Table of Contents

 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


 

(Mark One)

☒         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 25, 2022March 26, 2023

 

OR

 

☐         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                     to                     

 

Commission File Number: 000-51485


Ruths Hospitality Group, Inc.

(Exact name of registrant as specified in its charter)


 

Delaware

72-1060618

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

  

1030 W. Canton Avenue, Suite 100,

Winter Park, FL

32789

(Address of principal executive offices)

(Zip code)

 

(407) 333-7440

(Registrants telephone number, including area code)

 

None

(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

RUTH

Nasdaq

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated Filer

    

Non-accelerated filer

Smaller reporting company

    
  

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐   No  ☒

 

The number of shares outstanding of the registrant’s common stock as of October 31, 2022of April 28, 2023 was 33,202,136,32,132,941 shares, which includes 956,882excludes 1,085,842 shares of unvested restricted stock.



 

 

 

 

 

TABLE OF CONTENTS

 

  

Page

Part I  Financial Information

 
   

Item 1

Financial Statements:

3
   
 

Condensed Consolidated Balance Sheets as of SeptemberMarch 26, 2023 and December 25, 2022 and December 26, 2021

3
   
 

Condensed Consolidated Statements of Operations for the Thirteen and Thirty-nine Week Periods ended September 25,March 26, 2023 and March 27, 2022 and September 26, 2021

4
   
 

Condensed Consolidated Statements of Shareholders’ Equity for the Thirteen and Thirty-nine Week Periods ended September 25,March 26, 2023 and March 27, 2022 and September 26, 2021

5
   
 

Condensed Consolidated Statements of Cash Flows for the Thirty-nineThirteen Week Periods ended September 25,March 26, 2023 and March 27, 2022 and September 26, 2021

6
   
 

Notes to Condensed Consolidated Financial Statements

7
   

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1519
   

Item 3

Quantitative and Qualitative Disclosures about Market Risk

2025
   

Item 4

Controls and Procedures

2026
  

Part II  Other Information

2127
   

Item 1

Legal Proceedings

2127
   

Item 1A

Risk Factors

2127
   

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

2130
   

Item 3

Defaults Upon Senior Securities

2131
   

Item 4

Mine Safety Disclosures

2131
   

Item 5

Other Information

2231
   

Item 6

Exhibits

2231
   

Signatures

2332
 

 

 

2

 

 

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

RUTHS HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance SheetsUnaudited

(Amounts in thousands, except share and per share data)

 

 

September 25,

 

December 26,

  

March 26,

 

December 25,

 
 

2022

  

2021

  

2023

  

2022

 

Assets

            

Current assets:

  

Cash and cash equivalents

 $20,793  $92,133  $16,000  $23,002 

Accounts receivable, less allowance for doubtful accounts 2022 - $151; 2021 - $106

 36,627  41,588 

Accounts receivable, less allowance for doubtful accounts 2023 - $38; 2022 - $57

 28,653  45,013 

Inventory

 8,273  8,554  8,439  9,138 

Prepaid expenses and other

  6,279   3,919   3,112   4,662 

Total current assets

 71,972  146,194  56,204  81,815 

Property and equipment, net of accumulated depreciation 2022 - $208,396; 2021 - $195,853

 142,091  121,706 

Property and equipment, net of accumulated depreciation 2023 - $211,809; 2022 - $205,849

 152,132  148,837 

Operating lease right of use assets

 197,029  173,754  197,998  195,703 

Goodwill

 45,549  45,549  45,549  45,549 

Franchise rights, net of accumulated amortization 2022 - $10,276; 2021 - $8,779

 40,742  42,239 

Other intangibles, net of accumulated amortization 2022 - $1,785; 2021 - $1,698

 5,042  4,990 

Franchise rights, net of accumulated amortization 2023 - $11,586; 2022 - $11,025

 39,432  39,993 

Other intangibles, net of accumulated amortization 2023 - $1,354; 2022 - $1,333

 4,981  5,002 

Deferred income taxes

 366   3,784 3,388 

Other assets

  1,571   1,547   1,463   1,519 

Total assets

 $504,362  $535,979  $501,543  $521,806 
  

Liabilities and Shareholders' Equity

            

Current liabilities:

  

Accounts payable

 $6,661  $11,685  $7,947  $8,736 

Accrued payroll

 12,959  17,097  13,155  17,107 

Accrued expenses

 13,623  12,924  17,096  16,997 

Deferred revenue

 59,004  69,029  65,056  74,375 

Current operating lease liabilities

 17,614  17,006  14,308  16,557 

Other current liabilities

  3,437   7,674   4,704   4,497 

Total current liabilities

 113,298  135,415  122,266  138,269 

Long-term debt

 30,000  70,000  15,000  30,000 

Operating lease liabilities

 221,041  192,666  222,205  218,804 

Unearned franchise fees

 2,305  2,219  2,197  2,257 

Deferred income taxes

   399 

Other liabilities

  69   69   237   145 

Total liabilities

  366,713   400,768   361,905   389,475 

Commitments and contingencies (Note 11)

     -  - 
        

Shareholders' equity:

  

Common stock, par value $.01 per share; 100,000,000 shares authorized, 32,875,424 shares issued and outstanding at September 25, 2022, 33,575,337 shares issued and outstanding at December 26, 2021

 327  336 

Common stock, par value $.01 per share; 100,000,000 shares authorized, 32,120,035 shares issued and outstanding at March 26, 2023, 32,010,919 shares issued and outstanding at December 25, 2022

 321  320 

Additional paid-in capital

 58,768  68,923  47,135  45,727 

Retained earnings

 78,554  65,952  92,182  86,284 

Treasury stock, at cost; 71,950 shares at September 25, 2022 and December 26, 2021

      

Treasury stock, at cost; 71,950 shares at March 26, 2023 and December 25, 2022

  -   - 

Total shareholders' equity

  137,649   135,211  $139,638   132,331 

Total liabilities and shareholders' equity

 $504,362  $535,979  $501,543  $521,806 

 

See accompanying notes to condensed consolidated financial statements.

 

3

 

 

 

RUTHS HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Income StatementUnaudited

(Amounts in thousands, except share and per share data)

 

13 Weeks Ended

 

39 Weeks Ended

  

13 Weeks Ended

 

September 25,

 

September 26,

 

September 25,

 

September 26,

  

March 26,

 

March 27,

 

2022

 

2021

 

2022

 

2021

  

2023

  

2022

 

Revenues:

          

Restaurant sales

$105,792 $97,537 $345,264 $283,339  $128,885  $118,713 

Franchise income

 4,906  4,742  14,766  13,062  5,269  4,730 

Other operating income

 2,041  1,908  7,488  5,980   2,703   2,689 

Total revenues

 112,739  104,187  367,518  302,381  136,857  126,132 
          

Costs and expenses:

          

Food and beverage costs

 33,505  33,401  108,079  87,929  42,419  38,611 

Restaurant operating expenses

 53,084  46,030  161,964  129,013  60,202  54,640 

Marketing and advertising

 3,419  2,436  13,082  7,661  4,510  4,915 

General and administrative costs

 9,372  7,721  27,939  23,691  9,507  9,241 

Depreciation and amortization expenses

 5,535  4,985  15,462  15,131  6,543  4,793 

Pre-opening costs

 1,093  581  2,718  1,185  522  881 

Loss on legal settlement

   6,000  

Loss on impairment

       394 

Gain on lease modifications

  (869)   

Total costs and expenses

 106,008  95,154  335,244  265,004  122,834  113,081 
          

Operating income

 6,731  9,033  32,274  37,377  14,023  13,051 
          

Other income (expense):

          

Interest expense, net

 (434) (678) (998) (3,109) (252) (324)

Other

 53  (18) 116  61   6   28 
          

Income before income taxes

 6,350  8,337  31,392  34,329  13,777  12,755 

Income tax expense

 852  1,398  5,146  5,854   2,435   2,342 

Net income

$5,498 $6,939 $26,246 $28,475  $11,342  $10,413 
          

Basic earnings per common share

$0.17 $0.20 $0.79 $0.83  $0.35  $0.31 
          

Diluted earnings per common share

$0.16 $0.20 $0.78 $0.82  $0.35  $0.31 
          

Shares used in computing earnings per common share:

          

Basic

 33,135,562  34,421,570  33,418,376  34,367,518  32,030,543  33,589,838 

Diluted

 33,459,508  34,592,930  33,729,577  34,606,611  32,437,410  33,885,076 
          

Cash dividends declared per common share

$0.14 $ $0.40 $  $0.16  $0.12 

 

See accompanying notes to condensed consolidated financial statements.

 

 

4

 

 

RUTHS HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders EquityUnaudited

(Amounts in thousands, except per share data)

 

       

Additional

                   

Additional

            
 

Common Stock

 

Paid-in

 

Retained

 

Treasury Stock

 

Shareholders'

  

Common Stock

 

Paid-in

 

Retained

 

Treasury Stock

 

Shareholders'

 
 

Shares

  

Value

  

Capital

  

Earnings

  

Shares

  

Value

  

Equity

  

Shares

  

Value

  

Capital

  

Earnings

  

Shares

  

Value

  

Equity

 

Balance at December 26, 2021

 33,575  $336  $68,923  $65,952  72  $  $135,211 

Balance at December 25, 2022

 32,011  320  $45,727  $86,284  72  $  $132,331 

Net income

       10,413      10,413        11,342      11,342 

Cash dividends, $0.12 per common share

    (4,109)   (4,109)

Dividends, $0.16 per common share

       (5,444)     (5,444)

Shares issued under stock compensation plan net of shares withheld for tax effects

 84  1  (722)       (721) 109  1  (861)       (860)

Stock-based compensation

        1,754            1,754         2,269            2,269 

Balance at March 27, 2022

 33,659  $337  $69,955  $72,256  72  $  $142,548 

Net income

    10,335   10,335 

Cash dividends, $0.14 per common share

    (4,680)   (4,680)

Repurchase of common stock

 (530) (5) (9,537)    (9,542)

Shares issued under stock compensation plan net of shares withheld for tax effects

 13 (1) (127)    (128)

Stock-based compensation

      2,116        2,116 

Balance at June 26, 2022

 33,142 $331 $62,406 $77,911 72 $ $140,648 

Net income

    5,498   5,498 

Cash dividends, $0.14 per common share

    (4,854)   (4,854)

Repurchase of common stock

 (299) (5) (5,352)       (5,357)

Shares issued under stock compensation plan net of shares withheld for tax effects

 31 1 (363)    (362)

Stock-based compensation

      2,077        2,077 

Balance at September 25, 2022

  32,874 $327 $58,768 $78,554  72 $ $137,649 

Balance at March 26, 2023

  32,120  $321  $47,135   92,182   72  $  $139,638 

 

 

          

Additional

                 
  

Common Stock

  

Paid-in

  

Retained

  

Treasury Stock

  

Shareholders'

 
  

Shares

  

Value

  

Capital

  

Earnings

  

Shares

  

Value

  

Equity

 

Balance at December 27, 2020

  34,257  $343  $83,424  $23,677   72  $  $107,444 

Net income

           9,125         9,125 

Shares issued under stock compensation plan net of shares withheld for tax effects

  128   1   (1,802)           (1,801)

Stock-based compensation

        1,564            1,564 

Balance at March 28, 2021

  34,385  $344  $83,186  $32,802   72  $  $116,332 

Net loss

           12,411           12,411 

Shares issued under stock compensation plan net of shares withheld for tax effects

  42      (618)           (618)

Stock-based compensation

        1,184            1,184 

Balance at June 27, 2021

  34,427  $344  $83,752  $45,213   72  $  $129,309 

Net income

          $6,939        $6,939 

Shares issued under stock compensation plan net of shares withheld for tax effects

  26      (334)           (334)

Stock-based compensation

        1,028            1,028 

Repurchase of common stock

  (192)   (1)  (3,827)           (3,828)

Balance at September 26, 2021

  34,261  $343  $80,619  $52,152   72  $  $133,114 

          

Additional

                 
  

Common Stock

  

Paid-in

  

Retained

  

Treasury Stock

  

Shareholders'

 
  

Shares

  

Value

  

Capital

  

Earnings

  

Shares

  

Value

  

Equity

 

Balance at December 26, 2021

  33,575  $336  $68,923  $65,952   72  $  $135,211 

Net income

           10,413         10,413 

Dividends, $0.12 per share

           (4,109)        (4,109)

Shares issued under stock compensation plan net of shares withheld for tax effects

  84   1   (722)           (721)

Stock-based compensation

        1,754            1,754 

Balance at March 27, 2022

  33,659  $337  $69,955  $72,256   72  $  $142,548 

 

See accompanying notes to condensed consolidated financial statements.

 

 

5

 

 

RUTHS HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash FlowsUnaudited

(Amounts in thousands)

 

 

39 Weeks Ended

  

13 Weeks Ended

 
 

September 25,

 

September 26,

  

March 26,

 

March 27,

 
 

2022

  

2021

  

2023

  

2022

 

Cash flows from operating activities:

  

Net income

 $26,246  $28,475  $11,342  $10,413 

Adjustments to reconcile net income to net cash provided by operating activities:

  

Depreciation and amortization

 15,462  15,131  6,543  4,793 

Deferred income taxes

 (765) 1,511  (396) (83)

Non-cash interest expense

 163  390  54  54 

Loss on impairment

  394 

Stock-based compensation expense

 5,947  3,776  2,269  1,754 

Changes in operating assets and liabilities:

  

Accounts receivable

 10,028  7,476  17,411  12,894 

Inventories

 281  (699) 699  664 

Prepaid expenses and other

 (2,360) 401  1,551  811 

Other assets

 (188) 21  -  (211)

Accounts payable and accrued expenses

 (8,645) 1,810  (5,791) (15,754)

Deferred revenue

 (10,025) (6,847) (9,319) (7,731)

Operating lease liabilities and assets

 640  (4,458) (2,193) 3,821 

Other liabilities

  (3,605)  1,140   300   (1,892)

Net cash provided by operating activities

  33,179   48,521   22,470   9,533 

Cash flows from investing activities:

  

Acquisition of property and equipment

  (34,765)  (8,418)  (8,261)  (10,050)

Net cash used in investing activities

  (34,765)  (8,418)  (8,261)  (10,050)

Cash flows from financing activities:

  

Principal borrowings on long-term debt

 15,000  

Principal repayments on long-term debt

 (55,000) (45,000) (15,000) (20,000)

Repurchase of common stock

 (14,899) (3,828)

Cash dividend payments

 (13,643)   (5,351) (4,109)

Tax payments from the vesting of restricted stock

 (1,212) (2,753)  (860)  (721)

Deferred financing costs

     (145)

Net cash used in financing activities

  (69,754)  (51,726)  (21,211)  (24,830)

Net decrease in cash and cash equivalents

 (71,340) (11,623) (7,002) (25,347)

Cash and cash equivalents at beginning of period

  92,133   95,402   23,002   92,133 

Cash and cash equivalents at end of period

 $20,793  $83,779  $16,000  $66,786 

Supplemental disclosures of cash flow information:

  

Cash paid during the period for:

  

Interest, net of capitalized interest

 $737  $2,745  $401  $260 

Income taxes

 $10,773  $2,256  $1  $ 

Noncash investing and financing activities:

  

Accrued acquisition of property and equipment

 $364  $4,205  $994  $1,471 

 

See accompanying notes to condensed consolidated financial statements.

 

 

6

 

RUTHS HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial StatementsUnaudited

 

 

(1) The Company and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Ruth’s Hospitality Group, Inc. and its subsidiaries (collectively, the "Company") as of September 25, 2022 and December 26, 2021 and for the thirteen and thirty-nine week periods ended September 25, 2022 and September 26, 2021 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). The condensed consolidated financial statements include the financial statements of Ruth’s Hospitality Group, Inc. and its wholly owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.

 

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 September 25, 2022March 26, 2023, there were 154 Ruth’s Chris Steak House restaurants, including 77 Company-owned restaurants, three restaurants operating under contractual agreements and 74 franchisee-owned restaurants, including 23 international franchisee-owned restaurants in Aruba, Canada, China, Hong Kong, Indonesia, Japan, Mexico, Philippines, Singapore and Taiwan.  All Company-owned restaurants are located in the United States. Three new Company-owned Ruth's Chris Steak House restaurants were opened in August 2022 in Worcester, MA, Long Beach, CA and Melville, NY.  Subsequent to the end of the fiscal quarter ended September 25, 2022,March 26, 2023, a Company-owned Ruth's Chris Steak House restaurant was relocated within Winter Park, FL.opened in Reston, VA, and a Company-owned Ruth's Chris Steak House was closed in Manhattan, NY.

The accompanying unaudited condensed consolidated financial statements of Ruth’s Hospitality Group, Inc. and its subsidiaries (collectively, the "Company") as of March 26, 2023 and December 25, 2022 and for the thirteen week periods ended March 26, 2023 and March 27, 2022 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). The condensed consolidated financial statements include the financial statements of Ruth’s Hospitality Group, Inc. and its wholly owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.

 

The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. The interim results of operations for the periods ended September 25, 2022March 26, 2023 and September 26, 2021March 27, 2022 are not necessarily indicative of the results that may be achieved for the full fiscal year. Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the SEC’s rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 202125, 2022.

 

The Company operates on a 52- or 53-week fiscal year ending on the last Sunday in December. The fiscal quarters ended September 25, 2022March 26, 2023 and September 26, 2021March 27, 2022 each contained thirteen weeks and are referred to herein as the thirdfirst quarter of fiscal year 2023 and the first quarter of fiscal year 2022, respectively. Fiscal year 2023 is a 53-week year and the third quarter of fiscal year 2021, respectively. Fiscal years 2022 and 2021 are bothis a 52-week years.

year.

 

C

OVID-COVID-19 Impact

 

In March 2020, the World Health Organization declared theThe novel coronavirus 2019 (COVID-19a 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. As of and for the thirteen-week periods ended March 26,2023 and March 27, 2022, all of the Company-owned and managed Ruth’s Chris Steak House restaurant dining rooms were open and its revenues, results of operations and cash flows comparedwere comparable to periods prior to the onset of the pandemic. As of September 25, 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 experienced and could continue to experience macroeconomic impacts, including those arising from the long duration of the COVID-19 pandemic, including operating restrictions, 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 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.

 

We continue to monitor state, local, and federal government regulatory and public health responses to the COVID-19 pandemic, including the number of cases of COVID-19 throughout the United States, which could bring about restrictions such as mask requirements for team members, guests or both if the case counts were to spike.

7

Estimates

 

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reporting of revenue and expenses during the periods presented to prepare these condensed consolidated financial statements in conformity with GAAP. Significant items subject to such estimates and assumptions include the carrying amounts of property and equipment, goodwill, franchise rights, operating lease right of use assets and obligations related to gift cards, income taxes, operating lease liabilities, incentive compensation, workers’ compensation and medical insurance. Actual results could differ from those estimates.

7

 

(2) Fair Value Measurements         

 

Fair value is defined under FASB ASC Topic 820, Fair Value Measurements and Disclosures (Topic 820), as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. Topic 820 also establishes a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The carrying amountsvaluation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels of inputs are:

Level 1—quoted prices (unadjusted) for an identical asset or liability in an active market.

•  

Level 2—quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability.

Level 3—unobservable and significant to the fair value measurement of the asset or liability.

The following were used to estimate the fair value of each class of financial instruments:

The carrying amount of cash and cash equivalents, receivables, prepaid expenses, accounts payable and accrued expenses and other current liabilities are reasonable estimates of their fair values due to their short duration. Borrowings classified as long-term debt as of September 25, 2022 and December 26, 2021 have variable interest rates that reflect currently available terms and conditions for similar debt. The carrying value, plus unpaid interest and deferred financing costs of $884 thousand at September 25, 2022, represents a reasonable estimate of their fair values due to their short duration.

• 

Borrowings under the senior credit facility as of March 26, 2023 and December 25, 2022 have variable interest rates that reflect currently available terms and conditions for similar debt. The carrying amount of this debt is a reasonable estimate of its fair value (Level 2).

 

The Company did not have any non-financial assets measured at fair value on a non-recurring basis as of September 25, 2022March 26, 2023.

 

The Company’s non-financial assets measured at fair value on a non-recurring basis as of December 26, 202125, 2022 were as follows (in thousands):

 

  Fair Value as of December 26, 2021  Significant Other Observable Inputs (Level 2)  Significant Unobservable Inputs (Level 3)  Total Losses on Impairment 

Long-lived assets

 $  $  $  $1,766 
  Fair Value as of December 25, 2022  Significant Other Observable Inputs (Level 2)  Significant Unobservable Inputs (Level 3)  Total Losses on Impairment 

Long-lived assets

 $281  $  $281  $574 

 

8

 

(3) Leases

 

The Company leases restaurant facilities and equipment. The Company determines whether an arrangement is or contains a lease at contract inception. The Company’s leases are all classified as operating leases, which are included as operating lease right of use assets (“ROU assets”) and operating lease liabilities in the Company’s condensed consolidated balance sheet. Operating lease liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. ROU assets are measured based on the operating lease liabilities adjusted for lease incentives, initial indirect costs and impairments of operating lease assets. Minimum lease payments include only the fixed lease components of the agreements, as well as any variable rate payments that depend on an index, which are measured initially using the index at the lease commencement dates. To determine the present value of future minimum lease payments, the Company estimates incremental borrowing rates based on the information available at the lease commencement dates, or amendment date for contract modifications. The Company estimates its incremental borrowing rates by determining the synthetic credit rating of the Company using quantitative and qualitative analysis and then adjusting the synthetic credit rating to a collateralized credit rating. A spread curve is then developed using the U.S. corporate bond yield curve of the same credit rating and the U.S. Treasury curve to determine the rate for different terms. The expected lease terms include options to extend when it is reasonably certain the Company will exercise the options up to a total term of 20 years. Total lease cost is expensed on a straight-line basis over the life of a lease. Additionally, incentives received from landlords used to fund leasehold improvements reduce the ROU assets related to those leases and are amortized as reductions to lease expense over the lives of the leases. Variable lease payments that do not depend on a rate or index, payments associated with non-lease components and short-term rentals (leases with terms less than 12 months) are expensed as incurred.

 

On April 10, 2020, the FASB issued a staff Q&A (the “Staff Q&A”) to provide guidance on its remarks at the April 8, 2020 Board meeting about accounting for rent concessions resulting from the COVID-19 pandemic. The Staff Q&A affirmed the discussion at the April 8, 2020 meeting by allowing entities to forgo performing the lease-by-lease legal analysis to determine whether contractual provisions in an existing lease agreement provide enforceable rights and obligations related to lease concessions as long as the concessions are related to COVID-19 and the changes to the lease do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. In addition, the Staff Q&A affirmed that entities may make an election to account for eligible concessions, regardless of their form, either by (1) applying the modification framework for these concessions in accordance with Topic 842 or (2) accounting for the concessions as if they were made under the enforceable rights included in the original agreement.

8

Due to the impacts of the COVID-19 pandemic, the Company initiated negotiations with its landlords to modify its restaurant lease agreements. Where applicable, the Company has elected to account for eligible lease concessions as if they were made under the enforceable rights included in the original agreement pursuant to the Staff Q&A.

As of September 25, 2022March 26, 2023, all of the Company-owned Ruth’s Chris Steak House restaurants operated in leased premises, with the exception of the restaurant in Ft. Lauderdale, FL, which is an owned property, and the restaurants in Anaheim, CA, Lake Mary, FL, Princeton, NJ and South Barrington, IL, which operate on leased land. The leases generally provide for minimum annual rental payments with scheduled minimum rent payment increases during the terms of the leases. Certain leases also provide for rent deferral during the initial term, lease incentives in the form of tenant allowances to fund leasehold improvements, and/or contingent rent provisions based on the sales at the underlying restaurants. Most of the Company’s restaurant leases have remaining lease terms of 1 year to 20 years, some of which include options to extend the leases for 5 years or more. The Company’s lease agreements do not contain any material residual value guaranteesguarantees or material restrictive covenants. As of September 25, 2022March 26, 2023, the weighted average remaining lease term and discount rate for operating leases is 13.713.6 years and 5.5%5.8%, respectively.

 

The components of lease expense are as follows (in thousands):

 

  

13 Weeks Ended

 

13 Weeks Ended

 

39 Weeks Ended

 

39 Weeks Ended

   

13 Weeks Ended

 

13 Weeks Ended

 

Classification

 

September 25, 2022

  

September 26, 2021

  

September 25, 2022

  

September 26, 2021

 

Classification

 

March 26, 2023

  

March 27, 2022

 

Operating lease cost

Restaurant operating expenses and general and administrative costs

 $6,686  $5,410  $19,087  $13,886 

Restaurant operating expenses and general and administrative costs

 $6,726  $6,158 

Variable lease cost

Restaurant operating expenses and general and administrative costs

  2,690   3,200   9,374   10,460 

Restaurant operating expenses and general and administrative costs

  3,564   3,365 

Total lease cost

Total lease cost

 $9,376  $8,610  $28,461  $24,346 

Total lease cost

 $10,290  $9,523 

 

9

As of September 25, 2022March 26, 2023, maturities of lease liabilities are summarized as follows (in thousands):

 

  

Operating Leases

 

2022, excluding the first thirty-nine weeks ended September 25, 2022

 $12,299 

2023

  26,918 

2024

  26,734 

2025

  25,745 

2026

  24,508 

Thereafter

  231,043 

Total future minimum rental commitments

  347,247 

Imputed interest

  (108,592)
  $238,655 

  

Operating Leases

 

2023, excluding the first thirteen weeks ended March 26, 2023

 $19,797 

2024

  27,719 

2025

  26,596 

2026

  25,407 

2027

  24,983 

Thereafter

  225,800 

Imputed interest

  (113,789)
  $236,513 

 

Supplemental cash flow information related to operating leases was as follows (in thousands):

 

 

39 Weeks Ended

 

39 Weeks Ended

  

13 Weeks Ended

 

13 Weeks Ended

 
 

September 25, 2022

  

September 26, 2021

  

March 26, 2023

  

March 27, 2022

 

Cash paid for amounts included in the measurement of lease liabilities

 $19,811  $19,128  $6,907  $6,315 

Right-of-use assets obtained in exchange for lease obligations

 $38,220  $2,776  $7,008  $19,932 

Reduction of right-of-use assets and lease obligations from lease modifications and terminations

 $ $11,285 

 

Additionally, as of September 25, 2022March 26, 2023, the Company has executed two leases for new Ruth’s Chris Steak House Restaurant locations with undiscounted fixed payments over the initial term of $9.8 million. Subsequent to the end of the quarter ended September 25, 2022, the Company executed a lease for another Ruth's Chris Steak House Restaurants with undiscounted fixed payments over the initial term of $3.7$15.6 million.  These leases will commence when the landlords make the properties available to the Company. These leases are expected to commence during the next 12 months and are expected to have an economic lease term of 20 years. The Company will assess the reasonably certain lease term at the lease commencement date.

 

910

 
 

(4) Revenue

 

In the following tables, the Company’s revenue is disaggregated by major component for each category on the consolidated statements of operations (in thousands).

 

Thirteen Weeks Ended September 25, 2022:

 

Domestic

  

International

  

Total Revenue

 

Thirteen Weeks Ended March 26, 2023:

 

Domestic

  

International

  

Total Revenue

 

Restaurant sales

 $105,792  $  $105,792  $128,885  $  $128,885 

Franchise income

 4,189  717  4,906  4,332  937  5,269 

Other operating income

  2,041      2,041   2,703      2,703 

Total revenue

 $112,022  $717  $112,739  $135,920  $937  $136,857 

 

Thirteen Weeks Ended September 26, 2021:

 

Domestic

  

International

  

Total Revenue

 

Restaurant sales

 $97,537  $  $97,537 

Franchise income

  4,161   581   4,742 

Other operating income

  1,908      1,908 

Total revenue

 $103,606  $581  $104,187 

Thirty-Nine Weeks Ended September 25, 2022:

 

Domestic

  

International

  

Total Revenue

 

Restaurant sales

 $345,264  $  $345,264 

Franchise income

  12,767   1,999   14,766 

Other operating income

  7,488      7,488 

Total revenue

 $365,519  $1,999  $367,518 

Thirty-Nine Weeks Ended September 26, 2021:

 

Domestic

  

International

  

Total Revenue

 

Thirteen Weeks Ended March 27, 2022:

 

Domestic

  

International

  

Total Revenue

 

Restaurant sales

 $283,339  $  $283,339  $118,713  $-  $118,713 

Franchise income

 11,595  1,467  13,062  4,102  628  4,730 

Other operating income

  5,980      5,980   2,689   -   2,689 

Total revenue

 $300,914  $1,467  $302,381  $125,504  $628  $126,132 

 

The following table provides information about receivables and deferred revenue liabilities from contracts with customers (in thousands).

 

 

September 25,

 

December 26,

  

March 26,

 

December 25,

 
 

2022

  

2021

  

2023

  

2022

 

Accounts receivable, less allowance for doubtful accounts 2022 - $151; 2021 - $106

 $10,338  $24,179 

Accounts receivable, less allowance for doubtful accounts 2023 - $38; 2022 - $57

 $11,093  $27,223 

Deferred revenue

 $59,004  $69,029  $65,056  $74,375 

Unearned franchise fees

 $2,305  $2,219  $2,197  $2,257 

 

Significant changes in the deferred revenue balance and the unearned franchise fees balance during the first thirty-ninethirteen weeks of fiscal year 20222023 are presented in the following table (in thousands).

 

 

Deferred

 

Unearned

  

Deferred

 

Unearned

 
 

Revenue

  

Franchise Fees

  

Revenue

  

Franchise Fees

 

Balance at December 26, 2021

 $69,029  $2,219 

Balance at December 25, 2022

 $74,375  $2,257 

Decreases in the beginning balance from gift card redemptions

 (29,877)   (15,283)  

Increases due to proceeds received, excluding amounts recognized during the period

 19,799    5,888   

Decreases due to recognition of franchise development and opening fees

   (214)   (60)

Increases due to proceeds received for franchise development and opening fees

   300 

Other

  53      76    

Balance at September 25, 2022

 $59,004  $2,305 

Balance at March 26, 2023

 $65,056  $2,197 

 

Significant changes in the deferred revenue balance and the unearned franchise fees balance during the first thirty-ninethirteen weeks of fiscal year 20212022 are presented in the following table (in thousands).

 

  

Deferred

  

Unearned

 
  

Revenue

  

Franchise Fees

 

Balance at December 27, 2020

 $59,030  $2,186 

Decreases in the beginning balance from gift card redemptions

  (24,293)   

Increases due to proceeds received, excluding amounts recognized during the period

  17,440    

Decreases due to recognition of franchise development and opening fees

     (9)

Increases due to proceeds received for franchise development and opening fees

      

Other

  7    

Balance at September 26, 2021

 $52,184  $2,177 

  

Deferred

  

Unearned

 
  

Revenue

  

Franchise Fees

 

Balance at December 26, 2021

 $69,029  $2,219 

Decreases in the beginning balance from gift card redemptions

  (13,790)   

Increases due to proceeds received, excluding amounts recognized during the period

  6,057    

Decreases due to recognition of franchise development and opening fees

     (75)

Increases due to proceeds received for franchise development and opening fees

     300 

Other

  2    

Balance at March 27, 2022

 $61,298  $2,444 

 

1011

 
 

(5) Long-term Debt

 

Long-term debt consists of the following (in thousands):

 

  

September 25,

  

December 26,

 
  

2022

  

2021

 
       

Senior Credit Facility:

        

Revolving credit facility

 $30,000  $70,000 

Less current maturities

      
  $30,000  $70,000 

  

March 26,

  

December 25,

 
  

2023

  

2022

 
       

Senior Credit Facility:

        

Revolving credit facility

 $15,000  $30,000 

Less current maturities

      
  $15,000  $30,000 

 

As of September 25, 2022March 26, 2023, the Company had $30.0$15.0 million of outstanding indebtedness under its senior credit facility with approximately $105.3$120.0 million of borrowings available, net of outstanding letters of credit of approximately $4.7$5.0 million. As of September 25, 2022March 26, 2023, the weighted average interest rate on the Company’s outstanding debt was 4.7%6.1% and the weighted average interest rate on its outstanding letters of credit was 1.6%. In addition, the fee on the Company’s unused senior credit facility was 0.2%.

 

The amended and restated credit agreement the Company entered into on October 18, 2021 with Wells Fargo Bank, National Association as administrative agent, and certain other lenders (as amended, "Credit Agreement") provides for a revolving credit facility of $140.0$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

 

The Credit Agreement contains customary representations and affirmative and negative covenants (including limitations on indebtedness and liens) as well as financial covenants, as described below, requiring a minimum fixed coverage charge ratio as defined in the Credit Agreement (“Fixed Charge Coverage Ratio”) limiting the Company’s actual leverage ratio as defined in the Credit Agreement (“Maximum Consolidated Leverage Ratio”). The October 2021 amendment and restatement of the Credit Agreement restored the Fixed Charge Coverage Ratio and Maximum Consolidated Leverage Ratio to a Fixed Charge Coverage Ratiomust be equal to or greater than 1.25:1.00 and the Maximum Consolidated Leverage Ratio must be no greater than 3.00:1.00. Effective with the October 2021 amendment and restatement of the Credit Agreement, dividendsDividends and share repurchases are not limited if the Company's Consolidated Leverage Ratio is less than 2.50:1.00 and holds a minimum liquidity of $25.0 million. The Credit Agreement also contains events of default customary for credit facilities of this type (with customary grace periods, as applicable), including nonpayment of principal or interest when due; material incorrectness of representations and warranties when made; breach of covenants; bankruptcy and insolvency; unsatisfied ERISA obligations; unstayed material judgment beyond specified periods; default under other material indebtedness; and certain changes of control of the Company. If any event of default occurs and is not cured within the applicable grace period or waived, the outstanding loans may be accelerated by lenders holding a majority of the commitments and the lenders’ commitments may be terminated. The obligations under the Credit Agreement are guaranteed by certain of the Company’s subsidiaries and are secured by a lien on substantially all of the Company’s personal property assets other than any equity interest in current and future subsidiaries of the Company.

 

12

Interest rate margins and the fee for the unused commitment are calculated based on the Maximum Consolidated Leverage Ratio, and at the Company’s option, revolving loans may bear interest at either:

 

 

(i)

LIBOR, plus an applicable margin, or

 

 

(ii)

the highest of (a) the rate publicly announced by Wells Fargo as its prime rate, (b) the average published federal funds rate in effect on such day plus 0.50% and (c) one month LIBOR plus 1.00%, plus an applicable margin (the rate described in this clause (ii) prior to adding the applicable margin, the “Base Rate”).

 

The applicable margin is based on the Company’s Maximum Consolidated Leverage Ratio, ranging from (a) 1.50% to 2.25% above the applicable LIBOR rate or (b) 0.50% to 1.25% above the applicable Base Rate.

 

As of September 25, 2022,March 26, 2023, we werethe Company was in compliance with all covenants pertaining to the Credit Agreement.

Subsequent to the end of first quarter of fiscal year 2023the Company received proceeds of $5.0 million from a draw on the revolving credit facility.

 

 

(6) Shareholders Equity

 

In July 2022, the Company’s Board of Directors approved a new share repurchase program authorizing the Company to repurchase up to $60 million of outstanding common stock from time to time. The new share repurchase program replaces the previous share repurchase program announced in October 2019, which has been terminated.  Share repurchases under both programs were accounted for under the cost method and all repurchased shares were retired and cancelled.  The excess of the purchase price over the par value of the shares was recorded as a reduction in additional paid-in capital.  During the firstthirty-nine weeks of fiscal year 2022, 828,348No shares were repurchased at an aggregate cost of $14.9 million, or an average cost of $17.99 per share.  As of September 25, 2022, $54.6 million remained available for future purchases under the new share repurchase program.  Share repurchases under both programs were accounted for under the cost method.  The excess of the purchase price over the par value of the shares was recorded as a reduction in additional paid-in capital.  

11

As a result of the impacts to our business arising from the COVID-19 pandemic, the Company previously suspended its dividend payments. Duringduring the first quarter of fiscal year 2022,2023 and the Company resumed its dividend. first quarter of fiscal year 2022. As of March 26, 2023, $40.0 million remained available for further purchases under the new program.  

The Company’s Board of Directors declared the following dividends during the periods presented (amounts in thousands, except per share amounts):

 

Declaration Date

 

Dividend per Share

 

Record Date

 

Total Amount

 

Payment Date

Fiscal Year 2022

          

January 6, 2022

 $0.12 

February 3, 2022

 $4,109 

February 17, 2022

May 6, 2022

 $0.14 

May 19, 2022

 $4,680 

June 2, 2022

August 5, 2022

 $0.14 

August 19, 2022

 $4,854 

September 2, 2022

Declaration Date

 

Dividend per Share

 

Record Date

 

Total Amount

 

Payment Date

Fiscal Year 2023

          

February 8, 2023

 $0.16 

3/10/2023

 $5,444 

3/24/2023

 

Subsequent to the end of the third quarter of fiscal year 2022, the Company's Board of Directors declared a regular quarterly cash dividend of $0.14 per common and restricted share, or approximately $4.7 million in the aggregate based on the number of shares currently outstanding, payable on December 2, 2022 to stockholders of record as of the close of business on November 18, 2022.

Outstanding unvested restricted stock is not included in common stock outstanding amounts. Restricted stock awards outstanding as of September 25, 2022March 26, 2023 totaled 694,469677,541 shares. Restricted stock units outstanding as of September 25, 2022March 26, 2023 totaled 79,143103,912 shares. Performance-based stock awards (in the form of market stock units and performance stock units) outstanding as of September 25, 2022March 26, 2023 totaled 205,769326,170 shares.

 

13

 

(7) Segment Information

 

The Company has two reportable segments – the Company-owned steakhouse segment and the franchise operations segment. The Company does not rely on any major customers as a source of revenue. The Company-owned Ruth’s Chris Steak House restaurants, all of which are located in North America, operate within the full-service dining industry, providing similar products to similar customers. Revenues are derived principally from food and beverage sales. As of September 25, 2022March 26, 2023, (i) the Company-owned steakhouse restaurant segment included 77 Ruth’s Chris Steak House restaurants and three Ruth’s Chris Steak House restaurants operating under contractual agreements and (ii) the franchise operations segment included 74 franchisee-owned Ruth’s Chris Steak House restaurants. Segment profits for the Company-owned steakhouse restaurant segments equal segment revenues less segment expenses. Segment revenues for the Company-owned steakhouse restaurants include restaurant sales, management agreement income and other restaurant income. Gift card breakage revenue is not allocated to operating segments. Not all operating expenses are allocated to operating segments. Segment expenses for the Company-owned steakhouse segment include food and beverage costs and restaurant operating expenses.  No other operating costs are allocated to the Company-owned steakhouse segment for the purpose of determining segment profits because such costs are not directly related to the operation of individual restaurants. The accounting policies applicable to each segment are consistent with the policies used to prepare the consolidated financial statements. The profit of the franchise operations segment equals franchise income, which consists of franchise royalty fees and franchise opening fees. No costs are allocated to the franchise operations segment.

 

Segment information related to the Company’s two reportable business segments follows (in thousands):

 

 

13 Weeks Ended

  

39 Weeks Ended

  

13 Weeks Ended

 
 

September 25,

 

September 26,

 

September 25,

 

September 26,

  

March 26,

 

March 27,

 
 

2022

  

2021

  

2022

  

2021

  

2023

  

2022

 
  

Revenues:

  

Company-owned steakhouse restaurants

 $107,042  $98,713  $349,451  $286,880  $130,161  $119,993 

Franchise operations

 4,906  4,742  14,766  13,062  5,269  4,730 

Unallocated other revenue and revenue discounts

  791   732   3,301   2,439   1,427   1,409 

Total revenues

 $112,739  $104,187  $367,518  $302,381  $136,857  $126,132 
  

Segment profits:

  

Company-owned steakhouse restaurants

 $20,453  $19,282  $79,408  $69,938  $27,541  $26,742 

Franchise operations

  4,906   4,742   14,766   13,062   5,269   4,730 

Total segment profit

 25,359  24,024  94,174  83,000  32,810  31,472 
  

Unallocated operating income

 791  732  3,301  2,439  1,426  1,409 

Marketing and advertising expenses

 (3,419) (2,436) (13,082) (7,661) (4,510) (4,915)

General and administrative costs

 (9,372) (7,721) (27,939) (23,691) (9,507) (9,241)

Depreciation and amortization expenses

 (5,535) (4,985) (15,462) (15,131) (6,543) (4,793)

Pre-opening costs

 (1,093) (581) (2,718) (1,185) (522) (881)

Loss on settlement

   (6,000)  

Loss on impairment

    (394)

Gain on lease modifications

 869   

Interest expense, net

 (434) (678) (998) (3,109) (252) (324)

Other income

  53   (18)  116   61   6   28 

Income before income tax expense

 $6,350  $8,337  $31,392  $34,329  $13,777 $12,755 
  

Capital expenditures:

  

Company-owned steakhouse restaurants

 $10,138  $3,759  $26,679  $6,172  $7,458  $6,907 

Corporate assets

  1,534   2,155   8,086   2,246   803   3,143 

Total capital expenditures

 $11,672  $5,914  $34,765  $8,418  $8,261  $10,050 

 

1214

 
 

September 25,

 

December 26,

  

March 26,

 

December 25,

 
 

2022

  

2021

  

2023

  

2022

 

Total assets:

  

Company-owned steakhouse restaurants

 $433,998  $404,929   450,486  $453,650 

Franchise operations

 1,486  2,801  3,124  2,487 

Corporate assets - unallocated

  68,878   128,249   44,149   62,281 

Deferred income taxes - unallocated

  3,784  3,388 

Total assets

 $504,362  $535,979  $501,543  $521,806 

 

 

(8) Stock-Based Employee Compensation

 

On May 15, 2018, the Company’s stockholdersshareholders approved a new 2018 Omnibus Incentive Plan (the "2018 Plan") which replaced the Amended and Restated 2005 Equity Incentive Plan (the "2005 Plan"), which expired on May 30, 2018.2018. The 2018 Plan authorizes 2.5 million shares reserved for future grants. Awards that were previously awarded under the 2005 Plan that are forfeited or cancelled in the future are made available for grant or issuance under the 2018 Plan. The 1,649,394 shares that were authorized but unissued under the 2005 Plan as of May 15, 2018 were cancelled. As of September 25, 2022March 26, 2023, there were no shares of common stock issuable upon exercise of currently outstanding options, and 33,42019,596 currently outstanding unvested restricted stock awards under the 2005 Plan. As of September 25, 2022March 26, 2023, there were 945,9601,107,623 currently outstanding unvested restricted stock awards, restricted stock units, and performance stock awards (in the form of market stock units and performance stock units) under the 2018 Plan. As of September 25, 2022March 26, 2023, the 2018 Plan has 1,647,1231,372,374 shares available for future grants. During the first thirty-ninethirteen weeks of fiscal year 20222023, the Company issued 268,988220,469 restricted stock awards and units and 174,661110,131 performance-based stock units to directors, officers and other employees of the Company. Of the 443,649330,600 restricted stock units,awards, restricted stock units and performance stock awards issued during the first thirty-ninethirteen weeks of fiscal year 2022, 98,769 shares will vest in fiscal year 2023 98,769, 99,242 shares will vest in fiscal year 2024, 238,89156,627 shares will vest in fiscal year 2025 and 7,220174,731 shares will vest in fiscal year 2027.2026. Of the 238,891174,731 shares that will vest in fiscal year 2025,2026, 174,661110,131 shares are variable, based on performance targets, and are reflected assuming they will be earned at 100% of target.  Total stock compensation expense recognized during the first thirty-ninethirteen weeks of fiscal years 2023 and 2022 and 2021 was $5.9$2.3 million and $3.8$1.8 million, respectively.

 

 

(9) Income Taxes

 

Income tax expense differs from amounts computed by applying the federal statutory income tax rate to income from continuing operations before income taxes as follows:

 

 

39 Weeks Ended

  

13 Weeks Ended

 
 

September 25,

 

September 26,

  

March 26,

 

March 27,

 
 

2022

  

2021

  

2023

  

2022

 

Income tax expense at statutory rates

 21.0% 21.0% 21.0% 21.0%

Increase (decrease) in income taxes resulting from:

  

State income taxes, net of federal benefit

 4.0% 4.6% 4.2% 3.9%

Federal employment tax credits

 (10.5%) (10.1%) (9.4%) (8.3%)

Non-deductible executive compensation

 2.2% 2.1% 1.9% 1.9%

Stock-based compensation

 0.1% (0.4%) 0.9% (0.1%)

Other

  (0.4%)  (0.2%)  (0.9%)  (0.0%)

Effective tax rate

  16.4%  17.0%  17.7%  18.4%

 

The employmentEmployment-related tax credits line in the effective tax rate schedule above is comprised mainly of federal FICA tip credits which the Company utilizes to reduce its periodic federal income tax expense. A restaurant company employer may claim a credit against its federal income taxes for FICA taxes paid on certain wages (the FICA tip credit). The credit against income tax liability is for the full amount of eligible FICA taxes. Employers cannot deduct from taxable income the amount of FICA taxes taken into account in determining the credit.

 

The Company files consolidated and separate income tax returns in the United States federal jurisdiction and many state jurisdictions, respectively. With few exceptions, the Company is no longer subject to U.S. federal or state income tax examinations for the years before 2017.2018.

 

15

 

(10) Earnings Per Share

 

The following table sets forth the computation of earnings per share (amounts in thousands, except share and per share amounts):

 

 

13 Weeks Ended

  

39 Weeks Ended

  

13 Weeks Ended

 
 

September 25,

 

September 26,

 

September 25,

 

September 26,

  

March 26,

 

March 27,

 
 

2022

  

2021

  

2022

  

2021

  

2023

  

2022

 

Net income

 $5,498  $6,939  $26,246  $28,475  $11,342  $10,413 

Shares:

  

Weighted average number of common shares outstanding - basic

 33,135,562  34,421,570  33,418,376  34,367,518  32,030,543  33,589,838 

Weighted average number of common shares outstanding - diluted

 33,459,508  34,592,930  33,729,577  34,606,611  32,437,410  33,885,076 
  

Basic earnings per common share

 $0.17  $0.20  $0.79  $0.83  $0.35  $0.31 
  

Diluted earnings per common share

 $0.16  $0.20  $0.78  $0.82  $0.35  $0.31 

 

Diluted earnings per share for the thirdfirst quarter of fiscal years 2023 and 2022 and 2021 excludes restricted shares of 43,276184,158 and 3,546,11,006, respectively, which were outstanding during the period but were anti-dilutive and had no exercise price. Diluted earnings per share for the firstthirty-nine weeks of fiscal year 2022 and 2021 excludes restricted shares of 28,006 and 1,244, respectively, which were outstanding during the period but were anti-dilutive and had no exercise price.

 

1316

 
 

(11) Commitments and Contingencies

 

The Company is subject to various claims, possible legal actions and other matters arising in the normal course of business. Management does not expect disposition of these other matters to have a material adverse effect on the financial position, results of operations or liquidity of the Company. The Company expenses legal fees as incurred.

 

The legislation and regulations related to tax and unclaimed property matters are complex and subject to varying interpretations by both government authorities and taxpayers. The Company remits a variety of taxes and fees to various governmental authorities, including excise taxes, property taxes, sales and use taxes, and payroll taxes. The taxes and fees remitted by the Company are subject to review and audit by the applicable governmental authorities which could assert claims for additional assessments. Although management believes that itsthe tax positions are reasonable and consequently there are no accrued liabilities for claims which may be asserted, various taxing authorities may challenge certain of the positions taken by the Company which may result in additional liability for taxes and interest. These tax positions are reviewed periodically based on the availability of new information, the lapsing of applicable statutes of limitations, the conclusion of tax audits, the identification of new tax contingencies, or the rendering of relevant court decisions. An unfavorable resolution of assessments by a governmental authority could negatively impact the Company’s results of operations and cash flows in future periods.

 

The Company is subject to unclaimed or abandoned property (escheat) laws which require the Company to turn over to certain state governmental authorities the property of others held by the Company that has been unclaimed for specified periods of time. The Company is subject to audit of its escheatment practices by individual U.S. states.states with regard to its escheatment practices. The Company has a pending voluntary disclosure agreement with the State of Delaware to resolve potential liability surrounding gift cards.

 

On February 26, 2018, a former restaurant hourly employee filed a class action lawsuit in the Superior Court of the State of California for the County of Riverside, alleging that the Company violated the California Labor Code and California Business and Professions Code, by failing to pay minimum wages, permit required meal and rest breaks, and provide accurate wage statements, among other claims. On September 2, 2020, the class action lawsuit was amended to include two additional proposed class representatives. This lawsuit seeks unspecified penalties under California'sthe California’s Private Attorney'sAttorney’s General Act in addition to other monetary payments (Quiroz Guerrero, et al. v. Ruth'sRuth’s Hospitality Group, Inc,Inc., et al.; Case No RIC1804127). (the "Quiroz Guerrero Action"). Additionally, on July 29, 2021, September 17, 2021, and October 19, 2021, other former restaurant hourly employees filed complaints in the Superior Court of the State of California for the County of San Francisco, the County of Los Angeles, and the County of Contra Costa alleging causes of action substantially similar to the allegations made in the Quiroz Guerrero Action (collectively, with the Quiroz Guerrero Action, the "Class Action Litigations"), which cases may be consolidatedhave been coordinated with the Quiroz Guerrero Action. On May 11, 2022, a Memorandum of Understanding was signed with the plaintiffs in the Class Action Litigations agreeing to a $6.0 million legal settlement. On June 8, 2022, the plaintiffs submitted a Petition for Coordination and Motion for Stay to the Chairperson of the Judicial Council, requesting assignment of a judge to determine whether it is appropriate to coordinate the Class Action Litigations to effectuate settlement approval in one venue. On September 12, 2022, the Superior Court of the State of California, County of Riverside, granted the petition to consolidatecoordinate the Class Action Litigations and recommended to the Chair of the Judicial Council that a judge of the Riverside County Superior Court be assigned to hear and determine the coordinated cases.  On October 27, 2022, the Superior Court of California, County of Riverside, assigned a coordination trial judge to the coordinated actions. The $6.0 million legal settlement amount remains accrued and unpaid on March 26, 2023.

On April 27, 2023, the Company entered into a definitive settlement agreement with the plaintiffs in the Class Action Litigations, individually and on behalf of the putative class, the State of California, and the allegedly aggrieved employees, on terms consistent with the Memorandum of Understanding (the “Settlement Agreement”). The Settlement Agreement is subject to approval by the Superior Court of the State of California for the County of Riverside, or any subsequent court in which the Class Action Litigations have been coordinated and other contingencies.

 

The Company currently buys a majority of its beef from two suppliers. Although there are a limited number of beef suppliers, management believes that other suppliers could provide similar product on comparable terms. A change in suppliers, however, could cause supply shortages and a possible loss of sales, which would affect operating results adversely.  The COVID-19 pandemic has affected and may again in the future adversely affect our revenue and operating costs, and we cannot predict how long the pandemic will last or what other government responses may occur.

Our restaurant operations could be further disrupted if large numbers of our employees are diagnosed with COVID-19.  If a significant portion of our workforce is unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, our operations may be negatively impacted, potentially materially adversely affecting our liquidity, financial condition, or results of operations.

Our suppliers could be adversely impacted by the COVID-19 pandemic.  If our suppliers' employees are unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19, we could face shortages of food items or other supplies at our restaurants, and our operations and sales could be adversely impacted by such supply interruptions.

Additional government regulations or legislation as a result of COVID-19 in addition to decisions we have made and may make in the future relating to the compensation of and benefit offerings for our restaurant Team Members could also have an adverse effect on our business.  We cannot predict the types of additional government regulations or legislation that may be passed relating to employee compensation or benefits as a result of the COVID-19 pandemic.

 

The Company could experience other potential impacts as a result of the COVID-19 pandemic that are not completely known at this time, including, but not limited to, disruptions to our workforce and suppliers, additional government regulations or legislation and charges from potential adjustments to the carrying amount of goodwill, indefinite-lived intangibles and long-lived impairment charges.  Our actual results may differ materially from the Company's current estimates as the scope of the COVID-19 pandemic evolves, depending largely though not exclusively on the duration of the disruption to our business.evolves.

 

1417

(12) Subsequent Events

On May 2, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), with Darden Restaurants, Inc., a Florida corporation (“Darden”), and Ruby Acquisition Corp., a Delaware corporation and an indirect wholly owned subsidiary of Darden (“Merger Sub”).

Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Merger Sub has agreed to commence a tender offer (the “Offer”), to purchase all of the shares of common stock, par value $0.01 per share (the “Company Common Stock”), of the Company issued and outstanding (each a “Share” and, collectively, the “Shares”) at a price of $21.50 per share of Company Common Stock (the “Per Share Price”), in cash, without interest thereon (but subject to applicable withholding).

The obligation of Merger Sub to consummate the Offer is subject to the satisfaction or waiver of customary conditions, including, among others, (i) the tender of Shares representing at least a majority of the outstanding Company Common Stock, (ii) any waiting period applicable to the Offer under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, having expired or otherwise been terminated, (iii) the absence of any law or order by any governmental authority of competent jurisdiction prohibiting, restricting, enjoining or otherwise making illegal the consummation of the Offer or the Merger (as defined below), (iv) the Merger Agreement not having been terminated in accordance with its terms and (v) other customary conditions set forth in Annex I to the Merger Agreement.

Following the consummation of the Offer, subject to the terms and conditions of the Merger Agreement and in accordance with Section 251(h) of the General Corporation Law of the State of Delaware (the “DGCL”), Merger Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Darden in accordance with the DGCL. At the Effective Time, each Share that is not (i) validly tendered and irrevocably accepted for purchase pursuant to the Offer, (ii) held by a holder who is entitled to demand appraisal and who has (or for which the “beneficial owner” (as defined in Section 262(a) of the DGCL) has) properly exercised appraisal rights with respect thereto in accordance with, and who has (and, to the extent applicable, for which the applicable beneficial owner has) complied with, Section 262 of the DGCL with respect to any such shares of Company Common Stock held by such holder and (iii) held by the Company as treasury stock or owned by Darden, Merger Sub or any of Darden’s other subsidiaries (including shares of Company Common Stock acquired pursuant to the Offer), in each case, immediately prior to the Effective Time, will thereupon be converted into the right to receive cash in an amount equal to the Per Share Price, on the terms and subject to the conditions set forth in the Merger Agreement. If the Merger is consummated, the Company Common Stock will be delisted from the Nasdaq Global Select Market and deregistered under the Exchange Act.

18

 

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements”, as defined in the Private Securities Litigation Reform Act of 1995 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/closures and re-openings, new restaurant 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 willmay 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, including inflation, increasing interest rates, higher unemployment, slowing growth or recession, reductions in consumer discretionary income, and general trends; the loss of key management personnel; the effect of market volatility on the Company’s stock price; the instability in the banking system as a result of several recent bank failure; 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 consumerpreferences or discretionary income andspending or our ability to pass along rising costs through increased selling prices, and unfavorable global or regional economic conditions, including interest rate increases, economic slowdown or recession;prices; 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; uncertainty regarding the transition away from LIBOR and the replacement of LIBOR with an alternative reference rate; 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. Other factors that could cause actual results to differ are those with respect to the Merger (as defined herein), including: the proposed commencement of a tender offer by Darden (as defined herein) or one of its subsidiaries to purchase all of the shares of common stock of the Company and the subsequent merger, including the occurrence of any event, change or other circumstance that could give rise to our right or the right of Darden’s or both of us to terminate the Merger Agreement (as defined herein), including circumstances requiring us to pay Darden a termination fee pursuant to the Merger Agreement; the risk that the potential transaction may not be completed in a timely manner or at all; the risk that the potential transaction may not close in the anticipated timeframe or at all due to one or more of the closing conditions to the acquisition not being satisfied or, to the extent permitted by the Merger Agreement or applicable law, waived, including due to the failure to obtain applicable regulatory approvals or the approval of our shareholders in a timely manner or otherwise; uncertainty surrounding the number of shares of the Company’s common stock that will be tendered in the Offer (as defined herein); the possibility that competing offers or acquisition proposals for the Company will be made; the possibility that any or all of the various conditions to the consummation of the Offer and the Merger (as defined herein) may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the potential transactions; the occurrence of any event, change or other circumstance that could give rise to the termination of the Offer or the Merger; the effects of disruption from the transactions of the Company’s business; the risk of legal proceedings that may be instituted related to the Merger Agreement, which may result in significant costs of defense, indemnification and liability; the risk that the proposed acquisition disrupts our current plans and operations; the risk that there may be unexpected costs, charges or expenses resulting from the proposed transactions, including the Offer and the Merger; risks related to disruption of management's time and attention from ongoing business operations due to the proposed transactions, including the Offer and the Merger; the risk that any announcements related to the proposed transactions, including the Offer and the Merger, could have adverse effects on our ability to retain and hire key personnel and to maintain relationships with business partners (including franchisees), suppliers and customers and on our operating results and business generally; and the risk that certain restrictions during the pendency of the proposed tender offer and acquisition may impact our ability to pursue certain business opportunities or strategic transactions. 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, 2021,25, 2022, 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.

 

19

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 September 25, 2022,March 26, 2023, there were 154 Ruth’s Chris Steak House restaurants, including 77 Company-owned restaurants, three restaurants operating under contractual agreements and 74 franchisee-owned restaurants.  Three new Company-owned Ruth's Chris Steak House restaurants were opened in August 2022 in Worcester, MA, Long Beach, CA and Melville, NY.  Subsequent to the end of the quarter ended September 25, 2022,March 26, 2023, a Company-owned Ruth's Chris Steak House restaurant was relocated within Winter Park, FL.opened in Reston, VA and a Company-owned Ruth's Chris Steakhouse was closed in Manhattan, NY.

 

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 5557 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 theThe 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.flows. As of September 25,and for thirteen-week periods ended March 26, 2023 and March 27, 2022, all of the Company-owned and -managed restaurantsmanaged Ruth’s Chris Steak House restaurant dining rooms were open. This continuesopen and its revenues, results of operations and cash flows were comparable 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 experienced and could continue to experience macroeconomic impacts, including those arising from the long duration of the COVID-19 pandemic, including operating restrictions, 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 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.

We continue to monitor state, local, and federal government regulatory and public health responsesperiods prior to the COVID-19 pandemic, including the number of cases of COVID-19 throughout the United States, which could bring about restrictions such as mask requirements for team members, guests or both if case counts were to spike.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 third fiscal quarter fiscal year 2022 or the first thirty-nine 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, 202125, 2022 provides additional information about our business, operations and financial condition.

 

Merger Agreement

On May 2, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Darden Restaurants, Inc., a Florida corporation (“Darden”), and Ruby Acquisition Corp., a Delaware corporation and an indirect wholly owned subsidiary of Darden (“Merger Sub”).

Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Merger Sub has agreed to commence a tender offer (the “Offer”), to purchase all of the shares of common stock, par value $0.01 per share (the “Company Common Stock”), of the Company issued and outstanding (each a “Share” and, collectively, the “Shares”) at a price of $21.50 per Share (the “Per Share Price”), in cash, without interest thereon (but subject to applicable withholding). Pursuant to the Merger Agreement, following the consummation of the Offer, subject to the terms and conditions of the Merger Agreement and in accordance with Section 251(h) of the General Corporation Law of the State of Delaware (the “DGCL”), Merger Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Darden in accordance with the DGCL. If the Merger is completed, the Company’s Common Stock will be delisted from the Nasdaq Global Select Market and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The obligation of Merger Sub to consummate the Offer is subject to the satisfaction or waiver of customary conditions, including, among others, (i) the tender of Shares representing at least a majority of the outstanding Company Common Stock, (ii) any waiting period applicable to the Offer under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, having expired or otherwise been terminated, (iii) the absence of any law or order by any governmental authority of competent jurisdiction prohibiting, restricting, enjoining or otherwise making illegal the consummation of the Offer or the Merger, (iv) the Merger Agreement not having been terminated in accordance with its terms and (v) other customary conditions set forth in Annex I to the Merger Agreement.

 

1520

The Merger Agreement also includes customary termination provisions for both the Company and Darden, and provides that, in connection with the termination of the Merger Agreement under specified circumstances, including termination by the Company to accept and enter into an agreement with respect to a Superior Proposal (as defined in the Merger Agreement), the Company will pay Darden a termination fee of $23.9 million.

In connection with the Merger, the Company expects to incur significant expenses. An estimate of those expenses cannot be made at this time. The proposed Merger is expected to close by the end of June 2023, subject to satisfaction of customary closing conditions.  For more information about the Merger, see Note 12 in the notes to the condensed consolidated financial statements included in Item 1. “Financial Statements” and our Current Report on Form 8-K filed with the SEC on May 3, 2023 (SEC Accession No. 0001193125-23-133284).

 

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

  

39 Weeks Ended

  

13 Weeks Ended

 
 

September 25,

 

September 26,

 

September 25,

 

September 26,

  

March 26,

 

March 27,

 
 

2022

  

2021

  

2022

  

2021

  

2023

  

2022

 

Revenues:

  

Restaurant sales

 93.8% 93.6% 93.9% 93.7% 94.2% 94.1%

Franchise income

 4.4% 4.6% 4.0% 4.3% 3.9% 3.8%

Other operating income

  1.8%  1.8%  2.1%  2.0%  1.9%  2.1%

Total revenues

 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
  

Costs and expenses:

  

Food and beverage costs (percentage of restaurant sales)

 31.7% 34.2% 31.3% 31.0% 32.9% 32.5%

Restaurant operating expenses (percentage of restaurant sales)

 50.2% 47.2% 46.9% 45.5% 46.7% 46.0%

Marketing and advertising

 3.0% 2.3% 3.6% 2.5% 3.3% 3.9%

General and administrative costs

 8.3% 7.4% 7.6% 7.8% 6.9% 7.3%

Depreciation and amortization expenses

 4.9% 4.8% 4.2% 5.0% 4.8% 3.8%

Pre-opening costs

 1.0% 0.6% 0.7% 0.4% 0.4% 0.7%

Loss on legal settlement

   1.6%  

Loss on impairment

        0.1%

Gain on lease modifications

  (0.6%)  - 

Total costs and expenses

  94.0%  91.3%  91.2%  87.6%  89.8%  89.7%

Operating income

 6.0% 8.7% 8.8% 12.4% 10.2% 10.3%

Other income (expense):

  

Interest expense, net

 (0.4%) (0.7%) (0.3%) (1.0%) (0.2%) (0.2%)

Other

  0.0%  (0.0%)  0.0%  0.0%  0.0%  0.0%

Income before income taxes

 5.6% 8.0% 8.5% 11.4% 10.0% 10.1%

Income tax expense

  0.8%  1.3%  1.4%  1.9%  1.8%  1.8%

Net income

  4.8%  6.7%  7.1%  9.5%  8.2%  8.3%
 

21

 

ThirdFirst Quarter Ended September 25, 2022March 26, 2023 (13 Weeks) Compared to ThirdFirst Quarter Ended September 26, 2021March 27, 2022 (13 Weeks)

 

Overview. Operating income decreasedincreased by $2.3$1.0 million to $6.7$14.0 million for the thirdfirst quarter of fiscal year 20222023 from the operating income reported for the thirdfirst quarter of fiscal year 2021.2022. Operating income for the thirdfirst quarter of fiscal year 20222023 was favorably impacted by an $8.3a $10.2 million increase in restaurant sales offset by a $7.1$3.8 million increase in food and beverage costs a $5.6 million increase in restaurant operating expenses and a $1.7 million increase in general and administrative costs, a $983 thousand increase in marketing and advertising costs, a $550 thousand increase in depreciation and amortization and a $512 thousand increase in pre-opening costs.expense. Net income decreasedincreased from the third quarter of fiscal year 2021 by $1.4 million to $5.5 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 thirdfirst quarter of fiscal year 2022 for the Company-owned steakhouse restaurant segment increased by $1.2 million$929 thousand to a $20.5 million profit compared to the third quarter of fiscal year 2021. The increase was driven primarily by an $8.3 million increase in restaurant sales offset by a $7.1 million increase in restaurant operating expenses. Franchise income increased $164 thousand in the third quarter of fiscal year 2022 compared to the third quarter of fiscal year 2021.$11.3 million.

 

Restaurant Sales. Restaurant sales increased by $8.3$10.2 million, or 8.5%8.6%, to $105.8$128.9 million in the thirdfirst quarter of fiscal year 20222023 from the thirdfirst quarter of fiscal year 2021.2022 driven by a $4.2 million increase or 3.8% increase in Company-owned comparable restaurant sales with the balance from non-comparable sales, primarily sales from six new restaurants. The increase in Company-owned comparable restaurant sales in the third quarter of fiscal year 2022 were $99.7 million, which represented2023 primarily from an increase of $2.8 million, or 2.9%, compared to the third quarter of fiscal year 2021.5.6% in average check partially offset by a 1.8% decrease in traffic.

 

Franchise Income. Franchise income in the thirdfirst quarter of fiscal year 20222023 increased by $164$539 thousand, or 3.5%11.4%, to $4.9$5.3 million compared to the thirdfirst quarter of fiscal year 2021.2022. The increase in franchise income compared to the thirdfirst quarter of fiscal year 20212022 was due to an increase in franchisee-owned restaurant sales.

 

Other Operating Income. Other operating income increased by $133$14 thousand or 7.0%, to $2.0$2.7 million in the thirdfirst quarter of fiscal year 20222023 compared to the thirdfirst quarter of fiscal year 2021.2022. The increase was primarily due to an increase in breakage income of $58 thousand resulting from an increase in gift card redemptions and a $59 thousand increase in income from restaurants operating under contractual agreements.income.

 

Food and Beverage Costs. Food and beverage costs increased by $104 thousand,$3.8 million, or 0.3%9.9%, to $33.5$42.4 million in the thirdfirst quarter of fiscal year 20222023 compared to the thirdfirst quarter of fiscal year 20212022 primarily due to increased restaurant sales. As a percentage of restaurant sales, food and beverage costs decreasedincreased to 31.7%32.9% in the thirdfirst quarter of fiscal year 20222023 from 34.2%32.5% in the thirdfirst quarter of fiscal year 2021,2022, primarily driven by a 14% decrease12.8% increase in beef costs.

 

Restaurant Operating Expenses. Restaurant operating expenses increased by $7.1$5.6 million, or 15.3%10.2%, to $53.1$60.2 million in the thirdfirst quarter of fiscal year 20222023 from the thirdfirst quarter of fiscal year 2021.2022. Restaurant operating expenses, as a percentage of restaurant sales, were 50.2%46.7% in the thirdfirst quarter of fiscal year 20222023 compared to 47.2%46.0% in the thirdfirst quarter of fiscal year 20212022 primarily driven by higher labor costs from adding staff to our restaurants.  

 

Marketing and Advertising. Marketing and advertising expenses increaseddecreased by $983$405 thousand, or 40.4%8.2%, to $3.4$4.5 million in the thirdfirst quarter of fiscal year 20222023 from the thirdfirst quarter of fiscal year 2021.2022. The increasedecrease in marketing and advertising expenses in the thirdfirst quarter of fiscal year 20222023 was primarily attributable to a $1.2 million$498 thousand increase in media and online advertising offset by $628 thousand decrease in digital and data transformation expenses.

16

 

General and Administrative Costs. General and administrative costs increased by $1.7 million,$266 thousand, or 21.4%2.9%, to $9.4$9.5 million in the thirdfirst quarter of fiscal year 20222023 from the thirdfirst quarter of fiscal year 2021.2022.  The increase in general and administrative costs was primarily due to a $756$515 thousand increase in compensation related costs offset by a $479 thousand increase in legal related expenses and other professional fees and $131decrease of $360 thousand in travel expenses in fiscal year 2022.bonus expenses.

 

Depreciation and Amortization Expenses. Depreciation and amortization expense increased by $550 thousand$1.7 million to $5.5$6.5 million in the thirdfirst quarter of fiscal year 20222023 from the thirdfirst quarter of fiscal year 20212022 primarily due to the opening of sixfour new Ruth's Chris Steak House restaurants since the third quarter ofin fiscal year 20212022 and placement of data and digital assets into service during fiscal year 2022.

  

Pre-opening Costs. Pre-opening costs were $1.1 million$522 thousand in the thirdfirst quarter of fiscal year 2022.2023. These expenses are primarily due to the openings of three Ruth’sRuth's Chris Steak House restaurantsrestaurant in the third quarter of fiscal year 2022Reston, VA which opened in April 2023 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 $581$881 thousand in the thirdfirst quarter of fiscal year 20212022 primarily due to the planned opening of the Ruth's Chris Steak House restaurant in Short Hills, NJAventura, FL and recognition of rent expense at unopened Ruth’s Chris Steak House restaurants where the Company had taken possession of the properties.

 

Gain on lease modifications. Gain on leases modifications were $869 thousand in the first quarter of fiscal year 2023. The gains on lease modifications during fiscal year 2023 were attributable to a reduction in lease payments related to closed restaurants.

Interest Expense.Expense, net. Interest expense decreased $244by $72 thousand to $434$252 thousand in the thirdfirst quarter of fiscal year 20222023 compared to $678$324 thousand in the thirdfirst quarter of fiscal year 2021.2022. The decrease is primarily due to a lower average debt balance in the thirdfirst quarter of fiscal year 2022,2023, partially offset by a higher interest rate.

 

Other Income and Expense. During the thirdfirst quarter of fiscal year 2023, we recognized other income of $6 thousand. During the first quarter of fiscal year 2022, we recognized other income of $53 thousand. During the third quarter of fiscal year 2021, we recognized other expense of $18$28 thousand.

22

 

Income Tax Expense. During the thirdfirst quarter of fiscal year 2022,2023, we recognized income tax expense of $852 thousand$2.4 million compared to $1.4$2.3 million during the thirdfirst quarter of fiscal year 2021.2022. The effective tax rate, including the impact of discrete items, decreased to 13.4%17.7% for the thirdfirst quarter of fiscal year 20222023 compared to 16.8%18.4% for the thirdfirst quarter of fiscal year 2021.2022. Fiscal year 20222023 discrete items and other unexpected changes impacting the annual tax expense may cause the effective tax rate for fiscal year 20222023 to differ from the effective tax rate for the thirdfirst quarter of fiscal year 2022.2023.

 

Net Income. Net income was $5.5$11.3 million in the thirdfirst quarter of fiscal year 2022,2023, which reflected a decreasean increase of $1.4 million$929 thousand compared to $6.9$10.4 million in the thirdfirst quarter of fiscal year 2021.2022. The decreaseincrease was attributable to the factors noted above.

 

 

Thirty-Nine Weeks Ended September 25, 2022 (39 Weeks) Compared to Thirty-Nine Weeks Ended September 26, 2021 (39 Weeks)

Overview. Operating income decreased by $5.1 million to $32.3 million for the first thirty-nine weeks of fiscal year 2022 from the income reported for the first thirty-nine weeks of fiscal year 2021. Operating income for the first thirty-nine weeks of fiscal year 2022 was favorably impacted by a $61.9 million increase in restaurant sales, a $1.7 million increase in franchise income and a $1.5 million increase in other operating income, offset by a $33.0 million increase in restaurant operating expenses, a $20.2 million increase in food and beverage costs, a $6.0 million increase in settlement losses, a $5.4 million increase in marketing and advertising costs, a $4.2 million increase in general and administrative costs and a $1.5 million increase in pre-opening costs. Net income decreased from the first thirty-nine weeks of fiscal year 2021 by $2.2 million to $26.2 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 thirty-nine weeks of fiscal year 2022 for the Company-owned steakhouse restaurant segment increased by $9.5 million to a $79.4 million profit compared to the first thirty-nine weeks of fiscal year 2021. The increase was driven primarily by a $62.6 million increase in restaurant sales offset by a $33.0 million increase in restaurant operating expenses and a $20.2 million increase in food and beverage costs. Franchise income increased $1.7 million in the first thirty-nine weeks of fiscal year 2022 compared to the first thirty-nine weeks of fiscal year 2021.

Restaurant Sales. Restaurant sales increased by $61.9 million, or 21.9%, to $345.3 million in the first thirty-nine weeks of fiscal year 2022 from the first thirty-nine weeks of fiscal year 2021.  Company-owned comparable restaurant sales in the first thirty-nine weeks of fiscal year 2022 were $331.2 million, which represented an increase of $49.5 million, or 17.6%, compared to the first thirty-nine weeks of fiscal year 2021.

Franchise Income. Franchise income in the first thirty-nine weeks of fiscal year 2022 increased by $1.7 million, or 13.0%, to $14.8 million compared to the first thirty-nine weeks of fiscal year 2021. The increase in franchise income compared to the first thirty-nine weeks of fiscal year 2021 was due to an increase in franchisee-owned restaurant sales.

Other Operating Income. Other operating income increased by $1.5 million in the first thirty-nine weeks of fiscal year 2022 compared to the first thirty-nine weeks of fiscal year 2021. The increase was primarily due to an increase in breakage income of $862 thousand resulting from an increase in gift card redemptions and a $647 thousand increase in income from miscellaneous charges generated in the restaurants.

17

Food and Beverage Costs. Food and beverage costs increased by $20.2 million, or 22.9%, to $108.1 million in the first thirty-nine weeks of fiscal year 2022 compared to the first thirty-nine weeks of fiscal year 2021 primarily due to increased restaurant sales. As a percentage of restaurant sales, food and beverage costs increased to 31.3% in the first thirty-nine weeks of fiscal year 2022 from 31.0% in the first thirty-nine weeks of fiscal year 2021, primarily driven by inflation in non-beef food costs.

Restaurant Operating Expenses. Restaurant operating expenses increased by $33.0 million, or 25.5%, to $162.0 million in the first thirty-nine weeks of fiscal year 2022 from the first thirty-nine weeks of fiscal year 2021. Restaurant operating expenses, as a percentage of restaurant sales, were 46.9% in the first thirty-nine weeks of fiscal year 2022 compared to 45.5% in the first thirty-nine 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 $5.4 million, or 70.8%, to $13.1 million in the first thirty-nine weeks of fiscal year 2022 from the first thirty-nine weeks of fiscal year 2021. The increase in marketing and advertising expenses in the first thirty-nine weeks of fiscal year 2022 was attributable to a $5.7 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 $4.2 million, or 17.9%, to $27.9 million in the first thirty-nine weeks of fiscal year 2022 from the first thirty-nine weeks of fiscal year 2021. The increase in general and administrative costs in the first thirty-nine weeks of fiscal year 2022 was primarily attributable to a $2.3 million in compensation related expenses, a $1.0 million increase in professional fees and a $440 thousand increase in travel related expenses over the first thirty-nine weeks of 2021.  As a percentage of revenue, general and administrative costs decreased from 7.8% in the first thirty-nine weeks of fiscal year 2021 to 7.6% in the first thirty-nine weeks of fiscal year 2022 primarily due to increased sales.

Depreciation and Amortization Expenses. Depreciation and amortization expense increased by $331 thousand to $15.5 million in the first thirty-nine weeks of fiscal year 2022 from the first thirty-nine weeks of fiscal year 2021.

Pre-opening Costs. Pre-opening costs were $2.7 million in the first thirty-nine weeks of fiscal year 2022. These expenses are primarily due to the to the openings of four Ruth’s Chris Steak House restaurants in 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 $1.2 million and in the first thirty-nine weeks of fiscal year 2021 primarily due to the planned opening of the Ruth's Chris Steak House restaurant in Short Hills, NJ and 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 first thirty-nine 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 thirty-nine 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 thirty-nine weeks of fiscal year 2022.

Interest Expense. Interest expense decreased $2.1 million to $998 thousand in the first thirty-nine weeks of fiscal year 2022 compared to $3.1 million in the first thirty-nine weeks of fiscal year 2021. The decrease is primarily due to a lower average debt balance in the first thirty-nine weeks of fiscal year 2022.

Other Income and Expense. During the first thirty-nine weeks of fiscal year 2022, we recognized other income of $116 thousand. During the first thirty-nine weeks of fiscal year 2021, we recognized other income of $61 thousand.

Income Tax Expense. During the first thirty-nine weeks of fiscal year 2022, we recognized income tax expense of $5.1 million compared to $5.9 million during the first thirty-nine weeks of fiscal year 2021. The effective tax rate, including the impact of discrete items, decreased to 16.4% for the first thirty-nine weeks of fiscal year 2022 compared to 17.0% for the first thirty-nine 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 thirty-nine weeks of fiscal year 2022.

Net Income. Net income was $26.2 million in the first thirty-nine weeks of fiscal year 2022, which reflected a decrease of $2.2 million compared to $28.5 million in the first thirty-nine weeks of fiscal year 2021. The decrease was attributable to the factors noted above.

Liquidity and Capital Resources

 

Overview

 

Our principal sources of cash have been historicallyduring the first quarter of fiscal year 2023 was net cash provided by our operating activities as well as periodic borrowings from our senior credit facility.activities. During the first thirty-ninethirteen weeks of fiscal year 20222023 our principal uses of cash flow were debt repayments, capital expenditures repurchases of common stock and dividend payments.

 

In July 2022, the Company's Board of Directors approved a new share repurchase program authorizing the Company to repurchase up to $60 million of outstanding common stock from time to time.  The new share repurchase program replaced the previous share repurchase program announced in October 2019, which has been terminated.  DuringNo shares were repurchased during the first thirty-nine weeksquarter of fiscal year 2022,2023 and the Company repurchased 828,348 shares at an aggregate costfirst quarter of $14.9 million or an average cost of $17.99 per share.  All repurchased shares were retired and cancelled.fiscal year 2022.  As of September 25, 2022, $54.6March 26, 2023, $40.0 million remained available for future purchases under the share repurchase program.

 

18

The Company also resumed payments of dividends inDuring the first quarter of fiscal year 2022 with2023, we paid a $0.12 per share dividend paid on February 17, 2022, a $0.14 per share dividend paid on June 2, 2022 and a $0.14 per share dividend paid on September 2, 2022.  Subsequent to the end of the third quarter of fiscal year 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.14$0.16 per share payable on December 2, 2022, to shareholders of record as ofor $5.4 million in the close of business on November 18, 2022.

aggregate. 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 September 25, 2022,March 26, 2023, we were in compliance with all covenants pertaining to the Credit Agreement.

 

Senior Credit Facility

 

As of September 25, 2022,March 26, 2023, we had $30.0$15.0 million of outstanding indebtedness under our senior credit facility and approximately $4.7$5.0 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 September 25, 2022,March 26, 2023, the weighted average interest rate on our outstanding debt was 4.7%6.1% and the weighted average interest rate on our outstanding letters of credit was 1.6%. In addition, the fee on the unused portion of our senior credit facility was 0.2%.

 

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”.

 

We have assessed the impact of the impending cessation of LIBOR and have identified and evaluated financial instruments and other contracts that refer to LIBOR. Our underlying exposure to LIBOR includes our Credit Agreement. We expect to be able to transition our LIBOR-based Credit Agreement to an alternative reference rate on or before the cessation of LIBOR and we do not believe that the cessation of LIBOR, or its replacement with an alternative reference rate or rates, will have a material impact on us. 

Subsequent to the end of first quarter 2023the Company received proceeds of $5.0 million from a draw on the revolving credit facility.

23

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):

 

 

39 Weeks Ended

 
 

September 25,

 

September 26,

 
 

2022

 

2021

 

Net cash provided by (used in):

      

Operating activities

$33,179 $48,521 

Investing activities

 (34,765) (8,418)

Financing activities

 (69,754) (51,726)

Net decrease in cash and cash equivalents

$(71,340)$(11,623)

   

13 Weeks Ended

 
   

March 26,

  

March 27,

 
   

2023

  

2022

 

Net cash provided by (used in):

         

Operating activities

  $22,470  $9,533 

Investing activities

   (8,261)  (10,050)

Financing activities

   (21,211)  (24,830)

Net decrease in cash and cash equivalents

  $(7,002) $(25,347)

 

Operating Activities. Operating activities provided cash of $33.2$22.5 million during the first thirty-ninethirteen weeks of fiscal year 20222023 and $48.5$9.5 million during the first thirty-ninethirteen weeks of fiscal year 2021.2022. 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 $34.8$8.3 million in the first thirty-ninethirteen weeks of fiscal year 20222023 compared with $8.4$10.1 million used in the first thirty-ninethirteen weeks of fiscal year 2021.2022. Cash used in investing projects during the first thirty-ninethirteen weeks of fiscal year 2023 primarily pertained to $4.8 million for new restaurants, $802 thousand for technology investments and upgrades and $2.7 million for restaurant remodel and capital replacement projects. Cash used in investing activities during the first thirteen weeks of fiscal year 2022 primarily pertained to $21.2$6.1 million for new restaurants, $8.1$2.5 million for technology investments and upgrades and $5.2 million for restaurant remodel and capital replacement projects. Cash used in investing activities during the first thirty-nine weeks of fiscal year 2021 primarily pertained to $4.3 million for new restaurants, $4.1$1.5 million for restaurant remodel and capital replacement projects.

 

Financing Activities. Financing activities used cash during the first thirty-ninethirteen weeks of fiscal year 20222023 and the first thirty-ninethirteen weeks of fiscal year 2021.2022. During the first thirty-ninethirteen weeks of fiscal year 2022,2023, we repaid debt in the amount of $55.0$15.0 million, paid $14.9 million for the repurchase of common stock, paid $13.6$5.4 million in dividends and paid $1.2 million$861 thousand in employee withholding taxes in connection with the vesting of restricted stock. We paid the $1.2 million$861 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 thirty-ninethirteen weeks of fiscal year 2021,2022, we reduced debt by $45.0$20.0 million, repurchased $3.8paid $4.1 million in common stock,dividends and paid $2.8 million$721 thousand in employee withholding taxes in connection with the with vesting of restricted stock and paid $145 thousand in deferred financing costs.stock.

 

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, 202125, 2022 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 thirty-ninethirteen weeks of fiscal year 2022.2023.

 

1924

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Interest Rate Risk

 

The Company is exposed to market risk from fluctuations in interest rates. For fixed rate debt, interest rate changes affect the fair market value of such debt but do not impact earnings or cash flows. Conversely, for variable rate debt, including borrowings under the Company’s senior credit facility, interest rate changes generally do not affect the fair market value of such debt, but do impact future earnings and cash flows, assuming other factors are held constant. At September 25, 2022,The future transition from LIBOR to SOFR may result in an increase or a decrease of our overall borrowing costs. As of March 26, 2023, the Company had $30.0$15.0 million in variable rate debt outstanding. The Company currently does not use financial instruments to hedge its risk to market fluctuations in interest rates.Holdingrates.Holding other variables constant (such as debt levels), a hypothetical immediate one percentage point change in interest rates would be expected to have an impact on pre-tax earnings and cash flows for fiscal year 20222023 of approximately $300$150 thousand.

 

Effect of Healthcare Inflation

 

The Company is exposed to market price fluctuations related to the cost of providing healthcare to its employees.  Claim trends are predicted to outpace inflation throughout the upcoming year.  Pharmacy costs are also rising in excess of general and medical cost inflation.  If prices increase, or the Company experiences significantly more claims, operating margins could be materially adversely affected.  Holding other variables constant, a hypothetical 10% fluctuation in healthcare costs would have an approximate impact on pre-tax earnings of approximately $1.0 million for the 20222023 fiscal year.

 

Foreign Currency Risk

 

The Company believes that fluctuations in foreign exchange rates do not present a material risk to its operations due to the relatively small amount of franchise income it receives from outside the U.S. During the first thirty-ninethirteen weeks of fiscal years 20222023 and 2021,2022, franchise income attributable to international locations was approximately $2.0 million$937 thousand and $1.5 million,$628 thousand, respectively, which is less than 1% of total annual revenue.

 

Commodity Price Risk

 

The Company is exposed to market price fluctuations in beef and other food product prices.  Given the historical volatility of beef and other food prices, this exposure can impact the Company's food and beverage costs.  As the Company typically sets its menu prices in advance of its beef and other food product purchases, the Company cannot quickly react to changing costs of beef and other food items. To the extent that the Company is unable to pass the increased costs on to its guests through price increases, the Company’s results of operations would be adversely affected. The Company has experienced 4.9% deflation12.8% inflation in beef pricing during the first thirty-ninethirteen weeks of fiscal year 20222023 compared to the first thirty-ninethirteen weeks of fiscal year 2021.  The Company has seen a reduction in beef prices during the third quarter of fiscal year 2022 of 14% compared to the third quarter of fiscal year 2021.  During the third quarter of fiscal year 2021, we negotiated set pricing on approximately 10% of our beef supply from mid-September 2021 into mid-March 2022.  During the first quarter of fiscal year 2022, we negotiated set pricing on approximately 20% of our beef supply from mid-March 2022 through mid-August 2022.  This pricing agreement was extended from mid-August 2022 through mid-November 2022.  The market for USDA Prime grade beef is particularly volatile. If prices increase, or the supply of beef is reduced, operating margin could be materially adversely affected. Holding other variables constant, a hypothetical 10% fluctuation in beef prices would have an approximate impact on pre-tax earnings ranging from $6.0$7.0 million to $7.0$8.0 million for fiscal year 2022.2023.

25

 

From time to time, the Company enters into purchase price agreements for other lower-volume food products, including poultry and seafood. In the past, certain types of poultry and seafood have experienced fluctuations in availability. Poultry and seafood is also subject to fluctuations in price based on availability, which is often seasonal. If certain types of poultry and seafood are unavailable, or if the Company’s costs increase, the Company’s results of operations could be adversely affected.

 

Effects of Inflation

 

Components of the Company's operations subject to inflation include food, beverage, lease and labor costs.  The Company's leases require it to pay taxes, maintenance, repairs, insurance and utilities, all of which are subject to inflationary increases.  The Company believes that general inflation, excluding increases in food, employee wages and employee health plan costs, has not had a material impact on its results of operations in recent years. Routinely, governmental entities acted to increase minimum wage rates in jurisdictions where Company-owned restaurants are located, which increases our operating costs.  Also, the U.S. government may act to further increase the federal minimum wage rate and/or decrease or eliminate the tip credit which could further increase employee compensation costs and related taxes in 20222023 if adopted.  The increased minimum wage rates are not expected to materially increase employee compensation and related taxes in fiscal year 20222023 compared to fiscal year 2021.2022. If prices increase, operating margins could be materially adversely affected.  Holding other variables constant, a hypothetical 10% increase in other operating costs would have an approximate impact on pre-tax earnings ranging from $5.0$6.0 million to $6.0$7.0 million for fiscal year 2022.2023.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of disclosure controls and procedures

 

Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 25, 2022.March 26, 2023. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 25, 2022March 26, 2023 to ensure that information required to be disclosed in reports filed or submitted by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed by the Company is accumulated and communicated to the Company’s management to allow timely decisions regarding the required disclosure.

 

Changes in internal control over financial reporting

 

During the fiscal quarter ended September 25, 2022,March 26, 2023, there was no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that in the Company’s judgment has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

2026

 

PART IIOTHER INFORMATION

 

None.

 

ITEM 1. LEGAL PROCEEDINGS

 

See Note 11 in the notes to the condensed consolidated financial statements included in Item 1. “Financial Statements” for a summary of legal proceedings.

 

ITEM 1A. RISK FACTORS

 

See our risk factors previously disclosed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2021.25, 2022. Circumstances and events described in such risk factors could result in significant adverse effects on our financial position, results of operations and cash flows. The following risk factors are provided to update the risk factors previously disclosed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2022. 

Risks Related to the Proposed Merger

Uncertainties associated with the proposed Merger and the Offer, including the risk that the Merger may not close in the anticipated timeframe or at all due to one or more of the closing conditions to the Merger not being satisfied or waived, may have an adverse effect on our business, financial condition, results of operations and stock price.

On May 2, 2023, we entered into the Merger Agreement with Darden and Merger Sub. Pursuant to the Merger Agreement and upon the terms and subject to the conditions thereof: (i) Merger Sub has agreed to commence the Offer and (ii) Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Darden (see Note 12. Subsequent Events to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q). If the Merger is completed, we will become a privately held company, meaning that the Company’s common stock will be delisted from the Nasdaq Global Select Market and deregistered under the Exchange Act.

Completion of the Merger is subject to various closing conditions, including, among other things, consummation of the Offer (as further detailed below), and the receipt of applicable regulatory approvals. Further, if the Merger has not been consummated on or before November 2, 2023 (subject to an extension until March 4, 2024 under certain circumstances for the purpose of obtaining certain regulatory approvals), then the Merger Agreement may be terminated by either party. There is no assurance that receipt of applicable regulatory approvals will occur, or that all of the other closing conditions will be satisfied (or waived, to the extent permitted by applicable law), or that the Merger will be completed on the terms reflected in the Merger Agreement, within the expected timeframe or at all.

The obligation of Merger Sub to consummate the Offer, which will initially remain open for a minimum of 20 business days from the date of its commencement, is subject to the satisfaction or waiver of various customary conditions. If at the scheduled expiration time of the Offer any condition to the Offer has not been satisfied and has not been waived by Darden or Merger Sub (to the extent permitted by the Merger Agreement), Merger Sub will, and Darden will cause Merger Sub to, extend the Offer in accordance with the terms of the Merger Agreement to permit the satisfaction of all Offer conditions.

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Customary conditions that must be satisfied prior to Merger Sub’s consummation of the Offer include, among other things: (i) there being validly tendered and not validly withdrawn prior to the expiration of the Offer a number of Shares that, considered together with all other Shares (if any) beneficially owned by Darden and its affiliates, represent at least one more Share than 50% of the total number of Shares outstanding at the time of the expiration of the Offer (the “Minimum Condition”), (ii) any waiting period applicable to the Offer under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, having expired or otherwise been terminated, (iii) the absence of any law or order by any governmental authority of competent jurisdiction prohibiting, restricting, enjoining or otherwise making illegal the consummation of the Offer or the Merger, and (iv) the Merger Agreement not having been terminated in accordance with its terms.

The announcement and pendency of the Merger may create disruption in and uncertainties for our business, which could have an adverse effect on our ability to retain and hire key personnel and to maintain relationships with our business partners (including existing franchisees), suppliers and customers. These business partners (including existing franchisees), suppliers and customers could attempt to negotiate changes in existing business relationships, consider entering into business relationships with parties other than us, delay or defer decisions concerning their business with us, or terminate their existing business relationships with us during the pendency of the Merger. Adverse changes in our relationships with employees (including the potential departure of employees), business partners (including existing franchisees), suppliers and customers may continue or intensify in the event the Merger is not consummated or is significantly delayed. As a result, there can be no assurance that our business, financial condition and results of operations will not be adversely affected as compared to prior to the announcement of the Merger Agreement. Management’s attention may also be diverted towards activities focused on completing the Merger, which could further impact these relationships and also the execution of our business plan and the quality of our services.

If the Merger is not completed, we and our shareholders may suffer other consequences. To the extent that the current market price of our stock reflects an assumption that the Merger will be completed, the price of our common stock could decrease if the Merger is not completed. Further, investor confidence in us could decline, and shareholder litigation could be brought against us. In addition, we will have incurred significant costs, expenses and fees for professional services and other transaction costs in connection with the Merger, including for activities that we would have not undertaken other than to complete the Merger. As a result, to the extent the Merger is not completed, we will receive little or no benefit from incurring these costs, and in the absence of the Merger, these costs may have been allocated elsewhere. In addition, if the Merger Agreement is terminated under certain circumstances, we will be required to pay Darden a termination fee equal to $23.9 million, which could have an adverse effect on our financial condition and results of operations.

Even if successfully completed, there are certain risks to our shareholders from the consummation of the Offer and the Merger, including: the amount of cash to be paid per share of our common stock under the Merger Agreement is fixed and will not be adjusted for changes in our business, assets, liabilities, prospects, outlook, financial condition or operating results or in the event of any change in the market price of, analyst estimates of, or projections relating to, our common stock; receipt of the all-cash per share consideration in an amount equal to the Per Share Price is taxable to shareholders that are treated as U.S. holders for U.S. federal income tax purposes; and if the Merger is completed, our shareholders will forego the opportunity to realize the potential long-term value of the successful execution of our current strategy as an independent company.

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Following the consummation of the Offer, subject to the terms and conditions of the Merger Agreement and in accordance with Section 251(h) of the DGCL, Merger Sub will be merged with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Darden in accordance with the DGCL. At the effective time of the Merger (the “Effective Time”), each Share that is not (i) validly tendered and irrevocably accepted for purchase pursuant to the Offer, (ii) held by a holder who is entitled to demand appraisal and who has (or for which the “beneficial owner” (as defined in Section 262(a) of the DGCL) has) properly exercised appraisal rights with respect thereto, and who has (and, to the extent applicable, for which the applicable beneficial owner has) complied with, Section 262 of the DGCL with respect to any such shares of Company Common Stock held by such holder and (iii) held by the Company as treasury stock or owned by Darden, Merger Sub or any of Darden’s other subsidiaries (including shares of Company Common Stock acquired pursuant to the Offer), in each case, immediately prior to the Effective Time, will thereupon be converted into the right to receive cash in an amount equal to the Offer Price (as defined in the Merger Agreement), on the terms and subject to the conditions set forth in the Merger Agreement.

The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Merger.

Under the Merger Agreement, we are generally restricted from (including by way of instructing, authorizing, or knowingly permitting any of our respective representatives) soliciting, initiating, proposing, or knowingly inducing any proposal or offer that constitutes or could reasonably be expected to lead to any Acquisition Proposal (as defined in the Merger Agreement) from third parties and/or providing non-public information to third parties in response to any inquiries regarding, or the submission of any proposal or offer that constitutes, or would reasonably be expected to lead to, any Acquisition Proposal. Pursuant to the Merger Agreement, we are also generally restricted from participating or engaging in discussions or negotiations with any person with respect to an Acquisition Proposal by such person. These provisions could discourage a third party that may have an interest in acquiring all or a significant part of our business from considering or proposing that acquisition, even if such third party were prepared to pay consideration with a higher value than the value of the consideration in the Offer and the Merger.

We are subject to certain restrictions on the conduct of our business under the terms of the Merger Agreement.

Under the terms of the Merger Agreement, we have agreed to certain restrictions on the operations of our business that could harm our business relationships, financial condition, operating results, cash flows and business, including restrictions with respect to our ability to, among other things, subject to certain specified exceptions: revise our organizational documents; adopt, amend, modify in any material respect or terminate any employee plans; increase the compensation of any director, officer, independent contractor or employee; hire or terminate any employee or independent contractor earning above a certain salary or wage; compromise or settle certain legal proceedings; change our methods, principles or practices of financial accounting; incur capital expenditures above specified thresholds; declare and pay dividends; repurchase our outstanding common stock; freely issue securities; and incur indebtedness above specified thresholds. Because of these restrictions, we may be prevented from undertaking certain actions with respect to the conduct of our business that we might otherwise have taken if not for the Merger Agreement. Such restrictions could prevent us from pursuing certain business opportunities that arise prior to the effective time of the Merger and are outside the ordinary course of business and could otherwise adversely affect our business and operations prior to completion of the Merger.

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Lawsuits relating to the Merger could be filed against us, including by our stockholders.

Although litigation is common in connection with acquisitions of public companies, regardless of any merits related to the underlying acquisition, the outcome of any lawsuits filed against us is uncertain and could delay or prevent completion of the Merger. While we plan to vigorously defend any such lawsuits, we may not be successful in defending against any such claims. Additionally, the costs of defense of such litigation, including costs associated with the indemnification of directors and officers, and other effects, such as negative publicity or damage to our relationships with business partners, suppliers and customers, could have an adverse effect on our business, financial condition and operating results.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Stock repurchase activity during the thirdfirst quarter ended September 25, 2022March 26, 2023 was as follows:

 

 

Period

 Total Number of Shares Purchased  Average Price Paid per Share  

Total Number of Shares Purchased as Part of a Publicly Announced Program

  

Maximum Approximate Dollar Value that May Yet be Purchased under the Program – Amounts in thousands

 
                 

June 27, 2022 to July 31, 2022

          $60,000 

August 1, 2022 to August 28, 2022

          $60,000 

August 29, 2022 to September 25, 2022

  298,614   17.94   298,614  $54,643 

Totals for the fiscal quarter

  298,614  $17.94   298,614  $54,643 

Period

 Total Number of Shares Purchased  Average Price Paid per Share  

Total Number of Shares Purchased as Part of a Publicly Announced Program

  

Maximum Approximate Dollar Value that May Yet be Purchased under the Program – Amounts in thousands

 
                 

December 26, 2022 to January 29, 2023

          $39,979 

January 30, 2023 to February 26, 2023

          $39,979 

February 27, 2023 to March 26, 2023

          $39,979 

Totals for the fiscal quarter

    $     $39,979 

 

In July 2022, the Company'sour Board of Directors approved a new share repurchase program authorizing the Companyus to repurchase up to $60.0$60 million of outstanding common stock from time to time in the open market, through negotiated transactions or otherwise (including, without limitation, the use of Rule 10b5-1 plans), depending on share price, market conditions and other factors. The new share repurchase program replaced, as of August 9, 2022,  the Company's previous share repurchase program announced in October 2019.  The previous share repurchase program had permitted the repurchase of up to $60 million of outstanding common stock, of which approximately $15.4 million was unused.  The share repurchase program does not obligate the Company to repurchase any dollar amount or number of its shares, and the program has no termination date. The Company intends to conductconducts any open market share repurchase activities in compliance with the safe harbor provisions of Rule 10b-18 of the Exchange Act. The Company's Credit Agreementshare repurchase program does not obligate the Company to repurchase any dollar amount or number of its shares. The program has no termination date. As of March 26, 2023, $40.0 million remained available for further purchases under the new program. The Company’s ability to make future stock purchases under the program is currently limited by our credit agreement. The Company’s amended and restated credit agreement currently does not limit dividends and share repurchases if the Company'sCompany’s Consolidated Leverage Ratio is less than 2.50:1.00 and holds a minimum liquidity of $25.0 million. As of September 25, 2022March 26, 2023 our Consolidated Leverage Ratio was less than 2.50:1.00.

Under the Merger Agreement, we may not, without obtaining Darden’s approval, (i) repurchase our outstanding common stock or (ii) establish a record date for, declare, set aside or pay any dividends on, or make any other distribution (whether in cash, shares or other equity or property, including any combination thereof) in respect of our outstanding common stock, or make any other actual, constructive or deemed distribution in respect of our outstanding common stock.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

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ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

3.12.1* AmendedAgreement and Restated By-LawsPlan of Merger, dated as of May 2, 2023, by and among Darden Restaurants, Inc., Ruby Acquisition Corporation and Ruth's Hospitality Group, Inc. (incorporated by reference to Exhibit 3.1 of2.1 to the Company's QuarterlyCurrent Report on Form 10-Q8-K filed August 5, 2022).May 3, 2023)
   
10.110.1* EmploymentTender and Support Agreement, dated August 1, 2022, betweenas of May 2, 2023, by and among Darden Restaurants, Inc., Ruby Acquisition Corporation, Ruth's Hospitality Group, Inc. and the Company and Cheryl J. Henrystockholders party thereto (incorporated by reference to Exhibit 10.1 ofto the Company's QuarterlyCurrent Report on Form 10-Q8-K filed August 5, 2022).
10.2Employment Agreement dated August 1, 2022, between the Company and Kristy Chipman (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q filed August 5, 2022).
10.3Employment Agreement dated August 1, 2022, between the Company and Marcy Lynch (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q filed August 5, 2022).
10.4Employment Agreement dated August 1, 2022, between the Company and David Hyatt (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q filed August 5, 2022).May 3, 2023)
   

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

   

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

   

32.1

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

   

32.2

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

   

101.INS

 

Inline XBRL Instance Document– the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

   

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

   

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

   

101.DEF

 

Inline XBRL Taxonomy Definition Linkbase Document.

   

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

   

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

   

104

 

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibit 101).


 

*Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

RUTH’S HOSPITALITY GROUP, INC.

  
 

By:

/s/ CHERYL J. HENRY

  

Cheryl J. Henry

  

Chairperson of the Board, President and Chief Executive Officer

  

(Principal Executive Officer)

  
 

By:

/s/ KRISTY CHIPMAN

  

Kristy Chipman

  

Executive Vice President, Chief Financial Officer, and Chief Operating Officer

(Principal Financial and Accounting Officer)

 

Date: November 4, 2022May 5, 2023

 

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