Q3 2020 Chuy's Holdings Inc Earnings Call

The listen only mode and the lines will be open for questions. Following the presentation on todays call, we have Steve Hislop, President and Chief Executive Officer, and Jon Howie Vice President Chief Financial Officer of Chuys Holdings incorporated at this time I will turn the call over to Mr. Howie. Please go ahead Sir.

19.8% from a negative 39% in the second quarter as various states. We're easing the restrictions we were able to make sequential progress each month through the quarter and called meeting with a comparable restaurant sales of negative 13, eight and September at.

At the end of the third quarter third quarter 92 of our restaurants are open for indoor dining with various capacity restrictions. In addition, we continue to maintain a strong off premise business of about 30%, 33% of total sales during the quarter are more than doubled last year levels, even as we have reopened up more.

On premise dining opportunities for our guests all in all we continue to see strong demand for our offerings through all current avenues of our business.

Performed at more than double our pre Covid sales lastly, we have promoted value by streaming our menu offerings to feature reduced number of entrees as well as adding convenient family meal and beverage kitsch kits, which has proven to be very popular with our guests as we go into the fourth quarter, who will start to add some of our popular menu item.

<unk> back into our main offerings with the support of digital marketing efforts to drive awareness.

While relying on a more cost effective local store digital marketing efforts, we are planning to increase our marketing and during the fourth quarter as we resume our digital marketing efforts to around 1% to 1.1% of revenues.

Okay dependency expense as a percentage of revenue increased to 160 basis points.

To 9.1 for primarily as a result of sales deleverage of fixed occupancy expenses.

And continue to aggressively navigate this kogut environment with that I'll turn the call back to Steve.

Thanks, John.

Those recover.

The lockups and stuff like that Theres, just a lot of uncertainty out there Chris So we're being somewhat conservative in that yes, crystal ball at times give a little bit marketing.

The parties and home dining over the holiday periods at home.

Possibly a little bit of catering into the fourth last two periods in the fourth quarter and we also believe with a little bit of marketing that we've added on that we didn't start again until the beginning of the fourth quarter of a one month into that talking about safety convenience and our value message will resonate with our customers also so we do believe we have some capacity as we move.

Forward through the rest of the year.

From our numbers and in August and September.

It gets another thing too is we've had we had some delays in school openings as well.

Gone back to.

To go only those weren't significantly high volume units anyway, but those have gone back. So we're ready for those to open back up.

We're talking about.

About a two week timeframe on those.

Understood.

Just to give us contact.

Any chance you'd be able to tell us like what the 2019 unit little margins pretty is 92 stores or just so we understand what the year over year comparison is.

I don't have that with me Nick I do not have that with me.

But I can I can.

I can provide yes or no.

Hello.

Uhm.

And then just overall on the competitive landscape.

Four to six units next year.

Is a pretty aggressive.

Unit growth rate relative to what at least I was expecting.

Are you seeing the competitive kind of.

A decline in supply.

Have you.

Refine your.

New volume target or and even.

Unit.

Economic targets.

Yeah.

And did you.

Did you did you.

Transition exclusively during the three kids to door dash and is that it.

Thats helpful. As you kind of implemented you know drive down some of the.

Increase in delivery fees that that seemed to show up in the Threeq you.

No I mean, we we did that we finalize that that's the first appear and totally got implemented with door dash in the first quarter I mean right before thanks.

I'm in tableside payment is.

Right now, we're just looking at tableside payments.

From a contactless standpoint, but we can you to test all different things and held we currently still have held in some restaurants that were testing where the servers can take those orders on the handheld. So we continued to test different items, but this is the new thing at the <unk>.

Pay at the table and it's really pay at the table through a a QR code and your phone so it works pretty slick.

I see if I could sneak just one more in there I noticed that the average check growth I think accelerated sequentially a little bit I'm, just curious what drove that please.

Yeah that is obviously when we reduced our menu some of the things that would go out for a couple of the lower priced appetizer items. So people are moving up so it's definitely on a product mix side of our business and that's what's really moved it up.

And again, if you go out into the marketplace, you're going to see a lot of them menus of the same things happen out in the industry.

Okay. Thank you.

Welcome.

Our next question from Andrew Strauss.

BMO capital markets. Please go ahead.

Hey, guys is actually down on France today. Thank you.

The question.

First of all.

Those four to six openings next year I know you mentioned first you sound like there'll be an existing markets but.

Curious that you're potentially looking at moving into a new market next year or existing markets are really the focus right now.

There will be an existing markets, where we have a stronger uv's already.

Got it that makes sense and then.

Steve I know, that's where you talked about how you guys had observed some competitive closures and some of your market.

So I'm just wondering if you've seen that kind of continued through the past few months or even accelerate in any way. If you could just give us some incremental details on what kind of stores you're seeing clothes.

And what are those are potential real estate up experienced mitsui's either for new store relocation perspective, I know you've heard some others talk about maybe how some of the real estate is available right now is lower quality, but I imagine that probably varies by market. So just curious what you guys are saying, yes, I think what I mentioned last time is that the rumor of all of it all happened we haven't seen.

A whole bunch and I really don't anticipate to see a whole bunch of heard that some of the smaller ones.

Uncle, guys Might've gone out, but I think it's going to really be after the holidays, where you're going to see it during the first quarter.

Talking about the things that I think really our drivers which is there the concerns that our employees and our lease and also our customers is safety being number one convenience and ease of execution number two and then value being number three I think resonates in this period of time, but obviously, we'll be able to turn that up or down as.

We see fit right now im comfortable over the next two months, depending on what if we stay where it as that I expect as Don mentioned that will probably increase our spend up to that 1% and we'll play it by ear as we move forward, but I'm anticipating for that to carry over through into the first quarter and second quarter of 2021.

Great. Thanks, guys. Appreciate you taking the questions my pleasure.

The next question will come from Todd Brooks with CL King. Please go ahead.

Hey, guys. Thanks for taking the questions.

Just a couple left here first if you can talk about.

I know we've got the street on many but you talked about some items coming back on here.

For for holiday can you talk about the type of things that you're adding back and the impact on.

Food cost as you do bring lease back on the menu yeah.

Yes, yes, and yes, we're talking just a handful we don't see a a big food car mix change and so we don't see a huge effect on our food cost per se, but you'll see us add a few of our our appetizers.

That we wanted to add on whether it be the case today is the not chosen the poncho. So you'll see some of those pop back on you'll you'll see a couple of things on add on salad that we'll be bringing back.

Chicken and a lotta, we'll be bringing back and then through the winter time, it makes sense to bring back our tortilla soup and all that type of stuff that we make from scratch in our building that will do that daily. So those will be the main ones and then we also think got coming back into the holidays. We have the trust such as cake that we want to bring back for everybody during the holidays, which makes lot of sense for ourselves.

Again, thats a handful items.

And you will see a stay there probably for the next couple two three months.

And we'll evaluate where we're at in this pandemic and look at some sort of change in our menu around.

Period, pre 2021, where we might have some add ons in a little bit of a newer menu right around then as long as things are progressing well through the pandemic and we're getting a little less of the social distancing sizes.

And Steve with some of these issues being.

Kind of plot items, whether its appetizers does or do you think that there's an average.

And if you have a question. Please press star than one our next question will come from Brian Vaccaro with Raymond James. Please go ahead.

Alright, Thank you and good evening gentlemen to circle back on store margins. If we could I appreciate your fourth quarter guidance, there, but could you give some perspective on the margins kind of as you move through the third quarter and give us some any perspective on where margins were quarter to date.

As far as quarter of the date and the fourth quarter Yeah.

Yeah. So we just closed we just closed out that.

The period 10.

And so we're still finalising those financial statements, but they're.

There are similar they're a little lower by probably 100 basis points, but they are in that range.

I think.

I think I said on the call last quarter that margins were in that 19, 20% range in.

July August and September they remained right around that.

That.

19, 21% to come up with the ones that we had here in the quarter.

So they're consistent right around that 20% I mean, the things that we're looking at in the fourth quarter, obviously is.

Is it is our lower indexing quarter. So we will have it is our lowest indexing quarter. So we will continue to have if there is some.

If we say assistant it could have some deleverage there as well as.

If it does increase a little bit and were able to open our dining rooms back.

We're going to have some added costs, there, but we still expected to be in those.

Okay, that's great and speaking of seasonality when you look back at the fourth quarter. Your historical seasonality, if you will or maybe just hone in on before up 19 can you remind us how much slower or your AWS in December as it relates to October November or just maybe comparatively October.

So if I'm looking if I'm looking at Q4 2019, I mean, we're looking at.

Average cvv's.

And the like 70, say, Hi, 70 range and Q2 thousand 19.

And.

Two three we were at last year at about 81 to 82000 a week.

So that ought to give you a kind of a drop they're having said that I get a question was December or October through December pretty even or is there.

Continued follow up as we move into the holiday season.

Kind of the the cadence orders certainly ask that effectively yes, I'm sorry, there is a continue falloff during the holidays, except for that last week of the year, that's probably one of our biggest weeks of the year generally I don't know what it's going to be this year, but that week between.

Christmas and new years.

Tends to be a very big week for us.

Okay, and I'm, sorry, Steve I didn't talk over you what was that.

No that was good.

Okay, what about dinner.

Butternut, John but knowing better [laughter].

The other the other thing too I might mention and just ask earlier I think by Nick the difference between if we're looking at our existing stores and what we call the existing that they were in the comp base at the end of the year, which would have been 81 stores.

Our margins have increased about 430 basis points on those stores.

So.

I'm not for sure of kind of what the question was that our existing stores have had a significant.

Year over year margin savings as well.

Okay, great real quickly on commodity inflation has the beef inflation you saw in Q3 abated at all or what are your <unk> commodity inflation expectations and curious you have if you have an early look.

Just on your contracts et cetera on how you think 21 could play out from a commodity standpoint.

We've actually our fajita beef has been somewhat consistent and we've actually we're starting to lock of 2021, we think will be at a decent price on that.

But we did have increase.

In ground beef, a little but that's what's driving that but the biggest thing on that is not as much price that is mix because our mix is really skewed towards the Edith.

And with these the heat of kits and what people are getting at the store. So that's really what's driving that increase in the cost of sales is a higher priced item at a higher mix.

Alright, great that gets the last one was for me I know, it's only been a few hours, but I wanted to ask about the Florida state minimum wage increase that was voted in earlier. This week could you have a sprain how much of a cost pressure that represents with the tip wage sort of expected to increase pretty meaningfully over the next five years in in Florida is only take 10% or so.

Stores, but could you could you help us bring that at a high level.

Well I'll tell you why it it's just been a few hours you are right.

I still haven't got over.

Yeah.

And say, but.

Yeah.

So so anyway, we were still analyzing that but I mean, you can see those rates and pretty well.

We won't have.

That entire right, obviously, because we're above some of those rates already right. So it's not going to be the significance of all of that right on our on our.

Wages, but there'll be a good piece that obviously will raise the overall rate wages to which we don't know how that will impact until they start.

Being implemented.

Okay, and see if I guess, while I have you on that topic, just generally speaking thinking about server.

Wages.

In most markets are you that much above say the.

Tipped wage.

Allowed in that state.

I know back of house, you could see wages that are well above state minimum wage levels was just curious.

Dynamic holds on the server side.

Say in Texas, 213, say in Florida, and the size fifties, just just for all that curious on the server entry wage topic.

Yeah, right now you're going with the tip wage whenever a by market by market. So we're at our government vintage on everyone on the markets and we're currently already in.

But the one thing to look at that there are some that.

Are indirectly Pip that we will pay more obviously and some that aren't that we still have at the front of the house and that'd be your hostess. Some of those that are paying more than more than the regular minimum wage not typically so that's all gone in the front of the house as well.

Okay, Great alright, thanks, guys.

Thank you Brian.

Our next question will come from Chris Oh call with Stifel. Please go ahead.

Hey, Thanks, most of my questions have been answered, but I had a couple of follow ups. One was Steve do you think it's going to be difficult to rebuild sales in the nine stores that had been closed for the past several months.

Christie I think those markets will take a hard look at him I began as I told you last time I'm going to be visiting those in this fourth quarter really to understand the the changes in those markets based on competition and everything that's happened in the market points as we looked at we're.

We're going to make sure that we have the opportunity not only to build but also grow all will make a tough decision, possibly not to open them someone will look at all of that stuff.

Okay, and then I know patio sales were running up I think 10, 13% at the end of the last quarter, which was up year over year to you guys have an update on the patio mix for the third quarter and then should we expect.

[noise] tailwind from that to abate in the fourth quarter with cooler weather.

Yeah. So at the the third quarter, we were at about 11.5% for the quarter and that's compared to seven 3% last year. So we've seen a significant increase in that.

If you look at period 10 period 10 in the first period into the fourth quarter that actually jumped up to $13, 3%. So.

We're still seeing some some decent days to be out in the patios definitely in the southern markets and so we continue to build that.

Obviously, when we get into the heavy winter.

That may come back a little bit, but we've done.

A lot of things to extend that patio, we've extended the patios, but then we've put heaters out there and things like that fixed in that patio season.

So we're.

Pretty happy where we are but.

But we do know in the winter months that that could come back a little bit specifically December January and the beginning of February.

Okay, great. Thanks, guys.

Uh-huh.

Operator.

This concludes our question and answer session I would like to turn the conference back over to Steve His love for any closing remarks. Please go ahead Sir.

Again, thank you guys. So much John I. Appreciate your continued interest in two weeks and we will always be available to answer any and all questions again. Thank you stay healthy and have a good evening.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[music].

Mhm.