Executives: Mark Taylor - VP, Financial Planning and Analysis Michael O'Donnell - Chairman, President and CEO Arne Haak - EVP and CFO Cheryl Henry - SVP and Chief Branding

Officer
Analysts: Joshua Long - Piper Jaffray Brian Vaccaro - Raymond James Andy Barish -

Jefferies
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Ruth's Hospitality Group, Incorporated First Quarter 2015 Earnings Conference Call. [Operator Instructions] Following the formal remarks, we’ll conduct a question-and-answer session. Instructions will be provided at that time for you to queue for question. As a reminder, today's conference is being recorded.

I would now like to turn the conference over to Mark Taylor, Vice President of Financial Planning and Analysis. Please go ahead, sir.

Mark Taylor: Thank you, Orlan, and good morning everyone. Joining me on the call today is Michael O’Donnell, Chairman and Chief Executive Officer; and Arne Haak, Executive Vice President and Chief Financial Officer of Ruth's Hospitality Group. Before we begin, I'd like to remind you that part of our discussion today will include forward-looking statements.

These statements are not guarantees of our future performance, and therefore, undue reliance should not be placed upon them. We would like to refer you to the Investor Relations section of our website at rhgi.com as well as the SEC's website at sec.gov for copies of today's earnings press release and our recent filings with the SEC for a more detailed discussion of the risks that could impact our future operating and financial results. I would now like to turn the call over to our Chairman, President and CEO, Mike O'Donnell. Michael O'Donnell: Thanks Mark, and thank you to everyone for joining us on the call this morning. We are pleased to report a solid start to 2015 with strong first quarter results.

Our earnings per share from continuing operations grew 24% compared to last year. Let by a combination of continued sales growth from our comparable occasions, the contribution from our new restaurants along with modest release from beef inflation. The timing weather year-over-year however, did slow our sales trend somewhat during the quarter. Arne will share more color on this during our financial overview. But the health of our customer wings as our traffic trends have returned to the positive low single digit range and our sales are running in the low to mid single digit range to this point in April.

Many of you are aware that next month we celebrate the 50th anniversary of Ruth Chris Steak House. As we approach this occasion, I’d like to take a moment to reflect on the legacy of our founder Ruth Fertel, who in May of 1965, purchased a single steak house in New Orleans and laid the foundation for the international restaurant brand that exists today. She placed the utmost importance on delivering the highest quality food, beverage and service environment inviting atmosphere, a simple but exacting formula that continues to produce results to this day. We’re very proud that our focus on food service and hospitality is once again recognized by our guests. For the fifty year a row, we’ve received top honors in the Nation's Restaurant News Consumer Picks Survey.

We’re through with the honor and want to thank all of our people, who’ve worked tirelessly to take care of our customer’s day in and day out. Our people are defined as our teammates, our franchise partners who remain the heart and soul of our business, our vendors, our guest, our shareholders and the communities that we got one. While we’re very proud of our historical success, we recognize the need to continue this strength in our competitive positions, which includes keeping the Ruth Chris dining experience relevant for our current [ph] as well as new generations. In addition to the restaurant brand remodeling initiative, we announced last quarter, we’ve recently began testing in two of our new restaurants, what we refer to as Ruth 2.0. This is a dynamic effort to begin to evolve our facilities, menu and operations or to expand the engagement with our guests.

We’re very pleased with the early results of our initial test and expect to withstand Ruth 2.0, with three additional restaurant locations by the end of the second quarter. On the development front, we opened a company owned restaurant in February, in St. Petersburg, Florida, featuring an elegant bar, outdoor patio dining and two state of the art private dining rooms. This restaurant opened the rare reviews and reflects the Ruth 2.0 design, which is consistent with the company and franchise locations we just opened over the past year. Our second company owned location in Dallas is now expected to open early in the third quarter and we’ve recently executed a leased company owned restaurant in Albuquerque, in New Mexico.

We currently expect this new unit to open late in the fourth quarter this year. Our franchise partners are expected to open four restaurants this year including locations in Ann Arbor, Michigan and Charleston, South Carolina slated to open in the second quarter. Two additional franchise owned restaurants are scheduled to open late in the fourth quarter of this year. During the quarter we continued to execute on our balance plan of returning capital to our shareholders to compliment our organic growth initiatives. In the first quarter this took the form of share repurchases of $3 million, $ 10 million of debt repayment and a 20% increase in our dividend.

We’re very proud of being able to accomplish that in quarter one. I’d now like to turn the call over to Arne, who will provide details on the first quarter as well as 2015 outlook.

Arne Haak: Thanks, Mike. Before I get started, I want to remind everyone that during the quarter we completed the sale of the Mitchell's Restaurants and that the operating results for Mitchell's had been reclassified to discontinued operations. In the following discussion, discontinued operations are excluded unless or otherwise stated.

For the first quarter ended March 29, 2015, we reported net income from continuing operations of $10.8 million or $0.31 per diluted share on a base of 34.5 million shares. This compares to net income from continuing operations of $9 million or $0.25 per diluted share in the first quarter of 2014. In the first quarter total company owned restaurant sales were $92.1 million, an increase of 8.2% from $85.1last year. The growth was driven by 2.8% increase in comparable restaurant sales, which consisted of a 3.3% increase in average check, partially offset by a 0.5% decrease in traffic. While comparable restaurant sales were positive during all three months of the first quarter, we witnessed some deceleration of sales throughout the month for the first quarter.

January sales were helped by the lapping of last year’s winter storms. While both late February and March of this were affected by severe winter weather that impacted sales in the Mid Atlantic and North East regions. Average weekly sales for our company owned restaurants were approximately a $108,600 in the first quarter. An increase of 2.9%, compared to the $105,500 in the first quarter of 2014. Total operating weeks for company owned restaurants were 852 in the first quarter, up 5.3% year-over-year from 809 in the first quarter of 2014.

Franchise income of $4 million in the first quarter was flat when compared to the first quarter of 2014. Comparable sales in our domestic franchised restaurants exhibited similar trends to our company stores and grew 2.4%. Comparable sales in our international franchised restaurants declined a 11.5% and more affected by weak traffic in several Asian markets and a stronger US dollar exchange rate. Other operating income was $1.3 million in the first quarter of this year, essentially unchanged from the prior year period. For the first quarter total revenues increased 7.7% year-over-year to $97.3 million.

Now, turning to our costs, food and beverage cost as a percentage of restaurant sales decreased 83 basis points year-over-year to 30.5%. While we expected beef inflation to be the most subdued in the first quarter, we are pleasantly surprised by the trend in beef cost, which declined 4.3% year-over-year in the quarter. This is in sharp contrast to the broader trends for cattle and beef. We’re currently seeing a modest year-over-year benefit in beef cost through April. However, beef costs are currently increasing at a faster rate than normal seasonal trends.

For the full year we now anticipate beef inflation in the 3% to 6% range. While we’ve had discussions with suppliers to determine if there’s any interest in contracting at these levels, we’ve been unwilling to secure prices at the levels being offered. Restaurant operating expenses as a percentage of restaurant sales decreased 37 basis points year-over-year to 45.3%. The decrease was primarily driven by leverage from higher sales and lower healthcare claims experienced in the first quarter of 2015 versus the prior year. Marketing and advertising cost as a percentage of total revenues decreased 30 basis points year-over-year to 1.6%.

This decrease was due to a planned timing shift in quarterly advertising spent. Our G&A expenses increased by approximately $300,000 to $6.5 million in the first quarter of 2015 from $6.2 million in the first quarter of last year. As a percentage of total revenues, G&A expenses improved 27 basis points year-over-year to 6.6%. During the first quarter, we repurchased roughly 208,000 shares of stock for $3 million under our previously announced $50 million share repurchase authorization. Since the beginning of 2014, we’ve repurchased 1.5 million shares for $18.4 million on an average price of $12.65 per share.

At the end of the first quarter we had $41.9 million remaining on our current authorization. We also paid down debt on our senior credit facility by $10 million during the quarter. Finally, subsequent to the end of the first quarter, our board of directors approved the payment of a quarterly cash dividend of $0.06 per share to shareholders, representing a 20% increase in the dividend paid in May of 2014. This dividend will be paid on May 28th, 2015 to common shareholders of record as of the close of business on May 14th, 2015. Now, I’d like to provide some updates to our outlook for the year for some of our key cost metrics.

Over all we expect cost of goods sold to be in the range of 31.5% to 33% of restaurant sales. We expect restaurant operating expenses to range between 47% and 49% of restaurant sales. Marketing and advertising costs are expected to be 2.9% to 3.1% of total revenues. G&A expenses to be between $25 million to $27 million. We expect an effective tax rate of 31% to 34%.

Our capital expenditures in 2015 are projected to be between $20 million and $23 million, reflecting three new company owned stores and an enhanced capital plan that aligns with our financial, operating and brand initiatives. Lastly, we expect our fully diluted shares outstanding to be 34.7 million and 35.2 million shares, exclusive of any share repurchases under the company’s previously announced share repurchase program. With that Loran, I’d now like to turn the call over for any questions that we might have.

Operator: [Operator Instructions] Our first question comes from Joshua Long with Piper Jaffray.

Joshua Long: Great, thank you.

Mike, I appreciate the color on comps through the quarter and then also the comps quarter-to-date. We’re just trying to reconcile that a little bit more and wanted to see if you might be able to elaborate. It sounds like you saw the deceleration through the first quarter and then trends have kind of more or less maybe bounced back early, it’s trending back up into the positive territory in 2Q to date. Any sort calendar shifts or any short of other pieces that you call out that might be kind of impacting those numbers or things that you’d call our attention to?
Michael O'Donnell: Well, I think in a relatively the same - I can’t say a lot more than what I’ve said I guess, but I’ll and answer a little bit. I mean, we did have - Easter last year was in April and Easter this year ended up being in March.

And so the challenge there was that, the two weeks around Easter for our business changed fairly drastically in terms of private dining and business travel et cetera, people on vacation that kind of stuff. So we generally see declines in those pieces of business around that and we did again this year. So we’ve seen since and again we talked about the weather throughout the year, as Arne said, we had a difficult year, we had a difficult year the year before in January and then we really saw a lot more weather this year into February and March. So it’s weather related, there’s a bit of a shift there in Easter and what I said is, we’ve seen - our traffic has returned back to the low single digit positive range through today actually. And our comparable [ph] sales were in the low to mid single digit range, so we’re seeing it back to what we think it a healthy loss.

Joshua Long: That’s helpful, then as we think about the 3.3% average check in 1Q, how much price did you have on the menu and could you provide a little bit of context in how you’re thinking about pricing as we go through the reminder of the year, given that beef is coming in a little bit better than maybe where we expected previously?

Arne Haak: So Josh, this is Arne. We have this right around 3% in pricing in our menu right now. So that is showing up in the average check, so that’s good. And how do we think about, it’s kind of funny, every time we started leaning heavily on price, beef tends to cooperate with us. It happened three years ago and we seem to be on this trend again.

We’re a reluctant price increasers, that being said, our pricing is staggered, it falls off - it’s layered on and it can fall off. In simple points, there’s some fall off points here later this summer and again in the fall. If we don’t do anything else from here on out, the back half of the year will probably have just under 2% pricing.

Joshua Long: Got it, that’s helpful. And then as we said, thinking about the 50th anniversary and maybe tying into the comments here on some of the marketing shifts.

Do we reallocate some, maybe marketing to push towards to the anniversary or is it just more normal pushes and pulls on the marketing advertizing side?
Michael O'Donnell: Just normal pushes and pulls, there’s nothing big or dramatic planned externally. Well, [indiscernible] that’s probably more of an internal celebration.

Joshua Long: Okay, understood. Thank you so much.

Operator: Our next question comes from Brian Vaccaro with Raymond James.

Brian Vaccaro: Good morning and thank you for taking my question. Wanted to ask if you could provide a little bit more color on the Ruth’s 2.0 remodel program and maybe just talk about the most significant changes that you’re making, both as it relates to kind of a guest experience, but also from an operating efficiency stand point?
Michael O'Donnell: Hey, Brian. Let me tell you. Cheryl Henry is actually in the room with us, she’s our Chief Branding Officer and she’s the brains behind it. So we’re going to let her kind of explain to you, how 2.0 and the CapEx program opted together in our plans this year.

Cheryl Henry: Thanks for the question Brian. The program itself is really a combination of [indiscernible] the work going out and really listening to our guests and going inside of really every phase to your question point of the experience of menu, to guest service, to the design of the building and how you use technology et cetera. So as we look at it, the piece specifically about the design, I think we announced last quarter, we’ll be looking about 15 remodels for year and that will include building out some spaces and having some multi functions to them as well as having some design elements that are significant and signature to our brand. Well, there’s several initiatives across each of those categories from the menu, so we started billing out in two restaurants, two to three [ph] new menu items as well. So that’s really a kind of a start of that 2.0 that Michael’s talking about.

Brian Vaccaro: Okay and then, how should we think about the average or that cost on the two units that were completed and is that a good estimate to use for the three that you’re expecting to complete here by the end of the second quarter?
Michael O'Donnell: Brian, I think we’re kind of doing this with money’s we’ve already set aside for our CapEx plan and for normal operating. I mean, it is Ruth’s [ph] steak house and so despite all our desires and studies to evolve, it’s great so. And so there is - it’s part of the CapEx - our CapEx guidance. We’re looking to start work on 15 restaurants, we’ll see how many we get through. We don’t want to be in construction during the holidays for obvious reasons or expanding our restaurants.

We want those times of the year to go smoothly, but a lot of it too is happening when we build the new restaurant and that’s just - it’s just reallocating the same roughly $3 million that we spent on building a restaurant in a different way.

Brian Vaccaro: Okay, that’s helpful. I wanted to ask a quick one also if I could on the cost of goods line, the food cost inflation. You said it was down 4% on beef year-on-year in the first quarter, what was the overall inflation on your basket?
Michael O'Donnell: I want to say it was around 2%, I’ll fold out here in one second, but –

Brian Vaccaro: Okay and then I guess just the same question on annual basis, you’re now looking for 3% to 6% beef inflation, how should we think about the overall basket of inflation?
Michael O'Donnell: Well, it seems to be push and pull. I think we’re going to see low to mid single digit.

I mean, there’s still some pressure on certain seafood costs, but we’re kind of pleased with what’s happening with beef. It’s a bit unusual too, the filet part of the business was actually flat in the first quarter, it was really the prime cut that were down, they were 8% year-over-year. Now, that trend is not sustaining through the second quarter, so we’ll see where we end up, but we had some locks last year that helped us in the third quarter. They heard us in the fourth, in that we came out ahead. So that makes our comps just a little bit tougher year-over-year.

Brian Vaccaro: Okay, that’s helpful. Thank you.

Operator: [Operator Instructions] Our next question comes from Andy Barish with Jefferies.

Andy Barish: Yeah, just one other follow on 2.0, on some of the reserve cuts in the higher items, is that all a big part of the menu testing that’s going on right now?

Cheryl Henry: Hi, Andy, it’s Cheryl. Yes, that’s part of it.

Andy Barish: Okay and then is there a - I guess it’s early on, but is there a thought that that could be system wide or does that sort of apply to a certain subset of the Ruth’s Chris footprint?

Cheryl Henry: It is early, but we like where it’s going. I think it’s something we could see throughout the system.

Andy Barish: Okay and then anything on 2.0 that is different on the service model versus where you are today. And I’m thinking about it more from a cost perspective, I know it’s early here in a lot of moving pieces, but just wondering how you’re thinking about service overall from a cost basis?

Arne Haak: Andy, this is Arne. I think one of the things that really changes a little bit when you build bigger bars and you’re changing the menu to make it kind of more current and we’re seeing that the our diners are coming and they don’t want a three hour plus experience.

And so having a really busy happy hour and then people coming in at the same time for a dinner service, but they want it quickly because they want to go to a movie or a show and this is just one stop along the way, has presented opportunities for us around how do you staff, how do you do the labor on that. I think we’ve got some really good learning’s from what we’ve seen in the first two restaurants, which is why we test these things. We’re going to continue to expand it, but we opened in St. Pete in February, with a lot of these learning’s and they did a really great job of executing it and they have I think probably the biggest bar and patio that we have in our system. Michael O'Donnell: Andy, this is Michael.

We remain a high touch business, so we look forward to having technology do some work for us, but it does not - we don’t currently have technology replacing people. I mean we really will remain in a high touch position.

Andy Barish: Okay and then just one final one on the operating expense line, getting some leverage here in the first quarter even though the sales kind of softened up a little bit, you were kind of flattish on that line last year. Was that mostly healthcare or anything else going on there?
Michael O'Donnell: Healthcare is probably the biggest piece Andy. We made some changes to our benefit plans, those seem to be working well, but the biggest variance is in the severity of the claim or large claims.

And so we’re hopeful that our people stay healthy and that continues to be the trend, but that piece of the expense can be a little bit vital. So we’re keeping eye on that.

Andy Barish: Thanks, guys.

Operator: I’d like to turn the conference back our speakers today for any additional or closing remarks. Michael O'Donnell: Thank you everybody for joining us this morning on the call and as always it’s a great day to go out and eat steak.

Thank you very much.

Operator: This concludes today’s conference. Thank you for your participation.