Ruth’s Chris Steak House Continues to Sizzle but is Texas Roadhouse a Better Buy?

Fine dining vs. casual steakhouse: Which one is the winner?

Jun 7, 2014 at 10:00AM

Ruth's Hospitality Group (NASDAQ:RUTH) owns the Ruth's Chris Steak House chain and the Mitchell's Fish Market chain.  Overall, the company is doing well, but only the steakhouse is flexing its muscle lately.  This is consistent with other fine-dining steakhouse competition and even among the more casual space such as with Texas Roadhouse (NASDAQ:TXRH).   Between these two, which is the better buy?  The answer may surprise you.

Batonrouge
Source:  Ruth's Hospitality Group

The medium-well results
Ruth's Hospitality Group reported fiscal first-quarter results on April 28. Total revenue rose 3.6% to $109.7 million. Same-store sales for the company-owned Ruth's Chris Steak House concept popped 2.6%, but its Mitchell's Fish Market saw a decline of 4.3%. What's worse is that Mitchell's saw a 9.1% plunge in guest traffic. A 5.3% increase in the average check size helped offset the dive in traffic.

Luckily for Ruth's Hospitality Group, its steakhouse chain is substantially larger than its seafood chain and was able to carry it. Net income jumped 16% to $8.9 million, or $0.25 per diluted share.

For Texas Roadhouse, the numbers were mixed in strength when compared to Ruth's Hospitality Group. Revenue popped 10% compared to Ruth's just 3.6%, but that was mainly due to Texas Roadhouse's   opening of new restaurants. Same-store sales growth of 2.8% for company-owned stores was a bit stronger than Ruth's Chris Steak House's. It was also the 16th straight quarter of positive same-store sales for Texas Roadhouse. Texas Roadhouse saw pre-tax income inch higher by  5.5% to $39.8 million.

Chilly headwinds
Michael P. O'Donnell, chairman and CEO of Ruth's Hospitality Group, stated that the gains for the steakhouse came despite "volatility from severe winter weather" and a "challenging environment in the first quarter." Mitchell's was especially hit hard, with 14 of its 18 restaurants located in the Midwest. Interestingly, Texas Roadhouse's executives refused to even acknowledge the weather either way.

Price Cooper, CFO of Texas Roadhouse, stated during the conference call that the company doesn't bother to track the effects of weather on its business. Cooper insists Texas Roadhouse doesn't change the way it runs its business long term due to temporary disruptions. He admitted that there were probably some softer trends in certain areas, but Texas Roadhouse doesn't spend much time even thinking about it.

Images

Source:  Texas Roadhouse

Going forward
Texas Roadhouse appears very confident in the strength of its brand, regardless of headwinds. Ruth's Hospitality Group, despite being more vocal about excuses, also seems to have quite a solid brand when it comes to its steakhouse. Aside from the numbers, O'Donnell pointed out that "during the first quarter...Ruth's Chris Steak House was rated the [No. 1] Consumer Pick in Fine Dining Chains by Nation's Restaurant News for the fourth year in a row." During the Ruth's Hospitality Group conference call, O'Donnell stated,

Private dining sales at Ruth's Chris Steak House, which we view as a proxy for business demand, grew 6.8% in the first quarter.

April saw such a strong rebound in sales that even its seafood chain saw "low- to mid-single digit range" positive same-store sales. This bodes well for Texas Roadhouse as well going forward as it suggests possible industrywide improvement.

For Texas Roadhouse, momentum appears to be on its side as well. While same-store sales growth was 2.6% for the quarter, the breakdown by month may have been more telling. For January, February, and March, same-store sales popped 1.1%, 2.6%, and 4%, respectively. Second quarter and beyond may have some positive surprises for both chains.

And the winner is...
Both Ruth's Hospitality Group and Texas Roadhouse pay modest dividends with yields of 1.6% and 2.4%, respectively. Texas Roadhouse appears to be in better financial shape than Ruth's based on its large cash reserve, while Ruth's has far more modest amounts.

Ruth's Hospitality Group trades with a P/E of 16 based on the current share price and analyst estimates of $0.75 per share for the year ended in December. Based on the same criteria, Texas Roadhouse trades with a P/E of 20.

In terms of growth, Texas Roadhouse is expected to grow its earnings per share at around double the rate of Ruth's Hospitality Group this year and around 30% next year. Based on this, it seems that Texas Roadhouse's 25% higher 2014 P/E ratio versus Ruth's Hospitality Group's is justified.

Factor in the higher dividend yield, better financial condition, and faster growth and this leads to the better chance that Texas Roadhouse can increase its dividend at a faster rate than Ruth's Hospitality Group on top of already paying a higher yield. Texas Roadhouse appears to be the more undervalued of the two. As always Foolish investors should do their own research before making any investment decisions. 

Forget steak for a moment and look at this
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Texas Roadhouse. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers