Chuy’s Holdings Results

Chuy’s Holdings, Inc. Announces Second Quarter 2019 Financial Results

Chuy’s Holdings, Inc. (NASDAQ:CHUY) today announced financial results for the second quarter ended June 30, 2019.

Highlights for the second quarter ended June 30, 2019 were as follows:

  • Revenue increased 6.4% to $113.1 million from $106.3 million in the second quarter of 2018.
  • Comparable restaurant sales increased 1.9%.
  • Net income was $6.2 million, or $0.37 per diluted share, compared to net income of $6.5 million, or $0.38 per diluted share, in the second quarter of 2018. Net income in the second quarter of 2019 included closures costs of $0.2 million ($0.2 million, net of tax or $0.01 per diluted share) and a legal settlement of $0.8 million ($0.6 million, net of tax or $0.04 per diluted share).
  • Adjusted net income(1) was $7.1 million, or $0.42 per diluted share compared to net income of $6.5 million, or $0.38 per diluted share, in the second quarter of 2018.
  • Restaurant-level operating profit(1) was $19.5 million compared to $18.6 million in the second quarter of 2018.
  • Three restaurants opened during the second 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, “Through our focus on improving brand awareness and driving frequency in both newer and existing markets, we delivered solid top line growth and positive comparable restaurant sales during the second quarter. We also improved our adjusted net income by almost 10% despite continued hourly labor rate inflation and higher beef costs. Overall, we are pleased with the trajectory of our sales trends and are confident that the initiatives we’ve put in place related to targeted marketing, technology, off-premise sales and labor, coupled with a disciplined development strategy, will give us the foundation to expand and further improve our profitability in the years to come.”

Hislop added, “We opened three new restaurants during the second quarter and have subsequently opened one additional restaurant in the third quarter, bringing our total openings to-date to five new restaurants. All of these new openings are performing well and demonstrate our operators and development team’s ability to instill the Chuy’s culture in such a short time. Looking ahead, we have one additional planned opening to complete our 2019 development schedule.”

Second Quarter 2019 Financial Results

Revenue increased $6.8 million, or 6.4%, to $113.1 million in the second quarter of 2019 compared to the second quarter of 2018. The increase was driven by $7.9 million in incremental revenue from an additional 87 operating weeks provided by new restaurants during the thirteen weeks ended June 30, 2019 as well as an increase in comparable restaurant sales. These increases were partially offset by a decrease in sales related to 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 1.9% for the thirteen weeks ended June 30, 2019 compared to the thirteen weeks ended July 1, 2018. The increase in comparable restaurant sales was primarily driven by a 3.9% increase in average check, partially offset by a 2.0% decrease in average weekly customers. The Company estimates that comparable sales were negatively impacted by approximately 80 basis points due to unfavorable weather conditions, mostly in April, and 20 basis points due to the timing of Easter during the quarter. The comparable restaurant base consisted of 85 restaurants at the end of the second quarter of 2019.

Total restaurant operating costs as a percentage of revenue increased to 82.8% in the second quarter of 2019 from 82.5% in the second quarter of 2018. The increase in restaurant operating costs as a percentage of revenue was primarily driven by the following:

  • Labor costs decreased 90 basis points primarily due to leverage on higher average check, increased labor efficiency at new store openings and lower training expense for new managers, partially offset by hourly labor rate inflation on comparable stores of approximately 3.0% and higher hourly rates in certain markets.
  • Cost of sales increased 40 basis points primarily as a result of increases in the costs of beef and produce, partially offset by decreases in the costs of dairy and cheese, bar and chicken.
  • Marketing expense increased 40 basis points driven by the Company’s new national-level marketing initiatives.
  • Operating costs increased 20 basis points mainly due to higher insurance costs, higher restaurant repair and maintenance costs, higher credit card and delivery service charges, partially offset by favorable pricing on restaurant supplies as a result of a transition to one national distributor in the second half of fiscal year 2018 and increased leverage of operating costs on higher sales.
  • Occupancy costs increased 20 basis points primarily as a result of higher rental expense at certain newly opened restaurants in larger markets and higher property taxes.

General and administrative expenses increased $0.7 million to $5.9 million for the second quarter of 2019 as compared $5.2 million for the same period in 2018. The increase was primarily driven by a $0.6 million increase in performance-based bonuses, and to a lessor degree by increases in management salaries and equity compensation.

During the second quarter of 2019, the Company incurred costs of $0.2 million ($0.2 million, net of tax or $0.01 per diluted share) related to the closure of two restaurants during the first quarter of 2019 as well as $0.8 million ($0.6 million, net of tax or $0.04 per diluted share) related to a legal settlement accrual.

Effective income tax rate for the second quarter of 2019 was 1.2% compared to 10.0% during the comparable period in 2018. The decrease in the effective tax rate for the quarter is primarily related to an increase in employee tax credits in proportion to the estimated taxable income.

As a result of the foregoing, net income was $6.2 million, or $0.37 per diluted share, as compared to $6.5 million, or per $0.38 per diluted share, in the second quarter of 2018.

Adjusted net income increased to $7.1 million, or $0.42 per diluted share, as compared to $6.5 million, or $0.38 per diluted share, in the second quarter of 2018. Please see the reconciliation of net income to adjusted net income in the accompanying financial tables.

Development Update

During the second quarter, three new restaurants were opened, one in Hamburg, Kentucky, one in Huntsville, Alabama, and one in Houston, Texas. Subsequent to the end of the second quarter, one additional restaurant was opened in Carmel, Indiana.

Share Repurchase Program

During the second quarter of 2019, the Company repurchased approximately 176,000 shares of common stock for a total of $3.9 million. Since the beginning of the current share repurchase program the Company repurchased approximately 416,000 shares of common stock for a total of $9.3 million through June 30, 2019. As of the end of the second quarter, the Company had $20.7 million remaining under its $30.0 million repurchase program that expires on December 31, 2019.

2019 Outlook

The Company raised its expectation of 2019 adjusted net income per diluted share to $0.93 to $0.97 from $0.91 to $0.95. This compares to adjusted net income 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 approximately $3.0 million versus a previous range of $2.1 million to $2.9 million;
  • General and administrative expense of $23.6 million to $24.1 million;
  • An effective tax rate of 0% to 5%;
  • The opening of six new restaurants versus a previous range of five to seven new restaurants;
  • Annual weighted average diluted shares outstanding of 16.9 million to 17.0 million shares versus a previous range of 17.0 million to 17.1 million; and
  • Net capital expenditures (net of tenant improvement allowances) of $26.0 million to $29.0 million versus a previous range of $24.5 million to $30.7 million.

About Chuy’s

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

 

 

Twenty-Six Weeks Ended

 

   

June 30, 2019

 

July 1, 2018

 

 

June 30, 2019

 

July 1, 2018

Revenue

   

$

113,132

 

 

100.0

%

 

$

106,340

 

 

100.0

%

 

 

$

215,243

 

 

100.0

%

 

$

200,190

 

 

100.0

%

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

   

29,174

 

 

25.8

 

 

26,958

 

 

25.4

 

 

 

54,889

 

 

25.5

 

 

50,531

 

 

25.2

 

Labor

   

38,854

 

 

34.3

 

 

37,411

 

 

35.2

 

 

 

75,553

 

 

35.1

 

 

70,879

 

 

35.4

 

Operating

   

15,897

 

 

14.1

 

 

14,773

 

 

13.9

 

 

 

30,456

 

 

14.1

 

 

28,125

 

 

14.0

 

Occupancy

   

8,152

 

 

7.2

 

 

7,472

 

 

7.0

 

 

 

16,134

 

 

7.5

 

 

14,569

 

 

7.3

 

General and administrative

   

5,868

 

 

5.2

 

 

5,235

 

 

4.9

 

 

 

12,035

 

 

5.6

 

 

10,706

 

 

5.3

 

Marketing

   

1,544

 

 

1.4

 

 

1,089

 

 

1.0

 

 

 

2,995

 

 

1.4

 

 

2,169

 

 

1.1

 

Restaurant pre-opening

   

1,182

 

 

1.0

 

 

1,310

 

 

1.2

 

 

 

1,900

 

 

0.9

 

 

2,731

 

 

1.4

 

Legal settlement

   

775

 

 

0.7

 

 

 

 

 

 

 

775

 

 

0.4

 

 

 

 

 

Closure costs

   

216

 

 

0.2

 

 

 

 

 

 

 

588

 

 

0.3

 

 

 

 

 

Depreciation and amortization

   

5,124

 

 

4.5

 

 

4,902

 

 

4.6

 

 

 

10,201

 

 

4.7

 

 

9,615

 

 

4.9

 

Total costs and expenses

   

106,786

 

 

94.4

 

 

99,150

 

 

93.2

 

 

 

205,526

 

 

95.5

 

 

189,325

 

 

94.6

 

Income from operations

   

6,346

 

 

5.6

 

 

7,190

 

 

6.8

 

 

 

9,717

 

 

4.5

 

 

10,865

 

 

5.4

 

Interest expense, net

   

23

 

 

 

 

19

 

 

0.1

 

 

 

62

 

 

 

 

35

 

 

 

Income before income taxes

   

6,323

 

 

5.6

 

 

7,171

 

 

6.7

 

 

 

9,655

 

 

4.5

 

 

10,830

 

 

5.4

 

Income tax expense

   

78

 

 

0.1

 

 

715

 

 

0.6

 

 

 

193

 

 

0.1

 

 

1,191

 

 

0.6

 

Net income

   

$

6,245

 

 

5.5

%

 

$

6,456

 

 

6.1

%

 

 

$

9,462

 

 

4.4

%

 

$

9,639

 

 

4.8

%

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share: Basic

   

$

0.37

 

 

 

 

$

0.38

 

 

 

 

 

$

0.56

 

 

 

 

$

0.57

 

 

 

Net income per common share: Diluted

   

$

0.37

 

 

 

 

$

0.38

 

 

 

 

 

$

0.56

 

 

 

 

$

0.56

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding: Basic

   

16,804,465

 

 

 

 

16,936,807

 

 

 

 

 

16,838,052

 

 

 

 

16,936,815

 

 

 

Weighted-average shares outstanding: Diluted

   

16,859,657

 

 

 

 

17,072,179

 

 

 

 

 

16,902,656

 

 

 

 

17,067,715

 

 

 

                                             
 

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

 

Twenty-Six Weeks Ended

 

Fiscal Year Ended

 

   

June 30, 2019

 

July 1, 2018

 

June 30, 2019

 

July 1, 2018

 

December 30, 2018

Net income as reported

   

$

6,245

 

 

$

6,456

 

 

$

9,462

 

 

$

9,639

 

 

$

5,539

 

Legal settlement

   

775

 

 

 

 

775

 

 

 

 

 

Impairment and closure costs

   

216

 

 

 

 

588

 

 

 

 

12,336

 

Income tax effect on adjustment (1)

   

(167

)

 

 

 

(230

)

 

 

 

(2,897

)

Adjusted net income

   

$

7,069

 

 

$

6,456

 

 

$

10,595

 

 

$

9,639

 

 

$

14,978

 

 

   

 

 

 

 

 

 

 

 

 

Adjusted net income per common share: Basic

   

$

0.42

 

 

$

0.38

 

 

$

0.63

 

 

$

0.57

 

 

$

0.88

 

Adjusted net income per common share: Diluted

   

$

0.42

 

 

$

0.38

 

 

$

0.63

 

 

$

0.56

 

 

$

0.88

 

 

   

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding: Basic

   

16,804,465

 

 

16,936,807

 

 

16,838,052

 

 

16,936,815

 

 

16,931,589

 

Weighted-average shares outstanding: Diluted

   

16,859,657

 

 

17,072,179

 

 

16,902,656

 

 

17,067,715

 

 

17,062,347

 

                                 
(1)  

Reflects the tax expense associated with the adjustments for a legal settlement and closure costs during the thirteen weeks and twenty-six weeks ended June 30, 2019 and impairment costs in the fiscal year ended December 30, 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

 

Twenty-Six Weeks Ended

 

   

June 30, 2019

 

July 1, 2018

 

June 30, 2019

 

July 1, 2018

Income from operations as reported

   

$

6,346

 

 

$

7,190

 

 

$

9,717

 

 

$

10,865

 

General and administrative

   

5,868

 

 

5,235

 

 

12,035

 

 

10,706

 

Restaurant pre-opening

   

1,182

 

 

1,310

 

 

1,900

 

 

2,731

 

Legal settlement

   

775

 

 

 

 

775

 

 

 

Closure costs

   

216

 

 

 

 

588

 

 

 

Depreciation and amortization

   

5,124

 

 

4,902

 

 

10,201

 

 

9,615

 

Restaurant-level operating profit

   

$

19,511

 

 

$

18,637

 

 

$

35,216

 

 

$

33,917

 

 

   

 

 

 

 

 

 

 

Restaurant-level operating margin (1)

   

17.2

%

 

17.5

%

 

16.4

%

 

16.9

%

(1)  

Restaurant-level operating margin is calculated by dividing restaurant-level operating profit by revenue.

     
 

Chuy’s Holdings, Inc.

Unaudited Selected Balance Sheet Data

(In thousands)

 
 

 

     

June 30, 2019

 

December 30, 2018

Cash and cash equivalents

     

$

11,752

 

 

$

8,199

 

Total assets (1)

     

455,193

 

 

277,084

 

Long-term debt

     

 

 

 

Total stockholders’ equity

     

198,292

 

 

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).

     



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