Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Ruth's Hospitality Group Incorporated Fourth Quarter 2015 Earnings Call. At this time, all participants are in listen-only mode. Following the formal remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded.

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

Mark Taylor: Thank you, Levi, 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; and Cheryl Henry, Senior Vice President and Chief Branding Officer. Before we begin, I would 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. We are pleased to report our fourth quarter results.

We closed out the year with strong financial results and many accomplishments that we are proud of. Our base of core restaurants continue to generate strong cash flows, which allow us to execute on our plan of returning capital to shareholders in a balanced manner. This complements our organic growth initiatives. We believe that our ability to consistently return capital to shareholders, while also supporting organic growth, is a true testament to the strength and consistency of our operations. During 2015 we returned $45 million of capital through a combination of debt pay downs, dividends, and executing on our share repurchase program.

Today, we announced that the Board of Directors has authorized a 17% increase in the quarterly dividend beginning in 2016 to $0.07 a share. In the fourth quarter, our total revenues grew 6%, reflecting the impact of our new store openings during the past year, as well as our continued same-store sales growth. Pro forma earnings per share increased 11% for the quarter, driven by sales growth, margin expansion, and augmented by the impact of our ongoing share repurchase program. Comparable store sales growth in the fourth quarter increased 3.2%, driven by a strong holiday performance, beginning with Thanksgiving and continuing throughout December. Comparable traffic in the quarter was slightly negative, down 30 basis points year-over-year.

This trend has returned to positive in the first quarter of 2016, with both comparable-store sales and traffic positive in the low single digits. We remain pleased with the progress we're making with Ruth's 2.0. This is our initiative to evolve our menu, operations, and facilities to ensure that the Ruth's Chris Steak House experience stays relevant for our guests. New items tested last year as part of the Ruth's 2.0 menu refresh, including premium offerings such as our 40-ounce Tomahawk steak and our Seafood Towers appeal to both loyal customers as well as current and future guests. This is done without adding operational complexity.

During the fourth quarter, we added the new menu to seven more company-owned restaurants, bringing the total number of company locations offering the new menu items to 59. The final eight company stores have now been completed in the first quarter. During the fourth quarter, we began to roll out the new menu to our franchise locations. Eight franchise restaurants began offering the new menu during the quarter. We continue our rollout to our domestic franchise restaurants and expect to be completed by the end of the second quarter.

We also made progress in our Ruth's 2.0 facility remodel initiative. As we have discussed, the remodel program is a three- to five-year initiative designed to engage our guests and expand our operating capabilities. One remodel was completed during the quarter in Tampa, Florida, bringing our 2015 total to four completed remodel projects. Currently, we have six more restaurants under construction and expect eight to 10 restaurants to be completed over the course of 2016. I'm very proud that our operations teams are not only able to keep our restaurants open during the remodels, but they also keep them operating at the highest standards.

As for new restaurant development, the company opened its second Dallas, Texas, restaurant on November 9, 2015, marking the second and final company restaurant opening for 2015. As previously announced, the company has four signed leases

for 2016: Albuquerque, New Mexico, is currently expected to open in the second quarter; Cleveland, Ohio, and El Paso, Texas, in the third quarter; and Waltham, Massachusetts, in the fourth. During the fourth quarter our franchisees opened their third restaurant in San Antonio, Texas. This restaurant was the third franchise restaurant opening for 2015. Our franchisees currently have three signed leases

for 2016: Jakarta, Indonesia, will open in the first quarter; Odenton in the third quarter; and Greenville, South Carolina, in the fourth quarter.

Additionally, our franchisees in Philadelphia, Pennsylvania, and Mississauga, Canada, are expected to relocate existing restaurants to superior locations in the second half of 2016. As we close out this 50th anniversary, I would like to thank our people, who we define as our team members, our vendors, our investors, our communities, and especially our franchise partners, who are the heart and soul of our business. Our consistent execution would not be possible without the support of each and every one of them. I'd now like to turn the call over to Arne, who will discuss our fourth quarter results in more detail and share with you current guidance for 2016.

Arne Haak: Thanks, Mike.

For the fourth quarter ended December 27, 2015, we reported income from continuing operations of $9.1 million or $0.27 per diluted share on a base of 33.9 million shares. This compares to net income from continuing operations of $8.9 million or $0.26 per diluted share in the fourth quarter of 2014. Net income in the fourth quarter of 2015 included a $300,000 income tax benefit. Net income in the fourth quarter of 2014 included a $700,000 income tax benefit. Both of these are primarily related to nonrecurring state tax credits.

Excluding these charges and income from discontinued operations, our non-GAAP diluted earnings per common share increased 10.7% to $0.26, compared to $0.23 in the prior-year fourth quarter. In the fourth quarter, total company-owned restaurant sales were $98.8 million, an increase of 6.1% from $93.1 million last year. The growth was driven by an increase in comparable restaurant sales and growth in total operating weeks due to new restaurant openings. Comparable sales during the quarter grew 3.2%, which consisted of a 3.5% increase in average check and a 0.3% decrease in traffic. Average weekly sales for company-owned restaurants were $114,200 in the fourth quarter, compared to $111,400 in the fourth quarter of last year.

Total operating weeks for company-owned restaurants were 865 in the fourth quarter, up 3.5% year-over-year from 836 in the fourth quarter of 2014. Franchise income was $4.6 million in the fourth quarter of 2015, up 3.5% from the $4.4 million in the fourth quarter of last year. Total comparable franchise sales in the quarter were up 0.5%. Comparable sales in our domestic franchise restaurants exhibited similar trends to our company stores and grew 3.6% during the quarter. Comparable sales in our international franchise restaurants declined by 11.6% and continue to be negatively impacted by a stronger US dollar and traffic weakness in Asia and our Canadian oil markets.

The impact of foreign currency translation on franchise royalty in the fourth quarter was approximately $68,000. Excluding the impact of foreign currency translation, total comparable franchise sales would have increased 2.1%. For the fourth quarter, total revenues increased 5.9% year-over-year to $104.7 million. Now turning to our costs, food and beverage costs as a percentage of restaurant sales decreased by 129 basis points year-over-year to 30.5%. This improvement was driven by lower beef costs combined with a 3.5% increase in the average check.

Throughout the quarter, total beef costs were driven lower, in large part due to an increase in the supply of Prime beef. Prime beef, which typically represents 2% to 4% of total beef supply, reached levels of 5% to 6% of total supply in the fourth quarter. Overall, total beef costs during the quarter were down 8% year-over-year, driven by Prime cuts, which were down 12%, and filets which were down 5%. We benefited from 4% total beef deflation for the full year of 2015. This was also driven by an increase in Prime grading that averaged from 4% to 5% of total supply for the full year.

Prime grading has declined slightly during the first quarter. In fact, total beef costs are currently trending down approximately 4%, and we currently expect 2% to 4% total beef cost deflation for the full year. Current market forecasts are calling for an increase in the overall size of the herd in late 2016 and in 2017, which could potentially put downward pressure on our beef costs. Our savings from an increase in beef supply could be diminished or eliminated if the quality of the Prime grading does not remain strong. Restaurant operating profit expenses as a percentage of restaurant sales decreased by 46 basis points year-over-year to 45.1%.

The decrease was primarily driven by leverage from higher sales and lower healthcare claims experienced in the fourth quarter of 2015 versus the prior year. Our G&A expenses as a percentage of total revenues increased by 154 basis points year-over-year to 8.5%, primarily driven by an increase in variable performance-based compensation expense. During the fourth quarter, we repurchased roughly 731,000 shares of stock for $12.1 million or $16.49 per share, under our previously announced $50 million share repurchase authorization. Since the beginning of 2014, we have repurchased 2.7 million shares for $39.2 million, which is an average price of $14.33 per share. At the end of the fourth quarter, we had $21.1 million remaining on our current repurchase authorization, and we had no funded debt outstanding under our senior credit facility.

As Mike previously mentioned, for the full-year 2015 we returned $45 million of capital, which is comprised of $8 million in dividends, paying down $13 million in debt, and $24 million of share repurchases. Now, looking ahead to 2016, I'd like to provide some guidelines for some of our key operating metrics. We currently expect to open four Company-owned restaurants in 2016. As these openings will be primarily back-half weighted, the rate of non-comp revenue contribution will slow in the first half of the year. Additionally, the Company recently announced that after 17 years in the marketplace our Columbus, Ohio, restaurant will be closing this coming Monday due to changing marketplace dynamics.

We remain interested in the market and will continue to evaluate new opportunities in Columbus. Our franchisees are currently expecting to open three restaurants in 2016, with Jakarta, Indonesia, opening in the first quarter; Odenton, Maryland, in the third quarter; and Greenville, South Carolina opening in the fourth quarter. Subsequent to the end of the fourth quarter in 2015, one franchise location closed in San Salvador, El Salvador, after two years in the market. Overall, we expect our cost of goods sold for 2016 will be in the range of 29.5% to 31.5% of restaurant sales. We currently expect restaurant operating expenses to range between 47% and 49% of restaurant sales.

We expect our marketing and advertising costs to be between 2.9% and 3.1% of total revenues. Our G&A expenses are projected to be between $29 million and $31 million. We expect an effective tax rate of 32% to 34%. Capital expenditures in 2016 are projected to be between $28 million and $30 million, reflecting four new Company-owned stores and the continuation of our ongoing remodel program. Lastly, we expect our fully diluted shares outstanding to be between 33.8 million and 34.5 million shares, exclusive of any additional share repurchases in 2016.

With that, I'd now like to turn the call back over to Mike. Michael O'Donnell: Thanks, Arne. Before we go to questions, I would like to reflect on the past five years and recognize how far we have come. We have remained committed to our total return strategy, which we embarked on several years ago. Our strategy is built upon maintaining a healthy core, smart growth, and returning excess capital.

Our core restaurants remain healthy, with over 20 quarters of positive comp sales growth and a 25% increase in our average unit volumes. 28 restaurants have been opened or relocated by the Company and our franchise partners. And finally, we have returned over $260 million by paying down debt, growing our dividends by 75%, and repurchasing our shares. I am grateful to lead this group of dedicated team members and franchise partners, and am excited for what will take place in the years to come. Operator, with that we can turn it over for questions.

Operator: [Operator Instructions] And we will take our first question from Brett Levy with Deutsche Bank.

Brett Levy: Good morning, everyone. If you could just do me a favor and talk a little bit about what you are seeing in the labor market in terms of availability, wage rate inflation, and also if you could talk a little bit more about healthcare costs, ACA impacts. And then just finally, is the $28 million to $30 million CapEx, is that a gross number or is that comparable to the roughly $21 million? Or is there a net number we should be using? Thank you.

Arne Haak: Okay, we've got a bunch here.

We've got labor, we've got CapEx, and then healthcare. We just want to make sure we get them all, Brett. On the labor front, I don't think we have any challenges that are unique to this year in terms of finding high-quality employees. This is a great Company to work for. We really strived to take care of our people, and we want to make this the best job they've ever had.

So, I think that makes us a desirable place to work. That being said, we pay good wages. Our servers, when you have the $75 average check, have a very competitive wage; but we do pay them minimum-wage. So, we do have minimum-wage pressure this year of about $1.5 million, which is slightly higher than what we had last year. So we do face that as a bit of a headwind.

Our healthcare costs have been very favorable in 2015. And it's been fairly consistent across, as we look across all the sizes of claims, which we're pleased with. But you always wonder whether or not this is permanent or just a one-year hiatus from your claim trend. The rate of inflation that we expect to see is going to be somewhere between 5% and 8%. So that - we spent about $10 million on benefits, so there you have some more headwinds as well.

The Affordable Care Act doesn't really present anything unique to us, as we have always offered benefits to our employees. You can work as few as 23 hours in the restaurant and still get benefits. But we do potentially face an increase in participation, but we haven't seen any dramatic changes yet in our participation rate. Finally, I think your question was on CapEx. The $28 million to $30 million, that is a comparable number.

We have only two restaurant openings last year and this year we hope to have four. That's the biggest variance. And then there might be a little bit more on the remodel budget, because we had some that carried over just because we didn't want to disrupt the restaurants during the holiday season and complete them in the fourth quarter.

Brett Levy: Thank you.

Operator: And we’ll take our next question from Andy Barish with Jefferies.

Andy Barish: Good morning, guys. Just wondering if you could update us on the two big markets, the California and Florida same-store sales trends in the fourth quarter. And then the start to 2016, I imagine you got hit in January with the East Coast storm, so any idea how much that cost you?

Arne Haak: Sure, Andy. California and Florida, we care about a lot. They're our two biggest states in terms of restaurants and they both were very healthy last year in terms of sales growth both for the fourth quarter and for the full year.

So we're encouraged by that. In terms of the weather, I don't think we've quantified it in terms of dollars. I will tell you that it's probably – I think Mike has commented that he – the most restaurants closed at one time because of weather than we have seen in the time that any of us have been here. And it's in large part due to the concentration of restaurants we have in the Washington D.C. area.

Andy Barish: Got you. And any signs of – I know you've talked about some of the promotional environment, even in high end steak. Any signs as the calendar turned off that starting to wane a little bit? Or is it still too early to tell?

Cheryl Henry: Hi, Andy, it's Cheryl. I think it's a little early to tell for the year what – how folks are approaching their messaging around promotions. We really haven't had a lot of stuff come over.

So we'll see what happens.

Andy Barish: Okay. And just finally on your private dining business, I know that's been a strong part. Can you give us a growth rate or some sense of how that performed in the fourth quarter?

Arne Haak: Andy, we've talked about I think on the last couple of earnings calls, our sales group and our restaurant teams have really done a phenomenal job last year. The trend continued into the fourth quarter.

As we share with you in the third quarter, those trends were running ahead of the system wide average. So we're not seeing any signs of weakness in there. In fact it looks to be an area of strength for us. And that trend continued and even accelerated a little bit in the fourth quarter.

Andy Barish: Thanks, guys.

Operator: And we’ll go to our next question from Nicole with Piper Jaffray.

Nicole Miller: Thanks. Good morning. How do you feel about the overall environment? Can you talk about as you enter this year how you feel about the consumer? And then I know you split your businesses up into thirds, so are all thirds benefiting equally? Or I guess maybe to this prior question, one of them stands out more than another?
Michael O'Donnell: Hi, Nicole, good morning. It's Mike.

We continue to see strength in all segments of the business and through the fourth quarter. Although when I say that, we see the consumer spending money and some guest check movement, and we saw some slight negative traffic and it was really attributed to our a-la-carte business. We think we may actually be cannibalizing some of that with our Sizzle Swizzle & Swirl business and some changing in the habits of dining. Ex-Andy's earlier question which was about weather in early January, things were quite robust I would say, early on and again in all segments. Now having said that, we sell a large number of guest check – of gift cards every year and we're fortunate enough to continue on that trend.

And so we see a high redemption rate in the early part of the first quarter and in parts of the second. So we see things, I would say, in a fairly steady state. Having said that, too, historically we can see some weakness when the stock market trades off and certainly on higher-end consumer who starts to pay a lot more attention to the value of their portfolios. So we see some of that, but so far we have not seen any real weaknesses that we could point out.

Nicole Miller: And then just two quick ones.

On the average check, the 3.5% – was it 3.5%? Yes, 3.5%. How much of that is true price and how much is mix? How much price did you – are you [indiscernible] on 4Q technically?

Arne Haak: Nicole, we had about 2% of check on the menu. And so the improvement in mix comes two-fold: one is the private dining business and the second is kind of initiatives. Which resonate with – you think about a private dining, special occasion, celebratory holiday meal that you would order the big steaks and the Seafood Towers and things like that. So don't know that that's a full year run rate, but it's certainly encouraging.

Nicole Miller: And then if I missed them, sorry, but what was cash on hand at the end of the quarter?

Arne Haak: You know, I don't have it at my fingertips. It's like I think $3.5 million. Michael O'Donnell: And zero debt.

Nicole Miller: Yes, got that part. Okay.

Thanks, guys. Have a great day. A - Michael O'Donnell $3 million.

Arne Haak: $3.1 million at the end of the year.

Nicole Miller: Thank you.

Operator: [Operator Instructions] And we’ll take our next question from Brian Vaccaro with Raymond James.

Alex Marty: Hey, guys. This is Alex Marty filling in for Brian Vaccaro. Good morning.

Arne Haak: Good morning, Alex.

Alex Marty: It looks like you guys already touched on a lot of my questions in terms of pricing. But how are you guys thinking about menu pricing in 2016 versus 2015?

Arne Haak: Alex, if you spend any time with us, you'd hear that we are reluctant pricers. We like to grow our organic sales, we want to grow them through traffic first. So we do not want to lead our sales growth with check although sometimes you have to do it because you have permanent changes in your cost structure, whether it's beef costs, whether it's healthcare, whether it's increasing minimum wage. Historically, we normally have 1% to 2% in terms of check in our menu.

If you look back over the last five years, probably running closer to 2%. Last year, we ran it at 3% and so we acknowledged that, we felt there were some permanent changes. This year, our menu right now reflects right around 2% for the year.

Alex Marty: That's helpful. Thank you.

And one more quick one. You guys touched on the outlook for beef costs in 2016. Any more color on the non-beef basket?

Arne Haak: I think – overall we're expecting probably a flattish kind of basket this year. The biggest pressure is some of the seafood and lobster items that we have is where – in terms of the dollar impact – we expect to see the most pressure. There is modest inflation, but nothing really that stands out other than the lobster piece.

But at the end of the day when we add it all up, it looks – if things hold true to what our outlook is right now, we're looking at a flattish commodity basket.

Alex Marty: Okay, that's helpful. Thank you guys. Have a good day.

Arne Haak: Thank you.

Operator: It appears there are no further questions at this time. Mr. O'Donnell, I'd like to turn the conference back to you for any additional or closing remarks. Michael O'Donnell: Thank you. Thanks everybody for joining us on the call today.

As always, it's a great day to go out and eat steak, and happy Valentine's Day to everybody. Thanks.

Operator: That concludes today's conference. We appreciate your participation.