Steakhouse operator Ruths Hospitality Group (NASDAQ: RUTH)
shares are starting to turn the corner on the monthly charts as restart narratives take shape. Restaurant stocks as a group are starting to see a recovery
as pent up demand from consumers start to improve sentiment for carrying out and drive through establishments. The waning sentiment for sit down restaurants with dining rooms turned the corner thanks to positive reactions to the recent earnings release from Brinker International (NYSE: EAT)
. While the benchmark S&P 500 index (NYSEARCA: SPY)
has recovered to its pre-COVID highs in February 2020, Ruths high-end steakhouse brand has been overlooked as shares still trade under half its pre-COVID price levels. Value-oriented investors still searching for laggard restaurant names should pay close attention to the opportunistic pullbacks in Ruths before funds rotate back into this name.
Q2 FY 2020 Earnings Release
On July 31, 2020, Ruths released its second-quarter fiscal 2020 results for the quarter ending June 2020. The Company reported a non-GAAP diluted loss of (-$0.48) per share beating consensus analyst estimates by $0.05 per share. Revenues for the quarter were $28.42 million, down 74.22% year-over-year (YoY) from $110.2 million. In the month of April 2020, all Company-operated Ruth’s Chris restaurant dining rooms were closed. Take-out and delivery services were implemented in 56 of its 81 locations, 69% of total. As mandatory isolation mandates were lifted, the Company was able to re-open 88% of its locations (71 of 81) and 59 dining rooms in capacity restricted format. The 24 Company-owned restaurants with dining rooms were able to generate 81% of YoY sales with positive cash flows despite the limited seating requirements.
Resilient Snap Back
Through July 28, 2020, month to date sales improved to (-47%) YoY. All but four franchisee-owned restaurants are open (68 of 72) with 66 restaurants operating dining room service. The rebound in sales for operating restaurants is a testament to the pent-up demand building during the pandemic. An important metric is how Ruths was able to achieve higher margins on lower sales for restaurants open during the month of June despite capacity limitations as directed by local municipalities. The bottom line, sales were down (-20%) YoY while margins were operating in excess of 20% for these restaurants. This bodes well for an accelerated recovery as capacity restrictions also start to lift for this 55-year old premium brand.
During the pandemic period, Ruths completed its secondary stock offering for $49.6 million in proceeds using $9.8 million to pay down debt. The cash balance at the end of Q2 was $96.1 million with $135.2 million in outstanding debt. All new construction and non-essential spending has been temporarily suspended which is expected to trim $35 million of 2020 capex. The Company closed five Company locations and terminated two leases of the seven under construction locations to trim the weekly cash burn rate to $1.2 million, including $3 million in rent payments. Ruths forecasts weekly cash burn to drop to $1 million in Q3 2020. The biggest sentiment catalyst for restaurant stocks would be for a COVID-19 vaccine FDA approval. The money is flowing into this sector ahead of the event. Prudent investors still have an opportunity to participate ahead of a potential sell-the-news reaction at opportunistic entry levels.
RUTH Price Trajectories
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for RUTH stock. The monthly rifle chart triggers a market structure low (MSL) buy above $12.17. The weekly rifle chart triggered its MSL buy above $8.29. The monthly rifle chart is forming a mini pup above its 5-period moving average (MA) at $8.60. The channel tightening trajectory on downtrend mini pups is the 15-period MA at $16. The weekly stochastic is starting a 20-band stochastic cross up with upper Bollinger Bands at $11.28. Opportunistic pullback levels at the $8.60, $8.30 fib and $7.48 Fibonacci (fib) level. The upside trajectories for the next leg up sit at $11.28 weekly upper BBs, $13.24 fib, $14.09 fib and $16.00 monthly upper BBs. Keep an eye on the sit-down restaurant stocks with dining rooms to gauge the current sentiment for the group including peers EAT, Cheesecake Factory (NASDAQ: CAKE), Dine Brands Global (NYSE: DIN) , Chuy’s Holdings (NASDAQ: CHUY) and Denny’s (NASDAQ: DENN).
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