This stock is at the top of the food chain when it comes to the restaurant sector

Restaurant stocks are not among the market's favourites right now because investors are concerned that increasing inflation and a potential future recession would damage demand as customers avoid eating out in order to save money.
CENTRAL, Hong Kong - Sept. 5, 2022 - PRLog -- RUTH operates Ruth's Chris Steak House fine dining steakhouses. It has 150 sites, approximately half of which are company-owned and the other half are franchised. Ruth Chris' franchise-focused strategy appeals to us since a franchise-based company model is often asset-light and boasts strong profits. This is because the franchise owner bears the majority of the fixed costs. RUTH's charges an initial franchise fee as well as continuing royalty payments based on around 5% of revenue. Using investors and franchisees to fund new site expansion helps firms like RUTH's to expand quickly.

While the COVID-19 pandemic caused restaurant dining rooms to close, the company's income and traffic were back to pre-pandemic levels by the end of 2021. RUTH's is regarded as one of the most prestigious fine-dining establishments in the United States, giving it a strong brand awareness and pricing power. The company's position at the top of the food chain undoubtedly provides it with some resilience, since consumers at the upper end of the income range are less likely to be forced to decrease spending on items like dining out in the event of a tightening economy.

For example, the company raised prices on certain products by 3.4% in March to account for inflation, but reports that it "[has] not seen a noticeable change in mix and traffic as a result of this increase." Furthermore, because RUTH's is regarded as a premium destination, customers may still splurge and visit for a special occasion.

While rising input prices have been a regular challenge for restaurant stocks in 2022, good news may be on the way. Raymond James Financial Inc. (RJF) recently added RUTH's to its Analyst Current Favourite list, stating that it expects continued outperformance in the fine dining segment and that RUTH's should benefit from "second half commodity deflation as it laps exceptionally high Prime grade beef costs in the second half of 2021." In other words, while the outlook for many stocks is tempered by fears of rising inflation, RUTH's may have already survived the worst of inflation.

Ability Corporate Advisory Limited [] is an independent Firm established in 2009 and headquartered in Hong Kong. As a boutique Firm, we are free from conflicts of interest or biased advice that can arise from misaligned incentives or commission-based structures. We offer rational investment and asset management recommendations based on a thorough understanding and analysis of your individual financial circumstances, risk profile, priorities and goals.

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