Chuy's Holdings Inc (CHUY) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Chuy's Holdings Incorporated first-quarter 2013 earnings conference. At this time all participants have been placed in a listen only mode and the lines will be open for your questions following the presentation. Please note that this conference is being recorded today, May 6, 2013. On the call today we have Steve Hislop, President and Chief Executive Officer, and Jon Howie, Chief Financial Officer.

And now I would like to turn the conference over to Mr. Jon Howie. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. By now everyone should have access to the first-quarter 2013 earnings release that can also be found at www.chuys.com in the investor section. Before we begin our review of the formal remarks, I need to remind everyone that part of our discussions today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that 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 conditions. Also during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in courts with GAAP, and the reconciliation to comparable GAAP measures is available in our earnings release.

With that out of the way, I'd like to turn the call over to Steve.

Well, thank you, Jon, and thank you all for joining us today on the call. We are very pleased to have continued our operating momentum in the first quarter. On a pro forma basis, we earned $0.15 per diluted share for the quarter, led by a strong new-unit performance, and a solid contribution from our comparable sales base -- this despite a challenging quarter for the restaurant sales in the industry.

I'd also like to point out that our 53rd week in 2012, the week between Christmas and New Year's, which has traditionally been a very strong week for Chuy's, was captured in both the first quarter and fourth quarter of 2012. So, in effect, a high-volume week was swapped for a more normalized week during the first quarter of 2013. On a comparison basis, the shift reduced our revenues during the quarter by approximately $700,000. So, all in all, I'm very proud of our results, and the performance of our team during the quarter. Our results continue to reflect the pride our employees take each and every day providing our guests with unique dining experience. Whether it is a hand-rolled tortilla, one of our 9 to 11 homemade sauces made daily, our hand- squeezed lime juice for our signature margaritas, or our commitment to made-from-scratch food prepared fresh every day, we provide great value for our guests in a fun, energetic environment, which is instrumental in driving our business momentum -- basically those are our fundamentals.

On the development front, we opened two restaurants during the first quarter -- one in San Antonio, Texas, one in Kissimmee, Florida. As I noted, we remain pleased with the performance of our newer units as they continue to hit our expectations. Our operators, as well as our development team, training, and marketing teams, continue to do a fantastic job of instilling the Chuy's culture in all our new units.

Our EPS growth over the next few years will largely be driven by new-unit growth. We believe that broad appeal of the Chuy's concept, our strong unit economics, and our flexible real estate strategy will focus on conversions of existing restaurants, but also with the selective use of our prototype building for ground-up construction present us with a large runway of opportunity for continued expansion. During 2013 we expect to open eight to nine new Chuy's restaurants. In addition to the two openings in the first quarter, we have already opened one additional restaurant in the second quarter, and tomorrow we will open our new unit in Little Rock, Arkansas, so we are feeling really good about our 2013 development schedule.

With that, I'd like to turn the call over to our CFO, Jon Howie, to review the details of our first quarter. Jon?

Thanks, Steve. For our first quarter ended March 31, 2012, revenue increased 24.6% to $46.7 million from $37.5 million in the same period last year. The increase was driven primarily by a $7.8 million in incremental revenue, provided by an additional 110 operating weeks from the 10 new restaurants opened during and subsequent to the first quarter of 2012. Total operating weeks for the first quarter of 2013 increased 27% to 518 weeks, from 408 weeks in the comparable quarter last year.

Comparable restaurant sales increased 2.3% during the first quarter, driven by a 2.2% increase in average check, and 8.1% increase in traffic. For clarity, I'd like to point out that this is an apples-to-apples comparison for the 13 week ended March 31, 2013, compared to the 13 week ended April 1, 2012, which is a slightly different base period than using the last years 13 week fiscal quarter ended on March 25, 2012. On a strict fiscal quarter basis, which includes the one-week calendar shift and the loss of the high-volume week that Steve referred to earlier during the 53rd week of 2012, sales for the same restaurants increased 1%.

There were 27 restaurants included in the comparable store base during the first quarter of 2013, which included three new restaurants added to the comparable store base at the beginning of the quarter. Comparable store base in the first quarter of 2012 had 18 restaurants. We consider our restaurants to be comparable in the first full quarter following it's 18th month of operations.

I'd like to remind everyone that many of our restaurants opened at volumes greater than their eventual normalized run rate. In the case of our strongest openings, this honeymoon period may last longer than the 18 months we allow before a restaurant enters the comparable store base. Given the small number of restaurants currently in our comparable store base, the timing and strength of our new restaurant openings may create a headwind in our comparable restaurant sales percentage in some quarters in the near term. To date, that headwind has reduced our comparable store sales percentage ranging from 0.5% to 1.2% in any given quarter.

Switching over to expenses, I'll touch on some key line items. Cost of sales as a percent of revenues increased approximately 40 basis points in the first quarter to 26.9%. The increase resulted primarily from higher produce costs and chicken costs. For 2013, we continue to expect commodity cost inflation to be around 2% to 3%, and see cost of sales as a percentage of revenue in the 27.5% to 27.9% range for the rest of 2013.

Labor costs, as a percentage of revenue, increased 20 basis points to 32.1%. The increase was largely attributable to increased training costs and staffing levels at our new restaurants, partially offset by improved labor efficiencies at our comparable restaurants. General and administrative expenses increased approximately $1 million to $2.8 million in the first quarter of 2013 from $1.8 million in the first quarter 2012. This increase was primarily driven by increases in staffing as we continued to strengthen our infrastructure for growth, and increase in performance-based bonuses as a result of our stronger overall profitability for the quarter. And additional payroll taxes, due to the exercise of employee stock options, and incremental costs associated with operating as a public company.

During the first quarter of 2013, we incurred $417,000 of operating expenses related to two secondary offerings of the Company's common stock. All of the stock in each offering was sold by certain existing stockholders, and as a result the Company did not receive any proceeds from either offering. We expect to incur, approximately, an additional $255,000 of expenses related to the second of the two offerings in the second quarter of 2013. Depreciation and amortization, as a percentage of revenue, increased 50 basis points to 4.2% from 3.7% last year, driven primarily by the increase of equipment and leasehold improvement costs associated with our newer restaurants. We expect our depreciation and amortization, as a percentage of revenue, to run approximately 4.3% of revenues for the year.

On a GAAP basis, interest expense decreased to $33,000 for the quarter from $1.3 million in the first quarter of 2012. On a pro forma basis, interest expense totaled $107,000 for the first quarter of 2012. The total outstanding debt, under our credit facility, at the end of the first quarter was approximately $5 million. During the first quarter, our tax rate was favorably impacted by one-time adjustment for incremental employee -- employment tax credits from open tax years. This was partially offset by the unfavorable impact of nondeductible secondary offering cost during the quarter ended. Excluding this net favorable benefit, our performer effective tax rate was 29.9% at the midpoint of our expected range.

Our GAAP EPS results reflect our capital structure prior to our IPO. A component of our pre-IPO capital structure was participating convertible preferred stock for each historical period presented. Our GAAP results include undistributed earnings allocated to preferred participating interest. In connection with the IPO, these preferred shares were converted into common shares.

With that background, I'll provide the following. GAAP net income for the first quarter of 2013 was approximately $2.6 million, compared to $381,000 in 2012. Net income available to common stockholders in the first quarter of 2013 was approximately $2.6 million or $0.16 per diluted share compared to breakeven net income for 2012. Weighted average diluted shares outstanding were $16.577053 million for the first quarter of 2013 and $10.906805 million for 2012. Please also note that historical weighted average shares outstanding for 2012 does not reflect the full impact of our IPO transaction to conversion of our preferred stock or our stock repurchase during the second quarter of 2012.

Attached to our press release is a reconciliation of our GAAP results to our [pro forma] finance results. In connection with our recent IPO, we simplified our capital structure by converting all preferred stock to common stock and reduced our long-term debt. Our pro forma results include adjustments to reflect our post- IPO capital structure, including our basic and diluted share count as of the IPO conversion of preferred stock and stock repurchase occurred at the beginning of fiscal 2012, as well as other nonrecurring or one-time adjustments. We believe that our pro forma results provide a useful view of our business, given our new capital structure and post- IPO cost structure. Pro forma net income for the first quarter of 2013 was $2.5 million or $0.15 per diluted share, and $2.4 million or $0.15 per diluted share in 2012. For our pro forma earnings per share calculation, note that the diluted weighted share count of approximately 16.6 million shares for the first quarter of 2012 reflects our estimated post- IPO share count.

With respect to our 2013 outlook, we are providing the following update to our annual guidance. We have narrowed our guidance range, and currently expect our diluted net income per share to range from $0.67 to $0.69. This compares to pro forma diluted net income per share of $0.60 in 2012, which included an estimated $0.04 to $0.05 per share, positive impact due to the 53rd week during that fiscal year. Net income guidance for the fiscal year 2013 is based in part on the following annual assumptions. Our revenue expectations include a comparable store sales increase for the year ranging from 1% to 1.5%. Restaurant pre-opening expenses are expected to range between $3.3 million and $3.9 million.

We expect G&A expenses to run between $10.5 million and $11 million. This excludes approximately $672,000 of expenses related to the two recent secondary offerings, which we will disclose separately from G&A expenses on the income statement. We expect our performer effective tax rate for the full year to range between 29% and 31%. And we expect annual weighted average diluted shares outstanding of $16.7 million to $16.8 million. Lastly, as Steve noted, our development plan for 2013 calls for eight to nine new Chuy's restaurants, of which three have opened year to date. Our capital expenditures net-of-tenant improvement allowances are projected to be approximately $19.1 million to $21.2 million.

And now, I'll turn the call back over to Steve to wrap up.

Well, thank you, Jon. We continue to be excited about the opportunities we have to grow the Chuy's brand, and bring our distinct menu of authentic, freshly prepared Mexican and Tex-Mex inspired food to a wider audience, while enhancing long-term value for our shareholders -- our stockholders. Before we go to question-and-answers portion of the call, I would like to again, take a moment to thank all of our Chuy's employees. Our successful results are a testament to their hard work and dedication to earn the dollar every single day.

And with that said, we thank you for your interest in our company. We'll be happy to answer any questions you might have. Operator, please open the lines for questions.

(Operator Instructions)

We'll hear first from David Tarantino, Robert W. Baird.

Hi, good afternoon. And congratulations on a good start to the year. Just a question, maybe Jon, first a clarification on the comp trends. I was wondering if you could maybe quantify the impact of the newer stores entering the comp base on the comps calculation?

Sure, David. It was 2.3% on the comparable store sales, without the new -- or, excuse me, with the new ones in. And if you look at our existing store base, which were the original 24 that started the year, is at 3.1%. So, that trend is really comparable to what we saw in the fourth quarter of last year.

Yes, it's exactly the same trend, Dave.

Great. That is helpful.

And then, I guess a lot of the folks in the industry saw a little bit of a slowdown in the middle of the quarter and exited the quarter with better trends. I was wondering if maybe you could talk about your trends during the quarter? And maybe the trends exiting the quarter and into early Q-2?

Sure. I mean we actually saw pretty -- pretty consistent trends throughout, David. We actually took a price increase in Q -- in the second period of this year, so we saw some slower traffic in February. But, it bounced back in March. So it was pretty consistent throughout.

And we also, Dave, see the consistent trend as we moved into where we are sitting at today. So it's been pretty consistent for us for the whole year.

Great, that is helpful. And then lastly Steve, maybe as you look at the new store openings that you have had recently, could you comment on how the volumes for those new stores that have opened in 2013 have looked relative to your plan? And in particular, the one in Virginia. As you enter the new market, what are you seeing in the early stages of the brand and in that market?

Yes. Well, thank you, David, yes, great. We opened, San Antonio was the first one, obviously, in the heritage market we've done very well, we've hit our expectations there.

And also Richmond, we are really excited about our entrance into the Richmond market, we've only been open three weeks there. Right now, they are hitting or exceeding our expectations up there. So we are very, very pleased. And Kissimmee has also done very well, and we are expecting and are really excited to continue to hit our expectations as we open Little Rock first thing tomorrow morning. So, they are right on plan and we feel really good about them.

Great. Thank you.

Very welcome.

Will Slabaugh, Stephens.

Congrats on the quarter. I wanted to ask you another question about the new unit openings. Obviously, it sounds like everything is hitting at or above your expectations. I wondered if you could talk just on the cost side for a minute as you go into new markets in the Southeast, the lower Midwest, just other areas outside of Texas, how that is hitting your expectations or is it not hitting, is it above or just below, things like that, so from a pre-opening expense standpoint and then a build-out cost standpoint.

Again, every single thing -- we deal with a lot of fundamentals in our business, and this is basically one. And so as far as our sales and the cost objectives that we have in our new store openings, they're all hitting our expectations.

Perfect.

Yes.

And then cost of sales, that came in a little bit lower than we expected. Can you give us an update just on where you are locked for the year, and place an expectation for the remainder of 2013?

Sure will. You are absolutely right, they did come in a little lower than we expected. But, we are starting to see that inflation that we expected now in some of that cost -- produce and chicken continue to rise, especially going into the second quarter.

Also, as I've mentioned previously, we have ground beef locked in for the rest of the year. But our flap, which is our fajita meat, was locked in through the first quarter at the same price as in Q-4 of last year. And then it was capped out at 6% to 7% for the rest of the year, well, that cap's now off and it has moved up that 6% or 7% in the second quarter.

So we're seeing increases in the flap and chicken and produce. I do not think we are going to see the favorable cost of sales that we did in the first quarter and the second quarter. They are going to be more in line with what we were talking about previously.

Yes and I believe Jon said somewhere between 27.5%, 27.9% range.

Got it. Lastly, could you break down traffic and check on the quarter?

Sure, traffic, of the 2.3%, traffic was 0.1%, and then check was 2.2%.

Got you. And -- for the home town -- Sorry, go ahead.

Well, and that was at 27. If you look at the original 24, that Dave spoke of earlier, again your PTA was relatively the same, the price was 2.2% and your traffic was actually up 0.9%.

Got you. Appreciate that, and look forward to our hometown Chuy's when you open up tomorrow night, so thanks, guys.

You better be going tomorrow night aren't you?

You better believe it.

Alright.

(Operator Instructions)

Chris O'Cull, KeyBanc.

Thanks, good afternoon guys.

Hi Chris, how you doing?

Great. Jon, I think you said that the stores opened the last 12 months had contributed $7.8 million in revenue, with 110 operating weeks, so on my math that's averaging roughly $71 a week during this quarter. I know opening volumes can be influenced by the seasoning -- by the season they open. What seasons are good or bad for opening new stores?

Well, what you have there too, is not just necessarily the -- what I want to say, the operating weeks. It's the total revenues for those stores and those periods. So you have the honeymoon period involved that's creating some of that as well. Does that make sense?

Okay. Okay.

I can explain that to you. But, basically we're taking those same stores that were opened in the quarter previously to the same store as this so it's not necessarily just that operating week, at 110 operating weeks.

Okay, we can follow up afterwards. And then, if you annualized the G&A expense in the first quarter, it would put you at the high end of your guidance. Do you not expect any sequential growth in G&A during the year?

Well, the big thing that is driving that is, we've recruited some of our incremental home runs bonus in the first quarter because of the results of this year. So to the extent that, we should be, excluding that -- we should be at the upper end of that range. You are absolutely right. Sequentially, it should be right on target with what we were saying.

Okay. And then, how much is tenant allowances contributing to the CapEx for the year?

On average they contribute about $5 million to $6 million.

Okay, great. Thanks, guys.

Thank you, Chris.

Nick Setyan, Wedbush.

Thank you, gentlemen, congrats on the quarter. On the operating expense, I think it is the first quarter in a while we have not seen decent leverage, can you talk about some of the moving parts there in Q-1 and how we should think about that going forward?

Well, the biggest thing, why you do not see operating leverage there, Nick, is really the cost of sales, we just had an extremely powerful cost of sales in Q-1 of 2012 with very, very low produce costs. That is really kind of offsetting any kind of leverage that you would have there.

I was asking specifically about the operating expense line.

Oh, the operating expense? As far as -- it was flat with last year. We did not expect much leverage in that line item with the new stores rolling in.

Got it, so in the past we've seen pretty decent leverage in that line item, so is that something we should think about now going forward -- not expecting too much leverage?

You're not going to see too much leverage in that line item going forward. Most of your leverage is going to be like we were talking about in the pre-opening line in your labor line. And then on your G&A line.

Got it. In terms of the tax rate, I know you guys added that back to the pro forma line. How should we think about the tax rate in the quarters going forward, to get your guidance? Is that, should we just up it a little bit to maybe 32% or so to get to that range?

Well, I think if you take the next quarters by the 29.9% to 30%, what those items are in the current quarter were discrete items, and we took all of the tax impact of that into this quarter. If you look, we have approximately $200,000-some in additional offering costs in the second quarter that will also be non-taxable, so if you were to take that by the nontaxable rate and the rest of it at your 29.9% to 30% tax rate I think you will get where you need to be.

Perfect. And just finally, any idea how many operating weeks we'll have in Q-2?

I do not have that in front of me Nick, I apologize. We will get back with you.

Great. Thank you.

Thank you.

Gentlemen, with that we have no further questions, Mr. Hislop I will turn the call back to you.

Well, everybody, thank you so much, Jon and I appreciate your interest in Chuy's. We always will be available to answer any and all questions. Again, thank you, and have a good evening.