Ruth’s Hospitality Group, Inc. (NASDAQ: RUTH) Q4 2020 earnings conference call dated Mar. 05, 2021
Presentation:
Operator
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today’s Ruth’s Hospitality Group Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference call is being recorded.
I would now like to turn the conference over to Kristy Chipman, Chief Financial Officer. Please go ahead.
Kristy Chipman — Chief Financial Officer
Thank you, Shamali, and good morning, everyone. Joining me on the call today is Cheryl Henry, our President and Chief Executive 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 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.
Cheryl Henry — President and Chief Executive Officer, Director
Thank you, Kristy, and good morning, everyone. Thank you for joining us on our call today. We hope that everyone is staying safe and healthy.
2020 was truly a challenging year for our Ruth’s Chris team and our franchisees. We managed through two significant shutdowns during the year, the first in late March and the other most recently during our fourth quarter. Despite these challenges, our amazing team, both in the field and in the home office and our franchise partners, continuously displayed resilience and agility in the face of uncertainty, resulting in strong fourth quarter results.
While we still remain cautious, with eased restrictions and the possibility of a vaccinated population on the horizon, it feels we are approaching the other side and that the worst of the impact on our business is behind us.
With that said, I’d like to touch briefly on a few observations of our business as of late.
First, our business is currently being driven largely by special occasion and “just because” diners. We believe this is due to the trust we have built in the brand over 55 years. Our guests trust us to make the most of their dining experiences and with their health and safety as we’ve made that our number one priority from the beginning.
Second, our buckets of business from pre-COVID are more blurred than before, and that’s okay, as we are meeting the customer where they want to be, whether that’s in our new outside dining rooms or in our restaurants, safely social distanced.
Finally, in the past, we’ve talked about demand mainly in the context of seasonality in day of week. Today, demand is also more about regional nuances and consumer mindset, and we have adjusted the guest experience accordingly. For example, our restaurants with open but restricted dining rooms posted a comparable restaurant sales decline of 16.3% through the first nine weeks of 2021. However, Florida, which we opened at the same 50% capacity, experienced an 11% decline. In California, with patios now open and off-premise available, performed at almost 60% of prior year sales during the month of February. When weather allows and the consumer is ready, demand there has followed.
While Kristy will walk you through the fourth quarter financials in a moment, I want to share a bit more on our most recent operating status and talk about growth.
As we look at the Restaurant portfolio today, 75 company-managed restaurants are open, and two restaurants remain temporarily closed. We have 63 restaurants with restricted capacity is operating into go-service only. These open restaurants have contributed to sequentially improving comparable sales in January, down 38.9%; and February, down 25.6% when compared to December of 2020.
As I mentioned, company-owned comparable sales for restaurants with open dining rooms decreased 16.3% compared to 2020. This is our best sustained performance in open dining rooms since reopening after the shutdown in late March.
With the evolving recovery and our solid liquidity position, I’m happy to announce that we expect to open a new Ruth’s Chris Steak House in Short Hills, New Jersey early in the third quarter of this year, and we will begin construction of a new restaurant in Aventura, Florida for a mid-2022 opening.
As we look ahead, we are maintaining a dual focus, ensuring we are prepared should the external environment change again, while at the same time, making sure we are looking towards and planning for the future. This includes keeping our teams ready and agile, focusing on the guest experience, leveraging the efficiencies and learnings from 2020 and maintaining a strong balance sheet with ample liquidity.
I’ll now turn it over to Kristy to cover the specifics of the quarter.
Kristy Chipman — Chief Financial Officer
Thank you, Cheryl. For the fourth quarter ended December 27, 2020, we reported GAAP net income of $1.4 million or $0.04 per diluted share compared to $14.5 million or $0.50 per diluted share for the fourth quarter of 2019.
Net income included a $2.5 million employee retention payroll tax credit, which reduced operating expenses. It also included roughly $300,000 in severance and accelerated stock expense, an approximate $300,000 impairment loss related to restaurants and a $1.1 million in income tax expense related to the impact of discrete income tax items.
Excluding these adjustments, non-GAAP diluted earnings per share was $0.03 compared to $0.52 in the fourth quarter of 2019. Total revenues for the quarter were $77.4 million compared to $135 million in 2019. Company-owned restaurant sales were $72.2 million compared to $127.1 million the prior period.
While our comparable sales improved sequentially from April to October, renewed COVID-related restrictions negatively impacted sales trends as the fourth quarter progressed. Comparable restaurant sales decreases by month included negative 26.1 in October, negative 35.2 in November and a decrease of 53.9 in December, leading to a fourth quarter comp sales of negative 39.7%.
Restaurants that opened dining rooms have averaged unit weekly sales during the quarter of $90.2 thousand compared to $118.8 thousand in the fourth quarter of 2019. This decrease was largely due to the tightening COVID-19 restrictions.
Traffic during the quarter, as measured by entrees, decreased 34.7%, and checks decreased by 7.6% primarily related to the lower off-premise check when compared to in-restaurant dining. Franchise income for the quarter was down 26.7% versus the same quarter last year.
Other operating income was $1.6 million, down from $2.9 million in 2019 due to the impact from COVID as well as a decrease in gift card breakage income and lower income derived from our restaurants operating under management agreements.
67 of the company’s franchised/owned locations as of the end of fourth quarter, 60 offered limited mining capacity, two offered outdoor seating only and five offered to-go and delivery service only.
Turning to expenses. Food and beverage costs for the quarter as a percentage of restaurant sales were down 34 basis points to 29.5% primarily related to 2% beef deflation compared to the fourth quarter of 2019. Restaurant operating expenses as a percentage of restaurant sales decreased 19 basis points to 46%. This was primarily due to the $2.5 million employee retention payroll credit that I noted earlier, offset by higher fixed operating costs, such as group insurance and rent that resulted from the sales deleverage and operating expenses that resulted from to-go and reorders.
Marketing and advertising costs decreased 65.1% to $1.6 million in the quarter. As we reopen our dining rooms, we continue to be sharply focused on regaining our sales leverage, particularly in labor. For restaurants that were opened during the quarter, we had fewer labor hours compared to last year to efficiencies built into our labor model. However, this was offset by sales leverage in restaurants that were restricted to a to-go-only operating model. We expect to see the benefit from our labor model as restaurants reopen and sales improve across the portfolio.
G&A expenses increased $2 million to $10.6 million compared to the fourth quarter of 2019, largely due to the timing of recording the bonus accrual for all home office team members; as Cheryl mentioned, maintaining our strong financial [Technical Issues] at the end of fourth quarter, we had $95.4 million in cash and net debt of $19.6 million, down from a net debt position of over $58 million at the end of 2019. In the fourth quarter, the company paid down an additional $20 million on our revolving line of credit and secured an extension to our credit facility through February 2023. Our net debt has improved by approximately $15 million since the end of 2020.
Subsequent to the fourth quarter, we entered into a sixth amendment on our senior credit facility, which we detailed in an 8-K filing on January 29, 2021. This amendment provides for a $10 million commitment reduction in April 2021. It also provides us relief from certain financial covenants for the first fiscal quarter of 2021 while limiting capital expenditures for the fiscal year.
Before I turn the call back to Cheryl, I just wanted to reiterate our confidence in the business as conditions normalize over the coming quarters. That said, I’m sure we will experience some choppiness and volatility month-to-month. And for that reason, we won’t be providing any additional guidance at this time. Cheryl?
Cheryl Henry — President and Chief Executive Officer, Director
Thank you, Kristy. As I mentioned earlier, 2021 has started off stronger than the final months of 2020. As such, we are focused on understanding our guests, anticipating demand and being ready operationally.
As of today, we believe further recovery starts with a vaccinated population as they return with missed celebratory occasions and milestones, then group social dining events, followed by increased local business demand, and over time, business travelers. This transition may take months, but as I mentioned, we are ready in meeting our guests on their timelines and with the type of experience they desire.
COVID has taught us much about flexibility and innovation, which includes new operating procedures at the restaurant level as well as a more flexible labor model, better capacity utilization and the adoption of technology, not only by us as an organization but by our guests.
With an iconic 55-year-old brand and the best team members and franchise partners in the business behind these efforts, we are proud of where we are today and optimistic about the future.
With that, we will open up the line [Technical Issues].
We are still processing the Q&A portion of the conference call. We will be updating it as soon as we analyze and process the con call. Stay tuned here for more updates.
