Chuy’s Holdings, Inc. Announces First Quarter 2018 Financial Results

Revenue increased 8.0% to $93.9 million from $86.9 million in the first quarter of 2017. Revenue was negatively impacted by approximately $1.4 million as a result of a one-week calendar shift due to a 53rd week in fiscal 2017.

Chuy’s Holdings, Inc. (NASDAQ:CHUY)  announced financial results for the first quarter ended April 1, 2018.

Highlights for the first quarter ended April 1, 2018 were as follows:

  • Revenue increased 8.0% to $93.9 million from $86.9 million in the first quarter of 2017. Revenue was negatively impacted by approximately $1.4 million as a result of a one-week calendar shift due to a 53rd week in fiscal 2017.
  • On a fiscal basis, comparable sales decreased 1.5%. On a calendar basis, comparable restaurant sales decreased 0.6%. The Company estimates that comparable sales were negatively impacted in total by approximately 170 basis points from unfavorable weather conditions, timing of Easter and strategic cannibalization.
  • Net income was $3.2 million, or $0.19 per diluted share, compared to $4.6 million, or $0.27 per diluted share, in the first quarter of 2017.
  • Restaurant-level operating profit(1) was $15.3 million compared to $16.6 million in the first quarter of 2017.
  • Two restaurants opened during the first quarter of 2018.

(1)

  Restaurant-level operating profit is a non-GAAP measure. For a reconciliation of restaurant-level operating profit to the most directly comparable GAAP measure see the accompanying financial tables. For a discussion of why we consider restaurant-level operating profit useful, see “Non-GAAP Measures” below.

Steve Hislop, President and Chief Executive Officer of Chuy’s Holdings, Inc. stated, “While our first quarter results reflected multiple weather interruptions, a negative impact from the timing of Easter and the loss of the week after Christmas, which is our highest volume and most profitable week of the year, we continue to reaffirm our earnings per share guidance for the year. We saw positive signs in the underlying sales trends of our business, which have continued into the second quarter. We are also making progress with regard to several of our strategic initiatives, including marketing of our value message, on-line ordering to provide our customers more convenience and labor initiatives to build stronger teams and mitigate labor costs. We believe these initiatives, as well as our continued push on technology and catering, will further strengthen our brand and bolster our long-term profitability.”

First Quarter 2018 Financial Results

Revenue increased $6.9 million, or 8.0%, to $93.9 million in the first quarter of 2018 compared to the first quarter of 2017. The increase was driven by $9.4 million in incremental revenue from an additional 135 operating weeks provided by 13 new restaurants which opened during and subsequent to the first quarter of 2017. This increase was partially offset by a decrease in revenue related to our comparable restaurants as well as 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.

In addition, there was a one-week calendar shift in the comparison of the fiscal first quarter of 2018 to the fiscal first quarter of 2017 due to a 53rd week in fiscal 2017. As a result of this shift, the week between Christmas and New Year’s, traditionally a high-volume week for the Company’s restaurants, was included in the first quarter of 2017 but was replaced with an average volume week in the first quarter of 2018. This shift reduced revenue by approximately $1.4 million during the first quarter of 2018.

Adjusting for the timing of the 53rd week of 2017 and measuring performance on a comparable calendar basis, comparable restaurant sales decreased 0.6% for the 13-week period ended April 1, 2018 as compared to the 13-week period ended April 2, 2017. The decrease in comparable sales was driven by a 2.4% decrease in average weekly customers offset by a 1.8% increase in average check. The Company estimates that comparable restaurant sales were negatively impacted by approximately 130 basis points as a result of unfavorable weather conditions, 20 basis points as a result of Easter falling in the first quarter of 2018 as compared to the second quarter of 2017 and approximately 20 basis points as a result of strategic cannibalization. The comparable restaurant base consisted of 74 restaurants at the end of the first quarter of 2018.

The comparable restaurant sales calculation above is based upon comparing the sales in the first fiscal quarter of 2018 to sales in the corresponding calendar period of 2017. As a result of the 53rd week in fiscal 2017 and the one-week calendar shift, previously noted, sales for the same restaurants in the comparable restaurant base in the first fiscal quarter ended April 1, 2018 decreased 1.5% as compared to the first fiscal quarter ended March 26, 2017.

Total restaurant operating costs as a percentage of revenue increased to 83.8% in the first quarter of 2018 from 80.9% in the first quarter of 2017. In addition to the deleverage resulting from the loss of the high volume week previously noted, the increase in operating costs as a percentage of revenue was primarily driven by higher labor costs due to new store labor inefficiencies and hourly labor rate inflation on comparable stores and higher hourly rates in new markets; higher operating costs due to increases in general utility and repairs and maintenance costs, as well as higher marketing expenses as a result of our new national-level marketing initiatives. The Company also incurred increased occupancy costs as a result of higher rental expense on certain newly opened restaurants as a result of continued expansion into larger markets and increases in rents on extended lease terms on some existing restaurants.

Total general and administrative expenses increased $0.6 million, or 12.3%, to $5.5 million for the first quarter of 2018 as compared to the same period in 2017. This increase was primarily driven by higher management salaries and benefits due to additional headcount needed to support our growth.

Net income was $3.2 million, or $0.19 per diluted share, compared to $4.6 million, or $0.27 per diluted share, in the first quarter of 2017.

Development Update

During the first quarter, two new Chuy’s restaurants were opened in Doral, Florida and Orland Park, Illinois. Subsequent to the end of the first quarter, two additional Chuy’s restaurants were opened in Lakewood, Colorado and New Tampa, Florida.

Share Repurchase Program

During the first quarter, the Company repurchased approximately 65,000 shares of its common stock for a total cost of $1.6 million. As of the end of the fiscal first quarter, the Company had $28.4 million remaining under the current $30.0 million repurchase authorization through December 31, 2019.

2018 Outlook

The Company reaffirms its expectation of the 2018 net income per diluted share of $1.12 to $1.16. This compares to adjusted net income(1) per diluted share of $0.89, after excluding approximately $0.07 per diluted share from the extra week in 2017. The net income guidance for fiscal year 2018 is based, in part, on the following annual assumptions:

  • Comparable restaurant sales growth of approximately 1.0% versus a previous range of 1.0% to 1.5% (on a 52-week fiscal basis);
  • Restaurant pre-opening expenses of $3.7 million to $5.5 million;
  • General and administrative expense of $21.3 million to $21.8 million;
  • An effective tax rate of 13% to 14%;
  • The opening of 8 to 12 new restaurants;
  • Annual weighted average diluted shares outstanding of 17.1 million to 17.2 million shares; and
  • Net capital expenditures (net of tenant improvement allowances) of $30.0 million to $40.0 million.

As a result of the Tax Cuts and Jobs Act (“Tax Act”) we intend to reinvest approximately $1.5 million or 40 basis points of savings into national-level marketing initiatives and investments in our off-premise initiatives including to-go packaging, on-line ordering and catering.

We report our financial statements on a fiscal calendar basis. Due to the 53rd week in fiscal year 2017, our financial statement comparison will be one week different year over year. However, we believe that reporting our comparable restaurant sales on a comparable calendar basis will help facilitate period-over-period comparisons.

(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.
 

The table below sets forth our fiscal and comparable calendar dates.

  Fiscal Calendar Basis   Comparable Calendar Basis
         
First Quarter January 1, 2018 – April 1, 2018 January 1, 2018 – April 1, 2018
vs. vs.
    December 26, 2016 – March 26, 2017   January 2, 2017 – April 2, 2017
         
Second Quarter April 2, 2018 – July 1, 2018 April 2, 2018 – July 1, 2018
vs. vs.
    March 27, 2017 – June 25, 2017   April 3, 2017 – July 2, 2017
         
Third Quarter July 2, 2018 – September 30, 2018 July 2, 2018 – September 30, 2018
vs. vs.
    June 26, 2017 – September 24, 2017   July 3, 2017 – October 1, 2017
         
Fourth Quarter October 1, 2018 – December 30, 2018 October 1, 2018 – December 30, 2018
vs. vs.
    September 25, 2017 – December 31, 2017   October 2, 2017 – December 31, 2017
         
Year January 1, 2018 – December 30, 2018 January 1, 2018 – December 30, 2018
vs. vs.
    December 26, 2016 – December 31, 2017   January 2, 2017 – December 31, 2017
 

The following definitions apply to these terms as used in this release:

Comparable restaurant sales reflect changes in sales for the comparable group of restaurants over a specified period of time. We consider a restaurant to be comparable in the first full quarter following the 18th month of operations. Changes in comparable sales reflect changes in customer count trends as well as changes in average check.

Average check is calculated by dividing revenue by total entrées sold for a given time period. Average check reflects menu price influences as well as changes in menu mix.

Average weekly customers is measured by the number of entrées sold per week. Our management team uses this metric to measure changes in customer traffic.

Total restaurant operating costs includes cost of sales, labor, operating, occupancy and marketing costs.

About Chuy’s

Founded in Austin, Texas in 1982, Chuy’s owns and operates 95 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
April 1, 2018   March 26, 2017
Revenue $ 93,850 $ 86,904
 
Costs and expenses:
Cost of sales 23,573 21,825
Labor 33,468 29,699
Operating 13,352 12,032
Occupancy 7,097 6,121
General and administrative 5,471 4,872
Marketing 1,080 631
Restaurant pre-opening 1,421 1,102
Depreciation and amortization 4,713   4,161
Total costs and expenses 90,175   80,443
Income from operations 3,675 6,461
Interest expense, net 16   16
Income before income taxes 3,659 6,445
Income tax expense 476   1,895
Net income $ 3,183   $ 4,550
 
Net income per common share: Basic $ 0.19   $ 0.27
Net income per common share: Diluted $ 0.19   $ 0.27
 
Weighted-average shares outstanding: Basic 16,936,824   16,855,275
Weighted-average shares outstanding: Diluted 17,069,140   17,002,256
 

Reconciliation of GAAP income from operations to restaurant-level operating profit:

      Thirteen Weeks Ended
April 1, 2018   March 26, 2017
 
Income from operations as reported $ 3,675 $ 6,461
General and administrative 5,471 4,872
Restaurant pre-opening 1,421 1,102
Depreciation and amortization 4,713   4,161  
Restaurant-level operating profit $ 15,280   $ 16,596  
 
Restaurant-level operating margin (1) 16.3 % 19.1 %
 
(1)   Restaurant-level operating margin is calculated by dividing restaurant-level operating profit by revenue.
 

Reconciliation of GAAP net income and net income per share to adjusted results:

      Year Ended

December 31,
2017

Net income as reported $ 28,956
Gain on insurance settlements (1,362 )
Income tax effect on adjustment (1) 360
Deferred tax balance adjustment (2) $ (11,696 )
Adjusted net income $ 16,258  
 
Adjusted net income per common share: basic $ 0.96  
Adjusted net income per common share: diluted $ 0.96  
 
Weighted-average shares outstanding: basic 16,894,986  
Weighted-average shares outstanding: diluted 17,003,233  
 
(1)   Reflects the income tax effect associated with the adjustments based on the Company’s effective tax rate prior to the impact of the Tax Act.
(2) Reflects the revaluation of our net deferred tax balance using the new lower tax rate pursuant to the Tax Act.
 
 

Chuy’s Holdings, Inc.
Unaudited Selected Balance Sheet Data
(In thousands)

 
      April 1, 2018   December 31, 2017
Cash and cash equivalents $ 8,436 $ 8,785
Total assets 274,253 271,967
Long-term debt
Total stockholders’ equity 190,610 188,962