Chuy’s Holdings, Inc. (NASDAQ:CHUY) yesterday announced financial results for the first quarter ended March 31, 2019.
Highlights for the first quarter ended March 31, 2019 were as follows:
- Revenue increased 8.8% to $102.1 million from $93.9 million in the first quarter of 2018.
- Comparable restaurant sales increased 3.2%.
- Net income was $3.2 million, or $0.19 per diluted share, compared to net income of $3.2 million, or $0.19 per diluted share, in the first quarter of 2018. Net income in the first quarter of 2019 included closures costs of $0.4 million ($0.4 million, net of tax or $0.02 per diluted share).
- Adjusted net income(1) was $3.6 million, or $0.21 per diluted share compared to net income of $3.2 million, or $0.19 per diluted share, in the first quarter of 2018.
- Restaurant-level operating profit(1) was $15.7 million compared to $15.3 million in the first quarter of 2018.
- One restaurant opened during the first quarter of 2019.
|(1)||Adjusted net income and restaurant-level operating profit are non-GAAP measures. For reconciliations of adjusted net income and restaurant-level operating profit to the most directly comparable GAAP measures see the accompanying financial tables. For a discussion of why we consider adjusted net income and restaurant-level operating profit useful, see “Non-GAAP Measures” below.|
Steve Hislop, President and Chief Executive Officer of Chuy’s Holdings, Inc. stated, “We were pleased with the trajectory of our top-line during the first quarter, resulting in positive comparable restaurant sales and the return of positive traffic. We believe our recent marketing efforts have contributed to the stabilization of our traffic trends as we have focused on improving brand awareness in newer markets and driving frequency in our existing markets. Looking ahead, we will continue to leverage our marketing, in addition to initiatives around technology, labor, and off-premise. Together with a disciplined development strategy and restaurant operation enhancements, we will continue to focus on opportunities to improve profitability.”
Hislop added, “We successfully opened one new restaurant during the first quarter and have subsequently opened two additional restaurants during the second quarter. We are pleased with the performance of these three recent openings thus far as our operators and development team continue to do an excellent job of instilling the Chuy’s culture in our new restaurants. To better balance new unit growth with driving sales and improving restaurant profitability, we are maintaining our 2019 development plan of five to seven restaurants.”
First Quarter 2019 Financial Results
Revenue increased $8.3 million, or 8.8%, to $102.1 million in the first quarter of 2019 compared to the first quarter of 2018. The increase was driven by $7.1 million in incremental revenue from an additional 99 operating weeks provided by new restaurants during the thirteen weeks ended March 31, 2019 as well as an increase in our comparable restaurant sales. These increases were partially offset by a decrease in sales related to our non-comparable restaurants that are not included in the incremental revenue discussed above. Revenue for non-comparable restaurants is historically lower as the restaurants transition out of the ‘honeymoon’ period that follows a restaurant’s initial opening.
Comparable restaurant sales increased 3.2% for the thirteen weeks ended March 31, 2019 compared to the thirteen weeks ended April 1, 2018. The increase in comparable restaurant sales was primarily driven by a 2.9% increase in average check and a 0.3% increase in average weekly customers. The Company estimates that comparable sales were positively impacted by approximately 30 basis points due to the timing of New Year’s Eve and Easter, net of unfavorable weather conditions during the quarter. The comparable restaurant base consisted of 83 restaurants at the end of the first quarter of 2019.
Total restaurant operating costs as a percentage of revenue increased to 84.6% in the first quarter of 2019 from 83.8% in the first quarter of 2018. The increase in restaurant operating costs as a percentage of revenue was primarily driven by higher cost of sales as a result of unfavorable commodity pricing, higher labor costs due to new store labor inefficiencies; an increase in marketing expenses as a result of new national-level marketing initiatives; and an increase in occupancy costs as a result of higher rental expense on certain newly opened restaurants.
Total general and administrative expenses increased $0.7 million, or 12.7%, to $6.2 million for the first quarter of 2019 as compared $5.5 million for the same period in 2018. The increase was primarily driven by an increase in management salaries and equity compensation due to additional headcount to support our growth, an increase in performance-based bonuses driven by company performance during the first quarter of 2019 and an increase in professional fees.
During the first quarter of 2019, the Company incurred costs of $0.4 million ($0.4 million, net of tax or $0.02 per diluted share) related to closure of two restaurants.
Effective income tax rate for the first quarter of 2019 was 3.5% compared to 13.0% during the comparable period in 2018. The decrease in our effective tax rate for the quarter is primarily related to an increase in employee tax credits in proportion to our estimated taxable income offset by a negative impact of certain discrete items.
As a result of the foregoing, net income in the first quarter of 2019 was flat compared to the same period last year at $3.2 million, or $0.19 per diluted share.
Adjusted net income increased to $3.6 million, or $0.21 per diluted share in the first quarter of 2019 compared to $3.2 million, or $0.19 per diluted share, in the first quarter of 2018. Please see the reconciliation of net income to adjusted net income in the accompanying financial tables.
During the first quarter, one new restaurant was opened in Colorado Springs, Colorado and two restaurants were closed, one in Atlanta, Georgia, and one in Miami, Florida.
Subsequent to the end of the first quarter, two additional restaurants were opened, one in Hamburg, Kentucky and one in Huntsville, Alabama.
Share Repurchase Program
During the first quarter of 2019, the Company repurchased approximately 80,000 shares of common stock for a total of $1.8 million. Since the beginning of the current share repurchase program, the Company has repurchased approximately 240,000 shares of common stock for a total of $5.4 million. As of the end of the first quarter, the Company had $24.6 million remaining under its $30.0 million repurchase program that expires on December 31, 2019.
The Company reaffirmed its expectation of the 2019 net income per diluted share of $0.91 to $0.95. This compares to adjusted net income(1) per diluted share of $0.88 for fiscal year 2018. The net income guidance for fiscal year 2019 is based, in part, on the following annual assumptions:
- Comparable restaurant sales growth of 1.5% to 2.5%;
- Restaurant pre-opening expenses of $2.1 million to $2.9 million;
- General and administrative expense of $23.6 million to $24.1 million versus a previous range of $23.3 million to $23.8 million;
- An effective tax rate of 0% to 5% versus a previous range of 6% to 8%;
- The opening of five to seven new restaurants;
- Annual weighted average diluted shares outstanding of 17.0 million to 17.1 million shares versus a previous range of 17.1 million to 17.2 million; and
- Net capital expenditures (net of tenant improvement allowances) of $24.5 million to $30.7 million.
|(1)||Adjusted net income is a non-GAAP measure. For a reconciliation of adjusted net income to the most directly comparable GAAP measure see the accompanying financial tables. For a discussion of why we consider adjusted net income useful, see “Non-GAAP Measures” below.|
Founded in Austin, Texas in 1982, Chuy’s owns and operates full-service restaurants across 19 states serving a distinct menu of authentic, made from scratch Tex-Mex inspired dishes. Chuy’s highly flavorful and freshly prepared fare is served in a fun, eclectic and irreverent atmosphere, while each location offers a unique, “unchained” look and feel, as expressed by the concept’s motto “If you’ve seen one Chuy’s, you’ve seen one Chuy’s!”
|Chuy’s Holdings, Inc.|
|Unaudited Condensed Consolidated Income Statements|
|(In thousands, except share and per share data)|
|Thirteen Weeks Ended|
|March 31, 2019||April 1, 2018|
|Costs and expenses:|
|Cost of sales||25,715||25.2||23,573||25.1|
|General and administrative||6,167||6.0||5,471||5.8|
|Depreciation and amortization||5,077||5.0||4,713||5.0|
|Total costs and expenses||98,740||96.7||90,175||96.1|
|Income from operations||3,371||3.3||3,675||3.9|
|Interest expense, net||39||—||16||—|
|Income before income taxes||3,332||3.3||3,659||3.9|
|Income tax expense||115||0.1||476||0.5|
|Net income per common share: Basic||$||0.19||$||0.19|
|Net income per common share: Diluted||$||0.19||$||0.19|
|Weighted-average shares outstanding: Basic||16,870,154||16,936,824|
|Weighted-average shares outstanding: Diluted||16,955,324||17,069,140|
|Reconciliation of GAAP net income and net income per share to adjusted results|
|(Unaudited, in thousands except share and per share data)|
|Thirteen Weeks Ended||Fiscal Year Ended|
|March 31, 2019||April 1, 2018||December 30, 2018|
|Net income as reported||$||3,217||$||3,183||$||5,539|
|Impairment & closure costs||372||—||12,336|
|Income tax effect on adjustment (1)||(19||)||—||(2,897||)|
|Adjusted net income||$||3,570||$||3,183||$||14,978|
|Adjusted net income per common share: Basic||$||0.21||$||0.19||$||0.88|
|Adjusted net income per common share: Diluted||$||0.21||$||0.19||$||0.88|
|Weighted-average shares outstanding: Basic||16,870,154||16,936,824||16,931,589|
|Weighted-average shares outstanding: Diluted||16,955,324||17,069,140||17,062,347|
|(1)||Reflects the tax expense associated with the adjustment for closure costs in the first quarter of 2019 and impairment costs in the fiscal year 2018. The tax expense was calculated based on the change in the tax provision calculation after adjusting for the reconciling item.|
|Reconciliation of GAAP income from operations to restaurant-level operating profit|
|(Unaudited, in thousands)|
|Thirteen Weeks Ended|
|March 31, 2019||April 1, 2018|
|Income from operations as reported||$||3,371||$||3,675|
|General and administrative||6,167||5,471|
|Depreciation and amortization||5,077||4,713|
|Restaurant-level operating profit||$||15,705||$||15,280|
|Restaurant-level operating margin (1)||15.4||%||16.3||%|
|(1)||Restaurant-level operating margin is calculated by dividing restaurant-level operating profit by revenue.|
|Chuy’s Holdings, Inc.|
|Unaudited Selected Balance Sheet Data|
|March 31, 2019||December 30, 2018|
|Cash and cash equivalents||$||7,345||$||8,199|
|Total assets (1)||442,693||277,084|
|Total stockholders’ equity||194,923||193,851|
|(1)||Includes approximately $170.3 million of operating lease assets recorded during the first quarter of 2019 as a result of the adoption of Accounting Standards Update 2016-02, Leases (Topic 842).|