Ruth’s Chris Steak House, Inc. Q1 2008 Earnings Call Transcript

Ruth’s Chris Steak House, Inc. (RUTH)

Q1 2008 Earnings Call

May 6, 2008 4:30 pm ET

Executives

Robert M. Vincent – Chief Financial Officer & Executive Vice President

Robin R. Selati – Chairman of the Board

Geoffrey D. K. Stiles – Chief Operating Officer, Executive Vice President Operations

Analysts

Jeffrey Omohundro – Wachovia Capital Markets, LLC

Analyst for Nicole Miller – Piper Jaffray

David Tarantino – Robert W. Baird & Co., Inc.

Analyst for Steven Rees – J. P. Morgan

Steven Kron – Goldman Sachs

Jason West – Deutsche Bank Securities

Barry Stouffer – BB&T Capital Markets

Don [Matter] – Bear Stearns

David Rainey – Akre Capital Management LLC

Martin Bach – Morgan Stanley

Michael Pirna – AAD Capital

Presentation

Operator

Welcome to today’s Ruth’s Chris Steak House, Inc. first quarter 2008 earnings conference call. (Operator Instructions) I would like to turn the conference over to Bob Vincent, Chief Financial Officer.

Robert M. Vincent

This being my first time with this audience I would like first to say that I am very excited to be part of the Ruth’s Chris team. I appreciate your interest and support of the company and look forward to meeting and getting to know all of you.

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 placed upon them. We refer all of you to our recent filings with the SEC for a more detailed discussion for the risks that could impact our future operating results and financial condition.

The order for today’s call is as follows, Rob Selati, our Chairman will begin our discussion. I will then provide an overview of the financial detail of our first quarter and then Geoff Stiles, our Brand President at Ruth’s Chris will provide some commentary on the current state of the business and the variety of initiatives that are in place to help drive results. With that, we’ll go ahead and begin with Rob.

Robin R. Selati

My name is Rob Selati and as many of your are aware I recently became Chairman of the Board of Ruth’s Chris, a position I’ve held before. I’m a managing director at Madison Dearborn Partners, a private equity firm that has been the largest shareholder of the company for some time. Madison Dearborn always has been and still remains highly committed to the success of this business and the creation of shareholder value here.

Despite Craig Miller’s recent departure I can assure you that the day-to-day operations at Ruth’s Chris are running very well and that we possess sufficient bench strength both at the corporate level and in the field to manage the business without disruption while we search for a new CEO.

As you know from our April 24 press release, in order to ensure we have appropriate stewardship of the company during the search process we formed an executive management committee comprised of four senior executives of the company and headed by Bannus Hudson one of our outside directors. Bannus is an incredibly accomplished executive with decade of relevant retail experience and one in whom Madison Dearborn has great confidence. The board has a lot of faith in the executive committee and as I said is highly confident that the transition to a new CEO will be quite smooth.

With that, let me turn the call back over to Bob Vincent.

Robert M. Vincent

Again, on today’s call I will briefly speak to Q1 results and confirm 2008 guidance and then Geoff will provide some color on the key initiatives intended to drive our business. Given the overall macroeconomic dynamics our top line results while disappointing were consistent with the trends we experienced during the latter have of the fourth quarter. However, our ability to control costs allowed us to mitigate the weakness in sales and generate earnings that were in line with internal expectations.

Our special occasion dinners which transcends all demographics were once again the group most affected by the current downturn. The timing of New Year’s Eve was a positive for the period although poor weather specifically in a few markets along with an early Easter negatively impacted results. We continued to experience traffic weakness in both the California and Florida markets, again consistent with Q4 trends. However, we are encouraged with improving traffic trends in our Midwest and western region.

As described in our earnings release today, for the first quarter ended March 30, 2008 we generated total revenues of $98.6 million which was 21% higher than last year’s $81.5 million. Company owned restaurant sales at Ruth’s Chris Steak House grew 8.8% to $85 million from $78.1 million in the first quarter of 2007 largely as a result of a 20.3% growth in restaurant operating [inaudible] including an additional nine company owned Ruth’s Chris Steak House restaurants in operation year-over-year.

Average weekly sales for all company owned Ruth’s Chris Steak House restaurants were $107,240 in the first quarter compared to $118,567 in the same period last year. Comparable restaurant sales at Ruth’s Chris Steak House decreased 6.9% consisting of an average check increase of 2% driven by menu mix shifts and year-over-year pricing of approximately 2.8%. This increase was offset by entrée reduction of 8.7%. Please note that our comparable restaurant sales at Ruth’s Chris Steak House overlap last year’s first quarter growth of 1.9%.

With our Mitchell’s acquisition closing on February 19 we also recognized $9.9 million in restaurant sales from our new Fish Market & Steak House brands. There were 123 Mitchell’s operating weeks included in our first quarter results. As was said on the last call, we will not consider Mitchell’s to be comparable until the end of the second quarter of 2009. Once we have operated these locations ourselves for more than a full year. We therefore will only provide Mitchell’s average weekly sales in fiscal 2008.

Actual average weekly sales results for the entire first quarter which includes the period January 1^st through February 18 when we did not own Mitchell’s were $80,813 compared to $83,877 in the first quarter of 2007. We are combining the Fish Market and Steak House brand for the purpose of both average weekly sales and operating weeks although the latter reflects less than 15% of both metrics.

Franchise income grew 3.1% to $3.3 million versus $3.2 million in the first quarter of 2007 due primarily to nine additional franchise owned locations year-over-year. Domestic comparable franchise owned restaurant sales decreased 7.6% while international comparable franchise owned restaurant sales increased 8% combining for a blended comparable franchise owned restaurant sales decrease of 5.1%.

In terms of our cost structure, food and beverage costs were $30.4 million compared to $25.4 million in the first quarter of 2007. As a percentage of restaurant sales food and beverage costs decreased 60 basis points to 32% from 32.6% in the prior period. Favorable beef and seafood costs, mix shifts and a combined 2.8% price increase offset higher lobster, grocery and dairy costs through the period. During the first quarter beef costs, especially tenderloins were favorable and we also locked in approximately 25% of our prime needs for the balance of 2008. We continue to monitor the market as it relates to our buying decisions but to date the spot market remains favorable.

Restaurant operating expenses were $45.5 million in the first quarter compared to $34.4 million in the prior year period. These operating expenses as a percentage of restaurant sales increased 390 basis points to 48% from 44.1% in the prior year. The majority of this deleveraging was due to our weak comparable sales as many of these expenses are fixed. Marketing and advertising costs were $2.6 million in the first quarter compared to $2.3 million in the prior year or 2.6% of total revenue versus 2.9%. We expect that the first quarter will be the low point in terms of marketing costs as a percentage of revenue. Geoff Stiles will update you on our marketing initiatives after my remarks as we look to increase our expenditures with the expectation of generating additional guest traffic.

General and administrative costs were $6.9 million compared to $6.6 million during the prior year. G&A costs as a percentage of total revenues decreased by 100 basis points due to the leverage from growth in total revenues of approximately 21%. Operating income was $9.3 million compared to $10.9 million last year. Included in the prior year we benefited from $2.4 million in net insurance proceeds relating to Hurricane Katrina for which there was no comparable benefit in the first quarter 2008. Adjusting for the net insurance proceeds the prior year operating income would have been $8.5 million.

Our interest expense increased to $3.2 million from $1 million last year. About $800,000 of this increase was due to the additional borrowing for the Mitchell acquisition. At quarter end our total debt was approximately $179 million versus $97 million last year. Also included in interest expense was an approximate $1.4 million mark-to-market non-cash charge related to an interest rate swap. This represented approximately $0.04 per diluted share after tax.

Net income available to common shareholders for the quarter was $4.5 million or $0.19 per diluted share compared to net income of $6.8 million or $0.29 per diluted share in the prior year. Our effective tax rate for the first quarter of 2008 was 29%. On an adjusted basis if we exclude the non-cash interest rate swap charge this year as well as the $2.4 million insurance proceeds from the prior year, adjusted diluted earnings per share after tax were $0.23 in 2008 versus $0.22 in 2007.

In terms of our fiscal 2008 guidance we are reiterating the previous expectations which are the following. We anticipate increasing companywide restaurant operating weeks of Ruth’s Chris by approximately 15%. In addition to the full year impact of the 2007 openings we will open approximately five to six company owned and six to eight franchise Ruth’s Chris Steak House locations. To date, one company owned and two franchise locations have already opened in Forth Worth Texas, Aruba and Myrtle Beach South Carolina respectively. An additional company owned location in downtown New Orleans is expected to open on May 12, 2008.

We are maintaining the previous guidance of a comparable sales decrease of between 2% and 5% for Ruth’s Chris Steak House with greater pressure expected during the first half of fiscal 2008 as first quarter trends already suggest. For Mitchell’s operating weeks during 2008 are expected to be approximately 836 for the 19 Fish Markets and 132 for the three steak houses. And, it’s expected that we will begin adding additional Mitchell’s Fish Market locations sometimes in fiscal 2009.

On a consolidated basis cost of sales as percentage of restaurant sales is expected to be within our historical range of 31.8% to 32.3%. G&A expenses is expected to be [inaudible] to slightly lower on a percentage basis compared to fiscal 2007. The effective tax rate for fiscal 2008 is expected to be at or below 30%. Based on these factors, we are reiterating our previous fiscal 2008 GAAP earnings per share guidance from continued operations of between $0.55 and $0.60 per diluted share excluding non-recurring charges related to the recent CEO departure. As we mentioned on the previous call, factored in to the 2008 guidance is an increase in the share base of approximately 5%. In terms of cap ex for the full year 2008 we estimate spending will be between $125 and $130 million including the Mitchell’s acquisition.

With that, let me turn the call over to Geoff Stiles, a member of our executive committee and president of the Ruth’s Chris brand.

Geoffrey D. K. Stiles

To give you some context, I’ve been with Ruth’s Chris Steak House for almost a decade and regardless of the environment we are dedicated to our core values of great food, genuine hospitality that represents the Ruth’s Chris brand. Our culture is deeply rooted in our teams and despite a tough economy, moral is strong. In fact, as Bob mentioned, we did a very good job operationally in the first quarter, we just need to reenergize our traffic.

To that point, we recently made a decision to ramp up our promotional activities for Ruth’s Chris Steak House with additional media and have hired a new advertising agency to direct our campaign. Heavy media spending is uncharacteristic for our company. Our objective is to drive traffic with this planned initiative. We have tested this program in multiple markets and are comfortable implementing system wide. The focus of this campaign will promote our value oriented menu items along with the various incentives in place to better reach the special occasion dinner. For competitive reasons, we don’t want to get to granular on this subject but I will say it is our advertising to sales ratio will rise approximately 100 plus basis points on a year-over-year basis.

As stated on the last call, our menu now contains a broader range of attractive price points than at any time in the recent past and due to menu engineering we can still drive solid margins. The offer will bundle a variety of menu choices accompanied with appetizers and dessert selections for a fixed price. This offer will be available throughout the summer. We are launching beverage initiatives through wine tasting, wine dinners and through a new signature drink line that compliments an innovative bar food menu in selected locations. These offerings support dining in the bar versus traditional seating and we consider this initiative to be one that our youngest guests respond to favorably. In fact, the fastest growing segment of our business is the 21 to 35 year old demographic. This is our next generation of dedicated guests.

Another focus of our operating team is to develop greater sales through promoting and supporting private dining. We have just completed an upgrade of all company-operated restaurants providing high-speed Internet connectivity and in select locations video conferencing capabilities. We are supporting this portion of our business with new collateral and a fresh marketing campaign targeted at meeting planners and business executives.

Turning briefly to the Mitchell’s acquisition. Things are proceeding as planned and the 22 restaurants are operating just as they did before the acquisition. Fortunately, Mitchell’s and Ruth’s Chris have parallel values regarding passion for the guest and staff and the commitment to the highest quality ingredients. These elements have made the transition easier than we expected.

In closing, as a representative of the executive committee I want to ensure investors that we are working on these initiatives and focused on our operations. We look forward to updating you during this transition period and are confident that we are positioned to create value. At this point, I’d like to have Margaret open the line for questions please.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jeffrey Omohundro – Wachovia Capital Markets, LLC.

Jeffrey Omohundro – Wachovia Capital Markets, LLC

I was wondering if you could talk a little bit more about the management change at Ruth’s and how that might impact the Mitchells integration status. Also, maybe some comment about the down draft in average weekly sales at Mitchell’s.

Geoffrey D. K. Stiles

Let me address the management side, the management team at Mitchell’s have been in place for a long period of time. They’re turnover rates are very similar to ours at Ruth’s. There has been no change within the system nor within our Ruth’s Chris as well and we are not anticipating any uptick in turnover or in strategy regarding the brands.

Robert M. Vincent

With regard to the second part of your question I would say realistically the macroeconomic conditions that are really impacting all of the brands in the space, and those characteristics are no different from Mitchell’s so the fact that there was a slight decline in average weekly volume, I don’t think it’s indicative of anything other than the fact that the pressures we’re facing in the space if you will are present there as well.

Jeffrey Omohundro – Wachovia Capital Markets, LLC

Then moving on to Ruth’s Chris and the beef cost situation, we’re seeing a pickup in cattle future prices, I’m just thinking is there time when you would contemplate contracting further out rather than having so much in the spot market? And, what is your thinking as you move in to the end of this year and in to next year on the beef?

Robert M. Vincent

I would say that our teams continue to monitor the market daily and from what I understand and let me be honest, I’m just in to this thing six weeks, the spread between the spot and the future market is pretty significant. In terms of tenderloins what I understand is that the spot market we’re at approximately $7 to $7.50 and in the future markets are somewhere north of $10.

So, I think that clearly that we have a desire to hedge and make sure that we have the predictability in our food costs but on the other hand it needs to be economically feasible to do so. So, I think stay tuned, we’ll continue to monitor it and then when there’s an opportunity we’ll certainly take advantage of it.

Operator

Your next question comes from Nicole Miller – Piper Jaffray.

Analyst for Nicole Miller – Piper Jaffray

Looking back at the tax rebates from 2001 and 2003, what type of impact do you expect to see from the tax rebates that are being mailed out and that some people have already received right now?

Geoffrey D. K. Stiles

I think there are probably certain businesses that will benefit from this, it’s very difficult to foresee that kind of impact on Ruth’s Chris. We do think that there is a longer-term benefit that as business owners and larger enterprises benefit from the spend, we in turn will get a percentage of that but it’s impossible to predict the impact on Ruth’s Chris.

Analyst for Nicole Miller – Piper Jaffray

Then you mentioned that you had a benefit from New Year Eve’s shift, did the Easter shift help or hurt you this past quarter?

Robert M. Vincent

New Year’s was a positive, Easter was a negative. We had some kind of weather issues in certain markets. I think overall we kind of looked at it all and felt the adjustments on balance were kind of a net neutral to maybe down 50 basis points but I don’t think any of those factors in the aggregate influenced the results significantly.

Analyst for Nicole Miller – Piper Jaffray

How is the search for the new CEO going? Any update there?

Robin R. Selati

We’ve begun the process. We’ve established the spec and we’ve begun the process. We hope to get it done as quickly as possible but we are going to wait until we absolutely have the right person.

Analyst for Nicole Miller – Piper Jaffray

That includes you guys have hired an outside counsel to help you guys identify and locate a new CEO, correct?

Robin R. Selati

Yes.

Operator

Your next question comes from David Tarantino – Robert W. Baird & Co., Inc.

David Tarantino – Robert W. Baird & Co., Inc.

A question Geoff on the increased promotional activities, I’m just wondering what your thoughts are on increasing the value oriented promotions and how that might influence the perception of the brand longer term and how you’re balancing that with the need to drive near term traffic?

Geoffrey D. K. Stiles

I think it’s a very valid question, one that we have certainly deeply considered before accepting this program. In the studies we’ve done there was a demand of the guest to be able to bundle things together in a way where the ala carte issues for our menu for some is a challenge. In the testing we have done in a variety of different regions we have found the program to be very, very effective and to attract guests that really spent virtually the same amount on additional items whether it be alcohol or after dinner drinks, or coffee. So, we’re very sensitive to that and we do not feel that we are in anyway placing the brand at risk by going in to a program of this nature.

David Tarantino – Robert W. Baird & Co., Inc.

And a clarification, you mentioned 100 basis points increase in the spending ratios, is that for the balance of the year, or is that for the entire year?

Geoffrey D. K. Stiles

That will be through the entire year.

David Tarantino – Robert W. Baird & Co., Inc.

And a question on G&A leverage, it seemed very impressive in Q1 and the guidance suggests less leverage going forward, could you help reconcile why you would expect less in the balance of the year?

Robert M. Vincent

Well, it’s a couple of factors David, one is that we have an annual meeting of our general managers and franchisees that will come later in the year and the venue has changed a bit and that will add some incremental expense. And, the charges associated with 123, FAS. 123 will also incrementally over the next several quarters ramp up a bit. Then finally, we’ll have the full integration costs of the Mitchell’s support. We had a portion of it here in Q1 but we’ll have a fully loaded or fully allocated piece for the balance of the year. So, those are the pieces that are really driving the differential.

Operator

Your next question comes from Steven Rees – J. P. Morgan.

Analyst for Steven Rees – J. P. Morgan

I had a question on sort of capital allocation going forward in terms of when you guys had kind of thought right now in terms of unit development in 09? Or, thoughts on what cash returns you need to justify development?

Robert M. Vincent

Well, I think it’s something that we’re obviously evaluating and I think it’s a little premature to speak to it. I think that we all recognize that the environment today is very challenging but in some respects it does provide an opportunity in the sense that the cost of the real estate and the opportunities within the real estate market may in fact provide some opportunities. But, I think we need to access our capacity to make good decisions and make certain that if we are going to develop in any market it’s prudent. We’ve demanded the best out of the real estate and that we can achieve the returns that this company has historically generated. And, I don’t think we’re in a position to compromise and I would expect us to compromise in that regard as we move forward. So, I think as we move in to the next quarter or two we’ll probably be able to provide a little more color but I would just leave you with the thought that we are going to continue to develop opportunities and make certain that the things we do are going to generate the highest returns.

Operator

Your next question comes from Steven Kron – Goldman Sachs.

Steven Kron – Goldman Sachs

Geoff just first to follow up on the media spend, it seems as though you had some positive response in the test markets. Can you give us a sense for how long you were testing this value messaging and what kind of impact it had to the same store sales?

Geoffrey D. K. Stiles

The testing goes through a variety of different regional focuses. I prefer not to discuss the results at this point in time, I think we’ll see those as we go forward. But, it’s one we are confident it’s a good business move for our organization.

Steven Kron – Goldman Sachs

But suffice to say that the test was long enough that it was in place through the various shifts in calendar so that you had a true kind of lift expectation?

Geoffrey D. K. Stiles

That is correct Steven.

Steven Kron – Goldman Sachs

On the same store sales discussion, you indicated in the prepared remarks that you had regional weakness still in California and Florida but you saw improvement in the western region. I assume, that includes California? So first, did I hear that correctly? And, is California showing some sort of sequential improvement?

Robert M. Vincent

The strongest improvement was really in the Midwest and some of the other states in the western region we did see some improvement. But again, I think the important take away here is the Florida and California markets have stabilized in our judgment and I think the important thing to think about as we move forward is as we start to overlap Q3 and 4 we really should be able to get some traction. Last year Q1 for those two markets were strong. The decline really came over the balance of 07 but we started out positive and then there was weakness as the year went on. So, I do think on an absolute basis as we move in to the year the expectation is, particularly in the second half of the year that those two markets will start to see some improved performance.

Steven Kron – Goldman Sachs

Within the same stores sales number it seems like mix declined a little bit I guess. Are you seeing check management within people sitting down at the table? Or, are there less people going to the bar area which 12 to 24 months ago had been kind of a lift to that same store sales number, is there less traffic going to the bars? Have you been able to isolate kind of where the weakness is coming from aside from just pure traffic numbers?

Geoffrey D. K. Stiles

I think it’s somewhat broad. A little from alcohol, a couple may order one less appetizer or side, we haven’t really seen it in a certain segment of the business. I hope that answers the question.

Steven Kron – Goldman Sachs

Then just lastly, as it relates to the balance sheet, I think you said $175 or so million of debt. Can you just give us an update of how you’re feeling about the position of your ratios as it relates to any debt covenants or anything that we should be thinking about based on your existing guidance?

Robert M. Vincent

No, I think at this point we’re not anticipating any issues with the covenants.

Operator

Your next question comes from Jason West – Deutsche Bank Securities.

Jason West – Deutsche Bank Securities

Did you mention any differences you’re seeing around business account spending versus consumer spending, any trends there that you’re seeing in the last quarter or two?

Geoffrey D. K. Stiles

Jason, we have seen just a really small amount of softening in our private dining or business account management and that was really over the first quarter. I don’t think it’s enough to really draw attention to it but just a little bit of softening. We are seeing some fairly balanced trends as it comes to what we understand the competition is feeling in the same area. It’s not alarming but yeah we have seen a very small draw back on the business account spend.

Jason West – Deutsche Bank Securities

Can you remind us how big you consider business account spending among your total sales base?

Geoffrey D. K. Stiles

I think it’s probably in the 10% to 15% range give or take a little bit of our business.

Jason West – Deutsche Bank Securities

Did you comment at all about sort of more recent April/May trends on comps? Or, should we assume that things have sort of continued as in the first quarter?

Robin R. Selati

No, we’re not going to provide any forward guidance on a monthly basis.

Operator

Your next question comes from Barry Stouffer – BB&T Capital Markets.

Barry Stouffer – BB&T Capital Markets

Will you continue to report the Mitchell’s revenue separate on a quarterly basis?

Robert M. Vincent

Yes, we have indicated that we will report average weekly sales in total and also total revenues for the Mitchell brand, yes.

Barry Stouffer – BB&T Capital Markets

You mentioned that you had locked in some beef or 45% or so of your requirements. Was that higher or lower than last year? And, if so by how much?

Robert M. Vincent

Well, at this point it’s hard to make that calculation because the seasonality of the beef market and so forth, it’s unfair to take a snap shot of what we’ve locked in today and then draw a conclusion. So, I think as the year progresses we’ll be able to provide you an update as to how well that decision played out.

Operator

Your next question comes from [Matter] – Bear Stearns.

Don [Matter] – Bear Stearns

Geoff, you’ve changed your menu, some different items I guess we’ll call it fish and I think chicken and steak, do you have any brief percentages of how that’s working out and what percentage are going to non-meat dishes and fish?

Geoffrey D. K. Stiles

In spite of the fact we have expanded the offering of meat alternatives we’ll call it, we’ve found the demand for beef to be very, very static. Our offerings of seafood have increased really to provide options for return guests and guests with higher frequency. But, our demand for our beef is virtually the same as it was five years ago.

Don [Matter] – Bear Stearns

And, what was your average check this quarter versus last quarter, just roughly?

Geoffrey D. K. Stiles

Just under $75.

Don [Matter] – Bear Stearns

So that’s up or down from the last quarter?

Geoffrey D. K. Stiles

Up slightly.

Don [Matter] – Bear Stearns

Of all your stores owned, stores that you own, which two stores are your top two stores or your top three?

Geoffrey D. K. Stiles

It would be obviously Manhattan is one of our larger restaurants. Boston and California, I mean San Diego is a very, very strong market for us. Beverly Hills is a little smaller square footage but still a very, very strong restaurant.

Don [Matter] – Bear Stearns

Well, I must say every time I go there it is as busy as can be. If you evaluated the stock price versus Beverly Hills, you know there’s something out of whack and I’ll be there this weekend.

Operator

Your next question comes from David Rainey – Akre Capital Management LLC.

David Rainey – Akre Capital Management LLC

Could you just, two items in the press release, remind us why you expect the share count to increase about 5%? As well as why would bonus expenses have inched up in the quarter given same store sales?

Robert M. Vincent

Well, in terms of the share base there was a restricted stock grant that was announced last quarter so as that starts to factor in to the calculation it will drive up the diluted share base. In terms of the second question, as I indicated in my opening remarks, we did in fact achieve internal expectations so our program is such that as we hit internal expectations there’s an accrual for a payment of a bonus. So, the charge is a book charge, all of it is not paid out and again, it’s really driven by the actual results against our internal targets.

David Rainey – Akre Capital Management LLC

And as a follow up to the share grant, is it 5% dilutive once it’s all fully vested? Is only part of it vested in 2008 so is it in total 5% or is it incremental 5% in 2008 and more thereafter?

Robert M. Vincent

Yes, actually you know something I don’t have the answer to that question.

David Rainey – Akre Capital Management LLC

So is it conceivably dilutive as well in 2009?

Robert M. Vincent

Yes.

David Rainey – Akre Capital Management LLC

So what would be the cumulative impact of the dilution assuming it was all vested on day one, something like that?

Robert M. Vincent

I’d like to get back to you on that. I don’t want to really respond to something that I’m not prepared to do so.

Operator

Your next question comes from Martin Bach – Morgan Stanley.

Martin Bach – Morgan Stanley

Could you update us on your thoughts about the stock repurchase from last quarter when the statement was made that there was an allocation in your line of credit but that you were reluctant to do it?

Robert M. Vincent

I would tell you all I could say to that is that’s a board decision and so the comment I think was just describing the provision within the new credit facility. So, there’s a placeholder for it but frankly, any decision to repurchase stock is really a board decision.

Martin Bach – Morgan Stanley

And that has not been discussed?

Robert M. Vincent

Not in my short time.

Operator

Your next question comes from Michael Pirna – AAD Capital.

Michael Pirna – AAD Capital

Would you be willing to share who the ad agency is or what markets you’re testing it in?

Geoffrey D. K. Stiles

The new agency is Merkley & Partners out of New York. And, we currently have the test going on in seven different markets and we’re seeing some very, very positive embrace by our guests so we think it’s a real added value. And, I would agree with you, it’s a market that we need to continue to explore.

Michael Pirna – AAD Capital

Are you still planning on opening any Mitchell’s doors this year?

Robert M. Vincent

No. The guidance that we provided in the opening was that we expect to open a Mitchell’s Fish Market some time in fiscal 2009.

Michael Pirna – AAD Capital

Bob, you just mentioned that you achieved your internal expectations for this quarter, what metrics are those based off of?

Robert M. Vincent

You know there’s a variety of factors but certainly EPS is really the driving factor.

Michael Pirna – AAD Capital

Rob, maybe this is question for you, can you speak about if you see any low hanging fruit in terms of cutting back expenses? Year one, what would you like to accomplish in terms of right sizing the ship if there is any work to be done there?

Robin R. Selati

I think that question is probably better directed to Bob. But, I think he’s in the process of evaluating any cost cutting or capital deployment efficiency initiatives that are out there and we’ll report back to you as we find them.

Operator

Your next question comes from Bryan Elliott – Raymond James.

Bryan Elliott – Raymond James

I wanted to get a little more color on the non-compete with Cameron Mitchell and how his Ocean Prime concept might be differentiated from Ruth’s.

Geoffrey D. K. Stiles

Without our legal representation here I’m reluctant to speak to anything regarding non-competes or the terms of the sale. However, it’s something we can certainly try to get back to you on but it’s traditionally not something that we would have comment on.

Operator

Your next question comes from Don [Matter] – Bear Stearns.

Don [Matter] – Bear Stearns

Geoff I’m in the Beverly Hills area which is West Los Angeles and it seems like every month another steak restaurant opens whether it’s in Hollywood, Santa Monica, West LA, Beverly Hills, there’s always more steak restaurants opening. This is going to be a naïve question but what is the magic? How can they keep opening? Most of them are not really as good and the value is not as good as your restaurant, can you fill me in on this one?

Geoffrey D. K. Stiles

Don, that’s a very complex answer, I’m not sure I could cover it all here.

Don [Matter] – Bear Stearns

Is it easy entry? Is it easy to open up a steak restaurant? Do you just get a grill and a good chef, meat and potatoes and you go?

Geoffrey D. K. Stiles

Don, I don’t think it’s complex, I think that a lot of restaurants chose to do it. Now, to do it the way we do it it’s a little bit different. I mean from the preparation of the ingredients, the manner in which we serve the food on sizzling platters and the broilers we utilize to lock in the flavors, Ruth’s is different and we do feel strongly that there is true differentiation between our brand and many of those competitors and it is somewhat surprising to maintain the consistency of sales that we do with the intrusion of competition in the markets. I believe it speaks volumes about the quality of the brand and our commitment to the guest and to the service and food we provide them.

Don [Matter] – Bear Stearns

But, when I’m invited, and I don’t go to those but I go to them when I’m invited and the prices are much higher than your restaurants, they’re much higher.

Geoffrey D. K. Stiles

Again Don, we feel that we offer a very healthy value deal and we are sticking by that.

Operator

That concludes the question and answer session today.

Robert M. Vincent

I just want to thank all of you for your interest and participation on today’s call and we certainly look forward to speaking to you again next quarter. Thank you again.

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