Ruth’s Hospitality Group, Inc. (RUTH) Q1 2022 Earnings Call Transcript

Ruth’s Hospitality Group, Inc. (NASDAQ: RUTH) Q1 2022 earnings call dated May. 06, 2022

Corporate Participants:

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Cheryl Henry — President and Chief Executive Officer

Mike Hynes — Vice President of Finance and Accounting

Analysts:

Brian Vaccaro — Raymond James — Analyst

Nicole Miller — Piper Sandler — Analyst

Andy Barish — Jefferies — Analyst

Todd Brooks — The Benchmark Company — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen. Welcome to today’s Ruth’s Hospitality Group First Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference call is being recorded. I’d now like to turn the conference over to Kristy Chipman, Chief Financial Officer and Chief Operating Officer. Please go ahead.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Thank you, Jason, and good morning everyone. Joining me on the call today is Cheryl Henry, our President, Chief Executive Officer & Chairperson of the Board and Mike Hynes, Vice President of Finance and Accounting. 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 our rhgi.com as well as the SEC 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 and Chief Executive Officer

Thank you. Kristy and good morning everyone. Before we shared the details of the quarter, I want to take a moment to acknowledge the efforts of our team members in our franchise partners over the past few years. Their hard work and commitment brought us through extremely challenging times and positions Ruth’s Group as a clear leader in the fine dining category. As always, our success stems from serving the highest quality food with genuine hospitality. And with that as the company’s foundation, we can better focus on and deliver the total return strategy that has benefited our shareholders over the years. That strategy starts with organic growth and we’re pleased to be investing more than $50 million this year into new restaurants, relocations, remodels and digital technologies that drive that growth, improve our guest experience in our restaurant operations. It also includes returning excess cash to our shareholders through debt pay down, dividends and share repurchases. Taken together, we believe these actions will sustain the underlying growth and profitability of the business, while creating significant value along the way.

As far as the first quarter we are pleased to have delivered solid results with year-over-year earnings per share growth of 17%. This was driven by sales recovery throughout the quarter and a continued focus on margins and it’s safe to say that despite ongoing challenges like inflation and supply chain disruptions, our team has delivered an impressive start to 2022. Our top line sales in Q1 beat 2019 levels and our momentum improved each month to end the quarter with comp sales exceeding 8%. This momentum continues leading to double-digit comp sales growth and positive traffic through April. This is especially encouraging given certain regions of the country and our private dining business remain below pre-pandemic levels.

We attribute the recent demand as compared to 2019 to a few factors. First, an increase in our just because and special occasion. Second, the continued contribution of our Ruth’s Anywhere program and finally, we benefited from our digital transformation plan which is now gaining traction. Moving on to profitability, we posted a solid restaurant margins as labor and cost of sales stabilized during the quarter. Kristy will discuss our financial results including labor and commodity expenses in greater detail but it’s worth noting that changes in our labor model delivered savings of approximately 156 basis points during the quarter compared to 2019. All in all, our underlying business is strong and we’re confident that our current investments which include building new restaurants will generate solid returns. Our focus for that development is to establish a dependable cadence of new units with a goal of 5 to 7 new restaurants annually.

In March, we successfully opened our first restaurant of 2022 in Aventura Florida and while early, we believe that it has outperformed the system and our sales expectations. Including Aventura we remain on track to open its little as 5 new restaurants over the course of this year with 2 expected to open in the third quarter and two in the fourth. In addition to those new restaurant openings, we have 2 relocations currently under construction. One in Winter Park Florida as well as one in Woodland Hills, California. These relocations reflect our new contemporary design that leverages outdoor dining spaces in larger bar areas and we expect these restaurants to open by end of the year.

In terms of future pipeline, we are finalizing the lease for a restaurant in Albany, New York and are in the final negotiations for 2 additional leases. When combined with leases previouslysigned, we expect to have a total of 5 restaurants in the pipeline for 2023 soon and continue our work to find the best sites for the future. Despite increased material and construction costs, we remain committed to return consistent within our historical levels. Our investment in digital transformation is also a critical part of the strategy. As we outlined in early 2020, we have focused our transformation initiatives on 3 key pillars; enhancing the guest experience, reducing friction and increasing our team’s productivity. I’m pleased to report that during the quarter we rolled out our proprietary platform that uses restaurant specific data to improve demand forecast in our table management. While it’s only been a few weeks, it has already resulted in high single-digit traffic increases on the weekends which is encouraging. Of course, investments in new restaurants and new technologies won’t be successful without the people behind it and that is why we continue to invest in hiring, training and deploying a world-class team members. To that end, we made further progress during the quarter adding managers to our restaurants and nearly each of our locations are returning to pre-pandemic sales and traffic volumes.

Before I turn it over to Kristy, let me quickly summarize where we stand on our total return strategy. As I mentioned earlier, we are investing over $50 million in capital with the majority of that investments supporting growth initiatives that we believe will generate a solid return for investors. To complement that investment, we are returning cash to shareholders through 17% increase in our dividend payment while also paying down $45 million in debt. We’ve done this while maintaining a net cash position of over $25 million and have roughly $25 million less on our most recent share reauthorization. So to keep our momentum, we will continue to focus on the details of execution which includes providing an incredible dining experience for every guest every time they visit, We’re not only confident that we can navigate external factors that might come our way but also in delivering value for shareholders in the process.

I will now turn the call over to Kristy Chipman to cover the specifics of the quarter.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Thank you, Cheryl. For the first quarter ended March 27, 2022, we reported GAAP net income of $10.4 million or $0.31 per diluted share. This represented a 14.1% and 16.5% increase respectively compared to the first quarter of 2021. Excluding adjustments non-GAAP diluted earnings per common share was also $0.31. Total revenues for the quarter increased 44.5% to $126.1 million compared to $87.3 million in 2021. Company-owned restaurant sales increased 45.4% to $118.7 million compared to $81.6 million in the prior year. Comparable restaurant sales for the quarter increased 41.5% versus 2021, an increase — approximately increased 8.1% compared to 2019. As compared to 2019 by months, comp sales were negative 0.2 in January, positive 11.5 in February and positive 14.4% in March. As Cheryl alluded to earlier, January demand was slowed by the Omicron variant but as you can see guests rapidly returned to our restaurants in February and March.

As a reminder, we took a price increase in late March of approximately 3.4% on certain products including beverages. We also recalibrated certain restaurants within pricing tiers. To date, we have not seen a noticeable change in mix of traffic due to this price increase. Franchise income for the quarter was $4.7 million, up 24.7% versus the same period last year, driven by comparable domestic franchisee sales of 23.8% and international franchise comps of 29.5%. Other operating income was $2.7 million, up 45% versus last year. Moving on to restaurant expenses, food and beverage costs for the quarter increased 445 basis points versus 2021. The main driver was the increase of fees which increased approximately 37% for the period even though prices declined each month sequentially. As a reminder, we have locked at approximately 70% of our repurchases during the first quarter last year. Our total market basket increased approximately 28% compared to the first quarter of 2021 reflecting continued pressure in nearly all food categories including beverages. During the quarter, we entered into a new forward pricing agreement and we are now locked for approximately 20% of total beef volumes through mid-August of this year. Labor expense for the quarter versus 2021 increased approximately 150 basis points due to the operating restrictions that existed last year. However, when compared to 2019, labor expense for the quarter improved 156 basis points driven by labor efficiencies, partly offset by increased wages. Our full year guidance of 200 basis points of improvement for the year versus 2019 remains intact as quarterly variations were considered in that guidance.

Moving beyond restaurant expenses, combined marketing and G&A as a percentage of total revenues was 11.2% compared to 10.5% in the first quarter of 2021 reflecting our investment in the digital transformation we have underway and adding resources back to the business. That said, we expect, marketing and G&A to be in the range of 10.3% to 10.8% of total revenue. As of March 27th, we had $66.8 million in cash and our outstanding debt was $50 million. Since then we’ve repaid an additional $25 million in debt for a total repayments of $45 million since the beginning of 2022. As of May 2nd, our net cash position was approximately $25 million. Finally, our Board approved a second quarter dividend of $0.14 per share and as Cheryl noted, we have approximately $25 million remaining on our share buyback authorization.

I will now turn the call back to Cheryl Henry for a few closing comments.

Cheryl Henry — President and Chief Executive Officer

Thank you. Kristy. In closing, let me reiterate how pleased we are with a solid start to 2022 and with strong demand from our guests as they return to our dining rooms. This brand was established by a single working mom 57 years ago this month. We have veteran operators and franchise partners with decades of experience who have honed their skills and agility and it continues to elevate this business and our hospitality through every hardship and downturn. We believe the company is positioned for long-term success. I would like to thank each of our team members, franchise partners and shareholders for their continued support. Thank you for joining us on the call this morning and I look forward to taking your questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brian Vaccaro from Raymond James. Please go ahead.

Brian Vaccaro — Raymond James — Analyst

Thank you and good morning. I was hoping you could give us a little more color on the sales acceleration that you saw in February and March, and it sounds like it has sustained in April as well and obviously exiting the Omicron impact, but are you seeing, I guess, to what degree are you seeing previously lagging regions catching up to other regions that had already recovered. And also, to what degree are you seeing business lunches and dinners recover in recent months.

Cheryl Henry — President and Chief Executive Officer

Yes. Thanks, Brian. So. regionally, we still — we had mentioned Hawaii and Boston and Manhattan specifically and they still have not fully recovered. We’re seeing slow recovery in a couple of those markets. That’s more in the April timeframe and as far as private dining during the quarter that really didn’t see a recovery. We are seeing a bit more of that. I think as we’ve talked about it and people back to work, beginning of March, we saw a lot of back to work and I think you’re starting to see that reflected in the April numbers but we still see that as an opportunity in front of us to continue to grow through the back half of the year.

Brian Vaccaro — Raymond James — Analyst

Okay. And sorry if I missed it, but the — I think in past quarters you’ve sort of stripped out Hawaii, Boston, Manhattan. Can you provide the ex — the comps expense [Phonetic] markets this quarter.

Cheryl Henry — President and Chief Executive Officer

Sure. Those markets had about a 600 basis point impact for the quarter.

Brian Vaccaro — Raymond James — Analyst

Okay, great.

Cheryl Henry — President and Chief Executive Officer

And Brian, I think we mentioned 600 and 700 in the past, so even currency where that was in the quarter. And I would that everybody is improving including them but as the rest of the system had positive comps, we’re still seeing that relative difference between those markets even though they are improving from their lows. They’re just not improving as quickly as the rest of the basis.

Brian Vaccaro — Raymond James — Analyst

Understood. Okay. And the quarter-to-date, I just wanted to confirm you’re up double-digits. That’s versus 2019. I just wanted to confirm that. And then, Kristy, could you level set what that means in terms of average weekly sales.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Yeah, Brian, that is again, so against 2019 I’m speaking to specifically what I mentioned in the script. So 2019 average weekly sales 108.5 in period 1, 141.7 in period 2, 128 in periods 3 and the quarter was 127.

Brian Vaccaro — Raymond James — Analyst

I’m sorry. Yeah, thank you for that. I was asking about April.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

I’m sorry.

Brian Vaccaro — Raymond James — Analyst

We’re up double, yeah.

Mike Hynes — Vice President of Finance and Accounting

Hi Brian. The April average weekly sales look a lot like March in the 127 to 128 range.

Brian Vaccaro — Raymond James — Analyst

Okay, great. And then also I wanted to ask about some of the digital transformation. You touched on, Cheryl, at the beginning of the call and can you elaborate, you talked about a high single-digit traffic improvement, I think, with some of the new seating [Phonetic] initiatives and the demand forecast. So just elaborate a little bit on what that means and how that’s impacting the business.

Cheryl Henry — President and Chief Executive Officer

Yes. So Brian, I mentioned specifically that’s on the weekend. I think if you go back even by 2019, we talked about changing out some of the ways the restaurants were laid out and better utilizing all of the real estate in the building. It has benefited us greatly during COVID. We could not have anticipated that but this is really where we’re starting to see the data behind the initiatives combined with the work that we had done around the seating and floor plan. And so we’re able to on those high volume days take advantage of that and make sure we’re utilizing optimum capacity in the restaurants considering labor and guest experience as well until we fully enrolled towards the end of January, I would say it was really in effect by the end of February, beginning of March. And so we’re starting to see that positive impact and again it’s early but it’s really behaving the way we, during test believed it would behave across the system.

Brian Vaccaro — Raymond James — Analyst

Okay, great. And then last one for me, just on the commodity front. Kristy, you mentioned the new contract in place through August. It seems like the spot market has moderated especially on the prime side. Could you just touch on what you’re hearing in terms of beef fundamentals and perhaps give us a little bit of a sense of how you expect your inflation would be in the second quarter just to make sure we’re all on the same page.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Yeah. So beef fundamentals first, I think we continue to talk to our suppliers. Certainly herd size and drought conditions and things are working against us but and we see beef kind of increase from the first quarter alone but not significantly yet at this point as it comes through our system. So heading into the summer, we think that beef prices are increasing from where they’re at today. Seasonal demand type production, drought, higher transportation costs are a situation where we’re keeping a good eye on. While prime grading is slightly lower as well from a year ago. So I think overall, it continues to be very difficult which is why we are not providing cost guidance at this point in time. I think when you look at the rest of the basket, we would expect another quarter of inflation similar to what we’ve seen this year because really our inflationary pressures didn’t start until the back half of 2021, non-beef.

Brian Vaccaro — Raymond James — Analyst

Non-beef. Okay. Alright, thank you. I’ll pass it along.

Cheryl Henry — President and Chief Executive Officer

Thanks, Brian.

Operator

The next question comes from Nicole Miller from Piper Sandler. Please go ahead.

Nicole Miller — Piper Sandler — Analyst

Thank you. Good morning. I’m just following up on that inflation topic. What was inflation in the basket in the first quarter and I think it was versus really no material inflation a year ago in the first quarter.

Cheryl Henry — President and Chief Executive Officer

That’s right, 28% in the total basket including beef.

Nicole Miller — Piper Sandler — Analyst

In the second quarter, I understand what you’re saying about no COGS but I guess I would say what maybe for the course of the year and knowing the lock, I think you said through August, is it the similar level of inflation then that runs through kind of that framework or something higher or lower.

Cheryl Henry — President and Chief Executive Officer

Are you speaking to beef specifically, Nicole?

Nicole Miller — Piper Sandler — Analyst

Really up to you because I’m sure you can dissect. I can take it either way, it doesn’t matter.

Cheryl Henry — President and Chief Executive Officer

I would say that we started to see higher beef prices in the back half of the year last year. And so we will be coming up and comping against those higher beef prices. And as I mentioned, we saw beef coming down sequentially through this quarter and into April. We do — it is starting to come back and trend along the historical seasonal levels and so I think that in the back half of the year, beef prices will moderate. I think from an — and similarly, from an overall inflation, we start to lap a higher cost base in the back half of the year for the rest of the food items. And therefore I think it will moderate. I can’t give you a percentage, per se, of what we think inflation will be. It’s just too uncertain right now but I do believe moderation is coming in the back half of the year.

Nicole Miller — Piper Sandler — Analyst

And then switching to development, are the 2 re-loads considered within the 5 new stores. So it’s 3 net. Are those in addition to the 5 new store openings.

Cheryl Henry — President and Chief Executive Officer

Yeah, Nicole, those are in addition 5, openings of 5 in total.

Nicole Miller — Piper Sandler — Analyst

Okay. And what can you tell us about the pipeline. So one got opened right in Florida. I don’t know how many more specific you want to call out but just how is development tracking in 2Q and for the rest of the year. Is it a good pace. Do they pull forward, do they get pushed back, how is that looking for the other 4.

Cheryl Henry — President and Chief Executive Officer

Yes. So earlier this year, Nicole, we talked about getting to a more normalized cadence of 5 to 7. I mentioned earlier, we will have 5 this year and then again as you the 2 re-loads and we’ve announced 2 sites for ’23 and I mentioned today 3 other that are in the final stages of lease negotiation we expect to have soon and we continue looking. I think some of the changes we talked about the floor plan and the design have opened up some opportunities for us. And that’s why we said 5 to 7 versus kind of pre-COVID 3 to 5. And so we are looking, we will be as always careful and meticulous about how we choose our sites. But we are finding opportunities out there. So we continue with that thought around 5 to 7 going forward.

Nicole Miller — Piper Sandler — Analyst

And just a last one. I realize the question of recession is a little tricky and even just lower GDP is painful without an outright recession. What’s interesting is if that were to be the case, you don’t have any or don’t have as much business business to lose, right? That went away with COVID and did a fine job more than of replacing it with a local business guest or a social user. So if we head in that direction, what happens to the guest who has been just nothing but absolutely robust up until this point. We’re still through this current today period.

Cheryl Henry — President and Chief Executive Officer

Right. I know it’s true. We haven’t seen any and we’re seeing the same headlines in volatility in the market especially this week, we’ve not seen that yet in our weekly sales and traffic numbers. We — I mentioned earlier, we’ve been, we’re 57-year-old company this month. We’ve been through many downturns. The consumer will feel an impact at some point, and we believe there is some resilience to our higher end consumer and that maybe what you’re seeing play out right now but we have again a very experienced team, very experienced franchisees. So we are prepared. We have some — always we’re putting a plan together. If we have guests that are more value-oriented, we’re able to meet them where they are in the moment and so I won’t speak specifically. I will let the economist opine on how deep and when but I know that this team is prepared and we understand when things get tight how our guests respond. You are right. We were just talking about the idea that sometimes you start to see it, the windshield is a little bit at the corporate dining but given where that’s been, we know we’ve had other revenue channels that can offset that and we’re putting our plans in place and we’ll be ready.

Nicole Miller — Piper Sandler — Analyst

Great. Thanks again.

Operator

The next question comes from Andy Barish from Jefferies. Please go ahead.

Andy Barish — Jefferies — Analyst

Good morning, how are you guys.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Good, how are you.

Andy Barish — Jefferies — Analyst

I’m good, thanks. Could you just as we start to see the new unit growth ramp back up, can you give us a quick refresher kind of on new unit productivity, what you underwrite to in terms of, you know, top line volumes just given some of the changes you’ve talked about in some of the smaller markets that you’re starting to bring into the unit growth as well.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Yeah, I would speak broadly about the expectations for these losses. So as you mentioned, smaller markets, smaller boxes [Technical Issues] patios, and then the way we’re thinking about it, the cost as I mentioned are going up. So we’re expecting more productivity out of them from top-line standpoint as well as the overlay from the digital initiatives and price as well that these volumes are — will be considered high and we’re seeing that, it’s early. We’ve got a couple of boxes that now running and so that’s how we think about it broadly. Yeah, I mean I think when you talk about it from an overall return standpoint, that’s exactly right. So even though material costs are up similar to about 20% or so, we are also seeing the topline grow relative to the states that Cheryl mentioned and therefore from a total return perspective, we’re doing well with openings we have. And as we start to build out going forward, we’re looking at similar types of topline, top line volume.

Andy Barish — Jefferies — Analyst

Okay, great. Thank you. And just on the marketing and G&A, excuse me, obviously it ran heavier in the first quarter versus your guidance for the year. Can you just give us a little color in terms of what was going on there. Is it the tech spend kind of upfront or just timing.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Yeah. So certainly our tech now, our digital transformation technology spend both from a capital perspective as well as an expense perspective is loaded in the front half of the year. The other thing that I would mention is, we’re adding — we have started to see the lapping, we added 15 members last year, so from an overall G&A perspective that’s coming in and then at a marketing side, we saw gift card sales really being strong in the first quarter and the discounts associated with those from our marketing line. And so those are sitting in there as well.

Andy Barish — Jefferies — Analyst

Interesting. And then just one other thing. Cheryl, you mentioned Ruth’s Anywhere. Where is the off-premise mix and you know is that, did you call that out, just seasonally in the winter months you see a little bit more of that as patios in some places are not as available or just give us a little more color on that please.

Cheryl Henry — President and Chief Executive Officer

Yes. So broadly we scrutineer____ with 100% of our business back in early 2020 and I think we are finding that right balance when the demand is so high for the experiential 4-wall genuine hospitality. And then seeing it as a valuable revenue channel in certain parts of the day and parts of the week and so we’re balancing that. Late last year, and yes, your point is seasonal. So I think as we were in the fourth quarter a bit higher as a percent of sales, we saw Q1 as Omicron starting to slow down and we’re seeing the restaurants become busy again we’re looking at between 3% and 5% of sales still very valuable and the work we’re doing now is to understand where we can turn that up if there’s opportunities to take advantage of capacity. Can we do it to go to sales and then when we really want to make sure we’re focused on the end restaurant experience.

Andy Barish — Jefferies — Analyst

Awesome, thank you very much.

Operator

[Operator Instructions] Our next question comes from Todd Brooks from The Benchmark Company. Please go ahead.

Todd Brooks — The Benchmark Company — Analyst

Hey, good morning everybody.

Cheryl Henry — President and Chief Executive Officer

Good morning.

Todd Brooks — The Benchmark Company — Analyst

I was wondering if you could give us maybe some qualitative comments. We’re coming into Mother’s Day this weekend and Father’s Day graduation what that occasion business, what are you seeing relative to maybe fiscal ’19 as far as maybe pent-up demand for gathering now that we’re through 2 years of this and people are to an extent done with it and they want to give back out there and celebrate events with friends and family.

Cheryl Henry — President and Chief Executive Officer

Yeah, you just said. I think we are seeing a lot of that. I think we saw a little during the holidays if you think in the fourth quarter, but again that was kind of overshadowed by the beginning of Omicron and so I think now we are seeing a combination of the work, especially in the holidays and it’s really high peak, high capacity days. The combination of the demand from the guest and being able to meet that demand through the capacity utilization platform that’s in place. So we are seeing fairly significant peaks over what you saw in 2019. Mike, if you have anything to add.

Mike Hynes — Vice President of Finance and Accounting

Sure. It’s just the number on the Easter, which was in April, and those recent [Phonetic] holiday. Historically Easter is not as strong for us as Mother’s Day or Father’s Day but it’s still a great holiday for us and we saw performance this year plus 30% versus 2019 for Easter.

Todd Brooks — The Benchmark Company — Analyst

That’s great. Thank you. Secondly following up and I know we’ve spent time talking about digital transformation and kind of the table efficiency but is there any other early wins coming out of the program that you want to highlight for us.

Cheryl Henry — President and Chief Executive Officer

Yeah, I’ll just mention one. I mean I think we have bucketed into 3 places and that was enhancing the guest experience, reducing friction and the productivity of the team. The productivity of the team work is in front of us and we’ve got some stats in place. So I’m not going to speak too specifically yet on that but I do look forward to sharing more. The other I will mention is with who we’ve been working on the hospitality side, and I think that and is still is a lot is our care taking of this brand is that the idea that this is a high human touch business and we don’t want to ever use a piece of data or technology and put that in front of that hospitality. So we’ve actually taken an approach of how do we use data and technology to enhance the hospitality and so we’ve put a test in place in many of our restaurants that seem to be fully rolled out. That gives our restaurant teams the assets to information that allows them to make the experience even better for our guests and early, very early, but early signs are if it’s paying off in the rating we’re getting from those experiences as well as from the repeat visitation and so that goes to our focus on making sure whatever we put in the restaurants and whatever data we use has benefits for the guests and then ultimately to the business but that’s another way we are excited about and look forward to sharing more about in the future.

Todd Brooks — The Benchmark Company — Analyst

Okay, great, thanks. And then final question from me. Kristy, you’ve talked about about locking 20% of the beef needs through late summer. Does 20% you did interpret one or two, as one, prices were coming down at that point and maybe you were hoping for more moderation. So, you didn’t want to lock more or your supplier partners felt like it was okay, we’re kind of — we see the outlook for the back half of the year. We don’t want to enter into big agreements to lot more beef. Would you lock more if you could or do you feel there is more opportunistic levels to maybe lock more of the beef spends in the future.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Yeah, I mean we lock for certainty, right? We’re not going to try to time it to get to the exact low. We’re going do our best to lock for certainty. Right now I don’t have any new locks to share but we’re always looking at it and making sure that we have a forecast out for what we think beef is going to be on the market and if a lock seems to be good for us and favorable and in the money, we’re going to as much of that beef as we can based on the projections we have.

Todd Brooks — The Benchmark Company — Analyst

And historically, how much would you run with locked typically.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Yeah, I think it’s variable. I mean last year this time, we were locked, in Q1 we were locked for 70%. Now, we’re locked for 20%. So again, it’s just going to be based upon the volatility of the market, our confidence in the projections that we have from the suppliers, etc. So I can’t tell on one exact percentage for now.

Todd Brooks — The Benchmark Company — Analyst

Okay, great, that’s helpful. Thank you.

Operator

The next question is a follow-up from Brian Vaccaro from Raymond James. Please go ahead.

Brian Vaccaro — Raymond James — Analyst

Hi, thanks. Sorry if I missed it but two quick follow-ups. Are menu pricing, if you take no additional increases, could you just level set where effective pricing would be over the next couple of quarters.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Sure. So no additional pricing. Q2 would be 7.4, Q3 5.9 and Q4 4.0 if we take no pricing for the rest of the year.

Brian Vaccaro — Raymond James — Analyst

Okay. What’s your current posture or thinking towards potentially taking additional pricing with beef moderating etc.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Sure. We’re going to be looking at our private dining menu more closely in the next couple of months. So I can see us taking something small there. No analysis yet but we always look at that about this time of the year and then as I mentioned in the past, we’re sensitive to price even though we’ve taken significantly more price over the last 12 months than we historically would have. So, but we’re going to continue to look at it, I think you know the inflationary trends beyond beef will continue to happen with labor. All of that is going to go into our equation as we look in the latter half of the summer for whether or not we should take more pricing.

Brian Vaccaro — Raymond James — Analyst

Okay. And just in terms of the macro read if there are any within your business in recent weeks or months, I’m not sure how real-time you can see this, but is there any change recently on the number of celebrations, birthdays, etc. which I assume, not sure but I had assumed captures maybe some more economically sensitive guests that could be feeling some of the pressure of high gas prices, broader inflation etc. Do you see anything like that in your recent trends.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

I would say not particularly. It’s nothing that we would call out specifically that’s driving our results and they slow down if that’s what you’re kind of alluded to might happen. Obviously, our guests are a cross segment of the population and so I think we’re all in that wondering how strong are the balance sheet, how long will they be coming coming into the restaurants for the celebratory occasion. But I think we also know that looking at and listening, people are favoring services including restaurants and experiences much more than they are hard goods. And so we are going to be ready to capture as much of that as we can for the rest of the year.

Brian Vaccaro — Raymond James — Analyst

That makes sense. And then last one, I just wanted to take another shot at commodities and I know it’s uncertain. But I guess just everything we know today. I just in sort of the spirit of making sure we’re not surprised, everything we know today, make sure we’re on the same page. And I don’t know where you set the contract on the 20% obviously, but it seems as you step back, it seems like your basket inflation could moderate towards 10% as a ballpark year-on-year in the second quarter. Is there anything material, I might be missing. If you’d be willing to comment on that.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

So I think what I said was I think Q2 is still especially if you exclude beef, Q2 will be similar to Q1, which is about 19%. So I think we have one more quarter of higher inflation when you compare it to 2021 and then it will moderate. The degree with which it will moderate is really uncertain right now.

Brian Vaccaro — Raymond James — Analyst

Okay. But year-on-year inflation on beef should moderate pretty immediately.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Correct.

Brian Vaccaro — Raymond James — Analyst

In the the second quarter as well, right?

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Absolutely. That is correct.

Brian Vaccaro — Raymond James — Analyst

Okay. I’ll pass it along. Thank you.

Kristy Chipman — Chief Financial Officer and Chief Operating Officer

Thanks, Brian.

Operator

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Cheryl Henry for any closing remarks.

Cheryl Henry — President and Chief Executive Officer

Thank you, Jason, and thank you all for joining the call today. We look forward to updating you again soon. Have a great day.

Operator

[Operator Closing Remarks]