Q4 2021 Chuy's Holdings Inc Earnings Call
So currently holding for the Chili's Holdings fourth quarter 2021 earnings conference call. At this time, we're assembling our audience will be underway. Shortly we do thank you for your patience in holding and ask that you. Please remain on the line.
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Good day, everyone and welcome to the choice Holdings' fourth quarter 2021 earnings conference call. Today's call is being recorded at this time all participants have been placed in a listen only mode and the lines will be opened for your questions. Following the presentation on today's call, we have Steve Hislop, President and Chief Executive Officer, and Jon Howie.
This president and Chief Financial Officer of Chili's Holdings incorporated at this time I will 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 2021 earnings release, if not it can be found on our website at <unk> dot 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 out of 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 our fourth quarter earnings call today I hope everyone is.
Staying safe and healthy.
Our solid fourth quarter results are a direct testament to the tenacity and resilience of our team members in the face of uncertain economic conditions and the COVID-19 environment not only did we grow our top line by over 25%, but our continued focus on cost management and operating efficiencies have allowed us to improve our profitability by 100.
<unk> basis points compared to last year, and 700 basis points compared to 2019 as we've mentioned previously we continue to anticipate approximately 300 350 basis points basis points of margin improvement over 2019, even after factoring in the current inflationary.
Pressure.
Comparable restaurant sales increased over 20% compared to 2020 and decreased 7% compared to 2019, it's worth noting that our fourth quarter 2021 performance was negatively impacted by the timing of Christmas compared to fiscal 2019, excluding this Christmas shifts.
Our fourth quarter comparable restaurant sales would have increased approximately 2% compared to 2019.
All in all we are pleased with that business trajectory and how our key pillars of safety convenience and value continue to provide a strong foundation for our operations.
Nevertheless, we will remain nimble in this in the current environment and we are focusing on several key aspects of our business to help us manage the external challenges first let me touch on staffing since it's the topic on everyone's mind as I've noted before our people are the most valuable asset and retention is something deeply rooted.
In our culture, we have historically prided ourselves in having a very low turnover rate and that continues to be the case in fact, our management and hourly turnover of some of the best in casual dining sector and were lower in 2021.
Then pre pandemic 2019.
If you recall, we paid out $1 6 million retention bonuses for our managers during last year's second and third quarter as a thank you for their efforts are being in the line of fire to serve our guests every single day, we believe that when you stabilize your management team you. All also stabilize your hourly team members, which generally leads to higher performing stores we have.
On that to be the case in practice.
To further capitalize upon a hourly retention we continue to pay referral bonus to our team members eroding rewarding them for bringing new people they would enjoy working with and looking for other creative ways to increase staffing within our restaurants. As a result, we continue to believe that we are in good position with regard to our overall staffing and the current tough labor.
Barbara.
Switching to menu development, our guests come to our restaurants to enjoy our made from scratch food and drinks at a tremendous value to that and starting earlier. This month, we have decided to bring back eight items into our menu primarily combination plates. In addition, we are also in the process of introducing a new happy hour menu this month, which.
It has been proven very popular with our guests in the past we consider these menu additions to be a good mix of items with excellent margin profile and little added complexity to our kitchen operations, we should bode well, which should bode well for our topline growth and profitability as our traffic returns to more normalized levels.
Turning to off premise, we are pleased with our 28% mix during the fourth quarter, while we have seen a spike into the 30 plus percent range with the spread of the omicron variant. We continue to believe that our menus can maintain a low to mid 20% off premise mix longer term.
We also look forward to expanding our catering offerings.
Ended 2021 with catering in 14 markets, while we postpone adding catering in additional markets at the onset of the pandemic. We are now planning to add catering to the remaining the remaining of our system by the end of 2020 to another.
Another important aspect. We are currently focused on as a marketing effort as you remember our marketing spend came down during the pandemic in conjunction with the New addition to our menu were slowly ramping back up and our marketing initiatives. Two two to 2019 levels for 2022, we will heavily utilized digital means.
Including our recent use uptick talk to not only introduce and highlight new menu items, but also as a recruiting tool other digital marketing initiatives include and organic Influencer program on Instagram Youtube video advertising promotional advertising partnership with door Dash and our launch of our new website.
This year all of which are designed to reach a broader audience group and allow us to better connect with the new and returning guests Lastly, let me quickly discuss our development for tooth.
Development for 2000, and trying to we are now planning to open between five to eight new restaurants, the majority of which will be in the back half of this year due to the ongoing labor shortages and supply chain issues that have negatively impacted the construction process industry why with that I'll now turn the call over to our CFO , Jon Howie to discuss our fourth.
Our results in greater detail. Thanks, Keith revenues for the fourth quarter ended December 26, 2021 increased 25, 4% to $98 7 million compared to $78 7 million in the same quarter last year. The increase was primarily related to growth in customer traffic as we continued to relax indoor die.
<unk> capacity restrictions for all our restaurants as well as $3 6 million of incremental revenue from new restaurants opened during fiscal 2021.
For the fourth quarter of 2021 R. R.
Our off premise sales were approximately 28% of total revenue compared to approximately 33% in 2020 and 14, 6% in 2019 in total we had approximately 248 operating weeks during the fourth quarter of 2021 comparable restaurant sales increased 20.
8% during the fourth quarter versus last year and included a 19% increase in average weekly customers any one 8% increase in average check comparable restaurant sales declined 7% versus 2019, However, as Steve mentioned earlier. This decline was primarily due to the <unk>.
<unk> of Christmas as compared to fiscal 2019, and without that shift comparable sales would have increased 2% versus 2019.
Turning to expenses cost of sales as a percentage of revenue increased 140 basis points to 25, 8%, primarily due to commodity inflation of approximately nine 7%, partially offset by a decrease in the mix up the heat a family get sold as compared to the prior year commodity inflation.
During the quarter was slightly higher than we originally anticipated driven by higher beef and chicken cost and as we look ahead, we expect our first quarter 2022 commodity inflation to be in the mid to high teens as compared to 2021.
Labor costs as a percentage of revenue decreased approximately 60 basis points to 29, 1%.
Primarily due to sales leverage on management labor, partially offset by hourly labor rate inflation of approximately 12, 6% driven in part by increased overtime as.
As Labour challenges persist, we expect hourly labor inflation to remain at elevated levels of approximately 12% to 14% for the first quarter of 2022 as compared to 2021 operating costs.
As a percent of revenue improved 30 basis points to 15, 4% due to sales leverage on fixed restaurant operating costs.
Marketing expense as a percentage of revenue decreased 10 basis points to 1%.
Our occupancy costs as a percentage of revenue decreased 140 basis points to seven 3% as a result of sales leverage on fixed occupancy expenses, partially offset by higher percentage rent general and.
<unk> expenses increased to $6 1 million in the fourth quarter from 6 million in the same period last year, driven by higher insurance premiums and technical services, partially offset by lower management salaries and performance based bonuses due to the timing of the reinstatement and makeup of reduced management salaries.
And bonuses during fiscal 2021 or excuse me during fiscal 2020.
As a percentage of revenue G&A decreased 140 basis points to six 2% in summary, net income for the fourth quarter of 2021 increased 236, 3% to $6 million or <unk> 30 per diluted share compared to one 8 million or <unk> <unk> per day.
Alluded share in the same period last year during the fourth quarter of 2021, we incurred $2 5 million or $1 9 million net of tax and impairment closed restaurants and other cost taking that into account adjusted net income for the fourth quarter of 2021 increased 104, 2% $2.
$7 9 million or <unk> 40 per share per diluted share compared to $3 9 million or <unk> 19 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 $106 6 million in cash and cash equivalents, no debt and $35 million of availability from our credit facility. During the fourth quarter of 2021, we purchased approximately 265000 shares of our common stock.
For a total of $8 4 million in total we repurchased 461500 shares of our common stock for a total of $14 5 million for the full year of 2021.
However, subsequent to the fourth quarter of 2021, we repurchased an additional 546747 shares of our common stock for a total of $15 million.
As of February 17th.
2021, we had approximately $26 6 million remaining under our $50 million repurchase program, which will Rick's buyer on December 31, 2023, lastly, while we are still not in a position to provide our usual financial guidance, we will give you some directional metrics.
For fiscal 2022 that I hope will be helpful. As Steve mentioned earlier, we are now expecting to open between five to eight new restaurants. In 2022, we expect net capital expenditures net of tenant improvement allowances to be approximately $25 million to $40 million.
We are expecting restaurant preopening expenses to be approximately $2 million to $3 million in 2022 and.
And lastly, our effective annual tax rate is expected to be approximately 13% to 15%.
With that I'll turn the call back over to Steve. Thanks, Jon Our team members continue to do their best to manage various external challenges I focus on what makes <unk> different from retaining the best talent and offer high quality made from scratch food and drinks at a tremendous value to continue to continued focus on cost management.
And operating efficiencies our underlying business remains strong and we are well positioned to continue our recovery in fiscal 2022.
Again, none of this would've been been possible without the hard work and dedication of each of our team members and I am proud to be working alongside them every single day with that we're happy to answer any questions. Thank you.
Yeah.
If you'd like to ask a question. Please signal by pressing star one on your telephone keypad, Mr. Using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question, we'll pause for a moment. So that everyone has an opportunity to signal for questions.
And we will go first to marry hardware Baird.
Good afternoon. Thanks for taking the question I guess first would you be willing to share an update on how comps are average weekly sales are tracking to date in Q1 understanding that there might have been a slowdown from Q4 amid amacrinal.
Yeah.
Yeah.
I would tell you what Mary.
It's very cloudy and obviously omicron was an issue, but the other issue in all of our markets. It was weather.
I'd like to get that out there I mean, we lost over a million dollars in closed store days related to weather during the first quarter. So.
Hum.
It's very murky given omicron into weather to really give you any any other I guess statistics other than that yes.
Yeah.
Got it Okay and then.
On the development I guess, what are you seeing on development and construction costs and how does that play into the return do you expect to achieve in the current class of openings.
I'll take the front side, you can take it to return.
It's definitely a and we're probably saying you're out there as of right now and that's why we have pushed them back probably to the you know why it is.
I think we will have one in the second quarter and the rest will be near the end of the year hopefully some of the cost side can reduce a little bit but right now we're in that 25% to 26% increase in construction costs across the board.
Yes, as far as the margins, we expect some probably a little higher margins than what we have in the past, giving where we're opening these stores but.
But the returns are going to be a little lower this year than kind of our target just because of like Steve said, the construction costs. So they will be a little lower than our targeted 25% to 30%.
Got it Okay and then just last one would be on G&A that ratio has obviously been elevated in 2020 in 2020 on relative to where you were pre COVID-19 .
Is there a way to dimensionalize, either how youre thinking about the trajectory of the ratio in 2022, and 2023 versus where you were pre COVID-19 or just philosophically. How you think about how G&A should grow relative to revenue in upcoming years.
Yes, I mean again as we get back to growing as you know, we havent really grown that much but as we get back to growing we like to.
Limit our G&A growth to about 80% of the percentage of store growth. So I think that's what we'll get back to.
Great. Thank you I'll leave it there.
Thank you.
And we will hear next from Andrew <unk> of BMO.
Hey, good afternoon I guess.
I wanted to ask about the inflation outlook, obviously first quarter is going to be elevated how are you expecting that to kind of trend throughout the year understanding there's a lot of volatility.
I think last quarter, you said you expected restaurant margins in 'twenty two to be in that 80% to 20% range has the inflationary I would change that at all or how youre thinking about pricing.
No I mean, I think youre, absolutely right, we said that would be kind of in that range and to the extent that we didn't think we could meet that range. We would start looking possibly at a price increase later in the year.
And like I was saying on the call we are looking at.
Inflation in both labor and cost of sales over 2000 and over 2021 numbers in kind of the mid teen level. So.
That's increased but with that being said a lot of that is already in our numbers right because in the fourth quarter right here in the first quarter were only subsequent to the fourth quarter were only increasing kind of inflation about 5% over what we were in Q4 in commodity but with that being said I mean commodity.
These are going Crazy right now so we still expect them to come down towards the latter half of the year, but right now chickens at its all time high.
Oils, which we contract oil soybean oil and if you've looked at a chart of soybeans lately, it's going off the charts, but we contracts soybean oil for our mayonnaise and some other things so thats going off the charts, we are locked in beef.
Through the first half of the year and hopefully floating the back half so that we get better prices.
But that's our thought right now Andrew is just that we think will get better pricing in the back half of the year, but the first quarter or two.
We're expecting some pretty high inflation numbers.
Okay. That's helpful. And then the other thing I wanted to ask about was you mentioned that.
Well turnover numbers.
But unless I missed it I didn't hear anything on staffing and I believe you said.
Last quarter, you were at about 80% to 85% and theirs is having some impact on sales or just looking for an update on where that stands today.
Understanding earlier in the first quarter, maybe some some challenges, but now where do you sit now as we think going forward. Thanks.
With the <unk> starting to get better.
Really this week.
It's been pretty bad so we're still right around that 85%.
During our comments and we felt pretty good about but yeah.
Going forward and I think we're better than most out there, but we still got a little ways to go.
Got it thank you very much.
Thank you.
As a reminder, you May press star one on your telephone keypad. If you have a question.
And we'll move next to Chris I'll call with Stifel.
Hey, good afternoon guys.
Hey, Chris.
So I also had another question related to staffing as well and.
I'm just curious Steve if you can talk a little bit about may.
Maybe the impact it's had on guest service or guest satisfaction, because I know you've got you mentioned your 85% of the staffing level you'd like to be at.
I'm just wondering if you've had any if that's had any implications to the experience.
I think that's a great question Chris.
The key for us as well.
We're living in a world that is.
Separately through this pandemic with the things that we did whether it would be to go are then started opening our dining rooms. The one thing that I preach to everybody as you do what you can with what you have and that's the biggest thing. Okay. So what that does mean is if Chris you know if we have five table stations and five service show up that mean.
I'm only sitting 25 tables and that's all of that means if you're going to ever wait wait at the door or not at the table because its unacceptable at any time.
Table.
Keep your standards the way they are.
So that's the key for us and so what you do is it does add on a little bit of weight, but as far as the environment of sitting down at the table is that where our scores are better than they've been on yelp.
Okay. That's helpful. And then John do you still expect if you get back to that staffing level that you were in 2019 that you can achieve that 32% to 33% range for labor cost as a percentage of sales.
We do Chris and we're not looking to get back again to the 2019 staffing levels because with how we've changed our business.
That's probably going to be at <unk>.
90% to 95% of what we were in 2019, but yes, we do.
And so the 85% you quoted that's relative to your par levels today, not to where you were at <unk> 19.
Yes, Sir correct. Okay. Okay, and then just one other question what drove the sequential improvement in the average check for the quarter because I think it was negative in the third.
And kind of where do you expect it to shake out here in the first quarter.
Yes, I think the deal is as we kind of ran over what we did was we ran over.
Some are more comparable numbers when youre looking at the fajita kit so the mix wasn't as great.
As a decrease as what it was in the past.
That makes sense.
I think so.
As we as we as we increase the dine in.
You know it makes those the heat of kids that were really driving the cost.
Not less and so when we really started rolling over the to go only are those then it really had a dramatic impact, but now we're starting to rollover numbers that.
Are more comparable from a diamond perspective, and so it wasn't as dramatic and so it drove it up a little bit.
Okay. Thank you.
Thanks, Chris.
We'll go next to Todd Brooks of the benchmark company.
Hey, good afternoon guys.
Good afternoon Todd.
Couple of quick questions for you kind of follow ups were just kind of touch on both these oh mcright I know, it's noisy to talk about.
Year to date impact can you talk about maybe where first half of December was trending versus 19 before the impact started to ramp up during that month.
Okay.
Yes, So let me just give you.
Yes.
Comp sales for like period, and an 11, we were running a positive <unk> eight.
And then.
Yeah.
Positive 1% in period 11, and then in period 12, then you had <unk> plus you also had the shift in Christmas.
That caused that when you are comparing to 2019 so.
The numbers are really kind of mixed match there, but it did that last two to three weeks of the year, along with Chris that's really drove that down to.
The other half was having.
What was the period 12.
Sure.
Let's see here.
Okay.
I'll get that number for you I thought I had it but I don't know.
Okay, Great and then.
Could you talk about the nature of.
Omicron impact if you're if you're attributing what percent of the impact was related to staffing level. So Steve you talked about listen rolling his seat five tables for server, we're not going above that versus how are the customers.
Sponsoring during it from a demand standpoint is this a customer demand issue or a labor availability issue that constrained the business. During this variant.
Labor availability is a little bit of both but labor availability.
Yeah.
Okay, Great and then.
One other just on the staffing side.
I know I'm, a crime, probably muddy did a little bit for you, but some of the peers have talked about.
Much better applicant flow, maybe five or six times. The number of applicants that were seeing in September and October for open positions, even though you haven't inflected up from the 85% level yet.
How do you feel about the ability now to really ramp that number given maybe what youre seeing on the front end as far as.
Applicant flow.
Yeah absolutely.
As Deb I don't know, if I'd say, its up 5%, 10% or better.
Times, but I definitely have seen an applicant flow specifically the last two weeks.
As it had been lessening.
The omicron virus and a lot of our markets and we're definitely seeing some more traffic walking in as.
We've seen a little pickup in the sales.
So if we if I'm trying to think of the slope what does it take from here in mid February to get to.
That that new kind of 90% to 95% of fiscal 19 levels of staffing, which is fully staffed at the current pars.
Yeah, again, thats something that will be.
Our number one thing we're working on that could give you exact date when that's going to happen is a little bit murky for me.
Okay.
Okay, great. Thanks, I'll jump back in queue. Thank you.
And Todd just to answer in period 12, because of the Christmas and because omicron, we were down three 1% but of the three 1% Christmas impact had a two 2% of that.
So you can kind of see where we're running we're running about a 1% up <unk> 10 and 11.
And so that differential kind of gives you the kind of the Amazon impact and we will in December .
Okay, great. Thanks, John .
Yes.
<unk>.
And with no other questions in the queue I would now like to turn the call over to Steve Hislop for any additional or closing comments.
Thank you so much John and I. Appreciate your continued interest in <unk> and we will always be available to answer any and all questions again. Thank you stay healthy and have a good evening.
Okay.
And so this concludes today's call. Thank you for your participation you may now disconnect.
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