Q4 2019 Earnings Call
This conference call today's call is being recorded.
All participants have been placed and they listen only mode in line will be open for your questions. Following the presentation.
On today's call we have Steve.
President and Chief Executive Officer, and Jon Howie, Vice President and Chief Financial Officer, Chuys Holdings incorporated at this time I'll 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 fourth quarter 2019 earnings release, if not it can be found on our website at www dot com and the Investor section.
Before we begin our review a formal remarks I need to remind everyone that part of our discussions today will include forward looking statements. These forward looking statements are not guaranteeing future performance and therefore, you should not put undue reliance on that 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 FCC filings, probably more detailed discussion of the risks that could impact our future operating results and financial condition.
That all the way I'd like to turn the call over to Steve.
Thank you John Good afternoon, everyone and thank you for joining us on the call today.
We ended the year with a strong fourth quarter performance as we continued to execute our sales and posh profit initiatives, we laid out at the onset of 2019 on a high level. We grew our fourth quarter revenues by 5.4% and posted our seventh consecutive quarter a positive comparable restaurant sales more importantly, despite content.
<unk> cost pressures during the quarter, we successfully leveraged our restaurant operating cost and posted a solid improvement in our restaurant level operating margin. This result in adjusted net income growth of over 50%.
Initiatives are clearly working and given choose a solid footing as we enter 2020.
With that let's review these initiatives and what we passed on what we plan to accomplished in 2020.
Let's start with our marketing strategy. Most of you aware that we unlisted media marketing partner Kelly's got Madison at the end up 2018, and Weve used most of 2019 as a testing ground, especially in the digital space our nationwide digital outreach <unk>, which has included page search paid social media campaigns and.
Location based mobile advertising had been productive as we experienced improved sales and a stronger brand recognition and we intend to build upon this success in 2020, well our marketing spend will be similar to 2019 based on our learnings bought last year, our approach will be more targeted and strategic.
To that and in addition to our net national wide digital outreach, we will continue to utilize the two fold approach to our marketing strategy in 2020 by focusing on two markets every quarter. The first one quota heritage market, where we already have several stores in the area, but solid brand recognition the second market will be in emerging market.
Well, we feel the need to better educated guess on the Chuys experience and both of these markets you'll see an increased use of digital platform such as you tube cool ways paid search as well as paid social supported by some traditional advertising draw promotional radio.
Outdoor boards Billboards local embedded sponsorships are the first quarter, we will focus our attention on Dallas and Washington D.C. markets.
Moving onto our investment in technology during the fourth quarter, we continue to utilize utilize our new table management system to improve our front of the house efficiency as well as gather customer intelligence to our opt in Wi Fi services and the coming much. We will also work well be working closely with our platform for provider to implement it.
And the ability to track our customer spending behavior together.
Intelligence will serve as the foundation about future loyalty program and allow us to market targeted offerings to specific customers for I'm more personalized experience.
In addition, we're also testing to new pieces of technology to enhance our customer experience in our restaurants that first one is pay at the table device that we're currently testing at one of our high volume restaurants. We believe this device could potentially really relieve a lot of the frustration thinking com I'm an extended wait for chicken following me great dining experience.
Our second test involves the use of a handheld ordering device with the goal is to enhance our hospitality by keeping our waiters and waitresses on the floor more more jump to improved guest engagement. While both of these devices are still in early stages. The feedback so far has been very favorable favorable.
Turning to our off premise strategy, our catering initiatives continue to perform well actually we successfully rolled out our platform into new markets. During the fourth fourth quarter for the quarter catering contributed approximately 2.2 million in revenue compared to <unk> point sixmillion in the previous years quarter.
A key component of our catering success today has been the addition of identity dedicated catering manager for each new market for 2020, we continue to roll out our catering platform and two markets for each quarter, but the goal of reaching 19 markets by the end of the year.
Another aspect of our on premise offering as third party delivery during the fourth quarter, we signed an agreement with door dash to become our system wide delivery provider, we expect doorstep service to be completely rolled out by the end of the first quarter of this year, which would include the 32 restaurants that previously did not have a third party delivery.
Other benefits, we believe the pop this partnership will reduce the <unk> delivery cost of these orders how our keep in mind that we plan on reinvesting a portion of the savings from delivery fees into improving our to go Patrick <unk> packaging to ensure the freshest end the call I've got food as it gets delivered to a to our customers.
The last aspect of off premise strategy is dispatch, which should allow us to synchronize our online ordering and delivering process for improve efficiency and order accuracy for these sales as well as providing a delivery option from our company's website versus third party providers website.
Based on positive feedback from our test locations. We have began rolling out dispatch system wide, which we expect to also complete by the end of the first quarter, both door dash and dispatch will be supported by marketing once they're fully launched systemwide.
Now, let me turn to our development plan, we successfully opened one restaurant during the fourth quarter Polaris, Ohio near Columbus, bringing our 2019 openings to six new restaurants, all of which are located in existing markets with prep with proven you beat we also made a decision to close four restaurants during the fourth quarter for 2000.
Than 20, we will continue to balance our new unit development with the initiatives to drive sales and improve restaurant profitability to that end, we expect to open five to seven restaurants, primarily in existing markets. This includes a new restaurant in Frisco, Texas, which opened last month, we also making progress on our new real estate analytics tool test the plan.
To utilize it for our development pipeline and 2021 and beyond.
With that I'd like to turn call over to our CFO, Jon Howie for a more detailed review of the second quarter's results.
Thanks, Steve revenues for the fourth quarter ended December 29, 2019 increase to 102 million compared to 96.8 million in the same quarter last year. The increase was primarily driven by 5.8 million in incremental revenue from an additional 80, new store operating weeks as well as comparable restaurant sales.
These increases were partially offset by decrease in revenue as a result of the loss of 50 operating weeks due to store closures during the year as well as a decrease in cells from non comparable restaurants that are not included in the incremental revenue just mentioned in total we had approximately 1300 and 27.
Operating weeks during the fourth quarter 2019 comparable restaurant sales increased 2.9% during the fourth quarter and included a 3.9% increase in average check partially offset by 1% decrease in average weekly customers effective pricing during the quarter was approximately three.
6%.
Turning to a discussion of selected expense line items cost of sales as a percentage of revenue decreased 20 basis points to 26.1% driven by favorable pricing and produce chicken and grocery partially offset by unfavorable beef and dairy prices.
All in all commodity inflation for the fourth quarter was approximately 2%.
Based on current trends, we're now expecting 1.5% to 2.5% in commodity inflation fourth for 2020.
Labour cost as a percentage of revenue decreased approximately 150 basis points to 35.7% primarily due to many price leverage increased labor efficiency at new store openings and lower training expense for new managers. This was partially offset by hourly labor rate inflation on or come.
Parable stores of approximately 3.2%.
Operating cost as a percentage of revenue increased 30 basis points that 15.2% compared to last year's quarter, primarily due to higher insurer severance cost and delivery service charges.
Marketing expense as a percentage revenue increased 20 basis points to 1% driven by our national level marketing initiatives occupancy cost as a percentage of revenue decreased 30 basis points to 7.7% as we leveraged our fixed occupancy cost on higher sales, partially offset by higher.
Our rental expense at certain newly opened restaurants in larger markets.
General and administrative expenses increased to 5.7 million in the fourth quarter from 5.2 million in the same quarter last year, primarily driven by an increase in performance based bonuses and salaries.
In summary, net loss for the fourth quarter of 2019 was 1.4 million or nine cents per diluted share compared to net income of 3.4 million or 20 cents per diluted share in same period last year. During the fourth quarter of 2019, we recorded an impairment charge.
Closed restaurant cost and offset by legal settlements.
6.1 million or 26 cents per diluted share net of tax. This included a non cash impairment charge of approximately 5.6 million related to the closure of four underperforming restaurants during the quarter as well as point 7 million enclose restaurants costs.
Taking that into account adjusted net income for the fourth quarter of 2019 increased 55.4% to 2.9 million from 1.8 million and adjusted net income per diluted share increased 54.5% to 17 cents from 11 cents per share in the same.
The last year.
We ended the quarter with 10.1 million and cash on the balance sheet with no debt.
Now, let's discuss our 2020 outlook. We currently expect adjusted earnings per diluted share up between a $1.15 and $1.19. This compares to 2019 adjusted earnings per diluted share of dollar for Additionally, as we noted earlier, we closed four restaurants during the fourth quarter. These restaurants account.
Good for approximately 7.5 million in revenues during 2019 and reduced our earnings by approximately seven cents per diluted share now our guidance is based upon the following updated assumptions.
We expect comparable restaurant sales growth for the year of 2% to 3%.
We expect restaurant pre opening expenses of approximately 2.4 to 3.3 million.
We expect DNA expenses of between 24.5, and 26.5 million our effective tax rate is expected to range between 6% to 8% and we are modeling annual weighted average diluted shares outstanding.
16.9 million to 17 million shares we're planning to open five to seven new restaurants. This year and lastly, our capital expenditures net of tenant improvement allowances as projected between 23 million and 30 million with that I'll turn call back over to Steve to wrap up thanks John.
We're pleased with the health of our business and believes that the initiatives. We've put in place we'll continue to strengthen our overall performance. We look forward to capitalize on this momentum and we Ed.
As we enter 2020, and we'll remain focused on taking care of our customers through our exceptional service and high quality and made from scratch food and drinks lastly, I'd like to thank all of our employees for their tireless work and dedication and making choose a truly differentiated experience for both our new and returning guests with that we're happy to an.
Thank you.
Thank you at this time will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is in the question Q you May Press Star too if you would like to remove your question from the Q for participants using speaker equipment, it may be necessary to pick up your handset.
For pressing the star keys, one moment, please while we pull for questions.
Our first question is from Nick Setyan from Wedbush Securities. Please proceed with your question.
Thank you congrats on a fantastic year.
Thanks, Dan you wouldn't you probably would not have given 2% to 3% comp guidance for the quarter to date.
Comp didn't warrant that kind of guidance, but any.
Incremental detail on January February would would be helpful.
Yeah as far as January February <unk> continue to our.
Third and fourth quarter trends.
Okay have you seen any kind of near term change in customer behavior.
True.
Corner virus related fears.
Well not not new yet a Ed do you know not yet that we've seen anything.
On the last month or so.
And this is I understand the exact science, John but I have few we did see from kind of short term.
And.
Slow down 20%, 30% types of decline in sales.
What would you estimate your variable costs like short term variable costs.
Our as all of food costs variable as a part of labor variable or you're going to continue paying.
Hourly employees, even if they don't come to work how should we think about that scenario.
[noise] I don't I don't have that and try to me, but I mean, basically you are talking properly.
No I would say probably about 70, 80% of our costs are variable.
And the rest fixed.
So.
You know side, given the scenario that you're talking about obviously some of those variable cost would become fixed but I mean, we don't foresee that yet.
We're we're taking some precautions, but I mean, we're just kind of witnessed CNN and.
Hopefully this will.
Correct itself, but obviously there is some.
No concern out there.
Fingers crossed [laughter] well thanks.
Thank you.
Our next question is from Chris Oahu from Stifel. Please.
Please proceed with your question.
Thanks, Hi, guys.
Hi, just a follow up but just a follow up on that Hey, Steve.
I know most of your system is located in the so called virus hotspot. So your overall comp has it been impacted but have you seen any locations where.
There has been a perceptible change in.
Sales trends that could be influenced by just slower tourism are slower.
Conference usage or anything like that that you could speak too.
Yeah, we have they might be I drive, but we have it's still early to say there we haven't got into the spring breaks are really anything yet and that so.
As of now not really.
Okay.
And then I was hoping you guys could just elaborate a little bit more on why it makes sense for the company to start spending on national level marketing mediums.
Yeah. It was that we're just talking on the social and digital and is basically just covering where I'm. All my stores are we're only in the 19 states so and that's what I'm, calling and nationals that we're just not every single stores participating in and the paid digital and paid social and that's what we did all last year, Chris It up and.
Okay, Okay and then.
John What's same store sales impact or what is that what's what's built into your comp guidance.
When it comes to rolling out delivery with door Dash is an exclusive partner.
Well.
Right now since we have so many different delivery providers, we want to make the transition and so I don't really have all that much built into it other than the 32 stores and so you can figure that we've got probably you know 50 to 100 basis points in those those stores that are adding the delivery.
Are you concerned at all about the stores that will be removing the other delivery providers seeing any kind of sales weakness because of that.
Well, we've got some some controls in place to to combat that as far as we're going side by side for 90 days and with a lot of.
Of the marketing behind the door dash, so that we can.
Make sure that doesn't happen so the transition to door dashes is.
Good also we've got kind of something written in the agreement that is if we were to decrease on the door Dash. We can go ahead and bring in another.
Service provider or bring back the other service provider and so.
Hopefully, we're not we're not going to be in a situation where that decreases.
Okay. That's great. Thanks, guys.
And our next question is from memory holds from Baird. Please proceed with your question.
Good afternoon. Thanks for taking my question I just had a coupon the comes I look I mean first I think you mentioned recently that they would take about a 3% comp to hold the margin structure flat in 2020. So I guess first up is that relationship changed.
Uh huh.
Well.
No it hasn't changed but I mean, we're expecting a little lower inflation on cost to sell so it may get us there a little bit if we're under 3% this year and our continued focus and labor as well.
With the decrease management and training were open about the same number of stores as we did last year with higher revenue base. So we could see some leverage a little leverage in labor, you're not going to see the levers that we solve this year, but we could still see labor being flat to a leveraged position this year.
That's helpful. Thank you and then I think the previously talked also about potentially resuming a faster PC unit growth in 2021 at the site finalized and you start to piece together that 2021 pipeline is that still the plan that you have in mind.
The key for the increasing the pipeline is that as you saw we finished the year right around 1% down and guest count them, they've set very similar in that fourth quarter I need to see a return of increased gas costs before I really jump in and say I'm going to accelerate it in 2021, I think that's consistent with what I've been saying so I experienced.
One was I see us up a customer you'll see us for a couple of quarters, and then you'll see us probably get into the low double digits on.
On a real estate and openings.
Great. Thank you.
Thank you.
And our next question is from Todd Brooks from C.L. King and Associates. Please proceed with question.
Hey, guys congratulations on nice quarter.
Thank you.
First question, just hoping that the team in Tennessee, and and the units all came out okay. After after the storms in the tornadoes.
Oh, thank you for saying that and Luckily for US a you know we had a couple of our employees affected and we're taking care of them, but Luckily Oh, that's up by far the most important thing is all our folks are safe and sound.
And the stores are actually up and running Luckily it was little bit north of all our stores there.
Great that's great to fair.
Thank you.
A couple of quick.
Follow up.
Looking at the Gina guidance, the $2 million range, what drives the high end versus the low end of that range and your job.
Really the target bonus, we basically budget that target bonus and based upon whether we exceed our target or.
Or don't exceeded it can fluctuate.
Okay, Great and then the other question I know, we're in the middle of the third party delivery.
Kind of migration in parallel but as as were.
We're all sitting here wondering how the current a virus plays out and how it changes customer behavior with with the.
The existence of delivery for your for your concept.
Is that.
On a percent of delivered orders are delivering demand is that something you're watching is kind of lead indicator of where customer behavior may be had four for the brand.
Believes that we started yes, we were constantly looking that on the week to week basis, you know even even to go digitally what we've seen as we've been saying that it's been 17.
17, 18%, what we're seeing is art to go digital to go sales have been exceeding 20% over total off premise and so we're seeing that go up.
Especially we would expect it to go up with a delivery you know like I said earlier with the 32 stores that we currently don't have delivery that that will go up as well as a person itself. So.
Yeah, I mean, we continue to look at that and and and you're right. That's probably a good indicator of people staying at home.
Okay, great. Thanks for the questions.
Thank you.
And once again if anyone has a question you can press star one on your telephone keypad.
And our next question is from Dan Dot three from Raymond James. Please proceed with your question.
Hi, Dan on for Brian evening.
Quick question I think you guys said commodity inflation of wanting to have two and a half for 2020 could you walk to the puts and takes on what you're seeing in some of your major items, how your contracted and what your pricing plans are for 2020.
Yes, I mean, the biggest the biggest thing that we saw solid, especially in the first quarters produce continues to go up.
We're locked in for beef I'm, a little higher than last year, it's higher to flat.
And then.
We're expecting.
A little in in dairy, but the most part it's the wildcard is produce.
Which is what we've seen in the last few years.
Okay, Great and then one follow up question.
I'm, sorry did you say something.
Yeah. That's one thing we didn't answer for you we take pricing in the second period of our year, which has the beginning of February and is approximately around 3% for the year.
Okay, great. Thank you and then a follow up on Labor you guys have seen strong leverage in recent quarters could you break down the drivers of that leverage in a little more detail and then provide your expectation.
The 2020 on that line.
Sure.
If you take a look yet.
Kind of this quarter hourly our hourly and what have been saying is we've seen some improvement not on leverage as well as opening our new stores, but we've seen hourly decreased about 30 basis points are our biggest one though is the management.
In training, which is about 90 basis points.
That's a significant piece and then managers in total was about 50 or 60 basis points decreased and we continue to look at our manager Pars and Rightsized those as the sales fluctuate up or down.
To make sure we've got the appropriate amount of managers.
At each location.
And how we're looking at it for the rest of this I mean as we go into 2020 is it's obviously on the sales, but we expected to have probably remain by where it's at maybe a little bit of leverage on the labor line as we move forward for 2020, sorry, I forgot to answer that.
But we could see 10 to 20 basis points, we're not expecting the huge leverage.
We saw in the current year.
[laughter].
Okay, great. Thanks, guys.
Well.
And again star one on your telephone keypad for any questions and we have Andrew Strelzik from BMO capital markets. Please proceed with your question.
Hey, good afternoon, a couple of questions for me the first one.
As the business has been able to absorb the higher levels of pricing over the last year, so and keep it kind of consistent traffic trend in that down one range has your thinking around your pricing power changed at all you know do you believe that you have more greater ability to to run higher price over kind of a longer duration.
In than you would've thought maybe one or two years ago.
Oh, no I don't think so what we do it is really we did so this is what the market what I want to do it has to be the value in the marketplace and and then we currently are out over the years, you know, but prior to last year and this year would probably on an average and then that 1.5% to 2% for the prior 10 years.
And and while we were averaging that you were saying a lot of casual dining is in the three to four and some even higher than that over the period of time, there so I've value spreads actually gotten.
Barger over the years and all our markets. So we just rightsizing that now as we're looking at putting that in for for our our markets in the last two years I, but we see you know, we're still probably comfortable and not wanting to have to two in a quarter range as we move forward.
Okay and on the marketing side, you know I understand that you're running kind of national advertising on a more consistent basis, but in terms of the marketing that is cycling across markets kind of on a quarterly basis as you saw like in the markets recycled off.
Have you maintain those levels of awareness or have you seen performance kind of stay relatively consistent as you've been able to cycle offer or do you notice that you're gonna have to it at some point start to revisit some of those markets.
Well the key thing for US is is what we're doing these it I have one heritage market and one not kind of a new market don't forget we still have all the the paid search paid digital page social and so forth. That's constantly I always running so we're really never off well just given a little awareness bump in there that we run fares basically six month.
At a time and those markets. So we don't have we've not seen any drop off on those.
Okay and then the last one for me just wondering how you're thinking about the closure rate going forward did these four core fourth quarter closures kinda clean that up.
And I'm wondering how much those closures impacted the margins in the quarter as well.
Well.
As far as the closures impacting the margins. If you look at like I said it was about a seven cents impact for the year.
And it affected the margins for the year about 40 basis points on the overall store level margins and as as just a rule of thumb as far as always we always are gonna take a look at our bottom 10% stores and make sure that it makes sense for us to continue on what those from a human resource standpoint, and obviously a fee.
Financial standpoint, because markets do move a little bit at times, and Oh constantly evaluate our bottom 10%.
Great. Thank you very much.
Thank you.
And our next question is from Dan Dr. <unk> from Raymond James. Please proceed with your question.
Hi, guys I just a quick question on delivery on could you.
Could you, let us know what the kind of expectation is in terms of a weather menu prices will be higher on the door dash kind of channel versus dine in what are your thoughts on.
No.
The sort of different channels, and how you right stuff.
Thanks, Dan our plan is to increase the prices kind of on that third delivery platform to help.
Offset some of those delivery charges.
We currently increases prices as we increase the period to menu prices for the year. So those are out there.
In a 32 stores that we actually started delivery.
We increased the increases prices, even a little more so that it was somewhat margin neutral to the back door for those new stores.
On the platform.
And Dan I want to follow up I think I gave you some wrong things in the labor.
The management was.
Management piece of that was 30 basis points down the manager and training was 90 basis points down and then the hourly was 30 basis points down.
So that equals 150, sorry about that.
Okay, great. Thank you.
And then a one more question, which is on share repurchases notice the new authorization, but it doesn't look like you have any.
Share repurchases is embedded in your share count guidance for 2020, just curious how you guys are thinking about share repurchases.
Through the year.
Yeah, we have never put that in the guidance just because we're trying to take an opportunistic approach in buying those which.
You were to think that this was going to recover in the year it'd be a very opportune time to buy it right now, but we're in a quiet period. So we can only do it.
When when the the Windows open and that's three weeks after we release.
And so we will probably have a tenbfive dash one program put in place.
This year that will help that those purchases, but we don't currently have anything in our forecast for that.
Okay, great. Thanks, so much.
And we have reached the end of the question answer session and I will now turn the call over to Steve is not for closing remarks.
Thank you so much I'm, John and I. Appreciate your continued interest in choosing we will always be available to answer any and all questions again, Thank you and have a good evening.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.