Yesterday, RUTH announced that it has completed additional cost reduction initiatives, including a cut in the number of corporate personnel. The company estimates that these cost reductions will generate annualized savings of approximately $2-$4 million on top of the previously announced annual expense efforts of about $8 million, resulting in about $3-$4 million of savings in 2008 and $10-$12 million in 2009.
Again, management stated in its press release that these cost reductions were completed in order “to maximize free cash flow and manage the business to preserve [its] flexibility.” The press release went on to say that “these changes are necessary in order for our organization to maintain stability in the current operating environment” and that “these actions were also taken in an effort to rationalize the company’s infrastructure from one intended to support material new unit growth, to one with a significantly reduced development outlook.”
I would agree that these recent moves to eliminate costs will provide the company with more flexibility, but again, like the sales-leaseback transaction, I think the need to implement these cost savings initiatives points to RUTH’s current desperation. The company is doing anything it can to survive in the current environment. Making matters worse for RUTH, although not surprising relative to recent comments from other casual dining operators, the company also stated that the challenging trends through 3Q08 deteriorated further in October. RUTH’s comment about its significantly reduced development outlook, however, highlights a definite step in the right direction…better late than never.