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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to                      

Commission File Number 000-51485

 

Ruth’s Hospitality Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

72-1060618

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

1030 W. Canton Avenue, Suite 100,

Winter Park, FL

32789

(Address of principal executive offices)

(Zip code)

(407) 333-7440

Registrant’s telephone number, including area code

None

Former name, former address and former fiscal year, if changed since last report

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

RUTH

Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

Accelerated Filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

 


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No  

 

The number of shares outstanding of the registrant’s common stock as of July 31, 2020 was 34,923,439, which includes 673,007 shares of unvested restricted stock.

 

 

 

 

 


TABLE OF CONTENTS

 

 

 

 

Page

Part I — Financial Information

 

3

 

 

 

 

Item 1

Financial Statements:

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 28, 2020 and December 29, 2019

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Thirteen and Twenty-six Week Periods ended June 28, 2020 and June 30, 2019

 

4

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the Thirteen and Twenty-six Week Periods ended June 28, 2020 and June 30, 2019

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Twenty-six Week Periods ended June 28, 2020 and June 30, 2019

 

6

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

 

Item 3

Quantitative and Qualitative Disclosures about Market Risk

 

30

 

 

 

 

Item 4

Controls and Procedures

 

31

 

 

 

Part II — Other Information

 

32

 

 

 

 

Item 1

Legal Proceedings

 

32

 

 

 

 

Item 1A

Risk Factors

 

32

 

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

 

 

 

 

Item 3

Defaults Upon Senior Securities

 

33

 

 

 

 

Item 4

Mine Safety Disclosures

 

34

 

 

 

 

Item 5

Other Information

 

34

 

 

 

 

Item 6

Exhibits

 

34

 

 

 

 

Signatures

 

35

 

2


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RUTH’S HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets—Unaudited

(Amounts in thousands, except share and per share data)

 

 

 

June 28,

 

 

December 29,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

96,127

 

 

$

5,567

 

Accounts receivable, less allowance for doubtful accounts 2020 - $346; 2019 - $241

 

 

11,441

 

 

 

23,769

 

Inventory

 

 

7,754

 

 

 

9,623

 

Prepaid expenses and other

 

 

4,155

 

 

 

3,052

 

Total current assets

 

 

119,477

 

 

 

42,011

 

Property and equipment, net of accumulated depreciation 2020 - $173,614; 2019 -

   $173,845

 

 

134,890

 

 

 

142,962

 

Operating lease right of use assets

 

 

202,150

 

 

 

206,358

 

Goodwill

 

 

45,549

 

 

 

45,549

 

Franchise rights, net of accumulated amortization 2020 - $5,411; 2019 - $4,401

 

 

45,607

 

 

 

49,916

 

Other intangibles, net of accumulated amortization 2020 - $1,504; 2019 - $1,439

 

 

4,179

 

 

 

4,449

 

Deferred income taxes

 

 

8,085

 

 

 

4,929

 

Income tax receivable

 

 

5,891

 

 

 

 

Other assets

 

 

1,201

 

 

 

702

 

Total assets

 

$

567,029

 

 

$

496,876

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,648

 

 

 

13,598

 

Accrued payroll

 

 

11,334

 

 

 

17,303

 

Accrued expenses

 

 

10,919

 

 

 

10,574

 

Deferred revenue

 

 

48,226

 

 

 

52,856

 

Current operating lease liabilities

 

 

15,384

 

 

 

14,313

 

Other current liabilities

 

 

1,658

 

 

 

4,237

 

Total current liabilities

 

 

94,169

 

 

 

112,881

 

Long-term debt

 

 

135,200

 

 

 

64,000

 

Operating lease liabilities

 

 

227,592

 

 

 

223,292

 

Unearned franchise fees

 

 

2,371

 

 

 

2,489

 

Other liabilities

 

 

69

 

 

 

69

 

Total liabilities

 

 

459,401

 

 

 

402,731

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock, par value $.01 per share; 100,000,000 shares authorized, 34,143,931

   shares issued and outstanding at June 28, 2020, 28,418,691 shares issued and

   outstanding at December 29, 2019

 

 

341

 

 

 

284

 

Additional paid-in capital

 

 

79,732

 

 

 

40,462

 

Retained earnings

 

 

27,555

 

 

 

53,399

 

Treasury stock, at cost; 71,950 shares at June 28, 2020 and December 29, 2019

 

 

 

 

 

 

Total shareholders' equity

 

 

107,628

 

 

 

94,145

 

Total liabilities and shareholders' equity

 

$

567,029

 

 

$

496,876

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


RUTH’S HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations—Unaudited

(Amounts in thousands, except share and per share data)

 

 

 

13 Weeks Ended

 

 

26 Weeks Ended

 

 

 

June 28,

 

 

June 30,

 

 

June 28,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant sales

 

$

26,978

 

 

$

104,017

 

 

$

130,018

 

 

$

217,003

 

Franchise income

 

 

956

 

 

 

4,421

 

 

 

4,582

 

 

 

8,979

 

Other operating income

 

 

483

 

 

 

1,805

 

 

 

2,353

 

 

 

4,002

 

Total revenues

 

 

28,417

 

 

 

110,243

 

 

 

136,953

 

 

 

229,984

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and beverage costs

 

 

8,030

 

 

 

29,023

 

 

 

38,657

 

 

 

60,871

 

Restaurant operating expenses

 

 

26,273

 

 

 

51,156

 

 

 

81,827

 

 

 

104,759

 

Marketing and advertising

 

 

1,487

 

 

 

4,121

 

 

 

4,925

 

 

 

7,751

 

General and administrative costs

 

 

7,066

 

 

 

8,929

 

 

 

15,095

 

 

 

17,681

 

Depreciation and amortization expenses

 

 

5,522

 

 

 

5,124

 

 

 

11,345

 

 

 

10,092

 

Pre-opening costs

 

 

304

 

 

 

244

 

 

 

781

 

 

 

341

 

Gain on lease modifications

 

 

(488

)

 

 

 

 

 

(488

)

 

 

 

Loss on impairment

 

 

4,283

 

 

 

 

 

 

12,980

 

 

 

 

Total costs and expenses

 

 

52,477

 

 

 

98,597

 

 

 

165,122

 

 

 

201,495

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

(24,060

)

 

 

11,646

 

 

 

(28,169

)

 

 

28,489

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(1,291

)

 

 

(417

)

 

 

(1,919

)

 

 

(822

)

Other

 

 

3

 

 

 

13

 

 

 

36

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

(25,348

)

 

 

11,242

 

 

 

(30,052

)

 

 

27,682

 

Income tax expense (benefit)

 

 

(7,750

)

 

 

1,933

 

 

 

(8,636

)

 

 

4,462

 

Net income (loss)

 

$

(17,598

)

 

$

9,309

 

 

$

(21,416

)

 

$

23,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per common share

 

$

(0.59

)

 

$

0.32

 

 

$

(0.74

)

 

$

0.79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per common share

 

$

(0.59

)

 

$

0.31

 

 

$

(0.74

)

 

$

0.78

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

29,951,332

 

 

 

29,252,651

 

 

 

29,119,296

 

 

 

29,264,076

 

Diluted

 

 

29,951,332

 

 

 

29,726,102

 

 

 

29,119,296

 

 

 

29,768,702

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

 

 

$

0.13

 

 

$

0.15

 

 

$

0.26

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


RUTH’S HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity—Unaudited  

(Amounts in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Treasury Stock

 

 

Shareholders'

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Earnings

 

 

Shares

 

 

Value

 

 

Equity

 

Balance at December 29, 2019

 

 

28,419

 

 

$

284

 

 

$

40,462

 

 

$

53,399

 

 

 

72

 

 

$

 

 

$

94,145

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,818

)

 

 

 

 

 

 

 

 

(3,818

)

Cash dividends, $0.15 per common share

 

 

 

 

 

 

 

 

 

 

 

(4,428

)

 

 

 

 

 

 

 

 

(4,428

)

Repurchase of common stock

 

 

(902

)

 

 

(9

)

 

 

(13,217

)

 

 

 

 

 

 

 

 

 

 

 

(13,226

)

Shares issued under stock compensation plan net of shares withheld for tax effects

 

 

100

 

 

 

1

 

 

 

(659

)

 

 

 

 

 

 

 

 

 

 

 

(658

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,065

 

 

 

 

 

 

 

 

 

 

 

 

2,065

 

Balance at March 29, 2020

 

 

27,617

 

 

$

276

 

 

$

28,652

 

 

$

45,153

 

 

 

72

 

 

$

 

 

$

74,081

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(17,598

)

 

 

 

 

 

 

 

 

(17,598

)

Stock issuance

 

 

6,455

 

 

 

65

 

 

 

49,517

 

 

 

 

 

 

 

 

 

 

 

 

49,582

 

Shares issued under stock compensation plan net of shares withheld for tax effects

 

 

72

 

 

 

1

 

 

 

(395

)

 

 

 

 

 

 

 

 

 

 

 

(394

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,958

 

 

 

 

 

 

 

 

 

 

 

 

1,958

 

Balance at June 28, 2020

 

 

34,144

 

 

$

341

 

 

$

79,732

 

 

$

27,555

 

 

 

72

 

 

$

 

 

$

107,628

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 30, 2018

 

 

29,269

 

 

$

293

 

 

$

61,819

 

 

$

28,020

 

 

 

72

 

 

$

 

 

$

90,132

 

Net income

 

 

 

 

 

 

 

 

 

 

 

13,911

 

 

 

 

 

 

 

 

 

13,911

 

Cash dividends, $0.13 per common share

 

 

 

 

 

 

 

 

 

 

 

(3,967

)

 

 

 

 

 

 

 

 

(3,967

)

Repurchase of common stock

 

 

(26

)

 

 

 

 

 

(568

)

 

 

 

 

 

 

 

 

 

 

 

(568

)

Shares issued under stock compensation plan net of shares withheld for tax effects

 

 

133

 

 

 

1

 

 

 

(1,632

)

 

 

 

 

 

 

 

 

 

 

 

(1,631

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,033

 

 

 

 

 

 

 

 

 

 

 

 

2,033

 

Cumulative effect of a change in accounting principle

 

 

 

 

 

 

 

 

 

 

 

(1,261

)

 

 

 

 

 

 

 

 

(1,261

)

Balance at March 31, 2019

 

 

29,376

 

 

$

294

 

 

$

61,652

 

 

$

36,703

 

 

 

72

 

 

$

 

 

$

98,649

 

Net income

 

 

 

 

 

 

 

 

 

 

 

9,309

 

 

 

 

 

 

 

 

 

9,309

 

Cash dividends, $0.13 per common share

 

 

 

 

 

 

 

 

 

 

 

(3,931

)

 

 

 

 

 

 

 

 

(3,931

)

Repurchase of common stock

 

 

(250

)

 

 

(3

)

 

 

(6,569

)

 

 

 

 

 

 

 

 

 

 

 

(6,572

)

Shares issued under stock compensation plan net of shares withheld for tax effects

 

 

102

 

 

 

1

 

 

 

(1,446

)

 

 

 

 

 

 

 

 

 

 

 

(1,445

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,101

 

 

 

 

 

 

 

 

 

 

 

 

2,101

 

Balance at June 30, 2019

 

 

29,228

 

 

$

292

 

 

$

55,738

 

 

$

42,081

 

 

 

72

 

 

$

 

 

$

98,111

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


RUTH’S HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows—Unaudited

(Amounts in thousands)

 

 

 

26 Weeks Ended

 

 

 

June 28,

 

 

June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(21,416

)

 

$

23,220

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

11,345

 

 

 

10,092

 

Deferred income taxes

 

 

(3,156

)

 

 

124

 

Non-cash interest expense

 

 

83

 

 

 

41

 

Loss on impairment

 

 

12,980

 

 

 

 

Stock-based compensation expense

 

 

4,023

 

 

 

4,134

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

     14,807

 

 

 

4,712

 

Inventories

 

 

1,513

 

 

 

752

 

Prepaid expenses and other

 

 

(1,104

)

 

 

(571

)

Other receivable

 

 

(5,891

)

 

 

 

Other assets

 

 

 

 

 

(10

)

Accounts payable and accrued expenses

 

 

(12,443

)

 

 

(12,444

)

Deferred revenue

 

 

(4,629

)

 

 

(8,262

)

Operating lease liabilities and assets

 

 

1,003

 

 

 

2,407

 

Other liabilities

 

 

153

 

 

 

(1,040

)

Net cash (used in) provided by operating activities

 

 

(2,732

)

 

 

23,155

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(8,202

)

 

 

(10,955

)

Net cash used in investing activities

 

 

(8,202

)

 

 

(10,955

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Principal borrowings on long-term debt

 

 

85,000

 

 

 

14,000

 

Principal repayments on long-term debt

 

 

(13,800

)

 

 

(10,000

)

Principal borrowings from the CARES Act loan

 

 

20,000

 

 

 

 

Principal repayments on the CARES Act loan

 

 

(20,000

)

 

 

 

Net proceeds from sale of common stock

 

 

49,582

 

 

 

 

Repurchase of common stock

 

 

(13,226

)

 

 

(7,140

)

Cash dividend payments

 

 

(4,428

)

 

 

(7,898

)

Tax payments from the vesting of restricted stock and option exercises

 

 

(1,052

)

 

 

(3,076

)

Deferred financing costs

 

 

(582

)

 

 

 

Net cash provided by (used in) financing activities

 

 

101,494

 

 

 

(14,114

)

Net increase (decrease) in cash and cash equivalents

 

 

90,560

 

 

 

(1,914

)

Cash and cash equivalents at beginning of period

 

 

5,567

 

 

 

5,062

 

Cash and cash equivalents at end of period

 

$

96,127

 

 

$

3,148

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest, net of capitalized interest

 

$

1,764

 

 

$

829

 

Income taxes

 

$

71

 

 

$

6,158

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued acquisition of property and equipment

 

$

357

 

 

$

3,544

 

 

See accompanying notes to condensed consolidated financial statements.

 

6


RUTH’S HOSPITALITY GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements—Unaudited

(1) The Company and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Ruth’s Hospitality Group, Inc. and its subsidiaries (collectively, the Company) as of June 28, 2020 and December 29, 2019 and for the thirteen and twenty-six week periods ended June 28, 2020 and June 30, 2019 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The condensed consolidated financial statements include the financial statements of Ruth’s Hospitality Group, Inc. and its wholly owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.

Ruth’s Hospitality Group, Inc. is a restaurant company focused on the upscale dining segment. Ruth’s Hospitality Group, Inc. operates Company-owned Ruth’s Chris Steak House restaurants and sells franchise rights to Ruth’s Chris Steak House franchisees giving the franchisees the exclusive right to operate similar restaurants in a particular area designated in the franchise agreement. As of June 28, 2020, there were 153 Ruth’s Chris Steak House restaurants, including 78 Company-owned restaurants, three restaurants operating under contractual agreements and 72 franchisee-owned restaurants, including 21 international franchisee-owned restaurants in Aruba, Canada, China, Hong Kong, Indonesia, Japan, Mexico, Singapore and Taiwan. All Company-owned restaurants are located in the United States.  During the second fiscal quarter of 2020 five Company-owned restaurants were permanently closed and one franchisee-owned restaurant was permanently closed.

On July 29, 2019, the Company completed the acquisition of substantially all of the assets of three franchisee-owned Ruth’s Chris Steak House restaurants located in Philadelphia, PA, King of Prussia, PA and Garden City, NY (the “MBR Franchise Acquisition”) for a cash purchase price of $18.6 million.  The acquisition was funded with debt through the Company’s senior credit facility.  The results of operations, financial position and cash flows of the MBR Franchise Acquisition are included in the Company’s consolidated financial statements as of the date of the acquisition.  For additional information, see Note 7.

The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. The interim results of operations for the periods ended June 28, 2020 and June 30, 2019 are not necessarily indicative of the results that may be achieved for the full year. Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the SEC’s rules and regulations. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2019.

The Company operates on a 52- or 53-week fiscal year ending on the last Sunday in December. The fiscal quarters ended June 28, 2020 and June 30, 2019 each contained thirteen weeks and are referred to herein as the second quarter of fiscal year 2020 and the second quarter of fiscal year 2019, respectively. Fiscal years 2020 and 2019 are both 52-week years.

COVID-19 Impact

In March 2020 the World Health Organization declared the novel coronavirus (“COVID-19”) a pandemic and the United States declared it a National Public Health Emergency, which has resulted in a significant reduction in revenue at the Company’s restaurants due to mandatory restaurant closures, capacity limitations, social distancing guidelines or other restrictions mandated by governments across the world, including federal, state and local governments in the United States.  As a result of these developments, the Company is experiencing a significant negative impact on its revenues, results of operations and cash flows.

In response to the business disruption caused by the COVID-19 outbreak, the Company has taken the following actions, which management expects will enable it to meet its obligations over the next twelve months.

Operating Initiatives.  Due to the government mandates regarding limiting or prohibiting in-restaurant dining due to COVID-19, the Company is leveraging its Ruth’s Anywhere program to enhance revenue in restaurants that have open dining rooms or in markets where take-out and delivery sales are sufficient to cover the costs of management staffing those locations. As of June 28, 2020, the dining rooms in 59 of the Company-owned and -managed restaurants were open, the Company was operating take-out and delivery in 12 Company-owned restaurants and 10 Company-owned restaurants were temporarily closed.  Many of the franchisee-owned locations are experiencing similar disruptions to their business, and as a result, the Company waived franchise royalty requirements until their dining rooms were re-opened.  As of June 28, 2020, the dining rooms in 64 of the franchisee-owned restaurants were open, two franchisee-owned restaurants were operating take-out and delivery and six franchisee-owned restaurants were temporarily closed.

Over the last several weeks, while some states have begun to re-tighten their dining room restrictions, the Company’s sales performance has continued to improve.  As of July 28, 2020, the Company’s restaurants are operating in several different modes.  As

7


of July 31, 2020, 88% (71 of 81) of Company-owned and managed restaurants are open and 10 remain closed.  Of the 71 Company-owned restaurants that are open, 52 are operating with open dining rooms that have capacity restrictions, 15 are operating with outdoor seating only, and four are operating with only take-out and delivery.

Where the Company is re-opening restaurants, it is doing so with the safety and wellbeing of its guests and team members as the top priority.  As such, the Company has taken several steps to ensure it complies with relevant requirements at state, city or local levels, which are changing on a regular basis.  These steps include:

 

an overall enhancement to its already robust sanitation and food safety standards;

 

requiring all restaurant team members to wear masks and gloves at all times, regularly wash their hands, and undergo health and wellness screenings, including temperature checks;

 

assigning a dedicated team member to clean its restaurants at all times they are open; and

 

reconfiguring floor plans to accommodate social distancing.

The Company has also taken measures to ensure its guests feel comfortable during their dining experience.  For example,

 

dinner and wine menus are available via a Quick Response (QR) code for access on personal devices;

 

the Company is offering new personal side options in addition to its shareables;

 

the Company has created opportunities for private seating for small groups to experience personal Taste Maker wine dinners; and