Chuy’s Holdings Results

Chuy’s Holdings, Inc. Announces Fourth Quarter and Fiscal Year 2017 Financial Results

Chuy’s

Chuy’s Holdings, Inc. (NASDAQ:CHUY) last week announced financial results for the 14-week and 53-week periods ended December 31, 2017.

Highlights for the 14-week fourth quarter ended December 31, 2017, compared to the 13-week fourth quarter ended December 25, 2016 were as follows:

  • Revenue increased 21.5% to $96.0 million from $79.1 million in the fourth quarter of 2016. The extra operating week in fiscal 2017 contributed approximately $7.3 million in revenue.
  • Comparable restaurant sales increased 1.3% as compared to the same period in 2016 (13 weeks vs. 13 weeks).
  • GAAP net income was $15.9 million, or $0.93 per diluted share, compared to GAAP net income of $2.3 million, or $0.14 per diluted share, in the fourth quarter of 2016. Fourth quarter 2017 results included a gain on insurance settlements of $1.4 million pre-tax and fourth quarter 2016 results included closure costs of $1.1 million pre-tax related to one closed restaurant.
  • H.R.1, commonly referred to as The Tax Cuts and Jobs Act of 2017 ("Tax Act"), positively impacted GAAP net income by $11.7 million or $0.69 per diluted share for the revaluation of our net deferred tax balance.
  • Adjusted net income(1) increased 2.0% to $3.2 million, or $0.19 per diluted share compared to $3.1 million, or $0.18 per diluted share in the same period in 2016. Fourth quarter 2017 adjusted net income was negatively impacted by approximately $0.01 per diluted share as a result of the temporary closure of one restaurant due to damage from Hurricane Harvey.
  • Restaurant-level operating profit(1) increased to $15.2 million or 15.0% from $13.2 million in the fourth quarter of 2016.
  • Four new restaurants opened during the fourth quarter of 2017. Additionally, we reopened a restaurant temporarily closed due to Hurricane Harvey.

Highlights for the 53-week fiscal year ended December 31, 2017, compared to the 52-week fiscal year ended December 25, 2016 were as follows:

  • Revenue increased 11.8% to $369.6 million from $330.6 million in the 2016 fiscal year. The extra operating week in fiscal 2017 contributed approximately $7.3 million in revenue.
  • Comparable restaurant sales decreased 0.7% as compared to the same period in 2016 (52 weeks vs. 52 weeks).
  • GAAP net income was $29.0 million, or $1.70 per diluted share, compared to $17.2 million, or $1.02 per diluted share during the fiscal year 2016. Fiscal year 2017 results included a gain on insurance settlements of $1.4 million pre-tax and fiscal year 2016 results included closure costs of $1.5 million pre-tax related to one closed restaurant.
  • The Tax Act positively impacted GAAP net income by $11.7 million or $0.69 per diluted share for the revaluation of our net deferred tax balance.
  • Adjusted net income(1) decreased to $16.3 million, or $0.96 per diluted share compared to $18.3 million, or $1.08 per diluted share during the fiscal year 2016. Fiscal year 2017 adjusted net income was negatively impacted by approximately $0.04 per diluted share as a result of the temporary closure of one restaurant due to damage from Hurricane Harvey.
  • Restaurant-level operating profit(1) increased to $64.6 million or 1.2% from $63.8 million during the 2016 fiscal year.
  • A total of eleven new restaurants opened during 2017.

(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 measure see the accompanying financial tables. For a discussion of why we consider them useful, see “Non-GAAP Measures” below.

Steve Hislop, President and Chief Executive Officer of Chuy’s Holdings, Inc. commented, “Our fourth quarter results were highlighted by double-digit growth in revenue and a return to positive comparable restaurant sales. Our focus remains on taking care of our customers by offering exceptional service standards and delivering high-quality, made-from-scratch food and drinks in a unique and upbeat atmosphere."

Hislop added, “We successfully opened 11 restaurants in 2017, increasing our store base by 14%, and we remained excited with the long-term growth prospect of the Chuy’s brand. We expect to open 8 to 12 new restaurants during 2018 with a blend of new and existing markets. With a healthy development pipeline, a renewed focus in marketing to increase brand awareness and our value messaging, and labor initiatives to improve our labor management in the face of rising labor costs, we look forward to a productive year.”

Fourth Quarter 2017 Financial Results

Revenue increased 21.5% to $96.0 million in the fourth quarter of 2017 compared to $79.1 million in the fourth quarter of 2016. The Company's fourth quarter of 2017 included 14 weeks compared 13 weeks in fiscal year 2016. Revenue attributed to the extra operating week was $7.3 million. In addition to the extra operating week, the increase in revenue was primarily driven by $22.0 million in incremental revenue from an additional 276 operating weeks provided by 14 new restaurants opened during and subsequent to the fourth quarter of 2016. This increase was partially offset by a $0.7 million decrease in revenue related to a temporary closure of one restaurant as a result of Hurricane Harvey and our non-comparable restaurants that are not included in the incremental revenue discussed above. Revenue for these 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 1.3% during the 13-week comparable period ended December 24, 2017 as compared to the same period in 2016. The increase in comparable sales was driven by a 1.6% increase in average check, partially offset by a 0.3% decrease in average weekly customer. Comparable restaurant sales were positively impacted by about 100 basis points as a result of an extra operating day in fiscal 2017 due to the Company’s restaurant closing schedule on Christmas Day in fiscal year 2016. This positive impact was partially offset by unfavorable weather conditions and sporting events of approximately 40 basis points and strategic cannibalization of 45 basis points from two Austin restaurants. The comparable restaurant base consisted of 70 restaurants during the fourth quarter of 2017.

Total restaurant operating costs as a percentage of revenue increased to 84.2% in the fourth quarter of 2017 from 83.3% in the fourth quarter of 2016. This increase was primarily driven by higher labor costs as a percentage of revenue due to new store labor inefficiencies related to two additional store openings in the current quarter as compared to last year, hourly labor rate inflation and higher commodity and insurance costs. The overall increase was partially offset by increased operating leverage due to an extra week and an hourly health plan accrual adjustment.

GAAP net income in the fourth quarter of 2017 increased to $15.9 million, or $0.93 per diluted share, compared to GAAP net income of $2.3 million, or $0.14 per diluted share in the fourth quarter of 2016. GAAP net income for the fourth quarter of 2017 included approximately $0.07 per diluted share from the extra operating week.

During the fourth quarter of 2017, the Company recorded a non-recurring favorable deferred tax balance revaluation adjustment of $11.7 million and a $1.4 million gain on insurance settlements mainly related to Hurricane Harvey. During the fourth quarter of 2016, the Company incurred closure costs of $1.1 million pre-tax related to the closing of one restaurant.

Adjusted net income increased 2.0% to $3.2 million, or $0.19 per diluted share compared to $3.1 million, or $0.18 per diluted share in the same period in 2016. Please see the reconciliation from GAAP net income to adjusted net income in the accompanying financial tables.

Fiscal Year 2017 Financial Results

Revenue increased 11.8% to $369.6 million in fiscal 2017 compared to $330.6 million in fiscal 2016. The Company's fiscal year 2017 included 53 weeks compared 52 weeks in fiscal year 2016. Revenue attributed to the extra operating week was $7.3 million. In addition to the extra operating week, the increase in revenue was primarily driven by $44.6 million in incremental revenue from an additional 567 operating weeks provided by 23 new restaurants opened during and subsequent to fiscal year 2016. This increase was partially offset by a decrease in our comparable sales, a $1.9 million decrease during the second half of the fiscal year as a result of Hurricanes Harvey and Irma as well as revenue from our non-comparable restaurants that are not included in the incremental revenue discussed above. Revenue related to non-comparable restaurants is historically lower as the stores transition out of the 'honeymoon' period that follows a restaurant's initial opening. The honeymoon period refers to the weeks following a restaurant's initial opening, during which sales are typically higher than normal.

Comparable restaurant sales decreased 0.7% during the year for the 52-week comparable period ended December 24, 2017 as compared to the same period in 2016. This decrease in comparable restaurant sales was primarily driven by a 2.3% decrease in average weekly customer, partially offset by a 1.6% increase in average weekly check. Comparable restaurant sales were negatively impacted by unfavorable weather conditions and sporting events of approximately 40 basis points and strategic cannibalization of approximately 40 basis points from two Austin restaurants. This decrease was partially offset by about 20 basis points as a result of an extra operating day in fiscal 2017 due to the Company’s restaurant closing schedule on Christmas Day in fiscal year 2016.

Total restaurant operating costs as a percentage of revenue increased to 82.4% in fiscal 2017 from 80.7% in fiscal 2016. This increase was primarily driven by higher labor costs as a percentage of revenue due to new store labor inefficiencies driven by delayed openings, hourly labor rate inflation, higher food costs, higher insurance and higher utilities costs. This overall increase is partially offset by an hourly health plan accrual adjustment and increased operating leverage due to an extra week.

GAAP net income in fiscal 2017 increased to $29.0 million, or $1.70 per diluted share, compared to GAAP net income of $17.2 million, or $1.02 per diluted share in fiscal 2016. GAAP net income for fiscal 2017 included approximately $0.07 per diluted share from the extra operating week.

During fiscal 2017, the Company recorded a non-recurring favorable deferred tax balance revaluation adjustment of $11.7 million and a $1.4 million gain on insurance settlements mainly related to Hurricane Harvey. During fiscal 2016, the Company incurred closure costs of $1.5 million pre-tax related to the closing of one restaurant.

Adjusted net income decreased to $16.3 million, or $0.96 per diluted share compared to $18.3 million, or $1.08 per diluted share in the same period in 2016. Please see the reconciliation from GAAP net income to adjusted net income in the accompanying financial tables.

Income Taxes

In December 2017, the U.S. government enacted the Tax Act with an effective date of January 1, 2018. The Tax Act includes many changes, including a reduction in the federal statutory rate from 35% to 21%. As a result of this change, we were required to revalue our deferred tax balance using the new federal statutory tax rate. This revaluation resulted in a non-recurring one time favorable adjustment to our net deferred tax balance of $11.7 million with a corresponding decrease to the provision for income taxes in the fourth quarter of 2017. Excluding the impact of the revaluation adjustment, our effective tax rate for fiscal year 2017 was 26.4% as compared to 29% for the comparable period in 2016. The decrease in rate is primarily driven by favorable discrete tax items.

Development Update

During the fourth quarter, four new Chuy’s restaurants were opened in Pasadena, Texas; Schaumburg, Illinois; Annapolis, Maryland and Alpharetta, Georgia. Additionally, we reopened a restaurant temporarily closed in the third quarter of 2017 due to Hurricane Harvey. There were 91 Chuy’s restaurants in operation as of the end of the fourth quarter of 2017.

2018 Outlook

The Company currently expects 2018 net income per diluted share of $1.12 to $1.16. This compares to adjusted net income 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 1.0% to 1.5% (on a 52-week comparable 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 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.

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
         

About Chuy’s

Founded in Austin, Texas in 1982, Chuy's owns and operates 91 full-service restaurants across 19 states serving a distinct menu of authentic, made from scratch Tex-Mex inspired dishes. 

 

Chuy’s Holdings, Inc. and Subsidiary

Unaudited Condensed Consolidated Income Statements

(In thousands, except share and per share data)

             
        Quarter Ended   Year Ended
       

December 31,

2017

 

December 25,

2016

 

December 31,

2017

 

December 25,

2016

Revenue       $ 96,020     $ 79,053     $ 369,589     $ 330,613
                     
Costs and expenses:                    
Cost of sales       25,337     20,619     96,270     85,542
Labor       34,991     27,873     128,846     110,730
Operating       13,066     11,307     51,462     45,900
Occupancy       6,714     5,567     25,642     22,204
General and administrative       4,271     4,025     18,661     17,560
Marketing       713     474     2,756     2,390
Restaurant pre-opening       2,165     1,203     6,233     5,348
Impairment and closure costs           1,127         1,517
Gain on insurance settlements       (1,362 )       (1,362 )  
Depreciation and amortization       4,610     4,076     17,560     15,081
Total costs and expenses       90,505     76,271     346,068     306,272
Income from operations       5,515     2,782     23,521     24,341
Interest expense       17     16     65     63
Income before income taxes       5,498     2,766     23,456     24,278
Income tax (benefit) expense       (10,384 )   433     (5,500 )   7,034
Net income       $ 15,882     $ 2,333     $ 28,956     $ 17,244
                     
Net income per common share: basic       $ 0.94     $ 0.14     $ 1.71     $ 1.03
Net income per common share: diluted       $ 0.93     $ 0.14     $ 1.70     $ 1.02
                     
Weighted-average shares outstanding: basic       16,917,949     16,829,266     16,894,986     16,676,073
Weighted-average shares outstanding: diluted       17,020,563     16,968,180     17,003,233     16,887,882
                           

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

        Quarter Ended   Year Ended
       

December 31,

2017

 

December 25,

2016

 

December 31,

2017

 

December 25,

2016

Net income as reported       $ 15,882     $ 2,333     $ 28,956     $ 17,244  
Impairment and closure costs           1,127         1,517  
Gain on insurance settlements       (1,362 )       (1,362 )    
Income tax effect on adjustment (1)       360     (338 )   360     (455 )
Deferred tax balance adjustment (2)       (11,696 )       $ (11,696 )    
Adjusted net income       $ 3,184     $ 3,122     $ 16,258     $ 18,306  
                     
Adjusted net income per common share: basic       $ 0.19     $ 0.19     $ 0.96     $ 1.10  
Adjusted net income per common share: diluted       $ 0.19     $ 0.18     $ 0.96     $ 1.08  
                     
Weighted-average shares outstanding: basic       16,917,949     16,829,266     16,894,986     16,676,073  
Weighted-average shares outstanding: diluted       17,020,563     16,968,180     17,003,233     16,887,882  
                             

(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.

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

        Quarter Ended   Year Ended
       

December 31,

2017

 

December 25,

2016

 

December 31,

2017

 

December 25,

2016

Income from operations as reported       $ 5,515     $ 2,782     $ 23,521     $ 24,341  
General and administrative       4,271     4,025     18,661     17,560  
Restaurant pre-opening expenses       2,165     1,203     6,233     5,348  
Impairment and closure costs           1,127         1,517  
Gain on insurance settlements       (1,362 )       (1,362 )    
Depreciation and amortization       4,610     4,076     17,560     15,081  
Restaurant-level operating profit       $ 15,199     $ 13,213     $ 64,613     $ 63,847  
                     
Restaurant-level operating margin (1)       15.8 %   16.7 %   17.5 %   19.3 %

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

 

Chuy’s Holdings, Inc. and Subsidiary

Unaudited Selected Balance Sheet Data

(In thousands)

             
       

December 31,

2017

 

December 25,

2016

Cash and cash equivalents       $ 8,785     $ 13,694
Total assets       271,967     240,728
Long-term debt          
Total stockholders’ equity       188,962     157,065
               



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