Chuy's Holdings, Inc. (NASDAQ:CHUY) Q1 2024 Earnings Call Transcript May 11, 2024

Chuy's Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, everyone, and welcome to the Chuy's Holdings First Quarter 2024 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] On today's call, we have Steve Hislop, President and Chief Executive Officer; and Jon Howie, Vice President and Chief Financial Officer of Chuy's Holdings, Inc. At this time, I'll turn the call over to Mr. Howie. Please go ahead, sir.

Jon Howie: Thank you, operator, and good afternoon. By now, everyone should have access to our first quarter 2024 earnings release. If not, it can be found on our website at www.chuys.com in the Investors section. Before we begin our formal remarks, I need to remind everyone that part of our discussions today will include forward-looking statements. These forward-looking statements are not a guarantee of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties and could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

Looking ahead, we plan to release our second quarter 2024 earnings on Thursday, August 8, 2024 after the market close. With that out of the way, I'd like to turn the call over to Chuy's President and CEO, Steve Hislop.

Steve Hislop: Thank you, Jon. Good afternoon, everyone, and thank you for joining us on today's call. In the first quarter, we experienced the same weather and macro challenges facing the broader restaurant industry, leading to a top line growth that was below our expectations. That said, we were encouraged to see our top line trends improve as we move through the quarter when adjusting March for the Easter calendar shift. In addition, our off-premise business continued to see growth as consumers embrace the opportunity to enjoy Chuy's high quality, made-from-scratch food from the comfort of their own home. Ultimately, despite top line headwinds, our team's continued focus on 4-wall operational excellence allowed us to deliver an 18.8% restaurant-level operating margin, which remains among the best in our industry.

Before I jump into our growth drivers, I want to acknowledge the hard work and dedication of our team members who make Chuy truly special. In terms of macro uncertainty, our ability to refocus on the fundamentals of driving great guest experiences is what we allow us, will allow us to be successful in the long term despite the short-term pressures. Shifting to our growth drivers. Menu and innovation remains to be the backbone of our growth as we continuously introduce fresh and flavorful options for our guests. In January, we are thrilled to introduce a new CKO iteration that includes shrimp and crab and [indiscernible] with our delicious lobster best is sauce, Machos nachos and lastly, our cheesey Pig Burrito. We continue to be encouraged by our guest feedback on the platform, which is resonating well with our guests.

To build upon our momentum, we were thrilled to introduce our next CKO at the end of April that included, that includes Green Chile Barbecue ribs, Pablo and chilatos and our fat Daddy Flautas. So far, our guests are very receptive with the new options, and we look forward to successfully cheese knock out campaigns in the future. In conjunction with our CCL offerings, as we mentioned on our last call, we are also optimizing our menu by adding some of our guest favorite CKOs to our regular menu to further drive traffic growth in our restaurants. As part of this initiative, we were encouraged by the performance of our Burito bowls as we added them to their menu as a permanent item. We expect the CKLs will continue to be a culinary testing ground for us but remain committed to the streamlined menu we achieved during the pandemic.

Moving on to off-premise. We are pleased to have delivered another strong quarter of off-premise performance, mixing at approximately 29%. Our delivery channel continued to perform well with a 130 basis point improvement year-over-year and mixed in at approximately 12% during the first quarter. In terms of our catering channel, we remain focused on building awareness around our capabilities and working on completing the rollout of our ezCarter platform to all of our restaurants. For the first quarter, catering is mixing at around 3.5%. As we look ahead, we continue to believe our off-premise channel will remain at least 25% of our sales with catering contributing approximately 4% to 6% of total sales long term. Turning to our marketing initiatives.

Our marketing approach has continued to be favorable in communicating our strong brand value and sharing our unique Chuy's experience with the guest near and far. To that end, we will remain focused on utilizing digital media platforms such as Meta, Google, TikTok, YouTube video advertising and organic influenza programs to share our defining differences of our incredible value through our made-from-scratch food and drink. And finally, let's turn to our development plans. Unit growth remains to be a core piece of our long-term growth and growth plan with a strong focus in markets that have a proven track record of brand awareness and high average unit volumes. During the first quarter, we successfully opened 1 restaurant in New Bronzeville, Texas, followed by another new restaurant opening in Austin, Texas, subsequent to the end of the first quarter.

This is aligned with our plans to open 2 new restaurants in the first half of 2024, and we were pleased with the performance of these restaurants thus far. As we look ahead to the remainder of 2024, our pipeline remains robust, and we plan on opening between 6 to 8 new restaurants in our core markets for the year. With that, I'll now turn the call over to our CFO, Jon Howie, to discuss our first quarter results in greater detail.

Jon Howie: Thank you, Steve. Revenues for the fourth quarter was $110.5 million compared to $112.5 million in the same quarter last year. As a reminder, there was a 1-week calendar shift in comparison to the fiscal first quarter of 2024 to the fiscal first quarter of 2023 due to a 53rd week in fiscal 2023. This resulted in reduced revenue in the first quarter of 2024 as the shift caused the week between Christmas and New Year's traditionally a high volume week for our brands units to be included in the first quarter of 2023. Those are replaced by an average volume week in the first quarter of 2024. Overall, we estimate that the 53rd week shift negatively impacted sales by $1.8 million, EBITDA by approximately $900,000 and EPS by approximately $0.04 to $0.05 per share.

Comparable restaurant sales on a calendar basis in the first quarter, adjusted for the shift decreased 4.3% versus last year, driven by a 6.9% decrease in average weekly customers and partially offset by a 2.6% increase in average check. Effective pricing during the quarter was approximately 2.9% and off-premise sales were approximately 29% of total revenue as compared to 27% of total revenue a year ago. Turning to expenses. Cost of sales as a percentage of revenue decreased 30 basis points to 25.2%, driven overall by overall commodity deflation of 1.3% as compared to last year. Looking to 2024, we currently expect commodity inflation in the low single digits for the year. Labor cost as a percentage of revenue increased 110 basis points to 31.4%, primarily due to hourly labor inflation of approximately 3.6% at comparable restaurants as well as meaningful improvement in hourly labor staffing levels compared to last year.

We are currently expecting labor inflation of mid-single digits for fiscal 2024. Operating costs as a percentage of revenue increased 30 basis points to 16.4%, driven by higher delivery service fees from an increase in off-premise sales, an increase in restaurant repair and maintenance costs, partially offset by a decrease in utility costs and to-go supplies as compared to last year. General administrative expenses decreased to $7.1 million in the first quarter from $7.8 million in the same period last year, driven mainly by lower performance-based bonuses. As a percentage of revenue, being increased to 6.5% from 6.9% during the same period last year. In summary, net income for the first quarter of 2024 was $6.9 million or $0.40 per diluted share compared to $8.2 million or $0.45 per diluted share in the same period last year.

During the first quarter of 2024 and 2023, we incurred $0.4 million or $0.02 per share diluted share in impairment, closed restaurant and other costs. Taking that into account, adjusted net income for the quarter, first quarter of 2024 was $7.3 million or $0.42 per diluted share compared to $8.5 million or $0.47 per diluted share in the same period last year. Moving to our liquidity and balance sheet. As of the end of the quarter, we had $56.4 million in cash and cash equivalents, no debt outstanding and $25 million available under our revolving credit facility. We also purchased 214,659 shares of our common stock during the quarter for a total of approximately $7.3 million. I'm proud to say, following these purchases, we have repurchased over 3.1 million shares since 2020 and have reacquired the shares we issued in our ATM offering in 2020 at the height of the pandemic.

As of March 31, 2024, we had $13.8 million remaining under our $50 million repurchase program, which will expire on December 31, 2024. With that, I will now provide you with the following outlook for 2024. We are reaffirming our expectations of adjusted EPS of $1.82 to $1.87 for 2024 as compared to the adjusted EPS of $1.87 after adjusting for the extra week in 2023. This is based in part on the following annual assumptions. G&A expense of $29 million to $30 million, 6 to 8 new restaurants, net cap expenditures of approximately $41 million to $46 million, restaurant preopening expenses of approximately $2.7 million to $3.2 million, effective annual tax rate of approximately 13% to 14% and annual weighted diluted shares outstanding of $17.4 million.

With that, I'll turn the call back over to Steve.

Steve Hislop: Thanks, Jon. Overall, we remain optimistic about our ability to capitalize on the long-term growth opportunities ahead for Chuy's. Through the initiatives we've put in place, we will continue to focus on our 4-wall operational excellence and provide our guests with the unique Chuy's experience they all know and love. Combined with a strong balance sheet, disciplined capital allocation and a robust development pipeline, we're in a position to maximize long-term shareholder value in 2024 and beyond. With that, we're happy to answer any questions. Operator, please open the lines for questions.

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