Ruth's Hospitality Group Inc (RUTH) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's Ruth's Hospitality Group, ink, fourth quarter 2008 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 your questions. Hosting today's conference will be Mr. Michael O'Donnell, President and Chief Executive Officer; and Mr. Bob Vincent, Chief Financial Officer of Ruth's Hospitality Group Inc. As a reminder today's conference is being recorded.

Now I would like to turn the conference over to your host, Mr. Bob Vincent, please go ahead, sir.

Thank you, and good morning. We 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 placed upon them. We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could impact future operating results and financial conditions. I would now like to turn the call over to Mike O'Donnell, President and Chief Executive Officer of Ruth's Hospitality Group.

Thanks, Bob, and good morning, everyone, thanks for joining us today. Times are certainly tough and we do not have a lot of visibility in the current environment. But in an effort to manage the business we've made what I believe are good decisions centered on managing our debt and maximizing free cash flow. To that point we are pleased that we acted decisively on infrastructure savings during the fourth quarter and as of yesterday amended our credit agreement. With that behind us we can now focus more of our efforts on running the business. I'll let Bob review our fourth quarter and financials in further detail but I wanted to point out a few high level items to you.

First, while comparable sales declined during the quarter our performance was relatively in line with our peers according to the Knapp-Track Index. And since the third quarter of 2008, we've actually gained market share which we view favorably. We are hopeful that our current strategy and tactics will enable us to hold the gains we made but it is too early to tell. In spite of our lower sales we're pleased to have exceeded the high end of our earnings guidance for the fourth quarter, if you exclude the one-time charges. And although progress is difficult in this environment, we are seeing results from our new leadership and the initiatives we laid out in the fall.

Also, our five 2008 Ruth's Chris Steak House restaurant openings had a very successful year and we are pleased that they have been very well received. These restaurants exceeded the systems sales average by 20% for the full year and during the fourth quarter they further built their momentum against the system average as they exceeded the systems sales volume by 32%. I spoke on our last call about three broad initiatives, reorganizing, repositioning and reenergizing. And let me give you now a brief update.

In terms of reorganizing I think the most important thing we have done so far is enhance our operational leadership. Kevin Toomy, Ruth's Chris, Chief Operating Officer now has five months under his belt and Sam Tancredi, Mitchell's Chief Operating Officer has now been on board for 90 days. Kevin and Sam each bring more than 30 years of restaurant operations experience to their positions and I'm confident they can deliver operational excellence, through tight controls, driving margins and capturing increased traffic.

We have also reduced our expenses by streamlining our corporate infrastructure to match the environment. Having said that, we are still capital constrained in terms of Company development. However, our franchise development for 2009 remains on track for three to five openings this year. Two of these restaurants have already opened, one in Dubai the other in Greenville, South Carolina. Along with other supply chain and restaurant level initiatives we believe we'll save between 10 million and $12 million in 2009 on top of the approximate $3.5 million in savings we've already realized in 2008. Bob will offer more specifics on how the numbers break down, but I wanted to emphasize that the organization is now leaner and much more productive.

Our second action item is repositioning which involves accentuating the brand equity of Ruth's Chris steakhouse name. Including its 44 year history of great service and sizzling steaks. As part of this effort we intend to broaden our demographic reach particularly economic by reemphasizing our previous position as a classic steakhouse that for years was priced below our more formal steakhouse competitors. This can be seen through value initiatives with price certainty and bundled menus. These efforts are designed to make us more relevant to today's value-conscious consumer and thereby drive traffic which is a key priority for us this year.

To that end we launched the steak and stuff lobster special for $39.95 during the fourth quarter which received great feedback from our customers. It was a slightly smaller fillet at 6 ozs, with a 5 oz lobster tail stuffed with crab meat. We are currently offering several other value promotions. The first is what we call Ruth's Classics, a $39.95 three-course meal featuring a choice of one of four entrees, such as a 6 oz. fillet with shrimp, a personal side and a dessert. We're also promoting Ruth's Duo, which is a 6 oz. fillet with additional choice of shrimp, chicken or barbecue for $29.95 -- barbecue shrimp. We also have a limited early week test in three restaurants of our steak [fretes], an 11-ounce version of our traditional sizzling hot New York strip with a side of shoestring fries for $19.95. While this test has only been going on for a few weeks the empirical evidence is that customers certainly appreciate a Ruth's Chris experience at such an attractive price.

In terms of Mitchell's, I think we lost a little bit of our edge in managing through the transition of ownership and that we needed to correct that. I think putting Sam Tancredi in the leadership position is the first step to solve the problem. We are now leveraging many costs across both brands, capturing efficiencies by combining purchasing power with Ruth's Chris steakhouse along with the corporate functions in the areas of marketing, human resources, public relations and accounting. We clearly have some difficulties in the Ohio and Michigan markets where we operate eight restaurants and the environment there could worsen due to the auto industry's current challenges.

However, this alone does not create a lack of confidence in the concept. In fact, we maintain that Mitchell's has the potential for a bigger footprint some day, but we simply cannot pursue expansion right now for prudent financial reasons. Eventually as we grow Mitchell's we will be offering it as a franchise opportunity alongside our Ruth's Chris franchise. And the good news is that we already have interest from our existing Ruth's Chris franchisees.

On the marketing front, similar to what we were doing at Ruth's, we're creating more bundled offers that are high value but less in a pure dollar off promotions. Mitchell's positioning is a chef-driven concept with fresh seafood and a $35 guest check average is further enhanced by these bundled offers which will be augmented by early-week specials that we expect to roll out in the second quarter.

And, lastly, we reenergized. With new leadership in place with have a clear strategy and direction on operational excellence, which by itself boosts morale. We're also reallocating some resources that might have previously gone to growth infrastructure to training and education at the restaurants themselves, and our field staff is responding very favorably to these efforts. We are still in the early development of a managing partner plan where our restaurant managers will invest and share in the profits of the business they run. I strongly believe this is the direction we need to move in, essentially aligning compensation with overall shareholder goals.

In conclusion, we are going to continue to be as transparent as we can in explaining our progress in this tough environment. We feel we are in better shape than when Bob and I came on board but we still have much more to do. I will now turn it over to Bob.

Thank you, Mike. Our top line performance during the fourth quarter continued to be pressured by the persistent and pervasive macro economic challenges. Along with our customer base, reigning in their discretionary spending to deal with these difficult times. Still, while many of our cost items are fixed and consequently the reduction in sales volumes negatively impact our profitability, I believe that this quarter's results demonstrates our ability to manage those cost inputs that are within our control.

During our third quarter conference call we talked about the possibility that if comparable sales at Ruth's Chris Steak House decreased 15% for the entire 13-week period. We would have expected earnings per share between $0.00 and $0.02, excluding severance relating to the corporate reorganization changes, made in October, and any impairments we would likely to take during the period. On a tax affected adjusted basis when we remove these items from our P&L, we generated $0.04 in earnings per share despite comparable sales falling below the initial projections.

As described in our earnings release today, for the fourth quarter ended December 28, 2008, we generated total revenues of $99.8 million, which was 12.1% higher than last year's $89 million. Total Company-owned restaurant sales grew at 14.2% to $96.9 million from $84.8 million in the fourth quarter of 2007. Largely due to a 48% increase in restaurant operating weeks which totalled 1,138 for the quarter. This includes an additional 83 weeks at Company-owned Ruth's Chris Steakhouse in operation year-over-year, in 286 additional operating weeks relating to the Mitchell acquisition. Average weekly sales for all Company-owned Ruth's Chris Steakhouse restaurants was approximately 91,000 in the fourth quarter compared to approximately 110,000 in the same period last year. Comparable restaurant sales at Ruth's Chris Steakhouse decreased 18.5%. The average check declined by 2.2% driven by menu mix shifts and year-over-year pricing of approximately 2%. We also experienced a 16.7% reduction in entrees. Our private dining business which historically represents approximately 13% of revenues during the fourth quarter, were down 16.5%.

Both sales and traffic fell sequentially from the third quarter and within the fourth quarter itself. However, we continue to benchmark our performance against the upscale steakhouse Knapp-Track Index and from a traffic perspective we outperformed the index by 1.2% during the quarter. While we realize that our sales were disappointing, the fact that the Ruth's Chris brand is not losing market share is certainly a positive, even though the overall category is contracting.

Our sales performance was dictated mostly by our two largest markets, California and Florida. Which represents approximately 45% of our sales base with each state having 14 restaurants. California was a bit better than the system average as it was down 17.8%, while Florida was a bit weaker, as it was down 21.2%. Although our northeast and our midwest markets are smaller, they did experience some harsh winter weather, particularly the last weekend before the holiday season, which obviously had a negative impact on our results for the quarter. As Mike spoke to earlier, our five new 2008 Ruth's Chris restaurants had a very successful year, exceeding the system average by 20%.

During the fourth quarter these five locations further built their momentum against the system as they averaged $120,000 per week which exceeded the average volume of our system by 32%. The fourth quarter also includes $19.4 million in revenues from the Mitchell's acquisition, which was not part of the Company in the prior year comparable period. Combined average weekly sales at the Mitchell's Fish Market and Steakhouse brands were [67.9 thousand] compared to [80.8 thousand] in the prior year quarter. As we have said before we will not consider Mitchell's to be comparable until the end of the second quarter of 2009 at which point we will have operated these restaurants for more than a full year. Franchise income fell 22.6% to $3 million, versus $3.9 million in the fourth quarter of 2007. Franchise fees declined approximately $500,000 year-over-year. Domestic comparable franchise-owned restaurant sales decreased 19.5% while international comparable franchise owned restaurant sales decreased 16.9%. Which combined for a blended comparable franchise owned restaurant sales decrease of 19%.

In terms of our cost structure as a percentage of restaurant sales, food and beverage costs decreased 50 basis points year-over-year in the fourth quarter. Favorable beef costs primarily drove the improvement as we purchased all of our needs from the spot market during the quarter. As we moved into 2009, we will continue to purchase the majority of our beef on the spot market, however, we have recently locked in approximately half of our prime beef requirements for 2009. Restaurant operating expenses as a percentage of restaurant sales, increased 700 basis points from the fourth quarter last year. The majority of the deleveraging was due to weak comparable sales as many of these expenses were fixed. We continue to be actively focused on containing costs in our restaurant without compromising anything that touches the guests.

Marketing and advertising costs were 40 basis points higher in the fourth quarter compared to the previous year. We had projected that our annual marketing expenditures would be approximately 100 basis points higher than in 2007, in an effort to create more brand awareness and promote a value-oriented message. Actual marketing spend for the year finished about 70 basis points higher versus 2007. G&A costs as a percentage of total revenue decreased by 240 basis points. Primarily due to the corporate reorganization, completed in late October, combined with lower FAS 123R costs and a reduction of third party professional fees.

Depreciation and amortization rose as a percentage of total revenue, due to the comparable sales deleveraging, while preopening expenses declined as we opened one new restaurant in the fourth quarter of '08, compared to four openings in the same period in '07. The fourth quarter opening was in South Barrington, Illinois.

In the fourth quarter operating loss was $87 million, versus operating income of $8.1 million in the same period last year. As we had discussed on our third quarter conference call, the Company was evaluating the asset values under the accounting rules and expected to record a significant charge. During this fourth quarter the Company did record a $90.2 million charge.

The combined $90.2 million in restructuring and impairment charges breaks down as follows--$2.2 million in severance charges, $32.2 million in FAS 144 non-cash charges for existing restaurant and corporate facilities. $49.1 million in FAS 142, non-cash impairment charges relating to goodwill, franchise rights and trademarks. And approximately $6.7 million in development costs reserves. Although this is obviously a large amount, the magnitude of this overall charge is relatively consistent with what we expected in that 90% of this charge is non-cash.

Our net interest expense of $3.4 million in the fourth quarter this year includes a $947,000 mark to market non-cash charge related to the interest rate swap agreements, compared to interest expense of $2.3 million for the same period last year. Our GAAP net loss for the fourth quarter, which includes all of the aforementioned items was $60.7 million or $2.60 per diluted share compared to net income of $4.1 million or $0.18 per diluted share in the prior year period. On an adjusted operating basis, however, net income was $900,000 or $0.04 per diluted share.

I'd now like to make a few comments regarding our balance sheet and capital structure. Capital expenditures during the fourth quarter totalled $3.1 million including $2.5 million for our new restaurant in South Barrington, Illinois. $300,000 for remodels, and $300,000 for maintenance capital. Long-term debt at quarter-end was approximately $160 million, a reduction of $6.6 million from the balance at the end of the third quarter. As we announced in power January 12, press release, the Company was not in compliance with our leverage covenant as of the end of the fourth quarter. As announced yesterday we have amended our existing credit facility. The revised terms offer us greater financial flexibility in an otherwise uncertain and unprecedented economic time. Along with time to drive the various top-line and margin improvement initiatives at both Ruth's Chris and Mitchell's.

Some of the specifics of the amendment include reducing the revolving loan commitment from $250 million to $175 million initially, with additional reductions scheduled until the final maturity date of February 19, 2013. In addition, starting in the fourth quarter of 2008, and continuing through the second quarter of 2010, the maximum leverage ratio has been increased, while the Company's minimum fixed charge coverage ratio has been lowered. As of the third quarter of 2010, those covenant levels are reset to their original level. Additionally, two new covenants have been added.

The first is a minimum EBITDA test and the second places new restrictions on capital expenditures starting this year with a cap of $12 million in spending. The Company expects to file the full amendment with the SEC within the next few weeks. In terms of our 2009 outlook, I am sure that you all can appreciate that the economic uncertainty is a real obstacle in projecting sales levels with any real confidence, and therefore we are not in a position to offer definitive earnings guidance. Like many other restaurant operators, we would expect the first half of 2009 to be very challenging, and if there is going to be any improvement it will likely happen in the back half of the year.

With that as a background our current thinking is that comparable sales trends are likely to be down in the low double-digit range for the full year. As you know, our practice is not to provide forward guidance on a quarterly or monthly basis. That said, I will say that through the first eight weeks of the quarter our sales trends have improved slightly over our fourth quarter results. On the cost side, food and beverage costs are projected to be 31 to 32% of restaurant sales. While marketing spend will be between 3.3 and 3.5 total revenues. G&A expenses are expected to be in the range of $22.5 million to $24 million, which is obviously down considerably from the approximate $30 million we spent in 2008. CapEx spending is projected alt 10 million to $12 million, primarily for maintenance capital, along with a few previously-committed remodels. Again, this is significantly below a 2008 CapEx budget of approximately $32 million. Finally, we expect to generate free cash flow in the 12 million to $14 million range. With that, I'd like to turn the call back over to Mike.

Thanks, Bob. Just a few final thoughts before we take your questions. There is clearly a great deal of work ahead of us. But at the same time we're proud of what we've accomplished over the past few months. In terms of defensive moves we have amended our credit agreement and right-sized our infrastructure which were both necessary to move our Company forward. In terms of offensive moves we've installed new leadership at both of our brands, integrated Mitchell's into our shared services, initiated brand repositioning to promotional activities to broaden demographic reach and continue to support our franchise systems as they expand this year.

Most importantly our highest priorities this year will be to maximize our cash, pay down debt and look to drive traffic. I'm thankful to be surrounded by incredible team in the field both at Ruth's Chris and the Mitchell's brand. And I'm also thankful for the dedicated group in our support center. Finally, I appreciate the ongoing dedication of our Ruth's Chris franchisees who are truly the heart and soul of the Ruth's Chris brand. All of these groups share my passion and are similarly dedicated to making the Company the financial success that our shareholders deserve. With that, operator, let's open the line for questions.

(Operator Instructions). We'll take our first question from Nicole Miller from Piper Jaffray, please go ahead.

Good morning, Bob, I missed the franchise stores opening in the fourth quarter, was it two and what was the distribution for the three fall into the quarter for next year.

We opened one franchise location, Nicole, in Q4, in Savannah, Georgia.

One Company, right?

And one company in South Barrington, Illinois, that's correct.

Okay.

In terms of three to five, we opened two franchise locations here in Q1 and the expectation is in Q3 or 4 we will see the additional one, two, three locations open.

Okay. And -- is it half of the prime beef that you locked for all of the first half, or half for the full year?

We locked half of our prime beef needs for the full year.

Okay. And obviously that to a benefit. Correct?

That is correct.

And what was the debt to EBITDA calculation for the fourth quarter, and maybe it is not relevant because I understand amendment, but how should we think about that.

It finished at approximately 3.66.

Okay. And when you filed amendment we'll be able to see the change in the covenants?

That is correct.

Okay. And where do you stand with the sale of the headquarters, Florida headquarters?

Yes, we have extended the time frame once again to the buyer as he continues to pursue financing and so at this point there are no change. We still are hopeful that the buyer can secure the financing, but, it's still some time here before that is determined.

Okay. And then, Mike, just kind of big picture question, obviously you're plotting the value you're trying to bring back to the Ruth's brand and balancing that. Just can you talk about how that impacts lunch and dinner and alcohol sales and weekday and weekend. What do trends look like with those changes going on, on the menu?

Thanks, Nicole. What we're -- what we're seeing, and I talked about the Ruth's Classic which is our broadest promotion started in early February and it has actually two components, a $39.95 component for, it is really basically a prefix meal and you can buy up for a $44.95 opportunity. We're seeing a split between those really of about 60/40, in that range. 60 being more in the $39.95 range. And we're seeing a fairly high preference for those two items. Our early-week business has been softer, which is why we have looked at things like steak and fries at $19.95, because clearly we have more capacity early week and we're running that as an early-week promotion. Our weekend business has been firmer, stronger than our early-week business, and we sort of have -- we've expected that and it sort of behaved in the same way. But the $39.95 promotion that we're running the broad Ruth's Chris classic, has been received very well, it's getting high preference, and it's having a very modest impact on our guest check average.

Thank you.

Thanks, Nicole.

Our next question comes from Mr. Jason West with Deutsche Bank, please go ahead, sir.

Thanks. I wonder if you guys evaluated the need to close any restaurants and if you can talk about, the percentage of restaurants that are cash-flow negative now, and sort of the outlook there? Thanks.

Well, in term of your second question, I'll answer that first, Jason, and that is we have -- we have approximately five restaurants in the entire system, both Mitchell's and Ruth's, that are cash flow negative at the moment. In terms of contemplating any closures, I don't think at this point we're prepared to talk about that. I think we have, as we've said before, we're trying to work with a third party to get some relief on the rent side, with a lot of our landlords, and so I don't want to prejudice any of that activity by making any statements.

Okay. Got you. And I missed the first part of the call, if you guys discussed any regional trends, if you have seen any stabilization or maybe improvement or anything, you can -- if you can talk about it, in your key markets.

Well, I think the opening remarks included comments about California and Florida again, representing little less than half of our system, and California was a little bit better, vis-a-vis, the system as a whole they were down 17.8%. And Florida was a little bit weaker down 21.2%. Those same trends were consistent to the third quarter whereas California was a little better than the system but Florida was a little bit weaker. So I don't know if that pattern is one that will continue that way, but they seem to track -- they have tracked in the last six months, anyway, on that basis.

Okay. And, last thing in terms of the competitive environment. You guys seen other change -- not change, but other restaurants close down around you, particularly some of the independents and any acceleration of that activity as we get into the new year?

Jason, yes, we are seeing some of that, and some of it here more of it probably here in Florida, less of it actually in California. But, yes, we are seeing some -- not necessarily direct competitors, but other restaurants that are in the higher-end price point side, that are struggling and closing.

Okay. Thanks, guys.

(Operator Instructions). Our next question comes from Jeff Omohundro with Wachovia, please go ahead.

It is [Jason Belcher] for Jeff. I was wondering if you could talk a little bit more about some of your sales initiatives, maybe just commenting on how you balance the need to have compelling value oriented offerings particularly with the current economic environment, how you balance that with the need to protect, to change the brand equity? And also -- sorry I missed this, but if you could run through again how long the steak frete has been in test and which markets or how many markets you're doing it in?

Right. Jason, we're very conscious of the brand equity of Ruth's Chris obviously, and as I -- as I said in my comments, we are producing -- what we're doing -- what we found out of the summer celebration that we ran last summer, which was basically two for $89, what we found was that that resonated very well with our customers, but that the actual preference was for a price-fixed menu, price certainty in our environment, on an individual basis. And so that is where the $39.95 opportunity comes from. So we have -- we've gone to great lengths not to change anything, vis-a-vis, quality of what we're doing. I mean, the sizes of some of those changes gives you a greater variety of proteins between shrimp, fish, chicken and a 6-ounce fillet, but the sizes remain the same, just a different size. The salads are the same. The desserts are the same quality, again, just a different size. So we've been very careful to balance the brand equity, but again try to reach out for broader -- for some broader economic opportunities, but really trying to drive traffic.

Now the steak fretes, which we have talked about, which has only been tested for the last two and a half weeks. We've got it in three restaurants. We're running it Sunday through Wednesday, and we're seeing momentum build on a week-to-week basis, day-to-day basis, for the product. Now, there's some obvious trade-away, but we have promoted it, so there's been some actual increased traffic in some of the restaurants on certain days. It's very early to say. But while we've got, as I said earlier, we've got a fair amount of excess capacity early week. So again when we do steak fretes, it is an 11 oz. New York strip as opposed to our normal 16 oz. but it is served on a sizzling hot plate, it's still prime product, it is still exactly the mouth and flavor feel that you've come to expect from Ruth's Chris. So we're very concerned about, and focused on not giving up the brand equity. But at the same time recognizing that consumers have become much more value-oriented. And particular value-oriented to premium products which we would put ourselves in that category. So we have done these things to create really a broader reach and frequency.

Okay. Thank you, that's very helpful and we certainly look forward to trying that steak frete. You mentioned you're promoting it. How are you doing that? With direct mail or?

Most of our promotion comes by either radio or print.

And then lastly, just if I could, could you give us a little bit more or a little color on your interest expense expectations for '09 given the amended credit agreement?

Well, I think it's, at this point clearly the pricing grid has changed from our original deal, and I would say roughly it's likely to add somewhere probably between 175 and 225 basis points in the overall interest carrying cost.

Okay. Thanks a lot.

Okay .

We'll take our next question from Bryan Elliott with Raymond James. Please go ahead.

Thank you. Just a quick follow-up on that one, first, Bob, the 175 to 200 bips on the current, would that be the gross reported interest or the interest before the impact of the swap?

That would be the interest before the impact of the swap. And--.

Can you remind--?

Just to make sure, I will do, but I just want to go back and correct you, it is 175 to 225.

225, right.

Then we have two swaps in place. The notional amount to 25 million for each one expires as of September, late September, of 2009. The second late September 2010. And I believe they're at 461 as a spread for LIBOR.

So those remain in place?

They remain in place, they do.

Okay. All right. So, so , okay I guess I'll doodle through that. The other question I have relates to the -- to the new agreement itself. Can you -- I know you're going to publish it, so it will become known. Can you help us a bit with the -- how much the new -- what is the minimum EBITDA and what are the new break points on the important

Well, I think, I tried to do a good job in the press release, kind of detailing the key features, obviously the leverage ratio was stepped up, for really six quarters, and the minimum fixed charge coverage ratio steps down for six quarters. The new covenants, in terms of the CapEx, we don't see that as problematic. We had kind of built that in already to our planning, so that's -- that shouldn't create any -- any issues for us. And the minimum EBITDA test, it's a prospective test. It starts here in Q1, and then builds thereafter, and, we feel that we've -- we've got cushion to be able to manage the business with the levels that it's been set at.

All right. I mean, so we just have to wait to read it, you're not going to tell us what the numbers are?

Okay, Bryan, again, I want to be open. The minimum test in Q1 here is $8.2 million.

Okay. Thank you. And how about the debt to (inaudible)?

The ratio -- the leverage ratio is set at 4.75.

Thanks a lot.

We'll take our next question from Mike Moore, with Moore Capital Management.

Excuse me. You said these five new restaurants were doing significantly better than the average. Is that because they have better locations or is the configuration of the restaurant, did you make them differently, or can you just give us a little color on why you think they're doing better?

Yes, Mike, I would tell you that -- I would tell you two things. One, I think that the real estate selection in those particular locations I think was -- is superior to some that we may have had in more recent prior years. And I think there was a -- I think there has been a real concerted effort in those restaurants as we had struggled in some prior -- from some prior tranches of restaurants, to really accelerate those opportunities. But I would tell you that mostly it is better real estate.

Okay. And then also during your remarks you mentioned that you're going to shift to the, some type of system where the manager will become an equity holder. Could you kind of go into that in more detail? I know there's -- I forget which one it was, but there's another another steak restaurant who basically had all of the managers own equity in the restaurant and it seemed to really be a big plus. Could you go into that a little bit.

Mike, that was Outback Steakhouse, of which I am a proud alumni. And what we're moving towards, and it takes a bit more work to retrofit than it does to start that way, but we'll move towards is where our individual restaurant managers will be able to make an investment in their restaurant and thereby have a longer-term interest in that particular restaurant. We know that long-term stability drives more profitability. In addition, the region Vice Presidents who would supervise from 7 to say 12 restaurants, they would also have an opportunity to buy into their entity, if you will. And generally, and we've not finished the details on this, but there are either five or seven-year tail that would thereby be creating wealth and/or equity in the business that they're building.

Okay. Great. Just the last thing, I saw recently where beef prices dropped 25%. What has happened to prime beef prices?

We're currently running about 5 -- I guess we're seeing about a 20% decline in our, currently from our prior year.

Okay. Great, well thank you very much.

Thank you.

(Operator Instructions). Our next question comes from [Jonathan Comp] with Robert Baird, please go ahead.

This is John Comp in for David Tarantino. Just a quick question on the guidance that you outlined. I am just wondering if you could maybe comment on what type of comp that you might need for 2009 to be profitable on a net-income basis?

Well, again, I think it's as I said earlier, given the sales environment that we're dealing with and the uncertainty, it is kind of hard to pin that down. But I guess I would say that if we end up in the low double-digit end of the range, call it 10, 12%, I believe that we would be able to generate profitability, net income profitability at that level.

Okay. That's helpful. And then with the potentially very favorable beef costs in '09, I'm just wondering if you could give some color on why you might wouldn't see more of an improvement in the cost of sales ratio, and if that's related to the further plans you have for promotions for the year, or if there is something else in there?

Let me just first say that, I said earlier that, and it was in response to, I think it was Mike's question about dropping in price. I was talking about a most recent drop. In other words, that's not something necessarily we see locking, that is what was taking place on the spot market. So I want to make sure I did not say that we have seen that across the board for an extended period of time. But I was actually answering his question relative to recent. So we're really seeing really more of an 8 to 9% reduction in costs really, somewhat through the fourth quarter, and then through the -- so far through the first quarter.

Okay. And then just a couple of quick mop-up questions on the model. Could you maybe just confirm the ending store count for both Company and franchise?

We had 66 Company restaurants and I believe it was 66 franchise restaurants, as well.

Okay. And then for depreciation, there's a couple of moving parts for impairments that you have taken. I'm wondering if you could give guidance on the type of dollar amount you might look for in 2009?

Yes, honestly, John, I don't have that in front of me, and so I'll have to have a follow-up with you and give you that.

Okay. And then just real quick, lastly, on the comp to date in Q1, you said it was a little bit better than what you were running in Q4. I'm just wondering if there is any major calendar shifts or anything like that impacting that?

Not really. It's fairly neutral in the first eight weeks. Valentine's Day, frankly, I would say hurt us a little bit because it was Saturday this year, versus a Thursday a year ago. Though the whole week was a fabulous week for us, I would still say that that shift probably was more slightly negative than it was slightly positive. So that's really the only thing.

Okay. Great. Thanks.

And there are no further questions in queue at this time. I'd like to turn the call back over to Mr. O'Donnell. Please go ahead, sir.

Thank you. Thank you all very much for joining us today. It's a great day to go out and eat steak, or fish. Thanks.

This concludes today's Ruth's Hospitality Group fourth quarter 2008 earnings call. Thanks for joining us and have a wonderful day.