Operator: Good morning, ladies and gentlemen. Welcome to today's Ruth's Hospitality Group Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the company's 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 Kristy Chipman, Chief Financial Officer. Please go ahead.

Kristy Chipman: Thank you, good morning everyone. Joining me on the call today is Cheryl Henry, our President, Chief Executive Officer and Chairperson of the Board.

Before we begin, I would first 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 also encourage you to refer 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.

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 the company's Chief Executive Officer, Cheryl Henry.

Cheryl Henry: Thank you, Kristy. Good morning and thank you for joining us today.

Let me begin by saying how proud I’m of our team and franchise partners as they continue to put forth extraordinary effort and outperform in a challenging and ever-changing environment. As you know, the pace of recovery began to accelerate during the second quarter and we witnessed our guests enthusiastically coming back to dine in our restaurants. With the opening of our restaurants to greater capacity in recent weeks, our teams and franchisees have remained resilient and committed to providing our guests with the hospitality that Ruth's is known for. While also making sure they feel safe in our restaurants. I truly believe they’re focused on operational excellence and unparallel hospitality is the reason our brand continue to recover well during the second quarter.

To that point, I’m pleased to report we achieved strong sales performance with comp sales up 5% despite capacity restrictions that were in place for much of the quarter. Excluding the impact of Boston, Hawaii and Manhattan, comps were up 11.1%. That sales momentum for the entire system continued in July with comps for the first 4 weeks of the period up approximately 17%. Our franchise partners also performed well delivering comp growth of 7.5% and domestic franchise comp sales increasing 17.3%. From a profitability standpoint, we continue to benefit from the labor efficiency initiatives we implemented in late 2019.

I'm thrilled that this has resulted in the strongest standalone quarter since Q4 of 2018. It's also the best Q2 margin in over 5 years. Having said that, we are keenly aware that the external environment remains uncertain in the short-term, and that inflationary pressures are challenging. We are confident, however, that with the accelerated demand for our legendary experience, the trust our guests have in our brand, and our team's ability to manage the business, we will whether any near-term impacts and remain committed to investing in the long-term future of our business. To that end, we are on schedule to open two to three company owned restaurants by year-end, including sites in New Jersey and Long Island, New York.

In addition, we recently signed a management agreement for a new restaurant that will open in the Soaring Eagle Casino in Mount Pleasant, Michigan in 2022. Looking ahead, we expect to have seven company owned or managed restaurant openings by the end of 2022, and we'll continue to evaluate additional opportunities for development. On our last call, we reiterated the commitment we made in 2019 to invest strategically in our technology platforms and digital future. As a reminder, in 2019, we stated that our focus for these investments are reducing the friction in the experience for both our guests and our team members, enhancing our hospitality to drive frequency and increasing productivity and efficiency to optimize margin. We have made meaningful progress during the quarter, beginning with the implementation of foundational technologies, including new POS and labor management systems.

We continue to focus on maintaining a healthy balance sheet and we'll evaluate all options to maximize shareholder value over the long-term. That means smartly allocating capital to grow and create value for all our stakeholders which [technical difficulty] goal. On top of our list is further debt reduction for the remainder of this year, as well as investing in and opening the seven new units through calendar 2022. At the same time, we will continue that investment in data and digital transformation because the future of Ruth's Chris will be driven by better understanding our guests and the use of technology to improve their brand experience. Finally, we will continue to evaluate reinstating our dividends as well as future share repurchases, as we gain more visibility through the back half to the year.

We are fortunate that the performance of our teams has allowed us to satisfy our leverage covenants, so that we were able to consider these additional options going forward. All in all, we are a stronger and more nimble enterprise and we are excited about the future. I'm grateful to our team members and franchise partners that deliver excellence every day. I will now turn the call over to Kristy Chipman.

Kristy Chipman: Thank you, Cheryl.

For the second quarter ended June 27, 2021, we reported GAAP net income of $12.4 million or $0.36 per diluted share, compared to a net loss of $17.6 million or a $0.59 loss per diluted common share during the second quarter of 2020. Net income in the quarter of 2021 included a $65,000 employee retention payroll tax credit which reduced operating expenses. It also included approximately $394,000 of loss on impairment and restaurant closure costs and a $26,000 income tax benefit related to the impact of excluding certain discrete income tax items. Excluding these adjustments, non-GAAP diluted earnings per common share was $0.36, compared to a loss per common share of $0.48 in the second quarter of 2020. Total revenues for the quarter were $110.9 million compared to $110.2 million in 2019.

Company owned restaurant sales were $104.2 million compared to $104 million in 2019 despite operating six fewer restaurants in 2021. Comp sales for the quarter were up 286.6% versus 2020. Compared to 2019 comp sales for the quarter increased 5% and by months were up 2.1% in April, up 6% in May, up 7.4% in June. Average check for the quarter was up driven by menu pricing, less discounting and an increased preference for larger entrees, appetizers and salads. While we have seen improvement across all regions during the second quarter, Texas and Florida continued to be highlights, with comp sales of 46% and 24%, respectively.

As noted last quarter, Boston, Hawaii and Manhattan have been slower to recover towards 2019 levels. With New York Theater District expected to open in September and international tourism slowly returning to Hawaii, we are seeing positive signs of sales recovery in these areas. As Cheryl mentioned earlier, our sales momentum has continued into the third quarter. Quarter-to-date as of July 25, comp sales increased approximately 17% compared to 2019 and average weekly sales were approximately $104,000 during what is historically a seasonally slower time for us. Franchise income for the quarter was $4.5 million and was up $100,000 versus 2019, while other operating income was $2.2 million, up $0.4 million versus second quarter 2019.

Overall, restaurant margins during the second quarter 2021 were better by 340 basis points compared to second quarter 2019 due to sales leverage from average check increases as well as efficiencies and labor and lower other operating and occupancy expenses. Food and beverage costs for the quarter were 30.3% as a percentage of restaurant sales. These prices during the quarter increased approximately 27% and 34% compared to last year and 2019, respectively. And the impact of overall cost of sales was partially offset by deflation in produce, dairy and a mix shift within alcoholic beverages from wine to liquor. We've continued to see increasing beef cost pressure through July with preliminary Period 7 food and beverage costs as a percentage of restaurant sales of approximately 34%.

We recently lost approximately 10% of our total beef volume from mid September to mid March, which will provide partial relief from what has been record high beef pricing since the second quarter. Labor continues to deliver savings above our original expectations. As a percentage of sales, labor improved 379 basis points compared to the pre-COVID second quarter of 2019 partly due to sales leverage against the management salaries and continued execution of our revised labor model. We expect some of this benefits to be offset as we add management team members back into some restaurants. We are revising our labor guidance from an improvement of 100 to 150 basis points that we shared in Q1 to 250 to 300 basis points, compared to a full year 2019.

This guidance assumes the restaurants continue to operate with open dining rooms for the remainder of the year. Marketing expense as a percentage of revenue was 2.9% for the second quarter versus 3.7% in 2019. We continue to expect full year marketing expenses to be in the range of $12 million to $14 million for the full year as our data and digital efforts accelerate. G&A for the quarter was 7.9% of revenue and increased $1.7 million compared to the second quarter of 2020 due to increased performance based compensation related expenses. As a percentage of revenue, year-to-date G&A decreased 290 basis points to 8.1%.

Full year G&A is expected to be between $32 million and $33.5 million. This reflects an increase from earlier guidance due to higher incentive based compensation resulting from better-than-anticipated results. Excluding the impact of this incremental incentive compensation, G&A would be between $29.5 million and $30.5 million. At the end of the quarter, we had $87 million in cash, and throughout the quarter we paid $45 million in debt, resulting in a balance of $70 million on our credit facility. As of August 4, our cash balance was approximately $95 million, and our outstanding debt remained at $70 million.

A strong recovery in the quarter was due to our guests trusting us with our health and safety as they enthusiastically return to dining out. The team members also remain diligent and focused to deliver incredible margins, while maintaining guest satisfaction beyond pre-pandemic levels. I want to add my thanks to the restaurant teams for all they do daily to ensure the guests feel special when they come to our restaurant. And with that, let me turn the call over for questions.

Operator: [Operator Instructions] Our first question is from Brian Vaccaro with Raymond James.

Please proceed with your question.

Brian Vaccaro: Thank you and good morning. I appreciate -- I guess we'll start on sales, if that's okay. I appreciate the quarter-to-date update, the average weekly sales just under 104, and comps up in the high teens. And I would assume that it reflects some differences in seasonality versus pre-COVID.

But maybe if you could just provide some more color on what you're seeing in July versus May and June? Any regional context, day of the week, differences in consumer behavior that are worth noting. And then if you back out, I don't know if it's possible to do this, but I think the special occasions like Mother's Day and Father's Day have been quite strong moving through May and June. Is it possible to sort of back those out and give us a sense of how different the underlying normal day of the week trends are in July versus May and June?

Cheryl Henry: Yes. So, Brian, let me try to take the first part of your question. Guests going to July, you mentioned there's some seasonality, we're obviously very happy with what we're seeing in the consistency of the accelerated return of our guests into our restaurants as we increase capacity.

As you know, towards the end, for most of the second quarter, we had restrictions still. But we were able to start opening more towards the end of the second quarter and even so into the third quarter. So I think you're starting to see some of that as well. The question around region, I mentioned the Boston, Hawaii, New York market versus the Florida, Texas, California. In July, I think it's interesting, and I will share this, and this goes to some of the geography and regionality you mentioned around, seeing the group of restaurants Florida, Texas and California, up approximately 35 and still seeing kind of the Boston, Hawaii, New York markets on the flip side of that down in the mid 30s.

So not fully recovered in some of the markets that we've been talking about all year. We are slowly to, Kristy's point, starting to see some of that recovery as things open up and Hawaii obviously a great deal around international travel, but still seeing some of the same trends we've been seeing earlier as far as the different markets and how geography is impacting the sales overall.

Brian Vaccaro: Okay, thanks. That's helpful. And shifting gears to margins, if we could.

On the commodity inflation side, I heard beef up 27%, I think you said in Q2. Kristy, what was the overall basket inflation that you saw in Q2?

Kristy Chipman: Yes, it was about 16% -- 15% to 16%. And we saw a benefit, though in some of those liquor, beer, wine categories that offset some of the food and food costs that we saw in the basket.

Brian Vaccaro: Okay. Okay.

And I heard your comments on able to lock in a little bit of your beef exposure over the next, I think 6 months it sounded like, but obviously a dynamic environment. But can you walk through your Q3 and Q4 commodity inflation expectations? And just curious what you're hearing, as it relates to beef market fundamentals, and how the next few quarters could play out?

Kristy Chipman: Yes, I mean, what I can say is, we share July because we obviously have more certainty into that. And as we look forward, there's still uncertainty. I think you publish some research, that is the same thing that we're seeing, right, which is part of our basket is starting to see and the beef category is starting to see some deflation. Remember, we lag that a little bit, right.

So as prices come down, it takes us 2 to 4 weeks before we start to see that in our overall basket, and come through our restaurant P&L. And then the rest of the basket is still kind of increasing where we haven't quite seen a top out yet. So we're uncomfortable, providing direct pricing guidance -- I'm sorry, cost guidance right now, just because of that pricing volatility. What I can share is that year-over-year that that's probably that 500 or so basis points that I shared, bringing up from 2019 to 34% in 2021 is a combination right of the lowest seasonal period that we typically see. So if this year continues to go as most years, July would be the lowest seasonal period at a time when we expect that prices have peaked for us.

We have started to see very early signs in the last week-ish of July and the first week of August that our beef pricing per pound has started to come down a little bit, but it's certainly a slower recovery than we would have originally anticipated. And I think you'll recall, we guided 15% to 20%. When we have some certainty into June, and unfortunately, as June came in, it came in much stronger and higher prices than we had anticipated, which resulted in the increase versus our 15% to 20% guidance. Originally, it came in at 27%.

Brian Vaccaro: Okay.

That's great and very helpful. Last one, sort of tied to that, Cheryl and the rest of the team, what's your posture towards menu pricing? And can you remind us how much was in the menu in Q2? And how do you see the next few quarters playing out from a menu pricing standpoint?

Cheryl Henry: Yes, I think we mentioned this on the last call that we're looking at pricing, and we did take pricing in May. We've historically been strategic, we look at it pretty much, Brian, every quarter and have done that even through the pandemic and into the recovery. Obviously, we weighed several factors and we're looking at that from pricing, do we think it's permanent or more transitory? Do we believe that the guests and the consumer is willing to take the pricing on and that we can see that flow through? Or they start managing their check. And so we are looking at this.

We will continue to look at it. I think we are -- as we go into the back half, depending on to Kristy's point what we see here with some of the moderation of beef costs, we'll take that into consideration as well. But we -- certainly look, we can look at this point item by item and have a view into that. And so I think there's a willingness to continue to look at that. And if we feel there's an opportunity to take price to offset some of these and we believe they’re longer term, then we will do that.

Brian Vaccaro: Okay. And sorry, if I missed it, how much pricing did you take in May? Or what's the effective pricing in the menu year-on-year currently?

Kristy Chipman: Yes. So the effective pricing in the menu right now is approximately 4%. That includes the 2.5% -- a little over 2.5% that we took in May, coupled with some carryover price from the prior year that will begin to last in Q4.

Brian Vaccaro: Excellent.

Thank you.

Cheryl Henry: Thank you, Brian.

Operator: Our next question is from Andy Barish with Jefferies. Please proceed with your question.

Andy Barish: Hi, good morning.

Cheryl Henry: Hey, Andy

Andy Barish: Just on that subject, can you give us the other components of the comp? I know that the 1- year was kind of crazy, but maybe versus '19 or something?

Kristy Chipman: For the quarter?

Andy Barish: Yes. In terms of entrees, and mix, in addition to that pricing.

Kristy Chipman: Yes. So what I will say is that we were at 5% for the quarter. We saw traffic being negative versus 2019 in April and May, and June was the first positive traffic that we've seen.

Albeit it was low single-digit positive traffic in June. And then as we entered into July, we’re -- we continued to see checks flow through along with slightly higher traffic increases.

Andy Barish: Got it. Helpful. And I don't know, if you look at the Knapp-Track steak data.

I mean, you guys are below that recovery that we've seen in that data. Is that -- do you think that's more your geographic dispersion, if you take out those big Hawaii, New York and Boston locations?

Cheryl Henry: Yes, Andy, we look at it, obviously, as well and I do. I think there's some -- through the recovery, just based on things pre-COVID, you didn't see you weren't considering things about who was locked down when and which restrictions lasted longer, and all of that has an impact across the system and the footprint. So I think there's a relevancy issue for the time being around looking at systems in their entirety versus trying to break it out. So I mentioned even in July, we see three regions that are up 35%, and three regions that are down 35%.

So, yes, I think a great deal of it is related to geography as well as just the basis -- the base, right. So what was the AUV that you're building from. And so generally, we are finding that's the case, and we back out some of these longer restricted markets, or international tourism, we back those out and look at our system. It's performing well.

Andy Barish: Great.

And then just one other top line question, and I guess margin implication question as well on, you mentioned, lower discounting. It's just not something I really, kind of ever thought of with the brand. Is there an example or two of kind of what's going on today? I know we're seeing that across the entire industry. There's just much less discounting and promotion, but anything specific to your brand that you'd call out?

Kristy Chipman: Yes. The one thing I can call out just off the top is it's not necessarily traditional discounting, like you would see.

We don't bring people in for a discounted steak. We have a classic menu that we refer to right as a discount, and we are seeing preference for the classic being reduced towards larger entrees. So that's part of it. The other part I would say, could be related to gift card discounts that might come through. So as we -- like a bounce back or a $100 gift card that we sell at Costco for $79.

So overall …

Andy Barish: Got it. Thank you.

Kristy Chipman: Yes.

Andy Barish: Helpful. Thank you.

Cheryl Henry: Thanks, Andy.

Operator: Our next question is from James Rutherford with Stephens, Inc. Please proceed with your question.

James Rutherford: Great. Thank you.

Cheryl, I wanted to start with a bit of a higher level question. A lot of habits have changed during the pandemic. And one of those positive dynamics has been because the consumers have tried a lot of new things they didn't before. I'm just curious, is there a way for you to measure the level of new guests that are coming into your restaurants? And to the extent that you see an uptick in trial for Ruth, during the recovery what are your thoughts on being able to retain some of those as regular customers for the future?

Cheryl Henry: Yes, great question. And so I think the area that we can -- so we can track it into the restaurant, guests can opt in to a discussion of first time users.

So that's helpful for on-premise, where I think we've seen the most increase, the first time users is actually in our Ruth's Anywhere program. So we started to see a younger, more affluent guests, trying Ruth's for the first time through our takeout and delivery program. And to your point, one of the things I mentioned is about our data and digital initiatives and the investment we're making to ensure that as we are able to understand who those guests are that we are ensuring we're building a relationship with them, staying in touch with them. And our ultimate goal is to take that first time guest and that one experience and translate it to a lifetime of usage. So that's really the foundation of the idea of the hospitality piece I mentioned in knowing our guest piece to drive frequency.

So, yes, we are interested in it, we are investing in it. And that is -- the intended goal is to make sure we're capturing those new users and making them lifetime guests of Ruth's.

James Rutherford: Okay, perfect. And then you -- I think there was a mention of the new POS system. And I think previously, we had talked about a new booking management system that you're using as well.

Can you talk about some of those specific benefits. And if you're seeing those get in the P&L, where we should expect to see some of those benefits?

Kristy Chipman: Yes, so I'll take that one to start. So from just a level set, we are still implementing, right. So this is -- it's a long process to get this implemented. And we don't believe that we'll see full scale benefit of both the labor management system nor the POS, until the first part of next year.

As we work through that, it's allowing us to streamline menu keys, tie into better labor and demand forecasting, using data from both the POS and the labor management system will help us from a margin efficiency perspective. And then, obviously, we've talked about data driven hospitality, knowing our guests, knowing their preferences to a greater degree than we do today. We believe will drive frequency and top line for us.

James Rutherford: All right. Then my last one is on the cost of sales piece of this.

You're seeing about 500 basis points I think I heard of deleverage in July versus a couple of years ago, with 4% menu pricing and pretty high commodity inflation clearly. The -- you’re seeing a big mix benefit on a 2-year stack basis as well. I'm just curious how much that positive mix is impacting your cost of sales? I'd assume it's a positive to see more salads and more appetizers, et cetera. But can you comment on the mix benefit and helping offset some of those commodity headwinds?

Kristy Chipman: Yes, certainly. I mean, to your point appetizers and salads have a higher gross margin -- gross profit than the larger entrees.

But we are seeing also a shift up to larger -- excuse me, to larger entrees that's offsetting some of the benefits in price that we're seeing in apps [ph] and salads.

James Rutherford: Okay. Thank you.

Operator: [Operator Instructions] Our next question is from Nicole Miller with Piper Sandler. Please proceed with your question.

Nicole Miller: Thank you. Good morning. You touched on menu price increases and the opportunity for pricing power -- the pricing power that you probably, obviously have in terms of a brand equity perspective. I'm curious, talking about the behavior of consumers spending more, what is the average check or average transaction these days? How does it compare to where it was?

Kristy Chipman: Yes, so average check for the quarter was about 80 -- sorry, $87. Can't read my own writing, $88 -- almost $88, 87%, 85%.

That's about a $5 increase.

Nicole Miller: Okay. And I think you talked about where that was coming from. They were -- people sound like they're eating more, right?

Kristy Chipman: Yes, right. They're certainly eating more.

They're adding apps and salads and dessert to what -- to the larger entrees as well that they're also purchasing.

Cheryl Henry: And, Nicole, I think what we’re seeing and we talked about this in the last quarter is the idea that there's this pent-up celebratory occasion that people feel like this has been something they've missing. They've known Ruth's. It hasn't necessarily been in their lives during pandemic. So when they're coming in, they're making that decision to truly celebrate and build check.

And that's, as Kristy said, in ordering additional items and trying different things. And so we're seeing that continued through the second quarter. We saw that continues in the second quarter as well.

Nicole Miller: And I'm not sure you have this, but I was just thinking about how much pricing power must be in your system. We see everything, let's say, below you segment experientially taking anywhere from call it 5% to -- even 10%, 20%, 30% and depending on the channel that they're operating in price.

But there used to be a bunch of your peers public so we could take a look at that average check and plenty of them are well north of 87%. Do you have any idea where they stand today? And how are you gauging your pricing power just on a absolute basis versus your brand historically, or relative to what they're doing as well.

Kristy Chipman: So I'll start and then Cheryl can add on if she has something. So what I can tell you is as we did this latest pricing route and since then as we've seen commodity costs grow, we are on a regular basis every 4 weeks or so, shopping our competitors and looking at their pricing and comparing it against a like product on our menu. And up until now, so far we haven't seen broad scale price increases across entrees.

So we're being very surgical about where we think our pricing power is, and making sure that we stay, certainly on top of it and don't fall behind, particularly on proteins. If our competitive -- what we see in the marketplace from our competitive set is that they're raising prices. So far, we have not seen that. I think the benefits are coming from checks build, more so than pricing power across the fine dining segment.

Cheryl Henry: And, Nicole, the only thing I'll add to that, and I think you know, it's historically we've been at the lower end of our competitors and tried to have more value opportunity on our menu for our guests as our broad base requires and we want to support going forward.

But to Kristy's point, we are on a regular more frequent basis, I would say than pre-COVID, looking at the opportunities around price and where the -- how the consumer is behaving, and how long celebratory type occasions will continue.

Nicole Miller: And then just the second and last topic for me. I think we two have been tracking the Knapp-Track data, and that is a fantastic question and topic. What we're not able to do, and I'm sure if you have done it, maybe it could be done is I would imagine you're dealing with the law of low numbers, let's say that index versus casual dining to begin with. And then you might have been, I would imagine the strongest of the strong.

So the week that didn't completely fall out that actually like made it through, or just having massive percentage changes. If you can eliminate that bottom cohort, do you look like the average or better? Is what I would be wondering.

Kristy Chipman: Yes, so I think your hypothesis is correct. While we haven't necessarily run the exact numbers yet. I think you're right, the law of averages and smaller numbers brings you these higher percentages that you're seeing in Knapp-Track.

I think the other thing I would say is -- and looking at other releases and information, off-prem seems to be what's bringing some of these competitive -- our competitors into more positive territory versus just on-prem dining where our off-prem is a little bit smaller share [technical difficulty] overall when we look at [multiple speakers].

Nicole Miller: Okay.

Cheryl Henry: Nicole, just to add to that, we have done some work and I think I mentioned it when Andy was around, trying to get the noise and some of the average volumes of different concepts and looking at where we are specifically in markets against it, and we feel positive about how we are performing, when we start to try to strip out some of the noise of smaller AUVs versus where we are in the geography impact of it. So we are able to do that work and we are confident and really pleased with where our sales are.

Kristy Chipman: Yes, I'm sorry, just to be clear that work we've done is more against the Black Box view.

Knapp-Track, we watch, but we haven't quite gotten to that deep of a level yet with Knapp-Track.

Nicole Miller: That’s great. And that’s something that we're just not privy to. So to the degree you can even cite some of those numbers possibly into the future, it could be beneficial. But nonetheless, thank you very much for taking my question.

Appreciate it.

Cheryl Henry: Thank you, Nicole.

Operator: Our next question is from Todd Brooks with C.L. King & Associates. Please proceed with your question.

Todd Brooks: Hey, good morning. A few small wrap up questions here. If we talk about off-premise retention, as same-store sales are accelerating as you see this lift in the business in June, how is the off-premise revenue mix maintaining and where do you anticipate that settling out versus the almost five-fold increase that you saw during the pandemic?

Cheryl Henry: Yes, thanks, Todd. This is Cheryl. Let me just briefly say, I think we have seen fairly consistent as our restaurants have opened.

Where it fell out, I think we last mentioned around 8% to 10%, the quarter saw that level of retention in the program. I think where we expect it to go is somewhere between 5% and 7% over time, which makes sense, given the experience we offer in our four walls. So as we think about more people, especially through Q2, being willing to come out, they want to experience the hospitality, the person-to-person relationship that we have with them inside the restaurants, it's -- I will say, the 5% to 7% is much larger than our pre-COVID numbers. So I do think there's some stickiness and we've built a new channel for our brand. We want to be there for people when they feel like that's the best approach for the experience they can have on a given night.

Our work pre-COVID told us that, that is a -- an additional visit. And so we're looking to see if that holds out as we continue on this 5% to 7% going forward. But we've definitely been able to enhance through COVID the platform where people can order and can pick up at Ruth's. And so, we're happy to be there and meet the guests where they need us.

Todd Brooks: Okay, great.

Thanks, Cheryl. And then could you talk about how the restaurants are set up now or I know that you distanced some spacing between tables. A lot of competitors have kind of backed off of kind of 6 foot socially distanced dining room configurations. I guess, over the course of the quarter did you add any seats back into the restaurant, and if not, how much of an opportunity is that for incremental volume over time versus the strong results you're seeing now?

Kristy Chipman: I'll start and then Cheryl can hop on here. So, obviously, mid quarter, we saw California fully reopened, and our restaurant started to increase capacity.

That was by adding tables back into the reservation system and moving from 50% to 75%, and now up to 100% capacity. We are -- it takes time, you don't just flip a switch. So it's taking us a little bit of time for us to get from 50% to 100%, I would say we're a couple weeks away from having all of our restaurants open to 100% capacity on the reservation system. But just remember, that really impacts us on only a couple of days a week, and we are still leveraging some of our excess private dining space for a la carte. So we're getting capacity beyond what of pre-COVID.

Number of tables would be in that same time period. And so we are also starting to see private dine reemerge. And so that's -- while slowly, we're starting to see some positive signs there. And so that space is being used up over time as well.

Todd Brooks: And the private dining, it's great to hear that’s where you're merging.

Is it too early to be getting a sense of demand for a holiday from groups? And is the situation just still too fluid with the Delta variant out there right now?

Cheryl Henry: Yes, I think it is fluid. So while we have seen calls and bookings for the fourth quarter and into the holidays, I think we are monitoring it to see if behavior changes. We started to see -- and it actually has changed over years. I've been with the company for 14 years. We used to see bookings start in as early as July and August.

As I said, we have seen bookings for the fourth quarter at this point. But I -- more recently in recent years, we start to see that really kick-in in the September time frame. So a little soon to tell. Yes, to your point it is still fluid. But to Kristy's mentioned earlier, we have seen an uptick in bookings, and actually as a percentage of sales over time, and so we'll monitor it as we go and see how the consumer reacts throughout the next few weeks and next couple of months.

Todd Brooks: Okay, great. Thanks for the questions. Appreciate it.

Cheryl Henry: Thank you.

Operator: And our next question is from Brian Vaccaro with Raymond James.

Please proceed with your question.

Brian Vaccaro: Thanks, just two quick follow-ups. First on the three performing markets, can you remind us how many units and maybe more importantly, the percent of company sales those markets historically contribute?

Cheryl Henry: Yes, Brian, this is Cheryl. It's six units in the Boston market and Hawaii as well as the Manhattan store in New York.

Kristy Chipman: Sorry, Brian, can you repeat the second question -- second part of your question?

Brian Vaccaro: Yes, just I believe those are, obviously, Manhattan and probably Boston as well are on a very high volume units.

So we're talking six units. It's about 7%, 8% of your unit count maybe, but as a percentage of sales normally, so we're talking roughly maybe 10% of company owned sales in a normal environment.

Kristy Chipman: Yes, I think that's right, about 10%.

Brian Vaccaro: Okay, great. And then Kristy, the increase in the labor efficiency target to 250 to 300 bps, does that reflect additional efficiencies that you realized or expect to realize? And if so, could you provide more color there? Or maybe that's an increase in your sales forecast driving some of that increased leverage?

Kristy Chipman: Yes, so we have not changed our efficiency.

I think I shared our efficiency at 15%. We're probably in that 12% to 15% range as we look at the back half of the year. Although we will start to comp over some of the gains as we put this in Q4 and that factored into the 250 to 300. We continue to see leverage, primarily, I would say right now because of overall sales, more so than any change in efficiency guidance that we have provided before.

Brian Vaccaro: Very helpful.

Thank you.

Cheryl Henry: Thanks, Brian.

Operator: And we have reached the end of the question-and-answer session. I'll now turn the call over to Cheryl Henry for closing remarks.

Cheryl Henry: Thank you, everyone, for joining the call today and we look forward to speaking with you again soon.

Have a great day.

Operator: This concludes today's conference and you may disconnect your line at this time. Thank you for your participation.