 2021 (13 Weeks)




Overview. Operating income decreased by $3.8 million to $12.5 million for
the second quarter of fiscal year 2022 from the operating income reported for
the second quarter of fiscal year 2021. Operating income for the second quarter
of fiscal year 2022 was favorably impacted by a $16.6 million increase in
restaurant sales, a $601 thousand increase in franchise income and a
$543 thousand increase in other operating income, offset by an $8.8 million
increase in restaurant operating expenses, a $6.0 million increase in settlement
losses, a $4.4 million increase in food and beverage costs, a $1.5 million
increase in marketing and advertising costs, a $584 thousand increase in
pre-opening costs and a $553 thousand increase in general and administrative
costs. Net income decreased from the second quarter of fiscal year 2021 by
$2.1 million to $10.3 million.



Segment Profits. Segment profitability information is presented in Note 7 in the
notes to the condensed consolidated financial statements included in Item 1.
"Financial Statements". Segment profit for the second quarter of fiscal year
2022 for the Company-owned steakhouse restaurant segment increased by
$3.7 million to a $32.2 million profit compared to the second quarter of fiscal
year 2021. The increase was driven primarily by a $16.9 million increase in
restaurant sales offset by an $8.8 million increase in restaurant operating
expenses and a $4.4 million increase in food and beverage costs. Franchise
income increased $601 thousand in the second quarter of fiscal year 2022
compared to the second quarter of fiscal year 2021.



Restaurant Sales. Restaurant sales increased by $16.6 million, or 15.9%, to
$120.8 million in the second quarter of fiscal year 2022 from the second quarter
of fiscal year 2021.  Company-owned comparable restaurant sales in the second
quarter of fiscal year 2022 were $116.5 million, which represented an increase
of $13.0 million, or 12.6%, compared to the second quarter of fiscal year 2021.





Franchise Income. Franchise income in the second quarter of fiscal year 2022
increased by $601 thousand, or 13.3%, to $5.1 million compared to the second
quarter of fiscal year 2021. The increase in franchise income compared to the
second quarter of fiscal year 2021 was due to an increase in franchisee-owned
restaurant sales.



Other Operating Income. Other operating income increased by $543 thousand in the
second quarter of fiscal year 2022 compared to the second quarter of fiscal year
2021. The increase was primarily due to an increase in breakage income of
$192 thousand resulting from an increase in gift card redemptions and a
$395 thousand increase in income from miscellaneous charges generated in the
restaurants. The increase in these items was primarily due to increases in
restaurant sales and gift card redemptions.



Food and Beverage Costs. Food and beverage costs increased by $4.4 million, or
13.8%, to $36.0 million in the second quarter of fiscal year 2022 compared to
the second quarter of fiscal year 2021 primarily due to increased restaurant
sales. As a percentage of restaurant sales, food and beverage costs decreased to
29.8% in the second quarter of fiscal year 2022 from 30.3% in the second quarter
of fiscal year 2021, primarily driven by a 6.5% decrease in beef costs.



Restaurant Operating Expenses. Restaurant operating expenses increased by
$8.8 million, or 19.5%, to $54.2 million in the second quarter of fiscal year
2022 from the second quarter of fiscal year 2021. Restaurant operating expenses,
as a percentage of restaurant sales, were 44.9% in the second quarter of fiscal
year 2022 compared to 43.6% in the second quarter of fiscal year 2021 primarily
driven by higher labor costs from adding staff to our restaurants.



Marketing and Advertising. Marketing and advertising expenses increased by
$1.5 million, or 46.9%, to $4.7 million in the second quarter of fiscal year
2022 from the second quarter of fiscal year 2021. The increase in marketing and
advertising expenses in the second quarter of fiscal year 2022 was primarily
attributable to a $1.0 million increase in digital and data transformation
expenses.



General and Administrative Costs. General and administrative costs increased by
$553 thousand, or 6.3%, to $9.3 million in the second quarter of fiscal year
2022 from the second quarter of fiscal year 2021.  As a percentage of revenue,
general and administrative costs decreased from 7.9% in the second quarter of
fiscal year 2021 to 7.3% in the second quarter of fiscal year 2022 primarily due
to increased sales.



Depreciation and Amortization Expenses. Depreciation and amortization expense
increased by $51 thousand to $5.1 million in the second quarter of fiscal year
2022 from the second quarter of fiscal year 2021.



Pre-opening Costs. Pre-opening costs were $743 thousand in the second quarter of
fiscal year 2022. These expenses are primarily due to the anticipated
openings of three Ruth's Chris Steak House restaurants in the third quarter of
fiscal year 2022 and recognition of rent expense at unopened Ruth's Chris Steak
House restaurants where the Company has taken possession of the property.
Pre-opening costs were $159 thousand in the second quarter of fiscal year 2021
primarily due to the recognition of rent expense at unopened Ruth's Chris Steak
House restaurants where the Company had taken possession of the properties.



Loss on Settlement.  During the second quarter of fiscal year 2022, the Company
recorded a $6.0 million loss on settlement.  This expense relates to the signing
of a Memorandum of Understanding to settle certain class action litigations.
Further information can be found in Note 11 in the condensed consolidated
financial statements included in Item 1. "Financial Statements".



Loss on Impairment.  During the second quarter of fiscal year 2021, the Company
recorded a $394 thousand loss on impairment of which $306 thousand related to
long-lived assets as described in Note 2 in the notes to the condensed
consolidated financial statements included in Item 1. "Financial Statements". No
loss on impairment was reported for the second quarter of fiscal year 2022.



Interest Expense. Interest expense decreased $889 thousand to $239 thousand in
the second quarter of fiscal year 2022 compared to $1.1 million in the second
quarter of fiscal year 2021. The decrease is primarily due to a lower average
debt balance in the second quarter of fiscal year 2022, partially offset by a
higher interest rate.


Other Income and Expense. During the second quarter of fiscal year 2021, we recognized other income of $34 thousand. During the second quarter of fiscal year 2021, we recognized other income of $36 thousand.




Income Tax Expense. During the second quarter of fiscal year 2022, we recognized
income tax expense of $2.0 million compared to $2.8 million during the second
quarter of fiscal year 2021. The effective tax rate, including the impact of
discrete items, decreased to 15.9% for the second quarter of fiscal year 2022
compared to 18.2% for the second quarter of fiscal year 2021. Fiscal year 2022
discrete items and other unexpected changes impacting the annual tax expense may
cause the effective tax rate for fiscal year 2022 to differ from the effective
tax rate for the second quarter of fiscal year 2022.



Net Income. Net income was $10.3 million in the second quarter of fiscal year
2022, which reflected a decrease of $2.1 million compared to $12.4 million in
the second quarter of fiscal year 2021. The decrease was attributable to the
factors noted above.





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Twenty-Six Weeks Ended June 26, 2022 (26 Weeks) Compared to Twenty-Six Weeks Ended June 27, 2021 (26 Weeks)




Overview. Operating income decreased by $2.8 million to $25.5 million for the
first twenty-six weeks of fiscal year 2022 from the income reported for the
first twenty-six weeks of fiscal year 2021. Operating income for
the first twenty-six weeks of fiscal year 2022 was favorably impacted by a
$53.7 million increase in restaurant sales, a $1.5 million increase in franchise
income and a $1.4 million increase in other operating income, offset by a
$25.9 million increase in restaurant operating expenses, a $20.0 million
increase in food and beverage costs, a $6.0 million increase in settlement
losses, a $4.4 million increase in marketing and advertising costs, a
$2.6 million increase in general and administrative costs and a $1.0 million
increase in pre-opening costs. Net income decreased from
the first twenty-six weeks of fiscal year 2021 by $788 thousand to
$20.7 million.



Segment Profits. Segment profitability information is presented in Note 7 in the
notes to the condensed consolidated financial statements included in Item 1.
"Financial Statements". Segment profit for the first twenty-six weeks of fiscal
year 2022 for the Company-owned steakhouse restaurant segment increased by
$8.3 million to a $59.0 million profit compared to the first twenty-six weeks of
fiscal year 2021. The increase was driven primarily by a $54.2 million increase
in restaurant sales offset by a $25.9 million increase in restaurant operating
expenses and a $20.0 million increase in food and beverage costs. Franchise
income increased $1.5 million in the first twenty-six weeks of fiscal year 2022
compared to the first twenty-six weeks of fiscal year 2021.



Restaurant Sales. Restaurant sales increased by $53.7 million, or 28.9%, to $239.5 million in the first twenty-six weeks of fiscal year 2022 from the first twenty-six weeks of fiscal year 2021. Company-owned comparable restaurant sales in the first twenty-six weeks of fiscal year 2022 were $231.6 million, which represented an increase of $46.8 million, or 25.3%, compared to the first twenty-six weeks of fiscal year 2021.

Franchise Income. Franchise income in the first twenty-six weeks of fiscal year 2022 increased by $1.5 million, or 18.5%, to $9.9 million compared to the first twenty-six weeks of fiscal year 2021. The increase in franchise income compared to the first twenty-six weeks of fiscal year 2021 was due to an increase in franchisee-owned restaurant sales.


Other Operating Income. Other operating income increased by $1.4 million in
the first twenty-six weeks of fiscal year 2022 compared to
the first twenty-six weeks of fiscal year 2021. The increase was primarily due
to an increase in breakage income of $804 thousand resulting from an increase in
gift card redemptions and a $622 thousand increase in income from miscellaneous
charges generated in the restaurants. The increase in these items was primarily
due to increases in restaurant sales and gift card redemptions.



Food and Beverage Costs. Food and beverage costs increased by $20.0 million, or
36.8%, to $74.6 million in the first twenty-six weeks of fiscal year 2022
compared to the first twenty-six weeks of fiscal year 2021 primarily due to
increased restaurant sales. As a percentage of restaurant sales, food and
beverage costs increased to 31.1% in the first twenty-six weeks of fiscal year
2022 from 29.3% in the first twenty-six weeks of fiscal year 2021, primarily
driven by a 10.3% increase in beef costs.



Restaurant Operating Expenses. Restaurant operating expenses increased by $25.9 million, or 31.2%, to $108.9 million in the first twenty-six weeks of fiscal year 2022 from the first twenty-six weeks of fiscal year 2021. Restaurant operating expenses, as a percentage of restaurant sales, were 45.5% in the first twenty-six weeks of fiscal year 2022 compared to 44.7% in the first twenty-six weeks of fiscal year 2021 primarily driven by higher labor costs from adding staff to our restaurants.






Marketing and Advertising. Marketing and advertising expenses increased by
$4.4 million, or 84.9%, to $9.7 million in the first twenty-six weeks of fiscal
year 2022 from the first twenty-six weeks of fiscal year 2021. The increase in
marketing and advertising expenses in the first twenty-six weeks of fiscal year
2022 was attributable to a $2.5 million increase in digital and data
transformation expenses and increasing expenses as the Company resumes its
marketing programs that were suspended as a result of its response to the
COVID-19 pandemic.



General and Administrative Costs. General and administrative costs increased by
$2.6 million, or 16.3%, to $18.6 million in the first twenty-six weeks of fiscal
year 2022 from the first twenty-six weeks of fiscal year 2021. The increase in
general and administrative costs in the first twenty-six weeks of fiscal year
2022 was primarily attributable to a $1.6 million in compensation related
expenses, a $684 thousand increase in professional fees and a $308 thousand
increase in travel related expenses over the first twenty-six weeks of 2021.  As
a percentage of revenue, general and administrative costs decreased from 8.1% in
the first twenty-six weeks of fiscal year 2021 to 7.3% in
the first twenty-six weeks of fiscal year 2022 primarily due to increased sales.



Depreciation and Amortization Expenses. Depreciation and amortization expense decreased by $219 thousand to $9.9 million in the first twenty-six weeks of fiscal year 2022 from the first twenty-six weeks of fiscal year 2021.




Pre-opening Costs. Pre-opening costs were $1.6 million in
the first twenty-six weeks of fiscal year 2022. These expenses are primarily due
to the to the anticipated openings of three Ruth's Chris Steak House restaurants
in the third quarter of fiscal year 2022, the opening of the Ruth's Chris Steak
House restaurant in Aventura, Florida in March 2022 and recognition of rent
expense at unopened Ruth's Chris Steak House restaurants where the Company has
taken possession of the property. Pre-opening costs were $604 thousand in
the first twenty-six weeks of fiscal year 2021 primarily due to the recognition
of rent expense at four unopened Ruth's Chris Steak House restaurants where the
Company had taken possession of the properties.



Loss on Settlement.  During the first twenty-six weeks of fiscal year 2022, the
Company recorded a $6.0 million loss on settlement.  This expense relates to the
signing of a Memorandum of Understanding to settle certain class action
litigations.  Further information can be found in Note 11 in the condensed
consolidated financial statements included in Item 1. "Financial Statements".



Loss on Impairment.  During the first twenty-six weeks of fiscal year 2021, the
Company recorded a $394 thousand loss on impairment of which $306 thousand
related to long-lived assets as described in Note 2 in the notes to the
condensed consolidated financial statements included in Item 1. "Financial
Statements".  No loss on impairment was reported for the first twenty-six weeks
of fiscal year 2022.



Interest Expense. Interest expense decreased $1.9 million to $563 thousand in
the first twenty-six weeks of fiscal year 2022 compared to $2.4 million in
the first twenty-six weeks of fiscal year 2021. The decrease is primarily due to
a lower average debt balance in the first twenty-six weeks of fiscal year 2022.



Other Income and Expense. During the first twenty-six weeks of fiscal year 2021,
we recognized other income of $62 thousand. During the first twenty-six weeks of
fiscal year 2021, we recognized other income of $80 thousand.



Income Tax Expense. During the first twenty-six weeks of fiscal year 2022, we
recognized income tax expense of $4.3 million compared to $4.5 million during
the first twenty-six weeks of fiscal year 2021. The effective tax rate,
including the impact of discrete items, increased to 17.2% for
the first twenty-six weeks of fiscal year 2022 compared to 17.1% for
the first twenty-six weeks of fiscal year 2021. Fiscal year 2022 discrete items
and other unexpected changes impacting the annual tax expense may cause the
effective tax rate for fiscal year 2022 to differ from the effective tax rate
for the first twenty-six weeks of fiscal year 2022.



Net Income. Net income was $20.7 million in the first twenty-six weeks of fiscal
year 2022, which reflected a decrease of $788 thousand compared to $21.5 million
in the first twenty-six weeks of fiscal year 2021. The decrease was attributable
to the factors noted above.





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Liquidity and Capital Resources



Overview



Our principal sources of cash have been historically provided by our operating
activities as well as periodic borrowings from our senior credit facility.
During the first twenty-six weeks of fiscal year 2022 our principal uses of cash
flow were debt repayments, capital expenditures, repurchase of common stock and
dividend payments.



During the fourth quarter of fiscal year 2019, our Board of Directors approved a
share repurchase program authorizing us to repurchase up to $60 million of
outstanding common stock from time to time. As a result of the impacts to our
business arising from the COVID-19 pandemic, the Company suspended its share
repurchase program. During the third quarter of fiscal year 2021, the Company
resumed its share repurchase program and repurchased 887,515 shares at an
aggregate cost of $16.6 million or an average cost of $18.69 per share through
December 27, 2021. All repurchased shares were retired and cancelled.  During
the first twenty-six weeks of fiscal year 2022 the Company repurchased 529,734
shares at an aggregate cost of $9.5 million or an average cost of $18.01 per
share.



The Company also resumed payments of dividends in the first quarter of fiscal
year 2022 with a $0.12 per share dividend paid on February 17, 2022, and a $0.14
per share dividend paid on June 2, 2022.  Subsequent to the end of the second
quarter of fiscal year 2022, the Company's Board of Directors declared a
quarterly cash dividend of $0.14 per share payable on September 2, 2022, to
shareholders of record as of the close of business on August 19, 2022.



We believe that our current cash position, coupled with our anticipated cash
flow from operations, should provide us with adequate liquidity for the next
twelve months and, when combined with our access to additional capital, should
provide us with adequate liquidity for the foreseeable future.  As of June 26,
2022, we were in compliance with all covenants pertaining to the Credit
Agreement.



Senior Credit Facility



As of June 26, 2022, we had $40.0 million of outstanding indebtedness under our
senior credit facility and approximately $4.7 million of outstanding letters of
credit, pursuant to a credit agreement entered into with Wells Fargo Bank,
National Association as administrative agent, and certain other lenders (as
amended, the "Credit Agreement"). As of June 26, 2022, the weighted average
interest rate on our outstanding debt was 3.7% and the weighted average interest
rate on our outstanding letters of credit was 1.9%. In addition, the fee on the
unused portion of our senior credit facility was 0.3%.



The Credit Agreement provides for a revolving credit facility of $140.0 million
with a $10.0 million sub-facility of letters of credit and a $5.0 million
sub-facility for swingline loans. Subject to the satisfaction of certain
conditions and lender consent, the revolving credit facility may be increased up
to a maximum of $200.0 million. The Credit Agreement has a maturity date of
October 18, 2026. For more information about our long-term debt, see Note 5 in
the notes to the condensed consolidated financial statements included in Item 1.
"Financial Statements".



Sources and Uses of Cash


The following table presents a summary of our net cash provided by (used in) operating, investing and financing activities (in thousands):



                                             26 Weeks Ended
                                          June 26,    June 27,
                                            2022        2021
Net cash provided by (used in):
Operating activities                      $  25,006   $  42,004
Investing activities                        (23,093 )    (2,504 )
Financing activities                        (49,180 )   (47,563 )

Net decrease in cash and cash equivalents $ (47,267 ) $ (8,063 )

Operating Activities. Operating activities provided cash of $25.0 million during
the first twenty-six weeks of fiscal year 2022 and $42.0 million during the
first twenty-six weeks of fiscal year 2021. Operating cash outflows pertain
primarily to expenditures for food and beverages, restaurant operating expenses,
marketing and advertising, general and administrative costs, and income taxes.
Operating activities provided cash flows primarily because operating revenues
have exceeded cash-based expenses.



Investing Activities. Cash used in investing activities totaled $23.1 million in
the first twenty-six weeks of fiscal year 2022 compared with $2.5 million used
in the first twenty-six weeks of fiscal year 2021. Cash used in investing
projects during the first twenty-six weeks of fiscal year 2022 primarily
pertained to $14.0 million for new restaurants, $6.6 million for technology
investments and upgrades, and $2.3 million for restaurant remodel and capital
replacement projects. Cash used in investing activities during the first
twenty-six weeks of fiscal year 2021 primarily pertained to $1.4 million for new
restaurants and $981 thousand for capital replacement projects.



Financing Activities. Financing activities used cash during the first twenty-six
weeks of fiscal year 2022 and the first twenty-six weeks of fiscal year 2021.
During the first twenty-six weeks of fiscal year 2022, we repaid debt in the
amount of $45.0 million, paid $9.5 million for the repurchase of common stock,
paid $8.8 million in dividends and paid $849 thousand in employee withholding
taxes in connection with the vesting of restricted stock. We paid the
$849 thousand in taxes in connection with the vesting of restricted stock for
recipients who elected to satisfy their individual tax withholding obligations
by having us withhold a number of vested shares of restricted stock. These cash
payments were partially offset by $15.0 million in proceeds from long-term
debt.  During the first twenty-six weeks of fiscal year 2021, we reduced debt by
$45 million, paid $2.4 million in employee withholding taxes in connection the
with vesting of restricted stock and paid $145 thousand in deferred financing
costs.




Critical Accounting Policies and Estimates




The preparation of our financial statements requires management to make
estimates, judgments and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses during the periods presented. Our Annual
Report on Form 10-K for the fiscal year ended December 26, 2021 includes a
summary of the critical accounting policies and estimates that we believe are
the most important to aid in the understanding our financial results. There have
been no material changes to these critical accounting policies and estimates
that impacted our reported amounts of assets, liabilities, revenues or expenses
during the first twenty-six weeks of fiscal year 2022.





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