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

Officer
Analysts: Brett Levy - Deutsche Bank Nicole Miller - Piper Jaffray Andy Barish - Jefferies Brian Vaccaro - Raymond

James
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Ruth's Hospitality Group, Incorporated Second Quarter 2015 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 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, Vicky, 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 all for joining us on the call today.

We are pleased to report our second quarter results which demonstrated a continuation of the strong operating momentum we’ve had all year. In the second quarter, our total revenues grew 10% demonstrating the impact of both our recent new restaurant openings and continued same-store sales growth. Our net income from continuing operations increased by 15%. Earnings per share from continuing operations increased by 22% augmented by the impact of our share repurchase program. Both our comparable traffic and sales were positive in the quarter which along with favorable trends in food and restaurant operating cost contributed to our margin expansion.

This trend has continued into the second quarter as sales have remained positive in the low single-digits. In May, we celebrated our 50th anniversary with many of our franchise partners in New Orleans where Ruth got her stock and in June we commemorated this special occasion by ringing the opening bell at NASDAQ. The success we have had over the last 50 years is owed to staying focused on Ruth’s original formula consisting of all-time highest quality food, beverage and service in a warm and inviting atmosphere. It’s a simple and timeless formula with a great business that still resonates strongly after 50 years. While we are proud of our heritage, we also continue to thoughtfully move forward with our Ruth 2.0 plans which is our dynamic effort to evolve menu, operations and facilities.

Part of the Ruth’s 2.0 is an ongoing menu refresh. We’ve updated our menu with new items as well as retired offerings that have declined in preference over time. Several of the new menu items are premium offerings compared to our existing menu, such as Tomahawk steaks and seafood towers giving our customers even greater choice and the range in which they want to spend. We have been very pleased with the results of our menu test thus far and anticipate moving out of test and into the majority of the corporate locations by the end of the year. We believe our new menu will drive traffic and is attractive to both our loyal customers as well as the next-generation of guests.

We are pleased that our test today are resonating with the consumer and not adding operational or labor complexity. During the quarter, we remodeled one company location as a part of the Ruth 2.0 facility remodel initiative and an additional three restaurant remodels are targeted for completion in the third quarter. Overall, we expect to have 9 to 11 restaurants underway by the end of this year through our facility remodel program. On the development front, two franchise locations opened during the second quarter, one located in Ann Arbor, Michigan and other in historic Charleston, South Carolina. These new restaurants reflect new Ruth’s 2.0 design elements featuring lively bar seats, elegant dining rooms as well as intimate private dining spaces.

Our franchise partners currently have two restaurants under construction with one in San Antonio, Texas, and another in Jakarta, Indonesia. San Antonio is expected to open during the fourth quarter of 2015 and Jakarta is now anticipated to open in the first quarter of 2016. On the company side we expect our second restaurant in Dallas to open earlier in the fourth quarter. Additionally our landlord is in the permitting stage for the next location in Albuquerque, New Mexico, which is anticipated to open in the first quarter of 2016. Since our last call, the company has also signed leases for new locations in Cleveland, Ohio and El Paso, Texas, which are both set to open in the back-half of 2016.

In the second quarter, we continue to execute on our plan of returning capital to shareholders, in a balanced manner complementing our organic growth initiatives. During the quarter we repurchased $2.3 million in shares, paid off our outstanding debt, increased our dividend by 20% over the prior year. Our ability to return capital to shareholders while supporting organic growth is a true testament to the proven strength of our business. Our consistent execution would not be possible without the support of our people, who we define as our team members, our vendors, our investors, our communities and our franchise partners who are the heart and soul of our business. I would now like to turn the call over to Arne who will discuss our second quarter results in more detail and give you an update on our full year guidance.

Arne Haak : Thanks, Mike. For the second quarter ended June 28, 2015, we reported net income from continuing operations of $7.7 million or $0.22 per diluted share on a base of 34.6 million shares. This compares to net income from continuing operations of $6.7 million or $0.18 per diluted share in the second quarter of 2014. In the second quarter, our total company-owned restaurant sales were $85.8 million, an increase of 10% from $78 million last year. The growth was driven by a 4.2% increase in comparable restaurant sales which consisted of a 0.7% increase in traffic and a 3.5% increase in average check.

Comparable restaurant sales were positive in each month and consistent across the three periods. Average weekly sales for company-owned restaurants were $100.3 thousand in the second quarter, an increase of 4.9% compared to the $95.6 thousand in the second quarter of last year. Total operating weeks for company-owned restaurants were 858 in the second quarter, up 4.8% year-over-year from 819 in the second quarter of 2014. Franchise income was $4.1 million in the second quarter of 2015, up 8.1% from the $3.8 million in the second quarter of last year. Comparable sales in our domestic franchised restaurants exhibited similar trends to our company stores and grew 4% during the quarter.

Comparable sales in our international franchise markets declined by 10.7% and continue to be negatively impacted by a stronger US dollar primarily in Canada, Mexico, and our Asian markets. Exclusive of the impact of foreign currency translation, international comparable sales would have declined 3.7%. Other operating income was $1.2 million in the second quarter of this year, essentially in line with the prior year period. For the second quarter, total revenues increased 9.7% year-over-year to $91 million. Now, turning to our costs, food and beverage cost as a percentage of restaurant sales decreased by 133 basis points year-over-year to 30.5%.

About 60% of this decrease was driven by an approximately 2% decline in beef cost year-over-year. The remainder of the commodity basket declined 0.4% due to strong purchasing efforts in the area of lobsters, sea food and dairy. While total beef costs increased sequentially from the first quarter of this year, it was still lower on a year-over-year basis. And while the overall – the total beef market is seeing overall inflation, we continue to see deflation in prime cuts which are benefiting from an increase in supply of prime rated cattle. Looking ahead, beef costs are currently trending up 3% and we expect 3% to 6% in beef cost inflation in the second half of the year.

Restaurant operating expenses as a percentage of restaurant sales decreased by 145 basis points year-over-year to 46.9%. This decrease was primarily driven by leverage from higher sales and lower healthcare claims experienced in the second quarter of 2015 versus the prior year. Marketing and advertising cost as a percentage of revenues increased by 39 basis points year-over-year to 2.9%. This increase was due to a planned timing shift in quarterly advertising spend. Our G&A expenses, as a percentage of total revenues increased by 113 basis points year-over-year to 8.2%, primarily driven by an increase in performance based compensation expense.

During the second quarter, we repurchased roughly 143,000 shares of stock for $2.3 million under our previously announced $50 million share repurchase authorization. Since the beginning of 2014, we have repurchased 1.6 million shares for $20.7 million. At the end of the second quarter, we had $39.6 million remaining on our current authorization. We also paid off all of our debt on our senior credit facility down from $3 million at the end of the first quarter. Finally, subsequent to the end of the second quarter, our Board of Directors approved the payment of a quarterly cash dividend of $0.06 to shareholders, representing a 20% increase from the dividend paid in August of 2014.

This dividend will be paid on August 27th to common shareholders of record as of the close of business on August 13, 2015. Now, I’d like to update you on our outlook for the year for some of our key cost metrics. Overall, we now expect our cost of goods sold to be in the range of 31.5% to 32.5% of restaurant sales, inclusive of 3% to 6% beef cost inflation in the second half of the year. We now also expect restaurant operating expenses to range between 46.5% and 48.5% of restaurant sales. We continue to expect marketing and advertising cost to be 2.9% to 3.1% of total revenues.

Our G&A expenses are now projected to be between $27.5 million and $29.5 million driven by increased performance-based compensation and recently issued long-term retention-based stock grants that will vest over the next three to six years. We continue to expect our effective tax rate to be between 31% and 34%. Our capital expenditures in 2015 are still projected to be between $20 million and $23 million, reflecting the construction costs of three new company-owned stores and an enhanced capital plan that aligns with our financial, operating and brand initiatives. Lastly, we continue to expect our fully diluted shares outstanding to be between 34.7 million and 35.2 million, exclusive of any share repurchases under the Company’s previously announced share repurchase program. With that Vicky, I’d like to now turn the call over for any questions that we might have.

Operator: [Operator Instructions] We will take our first question from Brett Levy with Deutsche Bank.
Brett Levy : Good morning gentlemen. If we can go into a little bit more clarity and if you wouldn’t mind sharing a little bit of the details on what you are seeing on the remodeling results, costs, how much of the system you think can be touched upon longer-term as well as in 2016? Anything you are seeing on sales lifts? I guess, we could start with that and then I just have a couple of additional questions.
Michael O'Donnell: Brett, I mean, I think, as we do remodel here, one of the things that we don’t do is accelerate by advertising sort of what we are doing, right. So, I think, we are seeing the performance and the metrics on the restaurants that we’ve done remodel work on which again have been few relative to this new 2.0 initiative.

We are seeing that guest check average is rising some and we are seeing some modest increases in the traffic. So, it’s early enough in this that – I mean, I’ve been better off reporting in the next – on our next call about some of those results, just because it is relatively early and our traffic doesn’t repeat itself as frequently as say other casual diners or fast food restaurants do. Brett Levy : Right, but do you have any thoughts on the magnitude of what you could do from a project standpoint in 2016?
Michael O'Donnell: Sure, I mean, I think, we – as we said, we’ll – let me go back just to clarify that a little bit. Where we opened for instance, where we opened in Marina del Rey and we opened in St. Petersburg with the 2.0 program and that’s the style and design inclusive of the menu and operating changes et cetera.

We’ve seen well above – we’ve seen well above system average performance out of those restaurants and we’ve seen – I have not seen any degradation in the margin vis-à-vis food cost or labor cost. So that’s one of the reasons that we’ve gone forward into other restaurant mostly the menu piece. Now the remodel piece is as I said, we’ll do, we should touch 11 by the end of – well, we have done, we finished one, we’ll have three more done in the quarter. We will start or touch 11 more in the fourth quarter. We would probably do a equal number next year.

Brett Levy : Great, thank you very much. Actually, do you have any thoughts on the overall labor environment from wages to availability? Just what you are hearing? What you are seeing?
Michael O'Donnell: We are – I mean, I believe we are in control of our own wage inflation. We believe that we are still an employer of choice. We offer very good benefits for our full-time people. We’ve not seen excessive turnover and when we go to hire, we are not having difficulties.

Brett Levy : I’ll go back into the queue. Thank you.
Michael O'Donnell: Thank you.

Operator: We’ll go next to Nicole Miller with Piper Jaffray.

Nicole Miller: Thank you.

Good morning. Could you talk about any difference between price and mix, if there is anything notable?
Michael O'Donnell: Good morning. This is Mike. I mean, I think, there has not been a significant change in mix although we continue to see good dynamics in our Sizzle, Swizzle and Swirl program or our Happy Hour program. Price-wise we are carrying…

Arne Haak: Nicole, this is Arne, we are carrying a little bit over 3% right now.

So…

Nicole Miller: Okay.

Arne Haak: …there is not a big mix. For the year, it will drop-off now as we head into the fall now and so we have the decision in front of us how much do we want to use price and I think you know that we are – we’d always preferred to grow the traffic or grow our sales through our traffic. And that remains our focus.

Nicole Miller: Okay.

And then just one big picture question, I mean, given the strength of these results, I guess, what I kind of want to understand is, you are now running a single concept and the team can be focused, if not streamlined. What are the underlying benefits or leverage that might not be obvious to us that either you are seeing right now or could see in addition to what you are experiencing now?
Michael O'Donnell: Well, I think, I am not sure, Nicole, that there is a lot of streamlining. I think there is certainly greater intensity around the development opportunity. There is certainly greater intensity around the remodel program and the implementation of 2.0. So, the things that we are doing, the initiatives that we are doing are not bifurcated by management teams’ working on other things.

But there is not a lot of streamlining, so to speak or slimming, I guess, maybe it’s a better way to put it. But there is, I think a greater intensity, because we don’t spend any time doing anything else other than [indiscernible].

Nicole Miller: Thank you very much. I appreciate it.
Michael O'Donnell: Thanks, Nicole.

Arne Haak: Nicole, I think the leverage that we have and Mike has talked about this before, is really probably in our G&A in terms of, we have the distribution infrastructure in place. We have our management teams in place. We have our pool of labor and as we’ve shared with you, we are focused maybe not on a high level growth, but we are focused on high-quality of growth and I think that has really helped us and allowed us to focus on developing our people to move the business forward.

Nicole Miller: Thanks again.
Michael O'Donnell: Thanks, Nicole.

Operator: [Operator Instructions] We’ll go next to Andy Barish with Jefferies.
Andy Barish : Hey good morning guys. Just on, kind of the high-end consumer, you’ve seen any changes out there or in any particular, I guess, customer groups, given the breadth of consumer you have with the newer look and menu that you’ve been able to discern to this point?
Michael O'Donnell: Well, Andy, good morning. This is Mike. We have seen, again, we are going forward with the menu changes that we’ve implemented and some of those are – as we described on the high end side.

We are seeing good results and selling Tomahawk steaks and where we boxed it in, so to speak on the menu. Even our Porterhouse for Two which is always not been a heavy mover is now moving more. So, I think, by sort of bifurcating this a little bit, by taking the high-end piece and moving it, we are seeing good solid results with that. I mean you don’t have to sell a lot of them that may have an impact. So, I think that the high-end consumer, even the special occasion consumer sees this as an opportunity to indulge.

Andy Barish : Thank you. Michael O'Donnell: Thanks, Andy.

Operator: We’ll go next to Brian Vaccaro with Raymond James.
Brian Vaccaro : Thank you and good morning guys. I had a couple of just different topics I wanted to touch on.

Quickly on food cost, you talked about the beef deflation in the second quarter guidance of up 3 to 6 in the second half. Can you give us an update on the contracts that you might have in place for the second half? Do you have any in place and then also speak to the inflation expectations on the rest of your food basket in the second half?

Arne Haak: Sure, Brian. This is Arne. Good morning. In terms of our contracts on beef today, we do not have any.

We continue to talk, but we haven’t really timed our price points that we both like, both the supplier and ourselves and we are very content to keep buying at the market. That being said from a comp perspective, last year, we were under contract from almost all of our prime cuts and so, we actually have a little bit of a tougher comp in the third quarter of this year comparing back to last year because of how we bought our beef last year, we were in the money. So, we’ll continue to explore it. We haven’t seen it yet. And I think, from a suppliers’ perspective, it’s probably a bit challenging when you look at the broader beef complex itself, but when you look at some of these prime cuts, it’s hard for them to come to grips to contracting and the price that’s down year-over-year.

In terms of the rest of the food basket, there is always pluses and minuses and our purchasing department has done a great job in kind of managing us through it. We are running today flattish, maybe to up 1%, right now. It can change, but there doesn’t seem to be anything looming on the horizon. So I think the thing that we are most concerned about is we keep an eye on it. It’s probably the trend on beef.

The grading as we talked about in the prepared remarks has been running higher. In terms of prime beef and – but that trend began kind of last fall. So, we are going to start around tripping it, it will be very interesting to see what happens there.
Brian Vaccaro : Yes, all right. That’s helpful color.

Thank you, Arne. Moving on, I had a question on the second quarter other operating cost. You highlighted the healthcare client – and I guess, can you help us with the magnitude of that in the quarter. Is it more just a year-on-year comparison issue and the second half will be normalized or is there some fundamental underlying change that maybe change in the outlook for the second half of the year?

Arne Haak: It’s a good question, Brian. We offer our benefits.

We want all of our employees to be healthy. But sometimes, you have severity of claims can change. And that’s kind of what we’ve seen. We have made some plan design changes to our benefits plan to help manage inflation. But I think the biggest change has been around the severity.

As we look forward, we are optimistic that we’d like to see everyone stay healthy and that this trend continues, but at the same standpoint, that sometimes the wind blows to headwind and sometimes it’s a tailwind. So, I don’t know that I can put my – I think kind of what you are getting to is something long-term sustainable that we should think about. And today, I don’t think we know enough yet to say that there has been a change in our trend on healthcare inflation other than a change in severity.
Brian Vaccaro : Okay, and just to clarify, whether that your claims this year were well below normal versus sort of the normal year last year in the second quarter over last year’s unusually high and this is sort of normal?

Arne Haak: It’s more that we had some large claims last year.
Brian Vaccaro : Okay.

Arne Haak: So, if you think about the routine medical care costs are kind of tracking the same. The severe claims are tracking better this year.
Brian Vaccaro : Okay, great.

Arne Haak: Just more of a bad year last year.
Brian Vaccaro : Okay, great.

And then, one just clarification, I think, Arne, you said, on the CapEx this year, you are expecting three openings and I just wanted to make sure I heard that correct. I think you had one in the Q – one in the first quarter in the St. Pete and then you had Dallas, I might be missing one this year.

Arne Haak: Albuquerque has flipped into the first quarter, But that doesn’t keep the construction guys from turning their bills in.
Brian Vaccaro : Right, right.

Arne Haak: So, unfortunately, I mean, we’d really love to have gotten in opened in December but it does – where the landlord isn’t permitting and everything else, but we are still going to be busy working on it and we are excited to open it up hopefully early in next year.
Brian Vaccaro : Yes, yes, okay. That’s great. And then, just quickly, couple on the cash flow statement. Do you happen to have second quarter cash from us, CapEx and ending cash at the end of the second quarter and…
Michael O'Donnell: Let me fix it out here for a second.

I’ll tell you what, Brian, let us – we will follow-up with you after the call and we can chat. Brian Vaccaro : Okay.
Michael O'Donnell: All right.
Brian Vaccaro : Okay, thanks so much. Have a good morning.

Michael O'Donnell: Thank you.

Operator: We’ll go next to [Indiscernible] with Sidoti & Company.
Unidentified Analyst : Yes, my question has been answered. Thank you. Michael O'Donnell: All right.

Thanks.

Operator: It appears there are no further questions at this time. Mr. Mike O'Donnell, I would like to turn the conference back to you for any additional or closing remarks. Michael O'Donnell : Thanks, Vicky and thank everybody so much for joining us on the call today and as always, it’s a great day to go out and eat steaks.

Have a great day.

Operator: That does conclude today’s conference. We thank you for your participation. Michael O'Donnell : Thanks, Vicky.