Q1 2022 Chuy's Holdings Inc Earnings Call
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Please standby were about to begin.
Good day, everyone and welcome to the Choice Holdings, Inc. First quarter 2022 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 questions. Following the presentation.
On today's call, we have Steve Hislop, President and Chief Executive Officer, and Jon Howie, Vice President and Chief Financial Officer of Chili'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 Ww Dot two dot com in the investors section before we begin our review of formal remarks.
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 John Good afternoon, everyone and thank you for joining us on our first quarter earnings call today.
Overall, we were pleased with our results for the first quarter of 2022, well, we're faced external change challenges in the form of I'm, a con variant of Kobe and severe weather winter weather and we're pleased with the sales rebound we saw towards the end of the quarter, which is extended into the second quarter to date. This rebound includes positive comparable sales in March.
And April compared to both last year and 2019.
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 improvement in two.
22, compared to 2019, while we're pleased with the improvement in our store level margins from pre pandemic levels inflation continues to be a pressure point, which John 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 two and two and a half 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 risks are 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% three 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 provide our guests with a unique chili's experience. They have come to expect however, our work is far from done as we navigate the current inflationary environment, we will remain focus 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 and 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 and they would enjoy work.
And with where we have continued to have have to maintain our staffing levels. Despite the current tough labor environment.
In terms of off premise, we pleased with our 28% mixed 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.
Not other another aspect of the off premises catering as we mentioned on our last call. We are resuming our catering expansion to new markets and are on track to have the 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.
Digital efforts will include the use of tick tock organic influencer programs on Instagram Youtube video advertising and promotional advertising partnerships with door Dash. 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 written.
Turning guess finally, we now plan to open between four to six new restaurants in 2022, a decrease from previous guidance of five to eight restaurants, driven by the supply chain disruptions and construction labor shortages as a reminder, the majority of our developments in the back half of the year and because of these disruptions we built.
Some of these restaurants may move into 2023 with that I'll 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 $125 million compared to $87 7 million in the same quarter last year. The increase was primarily relates to growth in customer traffic as we continue to relax mandated indoor dining capacity restrictions for all of our restaurant.
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 2020 to off premise sales were approximately 28% of total revenue compared to approximately 32% in 2021 and 13% in 2019 in total we had approximately 248 operating weeks during the first quarter of 2022.
Comparable restaurant sales increased 11, 4% versus last year, driven by seven 8% increase in average weekly customers and a three 6% increase in average check comparable restaurant sales declined one 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.
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 and 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 cost as a percentage of revenue increased approximately 140 basis points to 29, 7% primarily due to hourly labor rate.
Inflation of approximately 13%.
Parable restaurants, as well as an improvement.
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 continuation of the year over year staffing increase operating costs as a percentage of revenue.
Sure in the same period last year during the first quarter of 2022 incurred $1.3 million or five cents per diluted share an impairment closed restaurant and other costs, taking that into account adjusted net income for the first quarter of 2022 with $6.5 million or 34 cents per diluted share compared to.
$8.5 million or 42 cents per diluted share in Saint 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 718000 shares of common stock for a total of $19.7 million <unk>.
As of May 5th 2022, we had approximately 21.9 million remaining under $50 million repurchase program, which will expire on December 31, 2023, Lastly, why we are still not in a position to provide our usual financial guidance. We are providing the following directional met.
Tricks.
For fiscal 2022, as Steve mentioned earlier, we are now expecting to open between four to six new restaurants in 2022, a decrease from previous guidance driven by supply changed 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 10 improvement allowances to be approximately 22 $23 million, we're expecting restaurant preopening expenses to be approximately $1.5 million to $2.5 million in 2022 and lastly.
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, John We were pleased with our sales improvement to date and believe we're on the right path for recovery. The initiatives. We have put in place will allow us to remain nimble and ready to cats capture the opportunities ahead of <unk>.
Ross R accomplishment Hudson would not have been possible with the hard work and dedication of every choose team member and I'm proud to work alongside every single one of them with that we're happy to answer any questions. Thank you.
Thank you Sir if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please ensure your mute function is turned off to allow your signal to reach our equipment. Once again that is star one if you would like to ask a question and.
And we'll go first to marry holds with bird.
Good afternoon, Thanks for taking my question.
First I just wanted to ask I'm a quarter today turned are you willing to quantify the positive same store sales momentum you've seen to date in April either on a one year basis are relative to 2019 just to level set.
Yeah over 2019 years in roughly about a little bit more than 2%.
Great. Thank you and then on the restaurant margin just a couple of question I mean, the Labour Lane for Q1 came in better than we'd modeled was there anything temporarily suppressing that line in Q1 or is that a good underlying run right to think about for the balance of 2022.
Yeah again.
[noise] Whereabout in our concept right now about 85% to 90% staff. So we still got a little bit more staffing to go so that could possibly go up a little bit more.
Good. Thank you and then I guess, if I know that the visibility on the inflation outlook tough to parse through right now, but if you were to run right. The current spot prices and wage rates that you're seeing an hour in Q2 for the balance of the year, what would inflation look like for 22 2022 overall given the comparisons get.
Have tougher lapse in the second half of the year.
Yeah. So if you look at that we're well over 25 per cent 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 you know with the prices that we have in the first quarter and the mid year and then you should probably still looking around that 20 per cent on a weighted average I would think yeah.
Okay, Great and then.
Lastly is is the philosophy pricing that you'll take what you need to stay in that 300 to 350 basis points of improvement range or what is your current philosophy on on pricing related to them.
Yeah, that's kind of what we've said all along with what would be looking at for this upcoming year and again the key for US is the value spread that we look at it and every single market. So we'll be looking at that are in a competitive set but right now that was the approach on this one.
That's great Okay I'll pass it on thank you.
Thank you thanks Mary.
Thank you and once again, if you would like to ask a question. Please press star one on your telephone at this time next we'll hear from Andrew Strauss sick with BMO capital markets.
Hi, This is Andrew cold on her and your stomach.
Okay. Daniel Thanks for taking the question can you discuss how turnover at the manager and how are the level has trended.
Yeah, Yeah again, it's a much better than the industry average right around 100 to 105 and the hourly in about 29 and management.
Got it and can you discuss any trends you're seeing originally and across the parts.
No I mean, they're pretty from pro forma standpoint, they are pretty consistent throughout the.
Geographies.
Understood. Thanks, so much I'll pass out.
Thank you.
Thank you next we'll hear from next Italian of Wedbush Securities.
Hi, This is Paul how far on behalf of <unk>. Thank you for the question Uhm. My first question is is there a way to maybe give us the AWS sales by month in Q1, and if possible any any side on the April .
So the sales by month, if you're looking at comp sales versus 2019, as we said was negative 2.4 negative for five and then positive 0.9%.
If you compare that to 2021 it was seven $626 one.
And five one or all up yeah, I'm, sorry, all up some six positive $26, one positive and five one positive.
Okay.
And how about the blended any price increase in Q1, and if possible what is your expected price increase in Q2.
Cause the blended the blended menu price was a little higher than say three and a half we had about 3% to 5% price increase in there and period too, but we took the price last year one period late so if you're looking blended it's a little higher than that.
Okay.
And is there a way to Oh wait where are you now in terms of like dining transaction versus pre COVID-19 NASA it'll just transaction.
We are.
I think we're right around we're still right around the from a transaction level high 70% like 70, 778% from a transaction levels of.
Of Diamond.
And just one more question how should we think about 220 Mart you Oh margin given that two two tend to be a higher average weekly sales quarter and you have some incremental price increases flowing through and how do you think about the some costume the labour inflation.
<unk>.
Well that's a great question. So yeah second quarter is our highest indexing period. So when you're looking at that you would like.
Like we said in our prepared remarks were looking at price increases in at 3.5% to 3.5%.
In quarter, if they're starting in quarter three and so that wouldn't be you know we don't have those price increases in quarter too. 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 twenties per cent increase in commodity and.
I believe 10% to 12% from a labour standpoint.
Okay got it thank you so much.
Mhm. Thank you.
Thank you and next we'll hear from Todd Brix with the benchmark company.
Hi, Good evening, guys hope you well.
A.
Few questions the 25 per cent commodity basket pressure that you're talking about for the second quarter John .
How much of that is just the spike in avocado and limes and just wondering cause that should be at.
At least an element of it hopefully transitory with the growing seasons in regions changing out of Mexico right.
Yeah just.
Let me get that in front of me here.
So.
This protest.
Yeah, a big a big piece of that though is you know is chicken and beef right now, but on the second part of that is.
Let me see here due to the avocado is about.
Of the 25%.
About really 1% of that and and lines is about one in 5% of the top two and a half both yeah.
Thanks.
And then just wondering as you look at your consumer and.
Obviously, you're taking the second price increase in necessitated by inflation, but I know, Steve you're very mindful of delivering value to the customer what do you watch them 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 delivered.
Not yet and then not that I'm anticipating any also because of the values that we do currently have but no.
We're seeing the incidences on beverage stay set out with similar or improve we've seen incidents on appetizers stay has improved and in our level of to go has remained like I just mentioned in the prepared statement pretty much. The exact same number weekend and week out since 2020. So now we haven't seen any big.
Change except for US all of it onto that 25, 26 to 28th Dot last period and to golf volume compared to a year 2019, which is that 12, 13% range.
Okay, great. Thanks, and then finally kind of housekeeping one John .
With the hit for a moment <unk> in the quarter, we've talked about from 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 one time from dealing with the omicron outbreak and staffing impacts. Thank you one.
No I mean, we did have that might've been a little reason for some of the.
The staffing too cause we did have some some.
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 is better staffing percentages.
Okay, great. Thanks, I'll jump back in Kansas.
Thank you and there are no further questions at this time will turn the conference back over to Mister <unk> for any additional are closing remarks.
Okay. Thank you so much John and I. Appreciate your continued interest and choose 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.
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