RUTH Ruth’s Hospitality Group

Sector financial performance:

This company, who is primarily an operator (primary) and franchisor of Ruth’s Chris Steak House, has been grouped into steakhouse - fine dining restaurants sector in foodservice industry.

Data indicates the average increase in comparable sales all across this sector went down from around 1.7% of 2015 to around 0% of 2017 and then went up to 1.2% in 2018.  Correspondingly, traffic all across the sector decreased 0.5%, 0.5%, 1%, and 1.5% in 2015, 2016, 2017 and 2018 respectively. It seems that slowing down traffic contributes the downturn in comparable sales of fine dining restaurants between 2015 and 2016. However, the accelerating decline in traffic since then has been completely offset by more spending per customer.

Generally, impacts of unfavourable climate of restaurants industry to traffic since 2015 seem to be less significant to this sector than to casual restaurants as indicated by their numbers of decrease in traffic. For some companies, reduced menu prices help slow pace of decrease in traffic while caused decrease in sale simultaneously.

Unlike in QSR where companies use franchise as buffer, companies’ margins in this sector declined as traffic and thus sales slowing down. However, to retain traffic and as well because of small space to allow price to go up, few companies in this sector improve their margin and sales by significantly raising menu price. In fact, since 2017, it seems companies started more aggressively promote menu to offset the decline in traffic. Most of companies experienced shrinking gross margins (12%) and operating margins (4%) in 2018.

According to our analysis, the current companies’ enterprise price/EBI ratios (or /sales) is average 24 with an interest/EBI ratio of 14%.

The average cash flow/share of companies in this sector presents decrease of 10% and 4% for 2017 and 2018.

                                                                                                    click for more about this industry

Company performance:

It seems that the demand for service/products of this company has not been strong in the past three years as indicated by continuing decrease in traffic while sales has grown positively due to increased check size. It seems that the decrease in traffic slowed down in 2018.

For the first two quarters of fiscal 2018 compared with same period of 2017

Comparable sales (company owned) increased by 1.2% due to increase of 1.2% in check and increase of 0% in traffic.

The fiscal 2017 compared with 2016

Comparable sales (company owned) increased by 1% due to increase of 1% in check and increase of 0% in traffic.

 The first 39 weeks in fiscal 2017 compared with the same period of 2016

Comparable sales (company owned) increased by 0.7% due to increase of 1.1 % in check offset by decrease of 0.4% in traffic.

Fiscal 2016 compared with 2015

Comparable sales (company owned) increased by 1.6% due to increase of 2.5 % in check (2.5% menu pricing) offset by decrease of 0.8% in traffic.

Fiscal 2015 compared with 2014

Comparable sales (company owned) increased by 3.4% due to increase of 3.5 % in check (menu pricing) offset by decrease of 0.2% in traffic.

Its gross margin (primarily including company-operated expenses) went up slightly by about 100 basis points to about 20.5% of 2017 primarily due to reduced commodity costs and increased price offset by increased labor. Its SG&A as percentage of sales has gone up to 8% and its operating margin has been flat at about 12.5%. due to increase in occupancy costs, its gross margin down back to about 20% in 2018 and operating costs back to about 12%.

Stock price

This stock currently has an enterprise price/EBI ratio of 29. We think that its stock is being relatively slightly undervalued compared with its peers.

For customized trading strategy of this stock