Ruth's Hospitality Group, inc (RUTH) Q2 2021 Earnings Call Transcript

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Ruth's Hospitality Group, inc (RUTH)
Q2 2021 Earnings Call
Aug 6, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to today's Ruth's Hospitality Group Second Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Kristy Chipman, Chief Financial Officer. Please go ahead.

Kristy Chipman -- Chief Financial Officer

Thank you, and good morning, everyone. Joining me on the call today is Cheryl Henry, our President, Chief Executive Officer and Chairperson of the Board. Before we begin, I'd first like to remind you that part of our discussion today will include forward-looking statements. These statements are not guarantees of our future performance, and therefore, undue reliance should not be placed upon them. We would also encourage you to refer to the Investor Relations section of our website at rhgi.com as well as the SEC's website at sec.gov for copies of today's earnings press release and our recent filings with the SEC for a more detailed discussion of the risks that could impact our future operating and financial results.

During this call, we will refer to adjusted earnings per share. This non-GAAP measurement was calculated by excluding certain items. We believe that this measure represents a useful internal measure of performance. You can find a reconciliation of adjusted earnings per share in our press release for today's call. I would now like to turn the call over to the company's Chief Executive Officer, Cheryl Henry.

Cheryl Henry -- President & Chief Executive Officer, Director

Thank you, Kristy. Good morning, and thank you for joining us today. Let me begin by saying how proud I am of our team and franchise partners as they continue to put forth extraordinary efforts and outperform in a challenging and ever-changing environment. As you know, the pace of recovery began to accelerate during the second quarter, and we witnessed our guests enthusiastically coming back to dine in our restaurants. With the opening of our restaurants to greater capacity in recent weeks, our teams and franchisees have remained resilient and committed to providing our guests with the hospitality that Ruth's is known for, while also making sure they feel safe in our restaurants. I truly believe their focus on operational excellence and unparalleled hospitality is the reason our brand continued to recover well during the second quarter.

To that point, I'm pleased to report we achieved strong sales performance, with comp sales up 5% despite capacity restrictions that were in place for much of the quarter. Excluding the impact of Boston, Hawaii, and Manhattan, comps were up 11.1%. That sales momentum for the entire system continued in July with comps for the first 4 weeks of the period up approximately 17%. Our franchise partners also performed well, delivering comp growth of 7.5% and domestic franchise comp sales increasing 17.3%.

From a profitability standpoint, we continue to benefit from the labor efficiency initiatives we implemented in late 2019. I'm thrilled that this has resulted in the strongest stand-alone quarter since Q4 of 2018. It's also the best Q2 margin in over 5 years. Having said that, we are keenly aware that the external environment remains uncertain in the short-term and that inflationary pressures are challenging. We are confident, however, that with the accelerated demand for our legendary experience, the trust our guests have in our brands, and our team's ability to manage the business, we will weather any near-term impacts and remain committed to investing in the long-term future of our business.

To that end, we are on schedule to open two to three company-owned restaurants by year-end, including sites in New Jersey and Long Island, New York. In addition, we recently signed a management agreement for a new restaurant that will open in the Soaring Eagle Casino in Mount Pleasant, Michigan in 2022. Looking ahead, we expect to have seven company-owned or managed restaurant openings by the end of 2022, and will continue to evaluate additional opportunities for development.

On our last call, we reiterated the commitment we made in 2019 to invest strategically in our technology platforms and digital future. As a reminder, in 2019, we stated that our focus for these investments are, reducing the friction in the experience for both our guests and our team members, enhancing our hospitality to drive frequency and increasing productivity and efficiency to optimize margin. We have made meaningful progress during the quarter, beginning with the implementation of foundational technologies, including new POS and labor management systems.

We continue to focus on maintaining a healthy balance sheet and will evaluate all options to maximize shareholder value over the long-term. That means, smartly allocating capital to grow and create value for all our stakeholders, which remains our outstanding goal. On top of our list is further debt reduction for the remainder of this year as well as investing in and opening the seven new units through calendar 2022. At the same time, we will continue that investment in data and digital transformation because the future of Ruth's Chris will be driven by better understanding our guests and the use of technology to improve their brand experience.

Finally, we will continue to evaluate reinstating our dividend as well as future share repurchases as we gain more visibility through the back half of the year. We are fortunate that the performance of our teams has allowed us to satisfy our leverage covenants so that we are able to consider these additional options going forward.

All-in-all, we are a stronger and more nimble enterprise, and we are excited about the future. I'm grateful to our team members and franchise partners that deliver excellence every day.

I will now turn the call over to Kristy Chipman.

Kristy Chipman -- Chief Financial Officer

Thank you, Cheryl. For the second quarter ended June 27, 2021, we reported GAAP net income of $12.4 million or $0.36 per diluted share compared to a net loss of $17.6 million or a $0.59 loss per diluted common share during the second quarter of 2020.

Net income in the quarter of 2021 included a $65,000 employee retention payroll tax credit, which reduced operating expenses. It also included approximately $394,000 of loss on impairment and restaurant closure costs and a $26,000 income tax benefit related to the impact of excluding certain discrete income tax items. Excluding these adjustments, non-GAAP diluted earnings per common share was $0.36 compared to a loss per common share of $0.48 in the second quarter of 2020.

Total revenues for the quarter were $110.9 million compared to $110.2 million in 2019. Company-owned restaurant sales were $104.2 million compared to $104 million in 2019 despite operating six fewer restaurants in 2021. Comp sales for the quarter were up 286.6% versus 2020. Compared to 2019, comp sales for the quarter increased 5% and by months were up 2.1% in April, up 6% in May, up 7.4% in June. Average check for the quarter was up, driven by menu pricing, less discounting and an increased preference for larger entrees, appetizers and salads.

While we have seen improvement across all regions during the second quarter, Texas and Florida continued to be highlights with comp sales of 46% and 24% respectively. As noted last quarter, Boston, Hawaii and Manhattan have been slower to recover toward 2019 levels. With New York theater district expected to open in September and international tourism slowly returning to Hawaii, we are seeing positive signs of sales recovery in these areas.

As Cheryl mentioned earlier, our sales momentum has continued into the third quarter. Quarter-to-date, as of July 25, comp sales increased approximately 17% compared to 2019 and average weekly sales were approximately $104,000 during what is historically a seasonally slower time for us. Franchise income for the quarter was $4.5 million and was up $100,000 versus 2019, while other operating income was $2.2 million, up $0.4 million versus second quarter 2019. Overall, restaurant margins during the second quarter 2021 were better by 340 basis points compared to second quarter 2019 due to sales leverage from average check increases as well as efficiencies in labor and lower other operating and occupancy expenses.

Food and beverage costs for the quarter were 30.3% as a percentage of restaurant sales. These prices during the quarter increased approximately 27% and 34% compared to last year in 2019, respectively. And the impact to overall cost of sales was partially offset by deflation in produce, dairy and a mix shift within alcoholic beverages from wine to liquor. We continued to see increasing beef cost pressure through July with preliminary Period 7 food and beverage costs as a percentage of restaurant sales of approximately 34%. We recently locked approximately 10% of our total beef volume from mid-September to mid-March, which will provide partial relief from what has been record high beef pricing since the second quarter.

Labor continues to deliver savings above our original expectations. As a percentage of sales, labor improved 379 basis points compared to the pre-COVID second quarter of 2019, partly due to sales leverage against the management salaries and continued execution of our revised labor model. We expect some of this benefit to be offset as we had management team members back into some restaurants. We are revising our labor guidance from an improvement of 100 to 150 basis points that we shared in quarter one to 250 to 300 basis points compared to full year 2019. This guidance assumes the restaurants continue to operate with open dining rooms for the remainder of the year.

Marketing expense as a percentage of revenue was 2.9% for the second quarter versus 3.7% in 2019. We continue to expect full year marketing expenses to be in the range of $12 million to $14 million for the full year as our data and digital efforts accelerate.

G&A for the quarter was 7.9% of revenue and increased $1.7 million compared to the second quarter of 2020 due to increased performance-based compensation-related expenses. As a percentage of revenue, year-to-date G&A decreased 290 basis points to 8.1%. Full year G&A is expected to be between $32 million and $33.5 million. This reflects an increase from earlier guidance due to higher incentive-based compensation resulting from better-than-anticipated results. Excluding the impact of this incremental incentive compensation, G&A would be between $29.5 million and $30.5 million.

At the end of the quarter, we had $87 million in cash and throughout the quarter, we repaid $45 million in debt, resulting in a balance of $70 million on our credit facility. As of August 4, our cash balance was approximately $95 million and our outstanding debt remained at $70 million.

Our strong recovery in the quarter was due to our guests trusting us with their health and safety as they enthusiastically returned to dining out. The team members also remain diligent and focused to deliver incredible margins while maintaining guest satisfaction beyond pre-pandemic levels. I want to add my thanks to these restaurant teams for all they do daily to ensure the guests feel special when they come to our restaurants.

And with that, let me turn the call over for questions.

Questions and Answers:

Operator

And at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Brian Vaccaro with Raymond James. Please proceed with your question.

Brian Vaccaro -- Raymond James -- Analyst

Thank you and good morning. I appreciate the -- I guess we'll start on sales, if that's OK. I appreciate the quarter-to-date update. The average weekly sales is just under $104 million and comps up in the high-teens. And I would assume that reflects some differences in seasonality versus pre-COVID. But maybe if you could just provide some more color on what you're seeing in July versus May and June? Any regional context, day of the week, differences in consumer behavior that are worth noting? And then if you back out, I don't know if it's possible to do this, but I think the special occasions like Mother's Day and Father's Day have been quite strong moving through May and June. Is it possible to back those out and give us a sense of how different the underlying normal day of the week trends are in July versus May and June?

Cheryl Henry -- President & Chief Executive Officer, Director

Yes. So Brian, let me try to take the first part of your question. Yes, going to July, you mentioned there's some seasonality. We're obviously very happy with what we're seeing and the consistency of the accelerated return of our guests into our restaurants as we increase capacity. As you know, toward the end, for most of the second quarter, we had restrictions still, but we were able to start opening more toward the end of the second quarter and even so into the third quarter. So I think you're starting to see some of that as well. The question around region. I mentioned the Boston, Hawaii, New York market versus the Florida, Texas, California.

In July, I think it's interesting and I will share this, and this goes to some of the geography and regionality you mentioned around seeing the group of restaurants in Florida, Texas and California up approximately 35 and still seeing the Boston, Hawaii, New York markets, on the flip side of that, down in the mid-30s. So, not fully recovered in some of the markets that we've been talking about all year. We are slowly, to Kristy's point, starting to see some of that recovery as things open up and why, obviously, a great deal around international travel, but still seeing some of the same trends we've been seeing earlier as far as the different markets and how geography is impacting the sales overall.

Brian Vaccaro -- Raymond James -- Analyst

Okay. Thanks. That's helpful. And shifting gears to margins, if we could. On the commodity inflation side, I heard beef up 27%, I think you said in Q2. Kristy, what was the overall basket inflation that you saw in Q2?

Kristy Chipman -- Chief Financial Officer

Yes. It was about 15% to 16%, and we saw a benefit, though, in some of the liquor, beer, wine categories that offset some of the food and food costs that we saw in the basket.

Brian Vaccaro -- Raymond James -- Analyst

Okay. Okay. And I heard your comments on able to lock in a little bit of your beef exposure over the next, I think, six months, it sounded like. But obviously, a dynamic environment, but can you walk through your Q3 and Q4 commodity inflation expectations? I'm just curious what you're hearing as it relates to beef market fundamentals and how the next few quarters could play out?

Kristy Chipman -- Chief Financial Officer

Yes. I mean, what I can say is, we shared July because we obviously have more certainty into that and as we look forward, there's still uncertainty. I think you published some research that is the same thing that we're seeing, which is, part of our basket is starting to see -- in the beef category, starting to see some deflation. Remember, we lagged that a little bit. So as prices come down, it takes us 2 to 4 weeks before we start to see that in our overall basket and come through our restaurant P&L. And then the rest of the basket is still increasing, where we haven't quite seen it top out yet.

So, we're uncomfortable providing direct pricing guidance -- I'm sorry, a COGS guidance right now just because of that pricing volatility. What I can share is that year-over-year, that's probably that 500 or so basis points that I shared, bringing us from 2019 to 34% in 2021, is a combination of the lowest seasonal period that we typically see. So, if this year continues to go as most years, July would be the lowest seasonal period, at the time when we expect that prices have peaked for us. We have started to see very early signs in the last week-ish of July and the first week of August, that our beef pricing per pound has started to come down a little bit, but it's certainly a slower recovery than we would have originally anticipated. And I think you'll recall we guided 15% to 20% when we had some certainty into June. And unfortunately, as June came in, it came in much stronger and higher prices than we had anticipated, which resulted in the increase versus our 15% to 20% guidance originally and came in at 27%.

Brian Vaccaro -- Raymond James -- Analyst

Okay. That's great and very helpful. Last one, sort of tied to that. Cheryl and the rest of the team, what's your posture toward menu pricing? And can you remind us how much was in the menu in Q2? And how do you see the next few quarters playing out from a menu pricing standpoint?

Cheryl Henry -- President & Chief Executive Officer, Director

Yes. I think we mentioned this on the last call that we were looking at pricing. We did take pricing in May. We've historically been strategic. We look at it pretty much, Brian, every quarter and have done that even through the pandemic and into the recovery. Obviously, we weighed several factors, and we're looking at that from pricing, do we think it's permanent or more transitory? Do we believe that the guest and the consumer is willing to take the pricing on and that we can see that flow through or they start managing their check. And so we are looking at this. We will continue to look at it. I think as we go into the back half, depending on to Kristy's point, what we see here with some of the moderation of beef costs, we'll take that into consideration as well. But we certainly look -- we can look at this point item by item and have a view into that. And so, I think there's a willingness to continue to look at that. And if we feel there's an opportunity to take price to offset some of these, and we believe they're longer term, then we will do that.

Brian Vaccaro -- Raymond James -- Analyst

Okay. And sorry if I missed it. How much pricing did you take in May or what's the effective pricing in the menu year-on-year currently?

Kristy Chipman -- Chief Financial Officer

Yes. Yes. So the effective pricing in the menu right now is approximately 4%. That includes the 2.5% -- a little over 2.5% that we took in May, coupled with some carryover price from the prior year that will begin to lap in Q4.

Brian Vaccaro -- Raymond James -- Analyst

Excellent. Thank you.

Operator

And our next question is from Andy Barish with Jefferies.

Andrew Barish -- Jefferies -- Analyst

Just on that subject, can you give us the other components of the comp? I know the 1-year was kind of crazy, but maybe versus '19 or something?

Cheryl Henry -- President & Chief Executive Officer, Director

For the quarter?

Andrew Barish -- Jefferies -- Analyst

Yes. In terms of entrees and mix in addition to that pricing?

Cheryl Henry -- President & Chief Executive Officer, Director

Yes. So what I'll say is that we were at 5% for the quarter. We saw traffic being negative versus 2019 in April and May and June was the first positive traffic that we've seen, albeit it was low single-digit positive traffic in June. And then as we entered into July, we continued to see checks flow through, along with slightly higher traffic increases.

Andrew Barish -- Jefferies -- Analyst

Got it. Helpful. And I don't know if you look at the Knapp-Track steak data. I mean, you guys are below that recovery that we've seen in that data. Do you think that's more your geographic dispersion, if you take out those big Hawaii, New York and Boston locations?

Cheryl Henry -- President & Chief Executive Officer, Director

Yes, Andy, we look at it, obviously, as well. And through the recovery just based on things, pre-COVID you didn't see, you weren't considering things about who is locked down when and which restrictions lasted longer and all of that has an impact across the system and the footprint. So, I think there's a relevancy issue for the time being around looking at systems in their entirety versus trying to break it out. So, I mentioned even in July, we see three regions that are up 35% and three regions that are down 35%. So yes, I think a great deal of it is related to geography as well as just the base. So what was the AUV that you're building from. And so generally, we are finding that's the case when we back out some of these longer restricted markets, or international tourism we back those out and look at our system, it's performing well.

Andrew Barish -- Jefferies -- Analyst

Great. And then just one other top-line question on -- and I guess, margin implication question as well on, you mentioned lower discounting. It's just not something I really ever thought of with the brand. Is there an example or two of what's going on today? I know we're seeing that across the entire industry. There's just much less discounting and promotion, but anything specific to your brand that you'd call out?

Kristy Chipman -- Chief Financial Officer

Yes. The one thing I can call out just off the top is it's not necessarily traditional discounting, like you would see. We don't bring people in for a discounted steak. We have a classics menu that we refer to, as a discount, and we are seeing preference for the classic being reduced toward larger entrees. So, that's part of it. The other part, I would say, could be related to gift card discounts that might come through. So like a bounce back or a $100 gift card that we sell at Costco for $79. So, overall.

Operator

Our next question is from James Rutherford with Stephens Inc.

James Rutherford -- Stephens Inc. -- Analyst

Cheryl, I wanted to start with a bit of a higher-level question. A lot of habits have changed during the pandemic. And one of those positive dynamics has been because consumers have tried a lot of new things they didn't before. I'm just curious, is there a way for you to measure the level of new guests that are coming into your restaurants? And to the extent that you see an uptick in trial for Ruth's, during the recovery, what are your thoughts on being able to retain some of those as regular customers for the future?

Cheryl Henry -- President & Chief Executive Officer, Director

Yes. Great question. And so I think the area that we can -- so we can track it into the restaurant. Guests can opt-in to a discussion of first-time users. So that's helpful for on-premise. Where I think we've seen the most increase of first-time users is actually in our Ruth's Anywhere program. So, we started to see a younger, more affluent guests trying Ruth's for the first time through our takeout and delivery program. And to your point, one of the things I mentioned is about our data and digital initiatives and the investment we're making to ensure that as we are able to understand who those guests are, that we are ensuring we're building a relationship with them, staying in touch with them. And our ultimate goal is to take that first-time guest in that one experience and translate it to a lifetime of usage. So, that's really the foundation of the idea of the hospitality piece I mentioned in the knowing our guest piece to drive frequency. So yes, we are interested in it. We are investing in it, and the intended goal is to make sure we're capturing those new users and making them lifetime guests of Ruth's.

James Rutherford -- Stephens Inc. -- Analyst

Okay. Perfect. And I think there was a mention of the new POS system. And I think previously, you talked about a new booking management system that you're using as well. Can you talk about some of the specific benefits? And if you're seeing those, again in the P&L, where we should expect to see some of those benefits?

Kristy Chipman -- Chief Financial Officer

Yes. So I'll take that one to start. So from just a level set, we are still implementing. So it's a long process to get this implemented, and we don't believe that we'll see full-scale benefit of both the labor management system nor the POS until the first part of next year. As we work through that, it's allowing us to streamline menu keys, tie into better labor and demand forecasting, using data from both the POS and the labor management system will help us from a margin efficiency perspective. And then obviously, we've talked about data-driven hospitality, knowing our guests, knowing their preferences to a greater degree than we do today, we believe will drive frequency and top-line for us.

James Rutherford -- Stephens Inc. -- Analyst

All right. Then my last one is on the cost of sales piece of this. You're seeing about 500 basis points, I think I heard, of deleverage in July versus a couple of years ago with 4% menu pricing and pretty high commodity inflation, clearly. You're seeing a big mix benefit on a 2-year stack basis as well. I'm just curious how much that positive mix is impacting your cost of sales? I'd assume it's a positive to see more salads and more appetizers, etc. But can you comment on the mix benefit and helping offset some of those commodity headwinds?

Kristy Chipman -- Chief Financial Officer

Yes, certainly. I mean, to your point, appetizers and salads have a higher gross margin, gross profit than the larger entrees. But we are seeing also a shift up to larger entrees that's offsetting some of the benefit in price that we're seeing in apps and salads.

Operator

[Operator Instructions] Our next question is from Nicole Miller with Piper Sandler.

Nicole Regan -- Piper Sandler -- Analyst

You touched on menu price increases and opportunity for the pricing power that you probably obviously have in terms of a brand equity perspective. I'm curious talking about the behavior of consumer spending more. What is the average check or average transaction these days? How does it compare to where it was?

Kristy Chipman -- Chief Financial Officer

Yes. So average check for the quarter was about $87. I can't read my writing. $88 -- almost $88, $87.85, that's about a $5 increase.

Nicole Regan -- Piper Sandler -- Analyst

Okay. And I think you had talked about where that was coming from, they were -- people sound like they're eating more, right?

Kristy Chipman -- Chief Financial Officer

Right. They're certainly eating more. They're adding apps and salads and desserts to the larger entrees as well that they're also purchasing.

Cheryl Henry -- President & Chief Executive Officer, Director

And Nicole, I think what we're seeing, and we talked about this in the last quarter, is the idea that there's this pent-up celebratory occasion that people feel like, this has been something they're missing. They've known Ruth's. It hasn't necessarily been in their lives during pandemic. So, when they're coming in, they're making that decision to truly celebrate and build check. And that's, as Kristy said, and ordering additional items and trying different things, and so we're seeing that continue through the second quarter. We saw that continue through the second quarter as well.

Nicole Regan -- Piper Sandler -- Analyst

And I'm not sure you have this, but I was just thinking about how much pricing power must be in your system. We see everything, let's say, below you segment experientially taking anywhere from, call it, 5% to even 10%, 20%, 30% and depending on the channel that they're operating in price. But there used to be a bunch of your peers public, so we could take a look at that average check and plenty of them are well north of 87%. Do you have any idea of where they stand today? And how are you gauging your pricing power just on an absolute basis versus your brand historically, or relative to what they're doing as well?

Kristy Chipman -- Chief Financial Officer

Yes. So, I'll start and Cheryl can add on if she has something. So what I can tell you is, as we did this latest pricing route and since then as we've seen commodity costs grow, we are on a regular basis every 4 weeks or so, shopping our competitors and looking at their pricing and comparing it against a liked product on our menu. And up until now, so far, we haven't seen broad-scale price increases across entrees. So we're being very surgical about where we think our pricing power is and making sure that we stay, certainly on top of it and don't fall behind, particularly on proteins, if our competitive -- if what we see in the marketplace from our competitive set is that they're raising prices. So far, we have not seen that. I think the benefits are coming from checks build, more so than pricing power across the fine dining segment.

Cheryl Henry -- President & Chief Executive Officer, Director

Yes. Nicole, the only thing I'll add to that, and I think you know it, so historically, we've been at the lower end of our competitors and tried to have more value opportunity on our menu for our guests as our broad-base requires, and we want to support going forward. But to Kristy's point, we are in a regular, more frequent base since, I would say, than pre-COVID, looking at the opportunities around price and where the consumer -- how the consumer is behaving and how long celebratory type occasions will continue.

Nicole Regan -- Piper Sandler -- Analyst

And then just the second and last topic for me. I think we too have been tracking the Knapp-Track data, and that is a fantastic question and topic. What we're not able to do, and I'm not sure if you have done it, maybe it could be done, is I would imagine you're dealing with the law of low numbers, let's say, that index versus casual dining to begin with. And then you might have been, I would imagine, the strongest of the strong. So, the weak that didn't completely fall out, that actually like made it through are just having massive percentage changes. If you can eliminate that bottom cohort, do you look like the average or better, this is what I would be wondering?

Kristy Chipman -- Chief Financial Officer

Yes. So, I think your hypothesis is correct. While we haven't necessarily run the exact numbers yet. I think you're right, the law of averages and smaller numbers brings you these higher percentages that you're seeing in Knapp-Track. I think the other thing I would say is, and looking at other releases and information, off-prem seems to be what's bringing some of our competitors into more positive territory versus just on-prem dining, where our off-prem is a little bit smaller share overall.

Cheryl Henry -- President & Chief Executive Officer, Director

Nicole, just to add to that. We have done some work, and I think I mentioned it when Andy was around, trying to get the noise and some of the average volumes of different concepts and looking at where we are specifically in markets against it, and we feel positive about how we are performing when we start to try to strip out some of the noise of smaller AUVs versus where we are in the geography impact of it. So, we are able to do that work, and we're confident and really pleased with where our sales are.

Kristy Chipman -- Chief Financial Officer

Yes. I'm sorry, just to be clear, that work we've done is more against the Black Box view. Knapp-Track, we watch, but we haven't quite gotten to that deep of a level yet with Knapp-Track.

Nicole Regan -- Piper Sandler -- Analyst

That's great. And that's something that we're just not privy to. So, to the degree you can even cite some of those numbers possibly into the future, it could be beneficial. But nonetheless, thank you very much for taking my questions. I appreciate it.

Operator

Our next question is from Todd Brooks with C.L. King & Associates.

Todd Brooks -- CL King & Associates, Inc. -- Analyst

A few small wrap-up questions here. If we talk about off-premise retention, as same-store sales are accelerating, as we see this lift in the business in June, how is the off-premise revenue mix maintaining? And where do you anticipate that settling out versus the almost five-fold increase that you saw during the pandemic?

Cheryl Henry -- President & Chief Executive Officer, Director

Yes. Thanks, Todd. This is Cheryl. Let me just briefly say. I think, we have seen fairly consistent as our restaurants have opened. Where it fell out, I think we last mentioned around 8% to 10%, the quarter saw that level of retention in the program. I think where we expect it to go is somewhere between 5% and 7% over time, which makes sense given the experience we offer in our four walls. So, as we think about more people, especially through Q2, being willing to come out, they want to experience the hospitality, the person-to-person relationship that we have with them inside the restaurants. It's -- I would say, the 5% to 7% is much larger than our pre-COVID number. So I do think there's some stickiness, and we've built a new channel for our brand, and we want to be their people when they feel like that's the best approach for the experience they can have on a given night. Our work pre-COVID told us that, that is an additional visit. And so we're looking to see if that holds out as we continue on this 5% to 7% going forward. But we've definitely been able to enhance through COVID the platform where people can order and can pick up at Ruth's. And so, we're happy to be there and meet the guests where they need us.

Todd Brooks -- CL King & Associates, Inc. -- Analyst

Okay. Great. Thanks, Cheryl. And then, can you talk about how the restaurants are set up now or -- I know that you distanced some spacing between tables. A lot of competitors have kind of backed off of kind of 6-foot, socially distanced dining room configurations. I guess over the course of the quarter, did you add any seats back into the restaurant? And if not, how much of an opportunity is that for incremental volume over time versus the strong results you're seeing now?

Kristy Chipman -- Chief Financial Officer

I'll start, and then Cheryl can pop on here. So, obviously, mid-quarter, we saw California fully reopened, and our restaurants started to increase capacity. That was by adding tables back into the reservation system and moving from 50% to 75% and now up to 100% capacity. We are -- it takes time. You don't just flip a switch. So it's taking us a little bit of time for us to get from 50% to 100%. I would say we're a couple of weeks away from having all of our restaurants open to 100% capacity on the reservation system. But just remember, that really impacts us on only a couple of days a week, and we are still leveraging some of our excess private guidance base for a la carte, so we're getting capacity beyond what a pre-COVID number of tables would be in that same time period. And so, we are also starting to see private dine reemerge. And while slowly, we're starting to see some positive signs there. And so, that space is being used up over time as well.

Todd Brooks -- CL King & Associates, Inc. -- Analyst

And the private dining, it's great to hear that's reemerging, is it too early to be getting a sense of demand for holiday from groups? And is the situation just still too fluid with the Delta variant out there right now?

Cheryl Henry -- President & Chief Executive Officer, Director

Yes. I think it is fluid. So, while we have seen calls and bookings for the fourth quarter and into the holidays, I think we are monitoring it to see if behavior changes. We started to see -- it actually has changed over years. I've been with the company for 14 years. We used to see bookings start in as early as July and August. As I said, we have seen bookings for the fourth quarter at this point, but more recently, in recent years, we start to see that really kick in, in the September timeframe. So a little soon to tell. Yes, to your point, it is still fluid. But to Kristy's mention earlier, we have seen an uptick in bookings and actually as a percentage of sales over time. And so, we'll monitor it as we go and see how the consumer reacts throughout the next few weeks and next couple of months.

Operator

And our next question is from Brian Vaccaro with Raymond James.

Brian Vaccaro -- Raymond James -- Analyst

Just two quick follow-ups. First on the three underperforming markets. Can you remind us how many units, and maybe more importantly, the percent of company sales, those markets historically contribute?

Cheryl Henry -- President & Chief Executive Officer, Director

Yes. Brian, this is Cheryl. It's six units in the Boston market and Hawaii as well as the Manhattan store in New York.

Kristy Chipman -- Chief Financial Officer

Sorry, Brian, can you repeat the second part of your question?

Brian Vaccaro -- Raymond James -- Analyst

Yes. I believe those are obviously, Manhattan and probably Boston as well, are kind of very high-volume units. So, we're talking six units. It's about 7%, 8% of your unit count maybe, but as a percentage of sales, normally, so we're talking roughly maybe 10% of company-owned sales in a normal environment?

Kristy Chipman -- Chief Financial Officer

Yes, I think that's right, about 10%.

Brian Vaccaro -- Raymond James -- Analyst

Okay. Great. And then, Kristy, the increase in the labor efficiency target to 250 to 300 bps. Does that reflect additional efficiencies that you've realized or expect to realize? And if so, could you provide more color there? Or maybe that's an increase in your sales forecast driving some of that increased leverage?

Kristy Chipman -- Chief Financial Officer

Yes. So, we have not changed our efficiency. I think I shared our efficiency at 15%. We're probably in that 12% to 15% range as we look at the back half of the year, although we will start to comp over some of the gains as we put this in, in Q4, and that's factored into the $250 million to $300 million. We continue to see leverage, primarily, I would say right now, because of overall sales, more so than any change in efficiency guidance that we have provided before.

Operator

And we have reached the end of the question-and-answer session. I will now turn the call over to Cheryl Henry for closing remarks.

Cheryl Henry -- President & Chief Executive Officer, Director

Thank you, everyone, for joining the call today. We look forward to speaking with you again soon. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Kristy Chipman -- Chief Financial Officer

Cheryl Henry -- President & Chief Executive Officer, Director

Brian Vaccaro -- Raymond James -- Analyst

Andrew Barish -- Jefferies -- Analyst

James Rutherford -- Stephens Inc. -- Analyst

Nicole Regan -- Piper Sandler -- Analyst

Todd Brooks -- CL King & Associates, Inc. -- Analyst

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