(I am writing this draft on April 19, 2020, several weeks into the stay-at-home order for the COVID-19 Pandemic. I’ll largely be citing from this Buzzfeed News article.)
I enjoy a nice pizza slice. During these weeks at home, I’ve got my Friday lunches from a local pizza place down the street. $20 gets me lunch for my wife and I. A pepperoni slice, a buffalo chicken slice, two orders of garlic sticks, and a Caesar salad. The buffalo chicken slice is to die for, but the stand out are the garlic sticks – super garlic-y. It’s a local spot, just one location in California – the family owns another in NYC. A little pricier than Domino’s, which has a franchise store also just a block away, but well worth it, in my opinion.
Like many small business, they’ve been hurting, with much less pedestrian traffic on the main street. They remain open, as an essential business, but there is rarely more than two customers picking up an order at any one time. It’s sad. I want them to survive.
It’s small businesses like my local pizza spot that were the intended beneficiaries of the Coronavirus Air, Relief, and Economic Security Act, aka, the CARES Act.
“The act provided up to $350 billion in loans to businesses with 500 employees or less for payroll purposes….Under the Paycheck Protection Program (PPP), the government will forgive the loans if the money is used on payroll, rent, or utilities — and workers aren’t laid off.” (Buzzfeed).
My local pizza place, with 5, maybe 10 employees; assuming $20/hour for 3 months of hard times: that’s around $50K to $100K needed to cover payroll, leaving their revenue to cover rent and other expenses.
As you can imagine, there was a lot of demand for these loans, and as I write this, on Sunday, April 19th, the funds ran out last Thursday after making over a million loans (an average loan being less than $350,000).
#####################################
Now, I also like a good steak. My wife cooks a very nice steak at home, maybe once a month. We might go out and get steak two or three times a year. There is a higher end local spot nearby that does a great steak for two.
Another higher end steak place that you may be familiar with is Ruth’s Chris. I have eaten there two or three times. It was good.
Ruth’s Chris is a chain restaurant with 159 locations. The Beverly Hills location currently has its 16 oz. Ribeye steak available for pick up/delivery for $62. Ruth’s Chris is owned by Ruth’s Hospitality Group, Inc., a publicly trade company.
Now, I don’t know whether my local pizza place applied for a PPP loan. They are most definitely a private held enterprise, and thus, such information isn’t public.
On the other hand, Ruth’s Hospital Group, Inc. (NASDAQ: RUTH), as a publicly traded company — I know whether or not they applied for a PPP loan.
Did RUTH apply for a small business loan? Not only did RUTH, a company currently valued at $249 Million (market capitalization), apply for a small business PPP loan, but they received a $20 Million loan. (Again, the average loan was less than $350,000.)
Per Buzzfeed: “All loans were from JP Morgan bank but will be backed by the US government.” That means, you and I, as tax payers, are paying JP Morgan its profit margin on all loans that are forgiven. I.e., if RUTH gets its $20 Million loan forgiven, then that amount – plus interest – gets paid by you and me.
Before I get upset, maybe RUTH and its shareholders are well deserving of this loan eligible for forgiveness, right? Maybe RUTH’s shareholders have responsibly compensated their executive team. Say, no more than $1 Million a year? Or a CEO pay ratio less than x30?
NOPE. They haven’t released their filings for 2019 yet, but according to last year’s proxy filing, RUTH CEO Cheryl Henry made $6.1 Million in 2018. Their top four executives, including Ms. Henry, made around $11 Million. Their CEO Pay Ratio – how much more their CEO makes compared to their median (average) employee: on Page 37 of their Proxy, was 193 to 1. ($32,504 is the reported median employee annual income.)
Alright, so their executives aren’t poor. Well maybe the shareholders really hurt last year? Maybe, since they needed this $20 Million loan, they were hurting last year?
WRONG AGAIN. Per the RUTH 10-K, Page 28, RUTH paid $15 Million to $16 Million to its shareholders in dividends in 2019. From their proxy, it looks like the RUTH executive team holds about 3% of publicly available shares in RUTH, so they were paid around $450,000 in 2019 on dividends alone.
In fairness, that’s not terrible compared to Simon Property Group, a company I wrote about in my last post, who paid $3 Billion (with a “B”) in dividends to its shareholders last year. Also, in fairness, the dividends and executive pay are less than x2 of the amount of their loan. So maybe they really didn’t have the means to otherwise get the $20 Million that are guaranteed by you and me?
STRIKE THREE. First, RUTH discloses in its annual report, Page 28, that it used $25.8 Million to buy back stock, i.e., another way it paid its shareholders. It’s authorized itself (?) to buy back another $54.8 Million, for a total of $70 Million it can indirectly use to pay shareholders. Second, RUTH already has a credit facility – i.e., credit line – of $120 Million (or 6 times the loan). (Also Page 28 of the annual report.)
########################
Going back to my local pizza spot. Again, I hope they can stay open. I hope their employees continued to get paid. If their owner made $115,000/year (about what RUTH’s executive got paid in dividends alone) I’d be more than fine with that. But who knows. Right now, there’s no date certain that Los Angeles opens back up.
Another thing I hope, that the $20 Million that went to Ruth’s Chris Steakhouse wasn’t money that could have gone to that pizza place or my local steakhouse. I hope that my tax dollars aren’t helping a public company keep its shareholders and executives afloat instead of the makers of my favorite slice.
One final hope: that Ruth’s Chris pays back that $20 Million, and that you and me, dear reader, aren’t lining the pockets of Ruth’s Chris and JP Morgan.
Power to the people,
The Anxious, Amateur Economist
The Anxious, Amateur Economist 