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Ruth’s Hospitality Group, Inc. (RUTH), Texas Roadhouse Inc (TXRH): These Steakhouse Chains Are Serving Up Profits and Great Food

As economic growth picks up steam and consumer confidence rises, Americans are stepping out of the kitchen and hitting the road to their favorite dining establishment. The industry’s major trade group, the National Restaurant Association, estimates that restaurant sales were roughly $661 billion in 2012, a 3.8% gain over the prior year. While Americans are trying to eat healthier, given the rising incidence of obesity, they still like their steaks, from New York strip to filet mignon. So, which steakhouses are winning the hearts and wallets of diners?

Ruth's Hospitality Group, Inc. (NASDAQ:RUTH)While there are a number of great steakhouses, Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH)’s Chris Steak House is usually at the top of the list. From an initial New Orleans steakhouse bought by founder Ruth Fertel in 1965, the company has expanded to almost 160 restaurants across the U.S. and in select international markets. In addition to its namesake brand, Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) also participates in the seafood fine dining segment, primarily through its 2008 purchase of the Mitchell’s Fish Market chain.

In FY2012, Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) generated solid financial results, which led to a breakout performance for its stock price. For the period, the company reported an increase in revenue and adjusted operating income of 7.9% and 13%, respectively, versus the prior year. Despite rising commodity prices, including beef, Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) maintained its gross margin near a five year high as it passed through higher menu prices and increased its high-margin wine sales. The company also benefited from relatively low advertising spending, approximately 2.5% and 4% of sales, due to its highly-regarded name brand recognition.

Looking ahead, Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) sees substantial growth opportunities in international markets as it seeks to export its high-priced, high-quality dining experience to the rising income areas of the Asia-Pacific and Latin American regions. The company opened four international locations in 2012, including Dubai and Singapore, and it has agreements for another twenty franchise locations to be built over the next five years.

Texas Roadhouse Inc (NASDAQ:TXRH) doesn’t try to compete with the high-priced steakhouses, choosing to focus on a middle market, family-oriented customer base. Its average guest check of $15 in 2012 pales in comparison to Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) average guest check of $73, but the lower prices opens the company to a much larger pool of customers. Texas Roadhouse Inc (NASDAQ:TXRH)’s strategy seems to be working too, as it added 26 restaurants to its base in 2012 and enjoyed a third straight year of rising comparable sales.

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