Ruth's Hospitality Group Inc (RUTH) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Ruth's Chris Steak House, Inc. fourth quarter 2007 earnings call. (OPERATOR INSTRUCTIONS) This conference is being recorded today, February 21, 2008. I would now like to turn the conference over to Mr. Tom Pennison. Please go ahead, sir.

Thank you, Joshua. Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements. These statements are not guarantees of future performance and, therefore, undue reliance should not be put upon them. We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could could impact our future operating results and financial condition. The order for today is as follows: Craig Miller, our Chairman, President, and CEO will begin our discussion with some comments on the fourth quarter but, more importantly, our new acquisition and thoughts on 2008. I will then review the financial details of our fourth quarter result as well as guidance for 2008. And with that, we'll go ahead and begin. Craig?

Thank you, Tom. And good afternoon, everyone. Before I speak specifically about our company's fourth quarter performance, I want to take a minute and share with you some of the fundamental beliefs that our team shares about our business and why we feel so strongly and positively about our future and the future of our company. It has become very clear to us that our country's economy is going through a period of slow growth if not contraction. Consumer spending habits that have emerged over decades and that have been robust as to away from home dining for many years have recently gone negative. It appears that no retail or restaurant company is able to escape some impact of this downdraft. The news coming out of our industry every day re-enforces this fact. The wise I will leave to the economists and politicians to sort out. What I know quite simply is that consumer sentiment and disposable discretionary incomes are not what they were 12 to 18 months ago. I know this because 250,000 times each week we come face-to-face with these same consumers. We trace every aspect of their experience, their spending habits, and their usage of our brand. What we know and believe is that they enormously high regard for the food service and dining experience of both our steak and recently acquired seafood brands.

In many cases our restaurants are their favorite places to dine. They love and appreciate our high-quality food, atmosphere, and high touch but friendly service. Our goal remains very simply, give our guests no reason to go anywhere else. What does this mean? It means that each time a guest walks through the doors of one of our restaurants that they deserve and expect excellence in food, service and atmosphere. It is our job to deliver that total experience. Despite the short-term challenges we face, we will not move from that core belief. In other words, we will not over react to the short-term outside influences that affect our consumer's ability to dine with us quite as often and we won't change our commitment to achieving our previously stated goal. Having said that, we are managing many parts of our business in a different way today than we did a short nine months ago. Let me be clear, though, we are not managing the dining experience any differently, but we are managing the behind-the-scenes experience differently. Let me explain.

First and foremost, we're asking all of our business partners to work with us in a cooperative way to share in this effort. This means team members both in the restaurants and in our support center have to work with us with a heightened awareness on cost controls and productivity. Our supplier partners are being asked to help us find innovative ways we can take costs out of our business and deliver exciting new products and menu items that our guests will find appealing and affordable. We are promoting more value offerings and incentive in order to lower the barrier to those guests that with challenged economically or whose habits have been affected by negative (inaudible). We are being more selective in our site selection process and seeking better terms and conditions on new locations and taking a tougher stance on the overall cost of our projects. We are managing our balance sheet and capital allocation in a more cautious manner in order to ensure we maintain a capital structure that will never interfere with our operational goal.

We are managing or a shorter time horizon and providing incentives to our team members on a quarterly basis in order to reward for performance in a more timely way. Based on collective experience of our leadership, which we would match up against any in the industry, we are working very hard to deliver for our guests every day, which we know over the longer term will reward our shareholders. Although the current economic climate is new to some, it is not unprecedented. Those of us that were around in the '70s and early '90s remember periods similar to these. We believe we have the solid brands and management to come through this period successfully, and we fully expect to be, if not the best positioned company, one of the best when the pressures of our guests subside and the economy rebounds.

Now let's move on and talk about our recent performance. The fourth quarter marked a continuation of trends we experienced for most of 2007. Although sales took a decidedly more negative turn in December. This caused us to re-examine our full-year 2007 guidance in mid-December and update the market accordingly. Special occasion diners which transcend all demographics, are clearly the group that has been most effected. We have been testing several ideas to bring a bit more value to the dining occasion, particularly in times when we have capacity. This includes prime dining in a few markets, particularly between Mondays and Thursdays. We believe there is benefit in strategically using value incentives to drive traffic during specific times, and will continue to refine and use these initiatives as we move into 2008.

Our chef's features have also allowed us to promote some great new dishes while adding some attractive price points aimed at offering additional economic value to our guests while protecting our margins. We have been driving beverage sales through wine tastings, which encourage people to visit us more frequently. We will also soon begin promoting our new signature drink line companywide and an innovative bar food menu in select locations to drive frequency through offering another occasion to visit Ruth's Chris. It is obviously very difficult in the current environment for us to look out three, six, nine months and project comparable sales, which is why we have taken such a cautious approach to our 2008 guidance.

We do believe, however, even when times are tougher people still need and want to celebrate and there's really no better place to do that than at Ruth's Chris. We saw evidence of this in our recent year-over-year increase on the popular Valentine's Day holiday. 12.3% increase in overall sales with an 8.5% increase in comparable entrees on that day. With that in mind, the near-term pressures are not changing our intention to continue our growth nationally and internationally. In fact, we see great long-term opportunities in upscale and fine dining and want to expand our share of that market, particularly by leveraging some of the opportunities that arise during these challenging times. What I believe will get us there, and the number one factor that distinguishes us from other upscale brands is balance. We have an balanced approach to our business between real estate selection, geographic distribution, company and franchised restaurants, as well diversity and demographics. And by adding the Mitchell's concept, we are adding even more balance to our portfolio with a proven seafood concept, which we'll talk about more in a moment.

To elaborate further, our locations can be found in both dense urban and suburban markets. We have the opportunity to do free-standing, in line, as well as going high-end retail centers and office buildings. And with Mitchell's, we can lead with either concept or both. Essentially, wherever our guests are and whatever their upscale dining tastes are, we have an opportunity to serve them. And our scale suggests when the economy turns we'll be ideal positioned. In fact, we have 119 locations now across the U.S., Canada, Mexico, Japan, Hong Kong, Taiwan, and most recently the Dutch Island of Aruba.

People often ask how we can deliver a great sizzling steak with souther hospitality in some of these very exotic places. The answer is because it's a proud part of our tradition, and one of the things that drives the success of our enterprise. But even closer to home, we have proven that the brand can work in New York City; Clayton, Missouri; Louisville, Kentucky; Las Vegas, Nevada. Really anywhere people like to enjoy a great meal and memory-making experience. We are also renovating older restaurants selectively to enhance their appeal and ensure we deliver on our goal. In fact, the additional cash flow from those incremental sales is roughly 45 to 50%, so this is a great investment in our existing system.

The second component of our business, our franchise system, is a very important part of our balanced business model. We currently have 57 franchise restaurants, which is slightly less than half of our total footprint. Our franchise partners generated total revenue system wide of about 241million in 2007 and delivered roughly 13 million in royalty income to us. This is a very healthy high-margin business, one that allows us to literally grow twice as fast as we could if we didn't have a franchise system. Importantly it also mitigates risk as we expand without utilizing our own capital and, in particular, in international locations where local ownership has proven to be so important. We continue to be excited about the growth in our franchise system and look to add six to eight new units this year.

Thirdly, our Mitchell's fish market business. When we look in to the future, we think the market supports both steak and seafood growth. In fact, baby boomers and their kids are going from 52% of the population to 63% of the population over the next nine years, and that's a compelling reason in our view to drive more unit growth at the high-end restaurant space. With Ruth's Chris and now Mitchell's we believe we are uniquely positioned to accomplish this. To that point, upscale seafood is a fragmented industry which allows for expansion and marketshare gaines. Mitchell's is our vehicle to do just that with a proven concept from one of the best restaurant entrepreneurs around, Cameron Mitchell. He has created a similar corporate culture to our own, which is very important as we move forward, and we are especially looking forward to growing this brand in some of the most attractive regions for seafood consumption. This includes the southeast and coastal regions where consumption of seafood is 30 to 40% higher than the midwest, Mitchell's home territory.

Other benefits of the Ruth's Chris Mitchell's combination is the natural crossover of menu and ingredients between steak and seafood. We'll have greatly increased purchasing power with combined entity, particularly as it relates to Mitchell's current cost of goods sold. We all have better leverage with developers, which should not be underestimated. This is particularly relevant in the current slowdown when some of our competing chains are not able to grow as rapidly as we are, or they are reined in development all together. Bringing two brands to the table is a great advantage for us in negotiating both leases and lease terms. Looking at the terms of the transaction. We paid $92 million to acquire the business on a run rate EBITDA multiple of approximately 6.7 times. We believe it's a fair price and we purchased an extremely high quality brand. We believe we wouldn't have had the opportunity to purchase Mitchell's in a softer environment and frankly we believe in paying for quality and positioning our shareholders to benefit over the next three to five years. Fortunately, averaging unit volumes at existing locations are in the $4.3 million range with newer units performing at higher levels.

With a dinner check around $40, we believe it will attract a broader customer base and one that returns more frequently. So when all is said and done, what we have acquired here is a platform, a proven brand, and great team of people, chefs, management and associates. We are being supported by senior level people at Cameron Mitchell restaurants to help us integrate the business, but we'll be making some organizational changes to provide strong leadership for both of our brands. Specifically, we are adding people in the areas of marketing and facilities to assimilate an approximately 30% increase in the number of company-operated restaurants, demonstrating our willingness to invest in infrastructure ahead of our future growth. As said, we will ultimately leverage our corporate staff and finance human resources, training and education.

Looking forward to growth, where we expect to grow operating weeks at Ruth's Chris by about 15% in 2008 with six company and six to eight franchise locations. We will also begin developing two to three Mitchell's restaurants. Longer term, we believe we have a potential universe of 250 domestic locations for Ruth's Chris in addition to international franchise pipeline that we expect to be generating 30% annual growth over the next several years. We are just beginning to research the market potential for Mitchell's, but believe it has the potential of at least 100 restaurants or more. Clearly, this provides a long runway from which we stand today. Most importantly, we are going to manage our business appropriately for the current environment, keeping our comparable store sales expectations conservative, operating our restaurants efficiently and doing our best to navigate during these times. As our integrate proceeds, we will finalize the development of our new corporate brand, Ruth's Hospitality Group, which reflects our continued growth commitment and our evolution in to a multi-brand hospitality company. Ruth's Chris Steak House, Mitchell's Fish Market, Cameron's Steak House and Mitchell's Steak House will all operate under the Ruth's hospitality group umbrella following approval from our shareholders of the name change.

Before I turn the mike over to Tom Pennison, many people have asked us about allocating capital to a major stock repurchase, similar to what some of our industry peers have done. At current levels, a stock repurchase would certainly be accretive. But it's our view the best use of capital over the long term is to grow our business as a restaurant company. To that point, we've made a significant investment to position ourselves as the premier fine dining restaurant company in the world, and we want to achieve that objective. Including the Mitchell's acquisition, we have a balance and diversity throughout the organization, and I would suggest, again, that as the economy turns, the leverage in our mod legal be clearly evident. I will now turn the call over the our chief financial officer, Tom Pennison, who will review our recent financial results and update our guidance for 2008. Tom.

Thank you, Craig. As described in our earnings release today, for the fourth quarter ended December 30, 2007, which was a 13-week quarter, we generated total revenue of 89 million, which was 1.1% higher than last year's 14-week quarter of 88 million. The primary component of our revenue growth for the period came from company-owned restaurant sales which grew 5.5% to 84.8 million from 80.4 million in the fourth quarter of 2006. Generating that increase was a 13.9% increase in company restaurant operating weeks, including an additional 11 restaurants in operation year-over-year. On an apples-to-apples basis; that is for the same 13-week period, restaurant sales grew approximately 15% with operating weeks growing 23%. Average weekly sales for all company owned locations were 110,457 in the fourth quarter compared to 119,212 in the same period last year, which was inclusive in the prior year of the 14th week in New Year's Eve.

We're were pleased with the continued progress we saw with the seven restaurants that we acquired from last year, who's current average weekly volumes continue to exceed the comparable restaurant base. Five of these seven restaurants joined the comp base in the fourth quarter of this year with the remaining two in the first quarter of 2008. The formerly franchised restaurants from our more recent acquisition in '07 will join the comp base in the fourth quarter of 2008. Company-owned restaurant sales in the comparable base on a 13 week to 13 week basis decreased 5.6%. Comparable sales consisted of an average check increase of 3.5% driven by non-entree increases in our bar and lounge traffic, menu selection shifts as well as a year-over-year effective menu pricing of approximately 2.5% in the fourth quarter. This increase was offset in full by an entree reduction of 8.9%. Please note also that our comparable restaurant sales lapping last year's fourth quarter growth of 7.4%. Comparable sales were progressively worse throughout the quarter with December being the weakest. Current trends have improved from December, but are still weaker than we would like.

For the year, on a 52-week comparable basis, company-owned restaurant sales decreased 0.8%, lapping a 6.8% increase in 2006. Total restaurant for the system in 2007, inclusive of of our franchisees, increased 11.7% to 545 million with a system average check increasing approximately 4.7% to $72. Franchise income increased approximately 200,000 or 5.4% to 3.9 million. This increase is primarily due to the impact of 10 new franchise owned restaurants opened year-over-year and was partially offset by the acquisition of the seven franchise-owned restaurants in the second half of 2006 and the three franchise-owned restaurants in the second quarter of 2007 as well as a decrease in comparable franchise-owned sales of approximately 4.8%.

Other operating income was 3.7 million below prior year, related to the timing of recognition of gift card income during the prior-year quarter which was also above normal trends. As discussed earlier this year, on a go-forward basis the majority of this income will be recognized in the company's second quarter. Food and beverage costs were 27.1 million compared to 26 million in the fourth quarter of 2006. As a percentage of restaurant sales, food and beverage costs decreased 30 basis points to 32% from 32.3% in the prior-year period. Modestly favorable beef and seafood costs, mix shifts and a combined 2.5% price increase, which is inclusive of beverage increases, offset higher lobster, produce, and dairy cost during the period. For the year, we came in at 32.1%, 10 basis points below prior year and consistent with our guided expectations.

Current beef costs, especially tenderloins, have been favorable for us and we are currently buying spot, although we will likely lock in a portion of our beef in the near future. Restaurant operating expenses were 39.3 million in the fourth quarter compared to 35 million in the prior-year period. These operating expenses as a percentage of restaurant sales increased 280 basis points to 46.4% from 43.6% in the prior year. This increase was due to de-leveraging of operating costs as a percentage of restaurant sales due to softer comparable sales as well as inefficiencies at newer locations coupled some with higher labor cost including management staffing and fixed occupancy cost.

Additionally, the prior year quarter benefited from the additional operating week leveraging certain fixed costs. Marketing and advertising costs were 2.2 million compared to 2.8 million or 2.6% of total revenues compared to 3.5% of total revenue last year. The percentage decrease was predominantly due to the timing of expenditures in the fiscal 2007 marketing plan more evenly distributed throughout the year. The dollar reduction was primarily due to reduced utilization of national radio during the fourth quarter as well as improved management of agency related fees versus a year ago. General and administrative costs increased 5.8% to 7.3 million compared to 6.9 million during the prior year. G&A costs as a percentage of total revenue increased by 40 basis points to 8.2% from 7.8% with the additional week of revenues as well as gift card income in the prior year negatively affecting leverage during the quarter.

During the quarter we did incur approximately 600,000 of nonrecurring severance in Mitchell's acquisition cost which was somewhat offset by new incentive compensation expense during the quarter. For the full year, G&A as a percentage of total revenue decreased 60 basis points from 8.5% to 7.9% and rose at less than half the rate of restaurant sales growth. Depreciation and amortization increased to 3.2 million in the fourth quarter compared to 2.4 million last year. On a percentage basis approximately 90 basis points to 3.6% of total revenue. This increase is due primarily to the addition of new company-owned restaurants and acquired restaurants in both '06 and '07, as well as investments in remodeling activities at our existing company-owned restaurants.

For the fourth quarter of 2007, preopening costs were 1.7 million versus 1.2 last year. We opened company restaurants in Knoxville, Tennessee;Tysons Corner, Virginia; Santa Barbara, California; and West Palm Beach, Florida during the period. Similar to what we have described before, we plan approximately 500,000 of preopening costs per company owned restaurant which at times certain of these costs can be up to 90 to 120 days before the scheduled opening. These costs also include non-cash lease cost expense during the construction period. Operating income was 8.1 million compared to 15.9 million last year. Once again the prior year included 3.1 million in net insurance proceeds as well as the additional gift card income noted previously.

Our interest expense increased to 2.3 million from 1.2 last year. A portion of this increase was due to additional borrowings year-over-year for the acquired franchise restaurants. At fiscal year end 2007, our total debt was 96.7 million versus 68 million last year. Also included in interest expense in a more significant component of the increase was approximately 900,000 mark to market non-cash charge related to an interest rate swap. This charge represented approximately $0.03 per diluted share after tax. Related to our interest expense with the edition of Mitchell's now closed, our total accident approximately 180 million with a pro forma debt to EBITDA ratio at approximately 2.8 times, which we feel comfortable with. Net income available to common shareholders for the quarter was 4.1 million or $0.18 per diluted share compared to net income of 10.7 million or $0.46 per diluted share in the prior year.

On an annual basis, net income available to common shareholders was 18.1 million, or $0.78 per diluted share, which did include approximately $0.07 per share benefit from insurance proceeds net of losses on disposal of property and equipment. Full year 2007 CapEx was 56 million, including 13.7 million related to the franchise acquisitions, 7.5 million from maintenance, and 34.8 million for new restaurants and remodels. Now, in terms of our guidance, for fiscal 2008, which is also a 52-week year, we anticipate increasing, as Craig mentioned, company-wide restaurant operating weeks of Ruth's Chris Steak House Restaurants by approximately 15%. In addition to the full-year impact of the 2007 openings, the company anticipates opening approximately six company owned and six to eight franchise Ruth's Chris Steak House locations.

Given the uncertainty of the current macro-environment and it's effect on traffic patterns and resulting comparable restaurant sales the company is assuming a comparable sales decrease of between 2 and 5% for the steak house business with greater pressure expected during the first half of fiscal 2008 than the second half, which is consist with what we're seeing in our current trends. For Mitchell's, operating weeks during 2008 are expected to be approximately 836 for the 19 fish markets and 132 operating weeks for the three steak houses. The company will begin adding additional Mitchell's Fish Market locations late in 2008 and will provide more definitive information concerning the expected unit growth of this brand next quarter. We will be filing an 8-K with the 2007 audited results of the Mitchell's acquired locations within the next 75 days. I thought I would provide you a few operating metrics for the fish markets.

The fish markets typically cost $2 million net of tenant improvement allowances to build and currently have an average unit volume of 4.3 million, representing an average weekly volume of 82,177. Like Ruth's Chris, this average weekly volume varies from quarter-to-quarter. The average weekly volumes for each quarter of 2007 were as follows: First quarter, 82,617; second quarter, 86,153; third quarter, 82,446; and the fourth quarter, 77,982. Mitchell's Fish Market is open for both lunch and dinner, and has a blended check average of $36 with lunch representing approximately 22% of the sales dollars. Restaurant level income before marketing and depreciation is approximately 17% of sales.

Back to a consolidated basis, cost of sales as a percentage of restaurant sales inclusive of Mitchell's is expected to be within the long-term range of 31.8% to 32.3%. G&A expense is expected to be flat on a percentage basis compared to fiscal 2007. The company expects to gain leverage from a higher revenue base, but this will be somewhat offset by incentive compensation expense and higher year-over-year costs associated with long-term stock compensation. During fiscal 2007, the company incurred no expense related to incentive bonus compensation. The effective tax rate for fiscal 2008 is expected to be at or below the 32% rate in fiscal 2007 inclusive of the impact of Mitchell's. The company also plans to undertake take several major remodeling projects in fiscal 2008 which may cause negative short-term sales and profit impact in these restaurants. Based on these factors, the company expects a fiscal 2008 GAAP earnings per share from continued operations, including the acquisition of Mitchell's Fish Market, will be between $0.55 and $0.60 per diluted share. We will update these assumptions and their resulting impact on EPS guidance throughout the year as circumstances warrant.

As far as CapEx, the return on invested capital on both of these concepts is very comparable, so the good thing is we do not need to be concerned which one we grow for better returns. For the full year 2008, we estimate CapEx, including the acquisition of Mitchell's will be between $135 and $140 million. A final note related to guidance. Recently the compensation committee and Board of Directors of the company approved a restricted stock grant to take place under the company's 2005 equity incentive plan. Factored into the 2008 guidance is a related compensation of this grant as well as an expected approximately 5% increase in the share base.

Before returning the call to Craig, with this being my last conference call as CFO of Ruth's Chris, I wanted to take this opportunity to thank many of you that I have been able to get to know since our initial public offering since August of 2005. I have appreciated all of the support and sharing you have provided with me, and I look forward to being able to keep in touch with many of you. I have truly enjoyed being a part of Ruth's Chris over the past 11 plus years and despite the current environment, Ruth's Chris is a wonderful brand that has stood the test of time and survived many adversities. This ask really bittersweet for me, of course, but I am excited to be going home to New Orleans and doing my part to help rebuild the city that I love and which also created this brand. With that, I would like to turn the call back to Craig Miller for some concluding thoughts.

Thanks, very much, Tom. We all know how deeply you care about the Ruth's Chris brand and all of us, including the Board of Directors, appreciate your many years of service to the company. To conclude, we're building a world class high-end restaurant company. We recognize as well as anyone the challenges of today's operating environment, and we certainly don't want to minimize that, but what keeps us energized is a unique platform for growth, one that includes two great brands with global prospects and a great team of people that are fully capable of executing our plan. Thank you very much. We now would be happy to answer any questions. Operator.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from the line of David [Terantino] from Robert W. Baird. Please go ahead.

Hi, good afternoon. Question on the strategy to promote more value offerings. Was wondering if you could give us some more detail on that and your thoughts on the risks related to that strategy in terms of potentially damaging the brand longer term.

Sure, it's a great question, and one we, we consider very carefully. Certainly when you are serving the type of guests that Ruth's Chris does, value is typically not part of the overall equation that you have too much concern about. In these particular times, however, we feel that lowering the barrier where we can could improve our traffic and we're carefully proceeding to test different ways to do that. One way is through the use of our menu by offering more items at the less than $30 per entree level. That still generates significantly high margins for us, but offer guests the opportunity to secure an item at a price point lower than our normal menu item. The second thing that we have done is tested through the use of mailers and gift card promotions the idea of a $25 gift card. That has been tested now in four markets with some good results so far, and we -- we feel comfortable that using a very high quality distribution offer of that type can both build traffic without hurting our brand. And the last -- the last component of that process is to talk to our guests and -- through both the internet as well as advertising, letting them know about offers like the prime offering where two can dine for a single price point where you are bundling products together to offer a price point that would be below the normal price for two guests.

Okay. Thanks. That's helpful. And then a question on the guidance and trends you are seeing to date and in the first quarter. Could you give a little bit more detail on the comps you have seen to date and how you expect the comps to flow through during the year?

The visibility of comp projections moving through the year is something that is very are difficult to accurately be able to predict. What we have done is we have made some assumptions based on the trends we have seen for the last 9 to 12 months. December was our low point. We actually had better numbers in the first six weeks of the year. That was helped by the flow of new year's each into 2008 as compared to 2007. And having said that though, we do expect the first quarter to be down in the mid-single digits, and we do anticipate that continuing for the second quarter. We will then start lapping some much softer numbers in the second half of the year. But we'll being very cautious because projecting same-store sales in the current climate is not something we have a lot of confidence in.

One thing I would add, Dave, is how we have gone into 2008 understanding the macro-environment we're in as our management teams are doing a much better job of controlling the cost items with the expectations of lower sales going in. And while we have had some of the sales softness the first six weeks as we look at the results of our first period, our management team did a much better job than I did we did a year ago. And with the increased focus we have internally managing for this environment, I think that will help us as we go throughout this year.

Okay. Thank you very much.

We do expect the first half of the year to be more challenged than the second half on a comp basis.

Okay. Thank you.

Our next question comes from the line of Nicole Miller, Piper Jaffray. Please go ahead.

Good afternoon -- I apologize if the line is not really clear. But hopefully you can hear me. It know what part of the beef has been locked in for this year. Nicole, hi, how are you? We have still not locked in beef purchases for 2008, given where the market is. We are running lower cost of beef and lower cost of sales in 2008 in the first quarter here than we did last year, and it's pretty significantly lower. We don't anticipate necessarily that we'll be able to continue to run year-over-year lower cost of sales, but the prices being offered today on forward contracts are significantly higher than the current market is for the product and we have chosen to continue to ride the market. When you mean today do you mean today today or the whole entire first quarter as been lower year over year?

No. Year to date, 2008, we have been lower than the prior year.

And when you say significantly can you just help quantify, 5%, 10%, 20%, 50%?

It is more than 100 basis points on cost of sales.

Okay. And I just want to make sure I'm clear, I read a press release the other day about the revolver closing and then it said something about share buyback, but then tonight you said you're not doing one. I just want thoughts. Yes. The release that was done on our debt explained the terms of our commitment. We do have a $50 million allocation or basket that we should use for share buybacks. We have not gotten authorization from our board to do a share repurchase. But flexibility is built into our debt instrument. And does the same-store sales guidance, did that include the Mitchell's concepts? No, it does not. It's strictly the Ruth's Chris projection. We broke out the quarterly average unit volumes for the Mitchell's restaurants to give folks a baseline to operate from. These restaurants, from a comparable basis, really won't be comparable for us because they haven't been part of our business in the prior year. But as a gauge for how that business is performing, same-store sales in that business, because we believe because a lot of it is midwest centric, has been more positive than it has been in our steak business. Okay. And when did they come into the comp base? I would guess they come in to the comp bags probably second quarter of next year. Okay. My last question, can you just review fourth quarter comps? About the deceleration throughout the quarter. And can you go back and give the price or the entree or the traffic, however you define that?

It did decelerate successfully through each month of the quarter where December was the lowest and much lower even as December finished than we expected. We had, of overall per entree spending or what we call our check average, that was positive about 3.5% with 2.5% approximately being coming from pricing. The remaining 1% be a combination of some of the mix chef features and traffic into our bars that don't get counted because if it's not an entree sale, and then -- offset in traffic.

And then you talk about first quarter being better than December, but it sounds like it is still lower than the fourth quarter sequentially. Is that -- am I understanding your comments correctly?

It -- as far as the -- our current trends are -- as far as the entire quarter, it's -- it's better today, although we're not finished with the quarter, than what we -- than what we the Q4 was. But it's better than December. Which December really pulled the quarter down pretty dramatically for us in the fourth quarter, which is normally one of our highest volume periods, and we're running better than December is from a percentage standpoint in comparable or better than the entire quarter.

So you're saying better than December and better than -- so you are down -- less than down 5.6.

Yes.

Quarter.

To date.

Okay. Thank you --

We did have New Year's Eve assisting that on the year-to-date basis.

Okay. Tom, I just wanted to wish you best of luck. Thanks much.

Thank you, Nichole.

Our question comes from the line of Steven Crown Goldman Sachs.

Good afternoon, guys.

Hi Steve.

A follow-up on the guidance just to be sure here. What are you guys incorporating from the Mitchell's acquisition as far as the impact of that 55 to 60? I think you had said in the past, maybe last quarter or when you announced the acquisition maybe 5% accretion. I don't think that's currently the guidance, but just want to be clear.

Yes, we have really been cautious about providing incremental guidance on Mitchell's since the transaction has only been closed for a couple of days. Our pro forma is no different, and actually is slightly better, Steve, than what it was a couple of months ago, because the interest rate on a slightly lower purchase price is going to be fairly significant. So the first year guidance -- first year pro forma that we had talked about before of 5% is still -- is still our expectation, and that's going to happen, more of that is going to come toward the last half of that first year just because of the integration cost of bringing the restaurants online.

Okay. And that 55 to 60 is comparable to the 78 that you just reported, correct?

That's correct although the 78 also includes --

Your 78 has about $0.07 from the -- really if you take out the insurance proceeds and the related impairment of some of the last of the Katrina-related items, you are looking at about $0.71.

Okay. So that is kind of what you would compare it to, $0.71?

Yes. And the other factor there is that's 70 -- $0.71 for '07 included no incentive compensation.

Yes, that was a my next question. Can you just talk a little bit about that? It sounds like it's a bit of a new program.

It is actually not a new program at all, Steve. We have historically had an incentive compensation plan for our people. We did not hit our internal targets for 2007. So there was no bonus paid out in FY '07. We have internal targets established for 2008, and if we meet those targets then there would be compensation paid under the program.

Okay. I thought I heard maybe a shift to restricted stock but I guess it's the same program. But just to that question though, with your guidance of earnings down from the 71, let's say to 60, you are down 15%-ish and you are talking about same-store sales in the -2 to -5% range. Would that meet the internal target? What's the trigger here for incentive compensation or are we including something on the expense side that if the sales come in where you are anticipating it wouldn't be an expense?

Well, we don't disclose our internal targets, but I will tell you the internal targets are higher than the guidance that we issued.

Okay. Okay. And then just lastly, if I did my math correct, I think, Tom, you said pro forma 2.8 times debt to EBITDA. I guess that's on a trailing -- on 2007 EBITDA is that right?

That's is on a trailing, but it's also bringing in the acquisition and pro forma EBITDA, run rate EBITDA of Mitchell's and that's factored in the multiple as its used in our credit facility.

So is the EBITDA somewhere around 20 million for Mitchell's?.

No.

Too high. Okay. I'm not doing my math right. I'll follow up after. Okay. Thanks very much.

Our next question is from the line of Jeff Omohundro with Wachovia. Please go ahead.

Thanks. Just wondered if you could elaborate a bit more on your traffic-building initiatives. Where you stand. How the Friday lunch program is working. You mentioned the prime dining for two. How is that working? And what else you might you have in the pipeline to help drive traffic?

Thanks, Jeff. How are you?

Good.

The prime dining program we have it currently I believe in only about three or four stores. We are rolling it out into some additional markets. And it's an excellent program for driving traffic in the early part of the week. Monday through Thursday timeframe so it doesn't interfere with your typical Friday or Saturday where it's difficult to get in to our restaurant, so you are not hurting your margins during those times. The $25 gift card program is one that has been tested now, I believe, in four markets and we have seen movement in the 10% range, in terms of shifting of traffic from negative to positive, and we plan on expanding that to several markets in the next, in the next 60 days.

And it looks like your advertising on a percentage basis, at least, was -- or mortgage spending was down. What is your thinking about marketing in terms of a lever to drive sales? And also in terms of Mitchell's, how is marketing played in their grow, if it has?

Well, let me take the last question first. Mitchell's has been spending around 1.75% of their sales in advertising historically, which is low for a concept like Mitchell's but they have a -- a more reduced geographic distribution and concentration of restaurants, so most of their advertising has been local, local type of spending. Damon Lever, the new president of Mitchell's, has a very strong marketing background, so him and his team are going to be looking at opportunities that may exist to actually influence the traffic in the Mitchell's restaurants through different types of advertising. But we haven't, of course got those plans solidified yet. On the Ruth's Chris side, we did reduce our spending in the fourth quarter compared to a year ago, and our overall spend for the year was slightly slower than we typically have had. Most of that has been just relative to where we can be effective, and the types of advertising we're doing today compared to the mass media radio spend that we had done in 2007. But as we move forward you're likely to see the A to S ratio move back to normalized times as we work through some of these programs to try to drive traffic. As Tom said earlier, we're in a different mental state, I guess, in terms of approaching traffic generation to date than we were a year ago, given the current climate that we're in.

Very good, thanks, and best wishes in the future, Tom.

Thanks, Jeff.

Our next question comes from the line of Jason West, Deutsche Bank. Please go ahead.

Thanks. Can you hear me okay?

Yes, Jason, go ahead.

Did you all notice any notable regional differences in the comps during the quarter or traffic during the quarter? If you can talk about that a bit.

Well, California continues to be a tougher region for us, particularly, you know, markets like Sacramento and some of the southern California markets where housing has been such a challenge. The midwest continues to be relatively strong. The northeast was very strong in the early part of the year but tailed off in the last half of the year and turned negative on us, particularly in the fourth quarter. Florida has continued to be slightly negative, but not gotten a lot worse.

Okay. And can you talk -- any color on what type of debt covenants that you guys have? So I guess, if you look at the guidance on a forward base and where the debt will be kind of at the end of the year, that coverage ratio is not going to be as low, just -- just wondering what the covenants are there and sort of what the outlook is for that.

We have two major covenants. One is a fixed-charge ratio and the other is a leverage ratio which is a debt to EBITDA ratio of 3.5 max. That EBITDA is a true cash EBITDA and there are several adjustments and things that are excluded from it versus what you would just have seeing or calculating on the face of the income statement. Examples of that are FAS 123 and non-cash type compensation expenses or something excluded from that for calculating that ratio.

Okay. But based on your guidance you don't see any risk on that ratio?

No. As Craig mentioned, we have some internal targets above that, but even at the guidance level, we're in good shape at that level for our covenants.

Okay. Best of luck Tom thanks a lot.

Our next question comes from the line of John [Ivanco] with J.P. Morgan. Please go ahead.

Hi, thank you. The question I guess maybe is for you, Craig, with your length of experience in the industry. Obviously we saw not just with Ruth's Chris but a lot of companies a very strong deceleration, whether it began in August, September, October, pick the month in the industry. What is it as you kind of study the economy do you think caused that? And if there is one factor if we should look for stabilization, housing for example, what would that factor be? Outside is just easier comparisons to allow for improvement in the second half of the year.

Well, that is a great question. I wish I had as great of answer for it. I break it down into pretty simple terms how much disposable income do people have and how much of that disposable income is truly discretionary? If you look back in the mid part of the spring of 2006, as I said before when pump prices got over $3 in California, it seemed like the breaks were put on some of our guest's traffic. And we have -- as we move through 2006 and into 2007, the expectation was that there would not be another wave of this type of pressure on the consumer, and we were wrong. We didn't go into 2007 with the expectation that oil prices would be over $100 and gas would settle in the $3.25 - $3.40 range and some places pushing $4.00 out in California. We certainly didn't anticipate the debt and housing market and the pressure that put on consumer's pocketbooks. And I have been doing this for a long, long time as many of our management team have here, and this reminds me of a couple of the more weaker times, particularly back in the early 70s and to a certain extent for a period of time in the early '90s where consumers just changed their habits quite abruptly.

The stimulus package being set to be initiated by the government to put some disposable income back in to people's pockets is likely to have some short-term benefit for some segments of our industry. But I'm still, quite honestly, looking for what the catalyst might be that would create some stability for consumers and their disposable incomes and I have not yet seen it. I think that's one of the reasons why we are being so cautious. You just don't see, have visibility out there as to what it might take for consumers to return to their typical buying habits for dining at Ruth's Chris or buying something from a high-end retailer or something of that nature.

It does sound like you perceive it as more of an income statement for the consumer maybe driven by higher expenses than a balance sheet issue for the consumer.

Well, do believe it is an income -- because I think most consumers don't probably look at their balance sheet as much as they do their monthly budget, and I think that there were clearly advantages that we're pouring money into the American consumer's income statement, whether it's a refinancing, a home equity loan, cheap credit, credit card debt.

Right.

The tightening of the credit markets has a direct bearing on people's ability to have disposable cash, so I do believe it's pocketbook issue.

On a separate topic, how is your business account spending doing? And is there -- it sounds like -- I understand it's a consumer-oriented concept, but is there anything to ensure the business account spending doesn't drop in '08 with some of the business confidence?

That's an excellent question as well. In '07 we had growth in our private dining business and our -- that segment of our business has held up very strongly, but as you point out, will this consumer slow down then start filtering in to tighter T&E budgets for people and things of that nature that might have a further impact? It's possible. We are cognisent of that fact and we actually, as we have for our retail consumers, we have programs under way to try to improve our competitiveness with attracting more of that type of business as well.

We haven't noticed any discernible change in our mix. Sometimes we have been able to see that, just a credit card mix as far as very simply Visa versus American Express at times, and we haven't seen significant changes in that mix thus far.

Okay. Thank you.

You bet.

Our final question comes from the line of Martin [Bauk], Morgan Stanley. Please go ahead.

Thank you. Chris, last conference call you indicated that a stock buyback would be accretive, I think $12 a share --

Can you talk up just a little bit.

Sure you can you hear me better now? Okay. The questions concerning yesterday's press release about the $50 million today about not utilizing it, and the question is if it was accretive at 12, it has got to be very accretive at 7. Under what conditions would you finally start buying stock back?

I think it goes to the question before about the balance sheet and the managing of our debt facility and making sure that we don't bump up against bank covenants. We have that flexibility as long as we maintain our ratios. If the confidence in increasing customer traffic and more normalization there were to have some visibility, it would probably provide us a little more impetus to do something, but we want to make sure that we maintain our own flexibility to do what we have in place to build our business.

Is it safe to say under present conditions you would hold off from buying additional franchises if they became available?

Well, that's also a deployment of capital at this time in to any additional acquisition would not be something that would -- unless it was very compelling that we would be moving on.

All right. Thank you and good luck.

Thank you.

Ladies and gentlemen, that concludes today's question and answer segment. I will turn the conference back over to management for any concluding remarks.

Again, thank you everyone for joining us today and we look forward to chatting with you again next quarter. Thank you, operator.

Ladies and gentlemen, that does conclude Ruth's Chris Steak House fourth quarter 2007 earnings call. We would like to thank you for your participation. Have a pleasant day. You may now disconnect.