Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Ruth's Hospitality Group 2019 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

As a reminder, today's conference call 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, Tony, and good morning everyone. Joining me on the call today are Cheryl Henry, President and Chief Executive Officer; and Arne Haak, Executive Vice President and Chief Financial Officer.

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. During this call, we will refer to adjusted earnings per share. This non-GAAP measurement was calculated by excluding certain items as well as losses from discontinued operations.

We believe that this measure represents a useful internal measure of performance. You can find a reconciliation of adjusted earnings per share in our press release for today's call. I would now like to turn the call over to our Chief Executive Officer. Cheryl Henry.

Cheryl Henry: Good morning, everyone, and thank you all for joining us on the call today.

We started 2019 with results that demonstrated a continuation of the solid trends achieved last year. For the first quarter comparable restaurant sales grew 1.8%, total revenue grew 2.8% and pro forma earnings per share was $0.45. The quarter had holiday timing shifts as well as some unique winter weather events. But the underlying trends remain consistent for the period and we achieved growth across all three of our revenue segments. Arne will discuss this in greater detail in a moment.

Our special occasion business once again experienced significant growth on both New Year's Eve and Valentine's Day. Additionally, we continue to outpace the Black Box Fine Dining Index for traffic. During the quarter, our teams continued to focus on operational excellence. And their ongoing commitment has driven the consistency of our results for many years. As a result of that consistency is steady cash flow generation.

This is the foundation of our total return strategy, which centers on investing in our core business, returning excess capital to shareholders and selectively growing our footprint through new unit development and the opportunistic acquisition of franchisees. In terms of development, we have a strong pipeline including four signed leases for company-owned restaurants. We expect to open Columbus, Ohio Washington DC and Somerville, Massachusetts in the second half of this year; and Oklahoma City in 2020. We continue to actively work on leases for 2020. However, we only announce a new restaurant location once we have successfully negotiated and signed the lease.

On the franchise side, our partners opened one new restaurant in the first quarter in China and we expect to open a new franchise restaurant in St. George, Utah in the first half of 2020. As I mentioned, we will also continue to grow our footprint through the opportunistic acquisition of franchisees. On that front, I'm excited to announce the acquisition of three franchise restaurants from longtime partner Marsha Brown. Along these restaurants, we have purchased the development rights to the Philadelphia area including parts of New Jersey as well as Long Island, New York.

This is a unique acquisition of price territory that will help us solidify our overall growth strategy of three to five new company-owned restaurants per year going forward. Before I move on, I'd like to recognize Marsha who had a very special relationship with our founder Ruth Fertel, firstly as a banker in New Orleans and then working for Ruth in the corporate office, before ultimately becoming a successful franchisee. We're thrilled to welcome Marsha's team members into the Ruth's Chris corporate family. As you look to the remainder of 2019 and beyond, we remain excited about the opportunities to grow and evolve this iconic brand these opportunities continue to be generated by our incredible team and their focus on operational excellence, creativity and innovation. I'd like to thank them along with our franchisees for the remarkable work they do each day and we understand that their effort positions us to execute our total return strategy of investing in organic growth and augmenting those returns for returning capital to our shareholders in the form of dividend, share buyback and debt reduction.

With that, I'll turn it over to Arne to review the details of our first quarter financial results.

Arne Haak: Thank you, Cheryl. For the first quarter ended March 31, 2019 we reported net income of $13.9 million or $0.47 per diluted share compared to net income of $13.6 million or $0.45 per diluted share during the first quarter of 2018. Net income in the first quarter included $500,000 benefit related to the impact of discrete income tax items and $39,000 in expenses associated with our acquisition of three restaurants that Cheryl just mentioned. Net income in the first quarter of 2018 included a $400,000 benefit related to the impact of discrete income tax items and $500,000 in expenses associated with the acquisition of our Hawaiian franchisee.

Excluding these adjustments as well from results from discontinued operations, non-GAAP diluted earnings per common share were $0.45 in the first quarter of 2019 compared to $0.45 in the first quarter of 2018. Total company-owned restaurant sales for the first quarter were $113 million compared to $110.4 million in 2018. The increase was driven by the 1.8% increase in comparable restaurant sales, as well as contributions from new restaurants. Company-owned comparable restaurant sales in traffic included a 200 basis point tailwind from the shift of the New Year's Eve holiday as well as a two -- sorry, as well as a 90 basis point headwind from the shift of Easter into the second quarter of 2019 from the first quarter of 2018. Traffic for the quarter was flat as measured by entrees, while check was up 1.8%.

Adjusting for these holiday shifts, unusual winter weather and unplanned closures in the northern parts of the country as well as the shift of the Super Bowl, our comp restaurant sales would have been up approximately 1.4% in the quarter. Our franchise income in the first quarter was $4.6 million up 3.2% versus the prior year driven by a 3.1% increase in comparable restaurant sales. Comparable sales in our domestic franchise restaurants were up 3.8% during the quarter and comparable sales in our international franchise restaurants were down 0.3%. The strength of our domestic franchise comparable sales was largely driven by the lack of an Easter shift as over 75% of our franchisees report their sales on a monthly versus a weekly basis. Now turning to our expenses.

Food and beverage costs as a percentage of restaurant sales decreased 30 basis points year-over-year to 28.2%, this was primarily driven by a 3.7% decrease in total beef costs, as well as by 1.8% increase in average check. For the quarter, our restaurant operating expenses as a percentage of restaurant sales increased 60 basis points year-over-year to 47.4%. The increase was primarily due to higher labor costs. Marketing and advertising costs as a percentage of total revenues remain constant at 3%. G&A expenses as a percentage of total revenues were down 40 basis points year-over-year to 7.3% driven primarily by $500,000 in acquisition-related expenses included in the first quarter of 2018.

Income tax expense in the first quarter of 2019 was $2.5 million as compared to $2.4 million in the first quarter of last year. Excluding the discrete income tax items, our first quarter 2019 tax rate would have been approximately 18.3%. During the first quarter, we repurchased 26000 of our shares for $600,000 for an average purchase price of $22.03 per share. At the end of the quarter, we had $39 million in debt outstanding, down $2 million from the fourth quarter of 2018. Subsequent to the end of the first quarter, our Board of Directors approved a 13% -- $0.13 per share of quarterly cash dividend, which represents an 18% increase over the dividend paid in June of 2018.

Additionally, in the first quarter, we adopted new accounting guidance that required our operating leases to be recorded on the balance sheet. This does not have a material impact on our statement of cash flows, but will reduce our earnings per share by approximately $0.01 in 2019. Finally, I'd like to give some preliminary insight on the effect of the acquisition of the Philadelphia and Long Island restaurants on 2019. In 2018, these three restaurants generated total revenues of approximately $15 million and contributed $790,000 to franchise revenue. We expect the acquisition to close in the third quarter and be about $0.01 dilutive to 2019 earnings per share and neutral to 2020 earnings per share.

With that in mind, I'd like to provide an update to our 2019 outlook based on current information. As we look at our April revenue trends, we have seen some volatility in our sales. For the first four weeks, so far, in the second quarter, we had two positive weeks and two weeks are in negative. This dispersion was particularly noticeable in the weeks leading up to and right after Easter. As a result, our comparable sales are running flat quarter-to-date.

We believe that this volatility is a result of the Easter shift and corresponding spring break shifts particularly in the Mid-Atlantic and Northeast. Aside from sales, we expect total beef inflation to accelerate through the balance of the year, and to average 3% to 4% for the year, and we expect our cost of goods sold to remain in the range of 28% to 30% of restaurant sales. Quarter-to-date, we have already experienced beef inflation of 5%. We continue to expect annual restaurant operating expenses to be between 48% and 50% of restaurant sales. We expect marketing and advertising cost to remain between 3.4% and 3.6% of total revenues.

We continue to expect G&A expenses to be between $35 million and $36 million, exclusive of renovation costs related to the franchise acquisition. We continue to expect our annual effective tax rate to be between 17% and 19%, excluding the impact of discrete income tax items. We now expect our capital expenditures to be between $54 million and $56 million, inclusive of the $19 million purchase price for the franchise acquisition. This will result in depreciation expense between $20 million and $22 million. And we expect our fully diluted shares outstanding to now be between 29.9 million and 30.3 million shares, exclusive of any future share repurchases under the company's share repurchase program.

That concludes our prepared remarks. With that, I'd like to turn the call back to you Tony to open the lines for questions.

Operator: Thank you. [Operator Instructions] We will now take our first question from Will Slabaugh of Stephens Inc. Please go ahead.

Will Slabaugh: Yeah. Thank you, and congrats on the acquisition in the quarter. Two quick ones if I could. First on the territory that you're acquiring along with the franchisee acquisition, is there anything more you are willing to discuss in terms of store potential of that territory and how we could think about any stores rolling into that territory in the coming years?

Cheryl Henry: Yeah. Thanks Will.

So I mentioned earlier, we don't really discuss specific leases or number of leases until we are signed. So what I'll say is we currently have one location in Long Island and a population base of about three million people. So we certainly think there is a valuable opportunity there as well as the surrounding metro area of Philadelphia. We will have more to say, as we go through our process of site selection so forth. But, I think the opportunities are there.

It's certainly part of why this acquisition is so unique for us in thinking about our growth and solidifying our three to five per year.

Will Slabaugh: Got it. And then, a follow-up on the beef commentary if I could. Can you talk a little bit more about what you're seeing and hearing in the beef market? What could be behind that 5% inflation quarter to date? And then any thoughts you may have on the African swine fever, if that's already factoring in do you think or something that you're watching and that could sort of bubble up later on?

Arne Haak: Sure Will. This is Arne.

In terms of the beef commentary, I think our outlook remains very much the same as what we started the year. And if you look at it in terms of absolute prices, we actually have pretty good prices today. What we had was great prices last year, in particular, beef prices in the second quarter of last year were down 10%, and in the third quarter they were down over 20%. So, while the supply looks good the grading still looks good. I just think there is a little bit more demand that's we are giving back a little bit of the big declines that we had last year.

But overall, I think we are not surprised by this, and it's consistent with the same outlook we have at the beginning of the year. In regards to the swine flu, we are paying attention to it. But, we think it's going to take a while for that if there is demand for other proteins to work its way all the way over to beef and then up to prime. But we certainly keep an eye on it, as it's a fairly significant issue to the worldwide food basket.

Will Slabaugh: Understood.

Thank you.

Operator: Our next question comes from Andy Barish of Jefferies. Please go ahead.

Andy Barish: Hey guys. On the pricing side I mean you're looking a little bit more closely as you kind of maybe are coming through this period of down beef prices into what maybe little bit more inflationary input costs on the beef side.

Is pricing something that you are looking a little bit more closely at?

Cheryl Henry: Yes, Andy, we have -- we've been looking at it, we look at it as I mentioned before a few times a year, we remain reluctant and having said that, we are currently carrying about 2%. We will look at it again and if there's opportunity we believe to not have a negative impact around the traffic side of the business, we'll take that opportunity where we think we can.

Andy Barish: Okay. And then Arne on the CapEx, the overall CapEx for the year is going up more than the $19 million for the acquisition. Is that anticipating and putting some capital back into the acquired restaurants or is there something else going on on the development side that may be added a little capital to the full year CapEx?

Arne Haak: Hey, good morning Andy.

It is both. There's a little bit more for the acquisition territories and what kind of capital we think we are likely to put in immediately. And then the second one is really around timing of the Somerville, Massachusetts site. Whether or not it was going to come in the fourth quarter or the first quarter, there were still some questions. And I think we feel concretely now that it looks like it's going to be a fourth quarter opening.

So, that's the only change.

Andy Barish: Okay. Thank you.

Operator: [Operator Instructions] Our next question comes from Brian Vaccaro of Raymond James. Please go ahead.

Brian Vaccaro: Thanks and good morning. Just a quick one back on the reacquired franchise rights. And Cheryl you mentioned -- I think you have a store in Long Island and a population of three million people. Just curious what's your average store per pop in an average market?

Cheryl Henry: So, I'm trying to answer the question blindly without saying exactly how many stores we would be looking to put in there. What I can say is that we have different format stores.

We can do stores in smaller populations that have worked for us, we can do stores in larger populations, and I think that -- actually what's equally interesting about these different territories that we are acquiring is that when you think about our ability to go into smaller markets, smaller populates, and larger ones and be equally successful based on rent, et cetera. There is some good opportunity for us here to solidify our growth strategy.

Brian Vaccaro: Okay. And thinking about the performance of these units, Arne, I appreciate the $15 million last year. How about the margins? Any help on the store margin how these stores performed.

And then could you also -- it sounds like you got some may be remodel plans here in the near-term or is there perhaps an already planned opening within the pipeline that's part of that CapEx budget?

Arne Haak: Okay. Hey Brian. So, first of all in terms of additional planned openings, there is not anything in that CapEx budget for that. There is some money that we have for equipment, IT hardware; we would upgrade it to our package that is the capital component of this acquisition that we expect to see this year. As we move further into next year, that's -- any kind of significant remodel or anything like that would probably be in 2020 or 2021.

In regards to the performance you can see on a system basis, they are a little bit below our system average. And in terms of margin when you tend to have slightly lower sales, you tend to have little bit less than the system average margin as well. So, I think they've run great restaurants. The Philadelphia restaurant is relatively new. Long Island it's great.

And the people are great. So we're excited about the opportunity. We think there is opportunities both in the existing restaurants and to grow. And we are thrilled to. I think you know we've talked about this for some time.

We are glad that we can now do this. Q –

Brian Vaccaro: Okay great. That's helpful. And then, on the margins the food costs in the Q1 period, you mentioned that, beef was down 3.5% but it would seem like your overall basket might have been flat if not slightly up taking into account roughly 2% checks. So just curious what you are seeing in the rest of your food basket? And is that expected to continue sort of that non-beef side of things, is that inflation expected to continue for the rest of the year?
A –

Arne Haak: For the first quarter we were actually flat to slightly down a little bit on the food basket.

We do expect that we are going to have our most significant inflation, here in the second quarter and again even more so in the third quarter. Overall, aside from beef, I think the basket has been in pretty good shape. There are some pluses and minuses on seafood. But we haven't seen any other big surprises in terms of our food basket and inflation. Q –

Brian Vaccaro: Okay.

And then, just last one, on the quarter-to-date. So Easter was a 90 basis point bad guide to Q1. How do you -- should we think about the Easter shift as being that magnitude in Q2. But maybe even more importantly, as you look to kind of peel back the onion a little bit on quarter-to-date trends is there, any particular choppiness in a segment that might explain some of it? Or I think you mentioned geographically may be some softness that's concentrated in a given market but just any incremental color on the choppiness you mentioned in April would be helpful?
A –

Arne Haak: Sure. So, we had Easter moved back three weeks this year.

And so when Easter comes earlier, it tends to do a little bit better. Easter is not as big a day for us as some of our other special occasion days. It's not as big as Mother's Day, Father's Day, Valentine's Day any of those but it is an above average Sunday. When a holiday moves further back in the quarter, you tend to see a slower sales cadence and when spring breaks a line with Easter then you can have a pretty big impact. And so, what we saw was more muted sales on Easter this year because it was further back in the year.

And you can particularly see the effect on like Florida, California, and the spring break locations when you're at home for Easter versus out on vacation that tends to seem to affect it as well. So that's kind of the color on it. I don't know if Cheryl wants to add anything else. A –

Cheryl Henry: Yeah. We are kind of just out of that shift Brian.

So it's early or kind of five days out of that. The impact, shift and I would say generally like the direction I think it's early again. So -- but I think there was certainly -- the noise was caused around those the timing of Easter and the spring break. Q –

Brian Vaccaro: All right, thank you.

Operator: Our next question comes from Joshua Long of Piper Jaffray.

Please go ahead. Q –

Joshua Long: Great, thanks for taking my question. Cheryl, it sounds like you were pretty pleased with just the balanced trends across all your three consumer segments. I'm curious if you could talk to us about some of the trends you're seeing there and maybe how you're evolving the communication with those different groups over the course of the year?
A –

Cheryl Henry: Yes so we were positive in all three. And I think, the way you asked the question is exactly right, we think about the business from a standpoint whether it's revenue centers of private dining kind of main dining or à la carte dining and then the bar opportunity we are working through this year.

And I mentioned before on some different things to test within those different revenue centers to drive traffic. And so I think, I am pleased so far with Q1, there are some things to come in each of those and we look forward to talking more about those as they roll in. Q –

Joshua Long: Great. Thank you for that. And could you remind us where we're at in terms of just the refreshing of the overall asset base.

You have done a great job going in and investing in 2.0 remodel expanding capacity where it's available just maybe an update there in terms of how we should think about 2019 and may be opportunities in the out years?
A –

Cheryl Henry: Sure. We are -- actually this year, it will be about two-thirds through the system of those that are -- that can be done. So some of the remodels, if you recall is looking at opportunities to expand, so it's the bar, the private dining, footprints, we can make larger and we have that opportunity in some locations. We don't have it anywhere. So as we look at kind of the base of attainable which ones we can make changes and we are about two-thirds through and we will finish about eight this year.

So that's really where we are. And just to remind everyone, the idea of these remodels was not just to freshen up, but it was really to align the offerings and the experience with the footprint and what the restaurant can deliver an atmosphere itself. And so expanding our bars where we can and then we can program our bars for that area. Working on the main dining room to work on the atmosphere there and then looking at the menu and how we evolve that as well as private dining and expanding that where we can. So we are -- we used with where the program has gone we continue to work it.

As we think about evolving in the future, I would say, it would be more around the guest experience and how we use technology to do things like reduce friction and enhance the guest experience and that still -- some of those efforts are still to come, but as we work our way through the remodel program, we are pleased with what it's done for the system. Q –

Joshua Long: Great. Thank you.

Operator: It appears there are no further questions at this time. I would now like to turn the conference back over to the management team for any additional or closing remarks.

Cheryl Henry: Again, thanks to all of you for joining us this morning on the call. I look forward to speaking with you in the near future and appreciate all the support. Have a great day.

Operator: This concludes today's call. Thank you for your participation.

You may now disconnect.