Executives: Mark Taylor - VP of Financial Planning and Analysis Michael O’Donnell - Chairman and Chief Executive Officer Arne Haak - Chief Financial Officer Cheryl Henry - President and Chief Operating

Officer
Analysts: Brett Levy - Deutsche Bank Brian Vaccaro - Raymond James Andy Barish - Jefferies Joshua Long - Piper

Jaffray
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Ruth's Hospitality Group Second Quarter 2017 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, Deanna, and good morning, everyone. Joining me on the call today is Michael O’Donnell, Chairman and Chief Executive Officer; Arne Haak, Executive Vice President and Chief Financial Officer; as well as Cheryl Henry, President and Chief Operating 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 non-GAAP net income and adjusted earnings per share. These non-GAAP measurements were calculated by excluding certain items as well as losses from discontinued operations.

We believe that these measure represent a useful internal measure of performance. You can find a reconciliation of non-GAAP net income and adjusted earnings per share in our press release for today's call. I would now like to turn the call over to our Chairman and CEO, Mike O’Donnell. Michael O’Donnell: Thanks, Mark, and thank you all for joining us on the call this morning. Today I'm pleased to announce second quarter results which were highlighted by accelerating sales momentum and a return to positive traffic growth.

For the period an 8% revenue increase drove operating margin expansion and resulted in a 19% earnings growth quarter-over-quarter. We are proud of these results which continue to be driven by an exceptional team and their ability to successfully execute against our total return strategy. Our second quarter comparable restaurant sales increased 2.9% driven by 2.1% increase in traffic and a 0.8% increase in average checks. As discussed on our first quarter call, comparable sales were positively impacted by approximately 70 basis points due to the calendar shift of these during the second quarter. Arne will go through the details of that in a moment, but I am pleased with our performance specifically the return of positive traffic both for the quarter and on a year-to-date basis.

Looking at where we are today, at this point in the third quarter, sales and traffic trends are flat year-over-year. Our holiday business again performed extremely well during the quarter with Easter, Mother's Day and Father's Day all showing strong year-over-year growth. Our operations team and our franchisees continue to execute at a superior level helping to make memories on 500 degree sizzling plates or our guests. Our marketing team continues to do a great job refining our communications strategy and changing the way we are talking and connecting with our guests. On the development front we have been successfully generating meaningful returns by building new restaurants that perform at and above our expectations in regards to both sales and store level margins.

We opened three new restaurants earlier this year, one in Waltham, Massachusetts, one in Cleveland, Ohio and one in Tulsa, Oklahoma. All three restaurants are performing at and above our expectations. We expect our fourth new opening of the year to occur during the fourth quarter in the Tech Center of suburban Denver, Colorado. Today we are also excited to announced the signing of the lease for a new company owned location in Jersey City's Newport district. This location is expected to open in the second half of 2018.

In addition to our new unit openings we remain committed to our remodel program. We completed two remodels in the first half of this year, currently have four remodels underway. We expect to complete approximately eight to nine for the full year. These remodels drive sales through expanded capabilities and an updated restaurant design. Our franchise partners do remain the heart and soul of our business continue to invest alongside us in new locations in restaurant remodels.

In the second half of this year our franchisees expect to open one new restaurant in Chengdu, China the capital of the Sichuan Province. This will join our successful Shanghai restaurant and be our second location in China. Franchise partners will also open a new restaurant in Hawaii which will be our sixth in the state of Hawaii. Our franchise partners will also relocate the restaurant in Mississauga, Canada in the fourth quarter. Additionally in 2018 our franchise partners expect to open a new location in Fort Wayne, Indiana.

We are committed to maintaining our position as the leaders in the fine dining take out category and in doing so we feel we continue to position Ruth to deliver on our total return strategy. Underpinning this strategy is an intense focus on operational excellence across the brand and a proven business model that generates healthy cash flow. Our priority for the cash first and foremost investing in our core business in order to correct the brand we built over the last 52 years. This includes successful new restaurants which we continue to believe is the most impactful investment we can make. Second, we want to return excess capital to our shareholders through increasing dividend payments and ongoing share repurchase programs.

In fact, since 2011 we've complemented organic growth by returning over $200 million to shareholders while growing our store count by 15%, our revenues 35% and nearly doubling our revenues. With this strategy in place we continue to believe this is the best way for us to create long term value for our shareholders. Now I'd like to turn the call over to Arne to provide more details on our second quarter results.

Arne Haak: Thank you, Mike. For the second quarter ended June 25, 2017 we reported net income of $7.8 million or $0.25 per diluted share.

This compares to net income of $6.9 million or $0.21 per diluted share in the second quarter of 2016. Net income in the second quarter of 2016 included a $465,000 expense related to disputed rent charges as well as a $99,000 gain related to the sale of our closed Columbus, Ohio restaurant. Excluding the disputed rent charges, gain on sale and results from discontinued operations, our non-GAAP net income increased 13.6% from $7.2 million or $0.22 per diluted share in the prior year to $7.8 million or $0.25 per diluted share in the second quarter of 2017. Total company-owned restaurant sales for the second quarter were $94.1 million, an increase of 7.9% from $87.2 million last year. The increase was primarily driven by the contribution from our new restaurants as well as the 2.9% increase in our comparable restaurant sales.

As Mike mentioned, there was a calendar shift of Easter from the first quarter in 2016 into the second quarter of 2017. This shift positively impacted second quarter comparable restaurant sales by approximately 70 basis points. Average weekly sales for our company-owned restaurants were $103.5 thousand [ph] in the second quarter up 2.3% from the $101.1 thousand [ph] in the second quarter of last year. Total operating weeks for company owned restaurants were 910 up 5.4% year-over-year from 863 in the second quarter of 2016. Our franchise income in the second quarter was $4.3 million compared to $4 million in the year ago period.

Total franchise comparable sales were up 3% year-over-year. Comparable sales in our domestic franchise restaurants were up 3.3% during the quarter and comparable sales in our international franchise restaurants were up 1.5%. Excluding the impact of foreign currency exchange rates on our international sales, international comparable sales were up 3% and total franchise comparable sales were up 3.3%. Now turning to our costs, food and beverage costs as a percentage of restaurant sales increased to 20 basis year-over-year to 29.9%. The largest driver of this increase was a 3.8% year-over-year increase in total beef costs.

While we had expected beef cost deflation that we experienced throughout 2016 and 2015 to moderate this year, our beef costs in the second quarter were significantly higher than expected. The overall supply side of the beef equation remained strong. However it appears as if prices are being driven up by and increased retail demand for prime cuts. Looking ahead, we are currently locked on approximately 50% of our fillet needs for the rest of the year and now expect beef costs for the full year to be up in the low single-digit range. Our full-year expectation includes third quarter total beef cost inflation in the range of 5% to 10% before moderating later in the year.

In light of these pressures we continue to maintain pricing power and expect to have slightly more pricing in the back half of the year with approximately 1.3% on the menu. For the quarter our restaurant operating expenses as a percentage of restaurant sales decreased 100 basis points year-over-year to 47.8% primarily due to the $465,000 charge in the second quarter of 2016 related to disputed rent charges. Our G&A expenses as a percentage of total revenues increased 40 basis points year-over-year to 8% primarily driven by an increase in performance-based compensation. Marketing and advertising costs as a percentage of total revenues increased 60 basis points to 3.4%. As discussed on the last call, this increase was driven by a shift in marketing spend across the quarters.

While our marketing mix remains dynamic, we expect our marketing expense in both the third and the fourth quarter to be similar to the amounts spent in the second quarter. Preopening costs were $200,000 compared $700,000 in the second quarter of 2016 driven by the timing of new restaurant openings. During the second quarter the company repurchased 400,000 shares of common stock for $8.4 million or $21.8 per share. At the end of the second quarter we had $18.2 million remaining on our previously announced $60 million share repurchase authorization. The Board of Directors recently approved the payment of a quarterly cash dividend of $0.09 to shareholders representing a 29% increase over the quarterly dividend paid in August of 2016.

At the end of the second quarter we had $21 million in debt outstanding under our senior credit facility up from $14 million at the end of the first quarter. Now I'd like to update our outlook for the full year of 2017% for some our key cost metrics. We continue to expect our cost of goods sold to be in the range of 29% to 31% of restaurant sales. We expect our restaurant operating expenses to remain between 47% and 49% of restaurant sales. We continue to expect marketing and advertising costs to be between 2.9% to 3.1% of total revenues.

We expect our G&A expenses to remain between $32 million and $34 million. We continue to expect an effective tax rate of 31% to 34%. We now expect capital expenditures to be between $23 million and $25 million. Lastly we now expect our fully diluted shares outstanding to be between $31.2 million and $31.5 million shares exclusive of any share repurchases under the company's share repurchase program. With that Deanna, I'd now like to turn the call over for any questions that we might have.

Operator: Thank you, sir. [Operator Instructions] We will go first to Brett Levy of Deutsche Bank.

Brett Levy: Good morning, team. Can you obviously – impressive comp numbers not just the company operated but franchise and franchise international, what are you seeing across the landscape that's giving you continued confidence in your ability to not only draw on customers, but still execute and how do you feel about the labor situation? Thank you.

Cheryl Henry: Hi Brett, it's Cheryl.

You know I think what we're seeing, I can't specifically mention one thing, but I think over the past few months several initiatives that the team has been working on are really resonating with our guests from the remodels that were mentioned as well as introduction of third party gift card which is going very well. Our continued focus on Ruth's 2.0 [ph] on Menu revolution and consistently upgrading the opportunities and our menus, so people that come back with different sites or visits and then working on things like sizzle swizzle, so we continue to refresh that and offer opportunities for guests to come back and it's all I think driving what we [indiscernible]. Michael O’Donnell: I think your second question Brett, was how do we feel about the labor situation? I think our labor backdrop, we feel pretty good about. We have a great team of people who are dedicated long-term employees and we're really proud of the results that they help deliver today.

Brett Levy: And just one followup on sales, can you give any segmentation on what you're seeing in terms of value conscious consumers, your bar, your sizzle swizzle, the initiatives such as your steak and wine programs and just also the 2.0 side of the menu, can you give a little bit more segmentation on that? Thank you.

Cheryl Henry: Sure Brett. I think and what you are mentioning on the fillet and remain playing Cabernet in our bar, what we've done historically with our menu is try to offer different price points and different opportunities for guests to come in. So from your $9 sizzle, swizzle and swirl experience up to our tomahawk steak and I think again that continues to resonate and so we work consistently on our finding opportunities. So if you are in the bar and there is a sizzle, swizzle and swirl experience or you might want chicken fillet cabernet that we currently have running and that I think we seek consistency around the guests and in choosing those opportunities. So [indiscernible] classic playing cabernet and then a full dining room experience.

Michael O’Donnell: Brett, I'd say every segment, you know, whether it is special occasion have all been growing this quarter and so we're really pleased about that. The only thing that I would say is the private dining kind of business segment is not growing quite as fast as some of the other segments.

Brett Levy: And just do you have any color on the regionality? And then I'll turn it back to everyone else, thanks.

Arne Haak: You know Brett, I think you know we're seeing reasonably good strength across the entire system.

Operator: Thank you.

We'll go next to Brian Vaccaro of Raymond James.

Brian Vaccaro: Thanks, good morning. I just want to circle back on the comps, first on the quarter-to-date and the little bit of slowing there, is that mainly due to the July 4 shift, can you help us quantify that or is there something else that might be impacting the category?

Arne Haak: Brian this is Arne. A little bit of July 4 this is really our softest time of the year too. So for whatever reason when it gets to be 90 degrees, the idea of sitting inside around the 500 degrees plate isn’t as popular as it is in the fourth quarter.

I think, you know if you look kind of back over two years, where we've seen pretty consistently we're growing somewhere around 2% on an annual basis on a compounded year. Last year we grew to one, I don’t think that's out of the question, but it certainly slowed this part of the quarter so far.

Brian Vaccaro: Okay and on the second quarter strength I appreciate your highlighting the sort of more balanced advertising spend through the year and we've obviously seen the increased weights in the first half. Can you give some color, where is that spend being directed and how we should think about potentially later this year as your spend goes down in the fourth quarter how do you anticipate that impacting the business, but mainly on the first part, so where is the spend and…?

Arne Haak: Yeah, I really don’t want to go into the details of where we're spending at because, yeah, I think we, you know resolved to wait and reach out to specific customers that we think is somewhat proprietary to the work we were doing. I would tell you this, you know, our [indiscernible] marketing team has done a lot of work in terms of segmenting our customer base and making sure that we're reaching out individually to whether it is more on yields or whether it is the baby boomers or whether it is people that are just coming for sizzle, swizzle and swirl.

And I think, you know, I'd rather not give you any more details on that, otherwise I'm giving it to everybody else.

Brian Vaccaro: All right, fair enough. On the store margins, obviously another pretty impressive quarter of underlying cost controls within that other OpEx line even adjusting for the one-timers, et cetera. Obviously the positive comps helped there, but Arne, can you speak to the labor line specifically? What was wage inflation in the quarter and were there any other positive swings, insurance, other things we should be mindful of in that line?
Michael O’Donnell: Sure Brian, you know, I think we have a pretty consistent back drop of labor inflation. The minimum wage component this is around $1.2 million again and then plus the normal merit increases that might come through the business as well.

So, I think our teams have done a really good job. They are very effective at managing their individual restaurants and they spend a lot of time on making sure we maintain or improve our productivity. We are all having, we did have a pretty good quarter in terms of benefits. There weren’t any large, you know we are self-insured up until a certain point and we haven’t seen an increase in claims, so it’s been a fairly good quarter from that perspective as well.

Brian Vaccaro: Okay and then just last one from me, Arne you mentioned you locked in the tenderloin, I think for the half year tenderloin the rest of the year.

What’s the pricing that you were able to lock in on that contract?

Arne Haak: Flat, year-over-year.

Brian Vaccaro: Okay, all right. And for the 2017 food cost outlook what’s the overall sort of food and beverage inflation expectation as you bring everything together, what’s embedded in your COGs ratio guidance?
Michael O’Donnell: You know inflation I think it will really depend on where beef is going. We are hoping that this retail demand will step back. We were hoping after July 4, and now we're hoping for after Labor Day, after grilling season that there is some relief on beef prices.

You know, I think it could be anywhere from flattish to up 1% to 2% is kind of the range of outcomes I think we are looking at right now.

Brian Vaccaro: All right, that’s great. Thank you very much.

Operator: Thank you. We’ll go next to Andy Barish of Jefferies.

Andy Barish: Hey, just good morning, and just following up on that, I mean does that kind of dictate maybe a moved towards the higher end of your food and beverage guide in the back half of the year, more with the three in front of it instead of the 29s we’ve been seeing?

Arne Haak: Yes, Andy, this is Arne. I think certainly the third quarter has some risk there, just the nature of the sales levels and so typically that’s the most highest number we see in terms of percentage of sales. We did take some price. We talked about that a little bit. We had some price fall off.

We put about another 50 basis points of price back on. From the back half of the year we have like 13 so that should help manage it to some extent, but certainly I think we are keeping a eye on the prime cuts, particularly the ribeye and cowboy ribeyes. You know those prices are as high as we’ve seen in the last four years and we’re hoping that there is some relief there, because there is some over double-digit inflation on those cuts. Michael O’Donnell: This is Mike, Andy. We think there is more as we’ve said in the prepared remarks that there is possibility of more producing cost, but at the same time we've seen return on positive traffic and so you know to the extent there is a correlation there, we like positive traffic.

So, you know we will continue to be reluctant pricers, but it will all somewhat will be dependent upon what takes place in the beef market.

Andy Barish: Got you. And then just a follow up on, it looks like mix in the 2Q, you know swept to flat to negative after being positive with 2.0 and is there something else going on there or some changes on the margin or some shifting around on the menu that we should be aware of?

Arne Haak: There are a couple of things Andy, to kind of bring your attention. One, you have Easter shift which comes with a lower price point. You know, there is less alcohol consumed on Easter and that’s a significant component of most checks that we have.

So, Easter shift will affect it a little bit. We are round tripping the 2.0 initiative and so while we are still seeing benefit it is not as big and it is what it was last year, because that’s most of those menu offerings were at higher price points particularly on the entrée side. And then finally, when you think about the mix between kind of revenue centers when you have kind of private dinning slowing a little bit, that tends to come with a higher average check. So that’s putting some pressure on mix as well. Overall, I think we like what we see.

We like the free traffic driven sales growth and if it means we are giving up a little bit of mix because we are growing sales, I think we like that. We are really focused on traffic.

Andy Barish: Understood, Mike quick question for you, which franchise opening are you visiting, Sichuan or Hawaii?
Michael O’Donnell: Both Andy. It’s an easy, ride.

Andy Barish: Thanks, guys.

Michael O’Donnell: All right, thanks Andy.

Operator: Thank you. [Operator Instructions] We’ll go next to Joshua Long with Piper Jaffray.

Joshua Long: Great, thanks for taking my question, I wanted to circle back to the menu price you mentioned, it was 1.3% in 3Q. I was curious if that level of pricing is something that we’re going to see more or less consistent through the back half of the year and into 4Q as well, or if there is still a step down in 4Q that I think we had talked about previously?

Arne Haak: That’s both 3Q and 4Q.

Joshua Long: Got it. Thank you, and then I believe this year in 4Q has an extra week, I wanted to see if you could review that in terms of how impactful that is, if there is maybe any other sort of moving pieces in there that we should be aware of, so we don’t get overly excited about adding an extra week in terms of being able to leverage fixed costs or add in sales from a modeling perspective?

Arne Haak: Yes, I guess, I don’t have the number right in front of me now, but I will tell you that it is a good week to add. It’s kind of the week after Christmas to the New Year which is a typically a pretty good week, it is an above average. If you look at the annual sales, it’s an above average sales week. There is some leverage on it.

I think if you go back to the last time this happened you can kind of get a sense of the impact, it’s a very similar kind of timing and dynamic in terms of its impact to the quarter.

Joshua Long: Okay, great, thank you. Then in terms of the work on the remodels, it seems like you are still able to have quite a few of those in the pipeline and work around those, I know, I think previously you've discussed the opportunity when you have capacity increases that’s where you got a lot of bank for your buck in terms of the remodel. So, we are just curious in the remaining remodels for the year, how that is split out between capacity increases may be your focus on private dining or just what that mix of remodels looks like or what the pipeline of remodels looks like for the rest of the year?

Cheryl Henry: So for the ones that we have remained, I think given mix of both and then a couple of that are in the next gen are just focused around rents. So some you will see bar expansion, others are working on enhancing the private dining side.

So, probably a mix of all three.

Joshua Long: Great, thank you. And then in terms of the relative slowing down on the private dining business that you mentioned, do you see that as just being more seasonal and something you work through, do you have specific initiatives to address that, maybe reinvigorating that or is that something that kind of fixes itself as we go through the back half of the year and get into the seasonally stronger 4Q period?
Michael O’Donnell: Well, I think this is the slowest time of the year for the B2B part of the business, you know as vacations come and go. So, I think we're every day is aggressive out in the marketplace, so their sales was - I think there's just a little less business out there today. We would expect it would normalize as we visit with our sales force et cetera, that and there is no indication that holiday won’t be good in the fourth quarter.

So I think we are just seeing a little bit of a change in the way 4th of July fell and some of that more recently, but I would expect that we would see that come back. Having said that, we’ve been very, and it’s been very robust part of our business over the last couple of years. So, you know we are growing that growth.

Joshua Long: Great, thank you so much for the time today. Michael O’Donnell: Sure, thanks Josh.

Operator: Thank you. At this time, I would like to turn the conference back over to the management team for closing remarks. Michael O’Donnell: Okay, thank you all very much for joining us this morning and it is always it’s a great day to go out and eat steaks. Thank you.

Operator: Thank you for your participation.

That does conclude today’s conference. You may now disconnect.