RUTH
#Thank you, Mike.
For the first quarter ended <UNK>h 26, 2017, we reported net income of $11 million or $0.35 per diluted share compared to net income of $10.8 million or $0.33 per diluted share in the prior period, the first quarter of 2016.
Net income in the first quarter of 2017 included a $247,000 benefit related to certain discrete income tax items.
Excluding this benefit, the loss from discontinued operations and restaurant closure costs in 2016, net income was $10.8 million or $0.35 per diluted share in the first quarter of 2017 compared to $11 million or $0.33 per diluted share in the prior period.
Total company-owned restaurant sales for the first quarter were $99.5 million, an increase of 3.7%, from $95.9 million last year, primarily driven by the contribution from our new restaurants as well as by the 0.7% increase in comparable restaurant sales.
As we mentioned on our last call, the calendar shift of Easter from the first quarter of 2016 into the second quarter of 2017 negatively impacted first quarter comparable restaurant sales by approximately 70 basis points.
Additionally, the quarter was negatively impacted by approximately 50 basis points over the course of the Valentine's week.
This was due to the shift of the holiday to a less desirable Tuesday this year from a more desirable Sunday last year.
Please note, the timing of Easter has positively impacted our second quarter trends to date.
To this point, in the quarter, our sales are currently running up low single digits, led by improving traffic trends.
Average weekly sales for company-owned restaurants were $111,000 in the first quarter, flat with the $111,000 in the first quarter of last year.
Total operating weeks for company-owned restaurants were 895 in the first quarter, up 3.5% year-over-year from 865 in the first quarter of 2016.
Franchise income in the first quarter of 2017 was $4.4 million compared to $4.5 million in the prior period.
This decrease was driven by the timing of development fees recorded during the first quarter of 2016.
Total franchise comparable sales were up 3.6% year-over-year in the first quarter of 2017.
While comparable sales in our domestic franchise restaurants were up 3.9% during the quarter, comparable sales in our international franchise restaurants were up 2.1%.
During the quarter, the franchise system experienced similar trends as our company restaurants, but were augmented by the impact of the relocation and remodel of a few restaurants.
Now turning to our costs.
Food and beverage costs, as a percentage of restaurant sales, improved by 90 basis points year-over-year to 28.7%, driven by a 2.4% increase in average check, combined with a 1.4% decrease in year-over-year beef costs.
As we expected, after having benefited from material beef cost deflation throughout 2016, we've begun to see that benefit moderate.
We continue to expect roughly flattish beef costs for the full year 2017 as deflation on filet cuts being offset by modest inflationary pressure on prime cuts.
For the quarter, our restaurant operating expenses, as a percentage of restaurant sales, decreased 10 basis points year-over-year to 45.7%.
This decrease was driven primarily by lower year-over-year health care claims.
Our G&A expenses, as a percentage of total revenues, increased 20 basis points year-over-year to 7.7%, primarily driven by an increase in performance-based compensation.
<UNK>eting and advertising costs, as a percentage of total revenue, increased 40 basis points to 2.3%.
This increase was driven by a shift in marketing spend across the quarters.
While our marketing mix remains dynamic, we expect higher year-over-year marketing spend during the second quarter and our marketing expense to be fairly evenly distributed across the remaining quarters.
Preopening costs were $1.2 million compared to $400,000 in the first quarter of 2016, driven by the 3 new restaurants opened during the quarter of this year versus no new company openings in the prior period.
In addition to returning capital through our quarterly dividend, we repaid $11 million in debt under our senior credit facility during the quarter.
We ended with $14 million outstanding at the end of the first quarter of 2017.
During the quarter, we did not repurchase any shares under our current share repurchase program.
At the end of the first quarter, we had just under $27 million outstanding under our previously announced $60 million share repurchase authorization.
Finally, I'd like to reaffirm our outlook for the full year of 2017 for all the key metrics presented last quarter.
The details of this guidance can be found in our earnings release issued earlier this morning.
With that, I'd now like to turn the call back over to Mike.
Would you be able to share a little bit more on what you're seeing across the competitive landscape.
Are there any pockets of regional strength or weakness.
And Mike, would you be willing to share a little bit more on what you're seeing between your segments, between business and just because.
Yes.
And regional performances, anything on the competitive landscape you're seeing.
I wanted to start on the comps.
And Arne, you mentioned the quarter-to-date being up low single digits.
I just wanted to confirm, that does include the benefit of the Easter shift.
And if it does, is that benefit sort of in that 150 basis point range on the quarter-to-date.
Yes, <UNK>, it does include the benefit of Easter.
And I think even stepping aside from Easter, if you kind of smooth it all out, the year is running kind of at a very consistent pace.
There's pluses and minuses on Valentine's Day, pluses and minuses on the timing of Easter.
But it feels like a very consistent pace for the whole year-to-date as you look at it today.
I think the thing that we're probably most encouraged by is what's happening on traffic.
We've had traffic flat to down a little bit for now like 2 years.
That seems to be slowing a little bit.
It's still slightly negative, but it seems to be moving in the right direction.
And I think when you add the backdrop of what Mike said about people sharing more entr\xe9es, a 16-ounce strip steak with no bone in it, that's a big piece of meat.
I think you feel pretty good about the direction that traffic is heading as well.
Okay, great.
That's helpful.
And on the company comps specifically, can you comment on how the Ruth's 2.0 remodel units are performing relative to the rest of the system.
Are they having a significant impact on the reported comps.
And were there any 2.0 remodels completed in Q1.
<UNK>, this is Cheryl.
Yes, so we actually completed 2 restaurants, Fort Lauderdale and Coral Gables, in our Florida market in the quarter.
And we are anticipating approximately 7 to 9 more in the year, so we look forward to that.
I would say there's different types of remodels.
I think we bucket them somewhat in expansion.
So certainly, we see, when we expand our capacity, we see the needed sales lift to accompany that investment.
And then on the brand side, we like what we're seeing so far.
It's early.
We started this program probably about 1.5 years ago.
It takes some time to get these projects done.
But I would say early signs are positive that consumers are reacting to the larger bars we can create and the new atmosphere we can create in these remodels.
<UNK>, I'll tell you, it is ---+ as Cheryl said, it is contributing, I think, as we expected.
The best, as Cheryl said, comes from the capacity.
But I think we're pleased with it.
We continue to invest in it.
We think this is the right thing for our brand in terms of the use of capital.
All right, very helpful.
And then just last one from me, one quick one on the margin side.
The other OpEx line continue to see some very good cost trends there.
I know you mentioned the lower health care claims.
Was that versus an unusually high level of claims last year or sort of an unusually low level this year.
And then can you also comment on what your year-on-year wage inflation was in the quarter.
Sure, <UNK>.
In terms of the health care cost, it was maybe slightly elevated last year.
I mean, there's always some cyclicality there in that.
But I don't feel like we're unusually high last year or unusually low.
So I think we're pleased.
<UNK> <UNK> and his teams have spent a lot of time on education and making sure people understand their options around health care.
And we want our people to be healthy.
In terms of the ---+ I think we've quantified the minimum wage effect.
It's a little bit over $1 million a year in terms of wage inflation.
Overall, depending on the market, you're probably running somewhere from probably 3% to 5% in terms of rate inflation.
Okay.
And just looking at it on sort of a per operating week basis, that other OpEx line is sort of flattish by my math, it would seem, year-on-year with the wage inflation you talked about.
Are there any productivity initiatives and anything quantifiable that you're doing in the restaurants to sort of drive incremental savings that are noteworthy.
There's no, like, formal program other than the things that Mike talked about with Kevin and Rik and Susan.
And I think everybody recognizes the whole industry is facing a labor headwind.
And they work tirelessly to manage their business and their margins and understand their P&Ls and their costs.
So I would tip my hat to the operations team on the great job that they do in terms of managing their expense.
But this is not like we have this one-time program that we're doing to offset our business.
Thanks, Andy.
In the (inaudible) you can say that (inaudible).
Sure, Andy.
I think why don't I start with some of the math, and then Cheryl can kind of talk more to the program design.
But overall, the 2.0 menu was designed in partnership both with culinary operations and from the financial side, that it would be balanced.
So in terms of the margins as a blended group, there's a mixture.
But overall, I would say they're fairly consistent with what we took off the menu.
Some of them, like some of the Tomahawk steak, for example, has a kind of a lower gross margin but a higher ---+ much higher contribution around it in terms of dollar contribution.
So overall, it's ---+ I would tell you they're broadly flat, but Cheryl can to talk to you a little bit more about the individual components.
Yes.
Andy, I think as we look at our menu offerings and innovating and offering consumers different opportunities to dine with us, the intent really around price point and margins was how do I have different types of occasions.
So to your point, in the bar, we have Sizzle, Swizzle & Swirl.
We're in the middle of refresh of that.
It's been very successful for us.
And our guests really like it and have a great affinity for it.
And then to the Ruth's 2.0, which offers some guests an opportunity when they wanted to go a little bigger, bigger on check, bigger on the experience, so really the intent of the programs is to have an offering the kind of comes across that spectrum for the guests, and says there are different opportunities here.
Andy, I would tell you, I think Cheryl and the marketing and culinary team in operations have done a great job of kind of providing a broad menu.
And it's been kind of been our approach.
We don't do a lot of consumer-facing discounting, but there's value on the menu, there's opportunities to celebrate.
And we work very hard at making sure we have what we believe are the right offerings for customers who want value, for customers who want to celebrate, or if they're there for a business dinner.
And so I think we feel pretty good, and it feels like a good balanced offering right now.
