Chuy's Holdings Inc (CHUY) 2022 Q1 法說會逐字稿

Good day, everyone, and welcome to the Chuy's Holdings, Inc. First Quarter 2022 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.

At this time, I would like to turn the conference over to Mr. Howie. Please go ahead, sir.

Thank you, operator, and good afternoon. By now, everyone should have access to our first quarter 2022 earnings release. If not, it can be found on our website at www.chuys.com in the Investors section.

Before we begin our review of 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 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 condition.

With that, I would like to turn the call over to Steve.

Thank you, Jon. Good afternoon, everyone, and thank you for joining us on our first quarter earnings call today. Overall, we are pleased with our results for the first quarter of 2022. While we've faced external challenges in the form of Omicron variant of COVID and severe weather -- winter weather, we're pleased with the sales rebound we saw toward the end of the quarter, which has extended into the second quarter to date. This rebound includes positive comparable sales in March and April compared to both last year and 2019.

Despite these challenges as well as the ongoing inflationary environment, our continued focus on cost management and operating efficiencies resulted in store-level margin improvement of 360 basis points compared to 2019. This is in line with our stated expectation of 300 to 350 basis point margin improvements in 2022 compared to 2019. While we are pleased with the improvement in our store-level margins from prepandemic levels, inflation continues to be a pressure point, which Jon will talk about in more detail.

As many of you know, we pride ourselves in providing fresh, made from scratch food and drinks at an incredible value to our customers, which we believe exceeds most of our peers. As a result, we have historically been very strategic with our price increases. In fact, we've only taken an average between 2% and 2.5% of price increases in the last 10 years, which we believe has armed us with a substantial pricing power as we navigate the current inflationary environment.

For us to maintain the balance between retaining our restaurant-level margin improvement and maintaining a strong value proposition for our guests, we plan on taking another price increase of about 3% to 3.5% during the third quarter, which we will -- which we believe will still be below most of our peers.

Turning to restaurant operations. Our team continues to be fully engaged in executing against our key pillars of safety, convenience and value, to provide our guests with the unique Chuy's experience they have come to expect. However, our work is far from done. As we navigate the current inflationary environment, we will remain focused on certain key aspects of our business, including staffing, menu development, off-premise and our marketing efforts. As I said in the past, our people are our most valuable asset and that's one of the reasons why we put such a high emphasis in our staffing efforts to hire and retain the best hourly team members and managers.

To that end, we believe the initiatives we put in place from paying our retention bonuses for our managers to providing referral bonuses to our team members for bringing new people in they would enjoy working with, we have continued to have us maintain our staffing levels despite the current tough labor environment.

In terms of off-premise, we're pleased with our 28% mix during the first quarter. On a dollar basis, our off-premise sales have remained consistent since we reopened our dining rooms in 2020. We believe we can maintain a low to mid-20% off-premise mix in 2022 and beyond. Another aspect of off-premise is catering. As we mentioned on our last call, we are resuming our catering expansion to new markets and are on track to have catering available system-wide by the end of the year. We are also ramping up our marketing initiatives during the quarter with a heavy emphasis on digital media to not only introduce and highlight new menu items, but also utilize it as a recruiting tool.

Our digital efforts will include the use of TikTok, organic influencer programs on Instagram, YouTube video advertising and promotional advertising partnership with DoorDash. We are also excited to launch our new website later this year, which is designed to reach a broader audience group and allow us to better connect with both new and returning guests.

Finally, we now plan to open between 4 to 6 new restaurants in 2022, a decrease from previous guidance of 5 to 8 restaurants, driven by the supply chain disruptions and construction labor shortages. As a reminder, the majority of our development is in the back half of the year and because of these disruptions, we believe some of these restaurants may move into 2023.

With that, I will now turn the call over to our CFO, Jon Howie, to discuss our first quarter results in greater detail.

Thanks, Steve. Revenues for the first quarter increased 14.6% to $100.5 million compared to $87.7 million in the same quarter last year. The increase was primarily related to growth in customer traffic as we continued to relax mandated indoor dining capacity restrictions for all of our restaurants as well as a $3.1 million incremental revenue from new restaurants opened subsequent to the first quarter of 2021.

For the first quarter of 2022, off-premise sales were approximately 28% of total revenue compared to approximately 32% in 2021 and 13% in 2019. In total, we had approximately 1,248 operating weeks during the first quarter of 2022. Comparable restaurant sales increased 11.4% versus last year driven by a 7.8% increase in average weekly customers and a 3.6% increase in average check. Comparable restaurant sales declined 1.7% versus 2019.

As Steve mentioned earlier, the Omicron variant outbreak heavily impacted our performance during January and the early part of February in addition to severe winter weather across most of Central U.S., which negatively impacted comparisons over 2019 by approximately 120 basis points. However, we remain pleased with the improving sales trends we have seen beginning in the latter part of the first quarter and into the second quarter to date, which includes positive comparable sales in March and April compared to last year in 2019.

Turning to expenses. Cost of sales as a percentage of revenue increased 280 basis points to 26.1% due to commodity inflation of approximately 18%. We experienced price increases across all of our commodity basket during the quarter, notably beef and chicken as well as fresh produce, cheese and grocery items.

Based on the current market condition, we expect our second quarter commodity inflation to increase to approximately 25% as compared to 2021. Labor costs as a percentage of revenue increased approximately 140 basis points to 29.7%, primarily due to hourly labor rate inflation of approximately 13% at comparable restaurants as well as an improvement in our hourly staffing levels as compared to last year.

With the lingering labor challenges, we expect hourly labor inflation to remain at elevated levels of approximately 10% to 12% for the second quarter of 2022 as compared to 2021, in addition to a continuation of a year-over-year staffing increase.

Operating costs as a percentage of revenue increased 80 basis points to 16.2% due to higher restaurant repair and maintenance costs and an overall increase in other restaurant operating costs, including increases in to-go supplies and utility costs as well as higher credit card fees due to an increase in dine-in transactions that have higher transaction fees.

Marketing expense as a percentage of revenue increased 30 basis points to 1.4% as we continue to ramp up our digital advertising campaigns that Steve alluded to earlier. Our occupancy costs as a percentage of revenue decreased 70 basis points to 7.6% as a result of sales leverage on fixed occupancy expenses, partially offset by higher percentage rent.

General and administrative expenses decreased to $6.7 million in the first quarter from $6.8 million in the same period last year, driven by a lower performance-based bonuses, partially offset by an increase in management salaries and stock-based compensation. As a percentage of revenue, G&A decreased 120 basis points to 6.6%. In summary, net income for the first quarter of 2022 was $5.5 million or $0.29 per diluted share compared to $6.7 million or $0.33 per diluted share in the same period last year.

During the first quarter of 2022, we incurred $1.3 million or $0.05 per diluted share in impairment, closed restaurant and other costs. Taking that into account, adjusted net income for the first quarter of 2022 was $6.5 million or $0.34 per diluted share compared to $8.5 million or $0.42 per diluted share in the same period last year.

Moving to our liquidity and balance sheet. As of the quarter -- end of the quarter, we had approximately $89.7 million in cash and cash equivalents, no debt and $35 million of availability from our credit facility. During the first quarter of 2022, we repurchased approximately 718,000 shares of our common stock for a total of $19.7 million. As of May 5, 2022, we had approximately $21.9 million remaining under our $50 million repurchase program, which will expire on December 31, 2023.

Lastly, while we are still not in a position to provide our usual financial guidance, we are providing the following directional metrics for fiscal 2022. As Steve mentioned earlier, we are now expecting to open between 4 to 6 new restaurants in 2022, a decrease from previous guidance driven by supply chain disruptions as well as construction labor shortages, which are general, and subcontractors are experiencing currently during these times.

We now expect net capital expenditures net of tenant improvement allowances to be approximately $22 million to $23 million. We're expecting restaurant pre-opening expenses to be approximately $1.5 million to $2.5 million in 2022. And lastly, our effective annual tax rate is now expected to be approximately 12% to 14%.

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

Thanks, Jon. We are pleased with our sales improvement to date and believe we are on the right path for recovery. The initiatives we have put in place will allow us to remain nimble and ready to capture the opportunities ahead. Of course, our accomplishment would not have been possible with the hard work and dedication of every Chuy's team member, and I'm proud to work alongside every single one of them.

With that, we're happy to answer any questions.

(Operator Instructions) We'll go first to Mary Hodes with Baird.

First, I just want to ask on the quarter-to-date trend, are you willing to quantify the positive same-store sales momentum you've seen to date in April either on a 1-year basis or relative to 2019, just to level set?

Yes. Over 2019, there's been roughly about a little bit more than 2%.

Okay. Great. And then on the restaurant margin, just a couple of questions. I mean, the labor line for Q1 came in better than we had modeled. Was there anything temporarily suppressing that line in Q1? Or is that a good underlying run rate to think about for the balance of 2022?

Yes. Again, we're about in our concept right now about 85% to 90% staff. So we still get a little bit more staffing to go, so that possibly could go up a little bit more.

Okay. Good. And then I guess -- I know that the visibility on the inflation outlook is tough to parse through right now. But if you were to run rate the current spot prices in wage rates that you're seeing now or in Q2 for the balance of the year, what would inflation look like for 2022 overall, given the comparisons get -- have tougher laps in the second half of the year?

Yes. So if you look at that, we're well over 25%, like I said in my prepared remarks for the second quarter. It gets down to about 14%. If we look at the current prices today, spot market as in the end of the year, and so you're still looking with the prices that we have in the first quarter and the midyear and then you're probably still looking around that 20% on a weighted average, I would think. Yes.

Okay. Great. And then lastly is just, is the philosophy on pricing that you'll take what you need to stay in that 300 to 350 basis points of improvement range? Or what's your current philosophy on pricing related to that?

Yes. That's the kind of what we've said all along is what we'd be looking at for this upcoming year. And again, the key for us is the value spread that we look at in every single market. So we'll be looking at that on a competitive set. But right now, that was the approach on this one.

(Operator Instructions) Next, we'll hear from Andrew Strelzik with BMO Capital Markets.

This is Daniel Gold on for Andrew Strelzik. Can you discuss how turnover at the manager and hourly level has trended?

Yes. Again, it's much better than the industry average. We're right around 100 to 105 in the hourly and about 29 in management.

Got it. And can you discuss any trends you're seeing regionally and across the parts?

No. I mean they're -- from a pro forma standpoint, they're pretty consistent throughout the geographies.

Next, we'll hear from Nick Setyan of Wedbush Securities.

This is Paul Hao for -- on behalf of Nick. My first question is, if you were to maybe give us the AWS sales by month in Q1 and if possible, any insight on the April AWS?

So the sales by month if you're looking at comp sales versus 2019, as we said, was negative 2.4%, negative 4.5% and then positive 0.9%. If you compare that to 2021, it was 7.6%, 26.1% and 5.1%.

All up?

All up. Yes, I'm sorry, all up. 7.6% positive, 26.1% positive and 5.1% positive.

Okay. And how about the blended menu price increase in Q1. And if possible, what is your expected price increase in Q2?

The blended menu price was a little higher than, say, 3.5%. We had about a 3.25% price increase in there in period 2. But we took the price last year one period late. So if you look in blended, it's a little higher than that.

Okay. And is there a way to -- where are you now in terms of like dining transaction versus pre-COVID? Not sales just transaction.

We are -- I think we're right around -- we're still right around the, from a transaction level, high 70%, like 77%, 78%, from a transactional level of dine-in.

Okay. And just one more question. How should we think about Q2's margin given that Q2 tends to be a higher average weekly sales quarter and you have some incremental price increases flowing through? And how do you think about the food cost and labor inflation?

Well, that's a great question. So yes, second quarter is our highest indexing period. So when you're looking at that, you would -- like we said in our prepared remarks, we're looking at price increases in that 3.5% to 3.5% in quarter -- starting in quarter 3. And so that wouldn't be -- we don't have those price increases in quarter 2. So -- and then when you're looking at -- I think we said on our prepared remarks as far as commodities, we're looking at about mid-20s percent increase in commodity and I believe 10% to 12% from a labor standpoint.

And next, we'll hear from Todd Brooks with The Benchmark Company.

I hope you're well. Few questions. The 25% commodity basket pressure that you're talking about for the second quarter, Jon. How much of that is just the spike in avocados and limes? And just wondering because that should be at least an element of it, hopefully, transitory with the growing seasons and regions changing out of Mexico, right.

Yes, just want to get that in front of me here.

Fresh produce.

Yes. A big piece of that, though, as you know, is chicken and beef right now. But on the second part of that is -- let me see here, avocados is about -- of the 25% about really 1% of that and limes is about 1.5% of that.

2.5%, both.

Yes.

Great. And then just wondering, as you look at your consumer, and obviously, you're taking the second price increase necessitated by inflation. But I know, Steve, you're very mindful of delivering value to the customer. What are you watching for consumer health? What are you seeing? Are you seeing any changes in behaviors as far as how they build tickets or frequency or maybe less utilization of third-party delivery?

Not yet and not that I'm anticipating any also because of the value spread that we do currently have. But no, we're seeing the incidences on beverage stay similar or improved. We've seen incidence on appetizers stay or has improved. And our level of to-go has remained, like I as mentioned in the prepared statement, pretty much the exact same number week in and week out since 2020. So no, we haven't seen any big change except for us holding on to that 25% to 26% to 28% last period in to-go volume compared to 2019, which is that 12%, 13% range.

Okay. Great. And then final kind of housekeeping one, Jon. With the hit from Omicron in the quarter, we talked about from a same-store sales standpoint, but was there anything in either the labor cost line or the other operating cost line from -- that's kind of onetime from dealing with the Omicron outbreak and the staffing impacts in Q1?

No. I mean we did have -- that might have been a little reason for some of the staffing too because we did have some store closures related to that because of the tracing and things like that. So we were -- we went down to to-go only and things like that, which obviously has better staffing percentages.

And there are no further questions at this time. We'll turn the conference back over to Mr. Hislop for any additional or closing remarks.

Okay. Thank you so much. Jon and I appreciate your continued interest in Chuy's, and we will always be available to answer any and all questions. Again, thank you. Stay healthy, and have a good evening.

Thank you.

That does conclude today's conference. We thank you for your participation. Have a wonderful day.