Executives: Mark Taylor – Vice President of Financial Planning and Analysis Michael O'Donnell – Chairman & Chief Executive Officer Arne Haak – Chief Financial Officer Cheryl Henry – President and Chief Operating

Officer
Analysts: Nicole Miller – Piper Jaffray Brett Levy – Deutsche Bank 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 Fourth Quarter 2016 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, Eric, 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 adjusted earnings per share. This non-GAAP measurement was calculated by excluding certain items as well as results from discontinued operations.

We believe that this measure represents a useful internal measure of performance. You can find a reconciliation of adjusted earnings per share in our press release for today's call. I would now like to turn the call over to our Chairman and CEO, Mike O'Donnell. Michael O'Donnell: Thanks, Mark, and thank you all for joining us on the call today. 2016 marked another successful year Ruth's Hospitality Group with contributions coming from all three components of our total return strategy.

During the year, comparable sales were up 1.6%, our total revenues grew 3%, the pro forma earnings per share were up 12%. This marks our 5th consecutive year of double-digit earnings growth. We continue to invest in our core business and grow our system at disciplined fashion as demonstrated by our remodels and new restaurant opening. Finally our proven business model and ongoing focus on consistent execution allowed us to return capital to our investors. This was demonstrated in 2016 by the return to $54 million to shareholders in the form of share repurchases and dividend payment.

Looking back now – on how 2016 closed. During the fourth quarter comparable store sales were flat. Result of a traffic decline of 2.2% offset by 2.3% increase in average check. Increase in average check continues to be driven by improved mix largely from our Ruth's 2.0 menu items, as well as by 1.6% in many pricing. Our traffic performance during the quarter was affected by a few external factors were joining, we'll quantify for you in a few minutes.

Our special occasion business continues to perform very well and we were pleased to see both Thanksgiving and Christmas comparable sales up low to mid single digit despite increased competition on those days. Throughout 2016 and going back at least the last five years, these another special occasion holidays have remained strong for us and have shown year-over-year growth in sales. We continue to execute against our key strategic objectives including maintaining a healthy base of poor restaurants. One way, we have done this is through our Ruth's 2.0 initiative, which involves menu enhancements and updated restaurant design. In 2016, we completed the rollout of our menu refreshed all company owned and domestic franchise restaurants and completed nine remodels.

These remodels are designed to enhance the guest experience and expand our operating capability. We are currently planning another seven to nine remodels in 2017. We continue to believe that opening the successful new company on restaurant is the most impactful investment we can make. In 2016, we opened two restaurants, one in Albuquerque, New Mexico, and one in El Paso, Texas. The smaller markets have generated an enthusiastic reception from the local communities as well as provided financial returns that have exceeded our expectations.

2017 is shaping up to be our busiest year in development since 2008. Already this year, we've opened two restaurants, one opened in Waltham, Massachusetts, the other in Tulsa, Oklahoma. Our third restaurant of the year slated to open in a few weeks in Cleveland, Ohio. Finally we will open a restaurant in Denver, Colorado, in the tech center during the fourth quarter, which will be our second location in the Denver market. Our franchisees remain the heart and soul of our business and we are grateful for their dedication and continued investment in our growth.

After opening locations in Jakarta, Indonesia, and Philadelphia, Pennsylvania early in the year, our franchise partners opened new restaurants in Odenton, Maryland and Greenville, South Carolina in the fourth quarter and also relocated a restaurant in Huntsville, Alabama. As mentioned on our last call, due to the opening of – opening Odenton, our franchise consolidated their two downtown Baltimore restaurants into one newly remodeled locations on Pier 5 in the inner harbor area. In the third quarter of this year, our franchise partners expect to open our second location in China also in the third quarter we expect their partners to relocate the restaurant in Mississauga, Canada. In addition, opening new restaurants, our franchises are also continuing to invest in 2.0 brand standards, remodels and upgrading facilities. In 2016, our franchises completed seven remodels and expect to complete six to eight more in 2017.

In summary, we’ve remain committed to excellence in the fine dining steak category. We do this by making memories on 500 degree sizzling plates into our relentless focus on operational excellence. This in terms allows us to continue to invest in our core business, while returning excess capital to shareholders. And we thank our dedicated operating teams around the world. I’m pleased to announce that our Board of Directors recently increased our quarterly cash dividend from $0.07 to $0.09, the shareholders of record as of February 23, 2017.

This represents a 29% year-over-year increase in our quarterly dividend. Since the beginning of 2014, we’ve return over $100 million to our shareholders in the form of dividend payments and share repurchases and we will continue to use the return of capital to complement our total return strategy. With that, I’d now like to turn the call over to Arne to provide some more details about our fourth quarter results.

Arne Haak: Thank you, Mike. For the fourth quarter ended December 25, 2016, we reported net income of $9.2 million or $0.30 per diluted share compared to net income of $9.5 million or $0.28 per diluted share in the fourth quarter of 2015.

Net income in the fourth quarter of 2016 included a $239,000 income tax charge and tax charge and net income in the fourth quarter of 2015 included a $322,000 income tax benefit, both relating to the impact of certain discrete income tax items. Excluding these discrete income tax items and the results from discontinued operations, net income was $9.6 million or $0.31 per diluted share in the fourth quarter of 2016. This compares to $8.8 million or $0.26 per diluted share in the fourth quarter of 2015. Total Company-owned restaurant sales for the fourth quarter were $101.2 million an increase of 2.4% from $98.8 million last year, primarily driven by the contribution from our new restaurant. Average weekly sales for Company-owned restaurants were $114.5 thousand in the fourth quarter, an increase of 0.2% compared to $114.2 thousand in the fourth quarter of last year.

Total operating weeks for Company-owned restaurants were 884 in the fourth quarter up 2.2% year-over-year from 865 in the fourth quarter of 2015. As Mike mentioned earlier, comparable store sales in the fourth quarter were flat year-over-year, primarily driven by a few external factors. First, as we stated on our third quarter earnings call, we lost 19 operating days as a result of hurricane Matthew. Additionally, the week perceiving the election was unusually soft compared to the balance of the quarter. We estimate that these events impacted our year-over-year sales by 70 to 110 basis points.

Franchise income in the fourth quarter of 2016 was $4.8 million compared to $4.6 million in the fourth quarter of last year, an increase of 6.1%. Total franchise comparable sales were up 2.4% year-over-year in the fourth quarter. Comparable sales in our domestic franchise restaurants were up 3.3% during the quarter, while comparable sales in our international franchise restaurants declined by 1.9%. Weakness in our Canadian and Asian markets continued to negatively affect our international comparable sales with foreign currency exchange rates having little to no impact on the results this quarter. During the first six weeks of fiscal 2017, our quarter-to-date comparable sales were running flat to up low single-digit consistent with our fourth quarter trend.

The subsequent shift of Valentine’s Day on Sunday in 2016 – toTuesday this year, as resulted in comparable sales now run in flat to last year. Now turning to our cost, food and beverage cost as a percentage of restaurant sales improved by 180 basis points year-over-year to 28.7%, driven by the previously noted 2.3% increase in average check combined with the 6.4% decline in year-over-year beef cost. During the fourth quarter, our restaurant operating expenses as a percentage of restaurant sales increased 30 basis points year-over-year to 45.4%. This increase was driven primarily by an increase in labor expense. Our G&A expenses as a percentage of total revenues increased 25 basis points year-over-year to 8.8% primarily driven by an increase in performance based compensation.

During the fourth quarter, the company repurchased 347,000 shares of common stock under its current share repurchase program for approximately $5.1 million, or an average price of $14.69 per share. At the end of the fourth quarter of 2016, we had $25 million in debt outstanding under our senior credit facility, a decrease of $13 million from the end of the third quarter of 2016. Finally, before I get to our 2017 outlook, I want to provide some details on the new credit facility, which we announced last week. Earlier this month, we entered into a new agreement providing for $90 million revolving credit facility whether $60 million accordingly. This new agreement moves our maximum allowable consolidated leverage ratio from 2.5 times adjusted EBITDA to 2.75 times and has reduced borrowing margins by 50 basis points across the Board.

At the time of closing on this agreement, the company had an outstanding debt balance of $15 million. I'd now like to provide you with our outlook for the full year 2017 for some of our key cost metrics based on current information. First of all, 2017 will contain 53rd week and our fiscal year will end on December 31, 2017. In regards to cost of goods sold, we've seen uncertainty in terms of beef prices, after benefiting from beef costs deflation for over two years, we expect beef prices to be somewhat flattish in 2017. While we expect to see some year-over-year benefit with regard to delay cost, we do not expect significant improvements in prices related to other prime cut.

As we look forward to 2017, we 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 be between 47% and 49% of restaurant sales. We expect our marketing and advertising cost to be between 2.9% and 3.1% of total revenue. We expect our G&A expenses to be between $32 million and $34 million. We expect an effective tax rate of 31% to 34%.

We expect to incur capital expenditures between $24 million and $26 million. We expect our full year fully diluted shares outstanding to be between 31.3 million and 32 million shares, exclusive of any share repurchases under the company share repurchase program. Finally, we expect that first – our first quarter earnings will be challenged by increased year-over-year pre-opening cost related to our new restaurant openings, as well as the shift of the Easter holiday into the second quarter. We believe that first quarter sales last year increased by approximately 70 basis points due to the Easter shifting clean quarter. With that Eric, I'd now like to turn the call over for any questions that we might have.

Operator: Thank you. [Operator Instructions] We'll take our first question from Nicole Miller with Piper Jaffray.

Nicole Miller: Thanks. Good morning. Just a couple quick one if I could.

Michael O'Donnell: Sure, good morning.

Nicole Miller: Hi. So on the remodels, how far are you through the system and could you characterize average performance. And how does that compare to the expectations that you've had during this pricess.

Cheryl Henry: Hi Nicole, it's Cheryl.

We are done approximately 12 total, we have another 79 as Arne said looking towards this year and from there probably another 10 to 12 after that.
Michael O'Donnell: And Nicole, in terms of the returns, I think overall we're very pleased with the results we're seeing. I think we have a good understanding of what works and I think particularly things like expanding capacity in our bars expanding private dining and while it’s always hard to model this, because every one of them is different and has a different competitive background, has a different physical plan. I think we’re very pleased and we’re continuing to go. We’re probably about – at the end of this year will be a third to half way through, our restaurant group in terms of doing this.

So we got a couple of more years of this has an investment opportunity for us.

Nicole Miller: And then on this, you talked about some of the cuts turning for us versus down last year. What is that a function of, what can we point two, and so okay, this is what causes beef to inflect now. Michael P. O'Donnell: Well, yes, I think in the call, it’s – we’re going to see more supply is what our expectation is, but on some of the prime cuts we’re seeing more demand.

And so even just so far this year, we’re seeing [indiscernible] costs are down as you would expect for more supply. There seems to be more demand, we’re not sure it’s the retail level or where it’s coming from, but some of our cuts are probably 6% to 9% year-over-year. So, it’s – we think it’s going to be bifurcated year that’s kind of what we’re hearing from our suppliers, delay [ph] should probably be pretty good. And but the prime cuts might be under pressure. So some pressure – certainly I think the overall commodity basket should be pretty manageable.

Nicole Miller: And then just a last real quick one, how much in earnings or how do you want us to think about modeling, the extra week and just everybody is on same page talking about a challenging 1Q. Do you want us to model everything kind of down year-over-year or just not up very much year-over-year? Thank you.

Arne Haak: Well, in the call I guess a couple questions there. First of all, we don’t give earnings guidance because we don’t feel that we have anything really unique to add to in terms of projecting revenues, which is the hardest part of what has the comp. In terms of the 53 week, obviously, you’re adding the week I think Christmas and New Year, so it's an above average sales week.

So slightly – you’re going to have slightly better than your average margins. And so that should be a good week to add, but it is – it’s a week and it’s – you’re going to get that week every year just a matter of whether ends up in 53 weeks or 52. The same thing kind of around Easter. The Easter, we still get Easter, it’s still on a Sunday, it’s still going to be a great day for us. It’ll just happen we’ve given you kind of what the impact was on sales.

So hopefully you guys can quantify that. And then the pre-opening expense, obviously, we having three restaurants opening in the first quarter this year and last year we only had our first restaurant didn’t open until May. So those are kind of the pieces in the parts for you to think about. And hopefully that helps you in your model.

Nicole Miller: Thank you.

Operator: We’ll go next to Brett Levy with Deutsche Bank.

Brett Levy: Good morning, team. Would you share a little bit more color – thank you, would you share a little bit more color on competitive landscape, but you’re seeing regionally what you’re seeing buy your three bucket of customers across private dinning. And then also if you could just share your expectations on labor inflation and if you’re saying any turnover and then I just had one follow up, one new question on top.

Arne Haak: Okay, I guess in terms of the competitive landscape, I mean I think the pace of the consumer overall, it’s still very much the same.

I mean if you go back to kind of our prepared remarks, we’re running up kind of low single-digits – flat up low single-digits, which is kind of consistent, which just kind of the pace we’ve been running it. In terms of the three buckets I don’t know maybe Cheryl want to chime in on that. And then I’ll kind of come back with your labor question.

Cheryl Henry: I think to Arne’s point has been pretty consistent, we’ve mentioned I believe in our last call that the business consume in the private dining business remain strong, maybe not as strong as it has been in the past, but I think it’s still performing in line with what we’ve been seeing. Again, Mike talked about the special occasion that was something strength in those keep ourselves looking to come out and celebrate those with us as I think has been positive year-over-year for us.

And as we expand into our – kind of the bar just because more frequent guest, we’re looking at our bar areas in opportunity for more frequency and like what we’re seeing so far there as well.

Arne Haak: Yes, okay. And then Brett on the on the labor piece, it – we expect another year fairly significant inflation. Minimum wage, last year we saw overall kind of rate inflation, while we were in somewhere between 4% and 5%, which kind of comes out to be $1.5 million to $2 million depending on how you want to categorize it. We expect something similar this year, but probably not quite as strong, probably somewhere in the area of 3% to 4% labor inflation and somewhere running kind of between $1 million and $1.5 million in terms of cost pressure there.

Arne Haak: Brett is like – you asked a question about sort of regional differences and this time of the year difficult to identify when you're starting to do it weather in the Northeast or weather in the Midwest. And so I think we're seeing some very strong performance around the country X weather we've got weather – some weather impact. Texas is still a challenging region for us. California has really been impacted a little bit by rain. Rain is like California, but snow is in the Northeast.

But I am feeling fairly bullish about where we will be on a going forward basis around the country. And then when I say bullish I mean consistent with what we've been talking about where our performance is going.

Brett Levy: Thank you.

Operator: [Operator Instructions] And we'll go next to Andy Barish with Jefferies.

Andy Barish: Good morning.

I just wanted to get a clarification. I'm assuming the Valentine's shift was a positive quarter to date onto a Tuesday from a Sunday.
Michael O'Donnell: No, Andy. If you look at last year, Valentine's Day was on Sunday and it also on President Weekend. And so last years' Valentine's Day was very robust from Thursday all the way through Monday.

And this year, the shift to Valentine's Day being on Tuesday and not being on President's weekend, bigger challenges the Valentine's Day to Valentine's Day performance. We're having said that it's likely that as we come through the balance of this week and President's Day weekend we make up what that modest negative look.

Andy Barish: Okay, got you. And then you also have the Easter shift as a negative in terms of the calendar.
Michael O'Donnell: Yes.

As Arne said we still got an issue. We just taken in dangers by a few and therefore goes into the next quarter. But we should recover the challenge around Valentine's Day as I said by the next week. But its I mean it was a perfect storm of goodness last year, in terms of being our President that weekend and being on a Sunday.

Andy Barish: Got you.

And then just on the secondary market shift I guess, what do you – its sounds like their performing well. What do you attribute that to and I guess that make you feel more comfortable with kind of staying at this sort of mid to high end of your three to five Company-owned development, now that you have more territory so to speak to look at some of these smaller markets. Michael O'Donnell: Yes, Andy. I mean I think where we've defined these markets, which are maybe pick Albuquerque for instance. There is 550,000 people in the MSA.

So I mean there – but they frankly don't have unless it's local competition, there's not a lot of competition in the sort of defined state category where we're in. So we like that. And historically our franchisees had done that and we've sort of pulled that territory back or not at least given away any new territory in that regard. So we think that's a great opportunity for us. And we continue to pursue those across the country.

And we think we've got reasonable eyes on markets that can perform well. The notion of the three to five has never been driven by the availability of real estate. However, we don't want to build to the sake of building and so we take the process of real estate very, very seriously. Obviously that really has been a question of us being able to consistently for four. As Arne just described us opening three restaurants in the first quarter of this year puts us a lean of that on our economics when we start talking about preopening cost received in advance.

And – but the biggest opportunity and challenge for us is to make sure that we've got great operating teams going into these restaurants and leading great operating teams in the restaurant they come from. And we think that a big part of our consistency in success has been the ability to control that growth rate at a level where we can absolutely executed a superior level.

Andy Barish: Great. Thanks, guys. Michael O'Donnell: Thanks, Andy.

Operator: Next question is from Brian Vaccaro with Raymond James.

Brian Vaccaro: Good morning. Just two quick ones for me. Arne, sorry if I missed it, but how much pricing was in the menu in the fourth quarter?

Arne Haak: It was just over 1.5% as you look into 2017, we're running about 1.2% here in the first quarter work and the full year right now. We don’t take anymore price.

We're going to run about 1%. But we are seeing some mix improvement as well like as continued.

Brian Vaccaro: Right, okay. And then I appreciate the color on the beef as shifting over that food inflation, I appreciate the color on the beef outlook. But curious, so what you're seeing in the rest of the basket in terms of sea food, dairy et cetera.

Michael O'Donnell: As always plus and minuses every year I think the only that kind of stands out right now, is there's some sea food pressures, probably the biggest area that we're seeing it and particularly kind of in the crab.

Brian Vaccaro: Okay, all right. And then on – to the back of the 53rd week if you could, if you think about the individual line items, where do you usually see sort of outsized leverage or there are certain lines maybe rent, I would think DNA, where you booked those on a monthly basis and you get that incremental leverage on the extra week. Michael O'Donnell: Well. There is a fix versus variable in terms of the G&A, obviously the people are still working here.

That's a big component of the labor, but there are some things like the rent you'll get some leverage on. And you also get – you do well with – you do well, also with the sales volumes being above average. So that helps you to in terms of your floating margin. I guess, I tell you to go back and if you look at the last time we went through these, it's kind of the similar exercise and I don't have it in front of me, but I think we broke out for you what we thought it was in terms of a contribution then. So that might be a good place to go look as well.

Brian Vaccaro: Yes, all right, thank you.

Operator: We have a follow-up question from Brett Levy with Deutsche Bank. Thank you.

Brett Levy: Thank you. I just wanted to ask one clarification and then just Mike a big picture for you.

Was the GAAP between the company in the franchise was that solely related to the regional comments made or was there is something else in there besides just weather in California.

Arne Haak: Hey, Brett, this is Arne. I’m going to take this one from Mike. That's a really question about mix. There are actually two locations in our franchise universe domestically that are – widely ahead in terms of comp sales growth.

One of them you can figure out these fits together, when you close – with two locate – our franchises got two locations in Downtown Baltimore. They close and there within walking distance of each other. When they close one that’s – the one that’s stayed on Pier 5 is having great comp sales, because we’re recapturing the vast bulk of those sales. We also have another franchise location for competitive reasons I don't want to say where it is, but they've done a significant remodel, done some expansion in terms of really good local marketing. And they are one of our bigger franchise units and they're running well in excess of 10% comp sales growth.

If these kind of set those two issues aside, the large franchisee with the remodel and expansion in marketing and Baltimore, the domestic comp kind of lines up very similar to what we're seeing in company restaurant.

Brett Levy: And Mike, do you have any thoughts that you could share just on big picture potential regulation changes whether it's taxation interest deductibility, just where and possible things related to overtime or overall regulations that may or may not come through as quickly as the industry would help. Michael O'Donnell: Brett – this is we had a long complicated question. I mean I would say that I'm bullish on what President Trump has to say and what the agenda could be in terms of tax release that the corporate level and actually across the Board. If we see an increased 3% or 4% GDP that's all going to be positive, but I think that there is – hopefully, there's very pro-business atmosphere and that transcends itself into labor and overtime issues et cetera.

I was excited to see that buzzer could have been the executive labor not for any other reason than because is connection to our business and understanding how people get into the restaurant business is their first job and teaches some discipline and all those things. Unfortunately, he's not taking himself out and I'm not sure, my understand with the next persons views are. But my – I would think that based on, we’re seeing early and this is – I'm not better at this than anybody else on this call. That there will be tax reform and there will be things that are favorable for poor business. And to the extent that’s favorable for our business.

I think that's true. I mean, the trickle down effect of other businesses having money to invest in their business, they're likely result of that could be an increase in travel and entertainment and that’s the case that our private bank business with the benefit from that. If I just because the business pays less factors, they're more likely to go spend more money. So back to be very positive and as we said earlier our best location business has been strong and it's been strong for the almost nine years I've been here. I would expect that we would continue to be strength there.

Brett Levy: Thank you.

Operator: There was no questions remaining in the queue. I'd like to turn the call over to Mr. O'Donnell for any additional remarks. Michael O'Donnell: Thanks, everybody for joining us on the call today.

And as always it's a great day. Thank you.

Operator: And this concludes today's conference. Thank you for your participation. You may now disconnect.