Ruth's Chris Steak House placed a $94 million bet Tuesday on a small, high-end seafood chain that the company vows it will turn into a national restaurant brand.
In announcing plans to buy Mitchell's Fish Market along with Cameron's Steakhouse from Columbus, Ohio-based Cameron Mitchell Restaurants, Ruth's Chris voiced its ambition to be more than a fine-dining steakhouse operator.
"We feel having another concept to grow along with our Ruth's Chris brand is a good move for us," said Craig Miller, chairman and chief executive officer of Lake Mary-based Ruth's Chris Steak House.
With Mitchell's Fish Market -- now operating 19 restaurants in the Midwest, Northeast and Florida -- Miller said he hopes to eventually dominate the pricey seafood restaurant business, much in the way Ruth's Chris has climbed to the top of the high-end chophouse ladder.
"High-end seafood matches up very well with what we do," Miller said
Since moving its headquarters to the Orlando area from suburban New Orleans in 2005 after Hurricane Katrina hit the Gulf Coast, Ruth's Chris has been opening restaurants at a rapid clip. The company, founded in 1965 when Ruth Fertel mortgaged her house to purchase a 60-seat steakhouse near the New Orleans Fair Grounds racetrack, now operates 114 restaurants worldwide.
Miller said he sees plenty of growth ahead for Ruth's Chris, but to hedge his bets, the chief executive said he wanted to venture into another restaurant market.
That's probably a smart move, said Rick Van Warner, an industry consultant and president of the Winter Park-based Parquet Group.
"There is definitely going to be finite number of markets for a very high-end, higher priced fine-dining restaurant such as Ruth's Chris," Van Warner said.
"So, from a long-term perspective, this [purchase] makes a lot of sense," he added.
In Mitchell's Fish Market, Ruth's Chris picks up a group of contemporary restaurants known for quality seafood (it's flown in fresh every day) and run by a well-respected restaurateur, Cameron Mitchell, according to Van Warner. The average dinner check for a customer at Mitchell's is $39, compared with Ruth's Chris average dinner check of $73.
Ruth's Chris is also acquiring three steakhouses from the Ohio-based company, which will continue to run a string of smaller restaurants operating under several other brands.
On Tuesday, Mitchell, who flew down to Orlando for the announced $94 million purchase of his seafood and steak eateries, said he had been consulting with investment bank Piper Jaffray & Co. about a potential sale of his upper-end seafood concept. Negotiations with Ruth's Chris heated up at the end of the summer, he said, with the deal coming together during the past few weeks.
"We felt like the concept was ready for national expansion at a much faster rate than we were capable of developing it," Mitchell said.
Ruth's Chris has been an industry darling, opening new restaurants and posting sales increases that far outpaced the industry average. But the high-end steak chain has run into economic headwinds recently with consumers pinched by the housing downturn and other financial pressures cutting back spending at the chain.
Shares of the company have also tumbled during the past three months, falling 20 percent.
In the company's latest earnings report released Tuesday after the market's close, Ruth's Chris said profits fell 24 percent to $1.8 million, or 8 cents a diluted share, for the period ended Sept. 30.
Same-restaurant sales at company-owned restaurants fell 0.4 percent and same-restaurant sales at franchised-owned restaurants fell 0.5 for the quarter, the company reported. Same-restaurant sales, which exclude sales at newly opened restaurants by measuring performance of locations open more than a year, is a key gauge of industry performance.
Ruth's Chris third-quarter revenue was $70.2 million, up 20.5 percent from $58.3 million for the same period a year ago. Shares of the company rose 26 cents, or 2.11 percent, to close at $12.56.
The company said its acquisition, which is expected to close in the first quarter of 2008, will be funded through its credit facility.