Ruth's Hospitality Group, Inc.

Ruth's Hospitality Group, Inc. (RUTH - Snapshot Report) has been cutting costs and paying down debt as sales have declined at its upscale restaurants during the recession. The company has surprised on estimates 3 out of the last 4 quarters. RUTH has attractive value characteristics. It has a PEG ratio of just 0.9.

Company Description

Ruth's Hospitality Group operates upscale restaurants under the brands Ruth's Chris Steak House, Mitchell's Steakhouse and Cameron's Steakhouse. The company operates 150 company and franchisee-owned locations around the world.

Ruth's Surprised by 100% in the Second Quarter

On July 31, Ruth's Hospitality reported second quarter results that beat the Zacks Consensus Estimate by 7 cents. Earnings per share were 14 cents compared to the Zacks Consensus Estimate of 7 cents.

Cost cutting and lower beef costs buoyed the bottom line.

Given that Ruth's operates upscale restaurants it's not surprising that the company saw further year over year declines in revenue and same restaurant sales.

Revenue fell 17.9% to $88.5 million from $107.6 million in the year ago quarter. Same store sales for Ruth's Chris Steak House fell 23.4% while sales fell for Mitchell's Fish Market by 9.8%.

The company has three main priorities for the year: reducing debt, maximizing free cash flow and recapturing lost traffic.

By the end of the second quarter, Ruth's had reduced the debt outstanding under its senior credit agreement by $10.3 million to $150 million compared to the end of Dec 2008.

The company is trying to recapture customers with a prix-fixed menu and specials. At Ruth's Chris Steak Houses, the average check fell 6.5% while at Mitchell's Fish Market, it fell just 3.5%.

For the remainder of 2009, the company anticipates opening just 3 to 5 Ruth's Chris Steak House franchises with no company-owned restaurants opening.

2009 Zacks Consensus Estimate Rises

Even as the company manages the downturn in customer traffic, covering analysts are optimistic that the cost cutting and the debt pay down will work in the company's favor going forward. Analysts expect a loss of 1 cent in the third quarter.

However, the full year Zacks Consensus Estimate has jumped 4 cents to 36 cents in the last 30 days with 3 out of 5 covering analysts raising in that time period.

Value Fundamentals

Ruth's Hospitality has solid value characteristics. It is trading with a forward P/E of just 9.95 and a price-to-book of 2.01. It has a 5-year average return on equity (ROE) of 279.13%.