In an 8-K filed on Tuesday, Ruth's Hospitality Group (RUTH) , parent of the Ruth's Chris Steak House chain, revealed that it entered into a $20 million Small Business Administration loan agreement with JPMorgan Chase (JPM) under the CARES (Coronavirus Aid, Relief and Economic Security) Act. The loan agreement actually covers two, $10 million loans that mature in April 2022 and bear a 0.98% interest rate but will be forgiven if used for payroll costs. That should not be much of a problem for Ruth's or any other restaurant name that receives one of these loans; labor is typically first or second in terms of their biggest expenses. RUTH is the first publicly traded chain I am aware of that has obtained or disclosed a CARES loan, although I expect more will follow.
At year-end 2020 Ruth's had a total of 159 locations, 83 of which were company-owned and the balance franchises. For 2019, total "restaurant operating expenses," which include labor, maintenance, utility and occupancy costs, were $214.7 million, or about 49% of restaurant sales. While the company does not break out labor costs specifically, in a nutshell, the SBA loan should provide about five weeks of operating costs, perhaps a bit longer given the current dormancy.
This is a shot in the arm for sure, but Ruth's and other participating restaurants obviously remain at risk the longer they are shuttered. It appears unlikely that once they do reopen they will be able to reach full capacity quickly, not just due to potential occupancy restrictions but also because of the uncertainty around how many consumers will feel comfortable eating out again among others.
Ruth's, like many other restaurant names, has had a rough run recently. Its shares are down 62% year to date, the company has suspended its dividend and it has drawn down the rest of its $120 million revolving credit facility. Ruth's was not all that highly leveraged at the end of 2019, with $64 million in long-term debt (there also was $238 million in operating lease liabilities, which were off balance sheet until recently.) RUTH currently trades at just under 8x next year's low analyst earnings estimate and 6x the consensus.
Despite the drubbing RUTH has taken in 2020, this is not the worst the stock has seen; in early 2009 its shares traded under $1. During that period, restaurants were actually open.
I expect we'll hear about more CARES loans for restaurants in the near future.