Q4 2022 Chuy's Holdings Inc Earnings Call
And welcome to the Chili's Holdings' fourth 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 your questions. Following the prepared remarks.
On today's call, we have Steve Hislop, President and Chief Executive Officer, and Jon Howie, Vice President and Chief Financial Officer of Chewy Holdings incorporated.
At this time I'll turn the call over to Mr. Howie.
Please go ahead Sir.
Thank you operator, and good afternoon by now everyone should have access to the fourth quarter 2022 earnings release, if not it can be found at our website at <unk> Dot com in the investors section before we begin our 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 <unk>.
Financial condition with <unk>.
That out of the way I'd like to turn the call over to <unk>, President and CEO , Steve Hislop.
Thank you John and good afternoon, everyone and thank you for joining us on our fourth quarter earnings call. Today, we're proud of our strong results for the quarter driven by organic topline growth and sustained operational efficiencies such was complemented by our continued capital return to shareholders through our share repurchases.
But by the ongoing strength of our operating model during the fourth quarter, we saw strong comparable sales growth across all periods and importantly, our momentum has continued into January .
We believe our fresh made from scratch food and drinks at an incredible value continued to resonate with our guests and are the driving force behind our growth regardless of how our guests choose to access the brand.
Turning to our growth drivers, we'll start with menu innovation as we noted last call. We launched our first ever limited time offer platform choice Knockouts in October .
I always knockoffs through quarterly specials introduced our guests to exciting new menu innovation, while also reintroducing our guests to old favorites for a limited time, we plan to walk for choice knockouts once per quarter for a six week period of time.
I'm thrilled to report that our first.
CK, all drove incremental traffic and mixed at approximately 2.5% of entrees sold during the six week period.
Lately, we did not see consumer demand trail off in Nevada weeks of the CK Oh period as you do with memory. Many limited time offers and thus, giving us increased confidence in the platform longer term that said while these results are encouraging the secant platform is still new to the brand and we intend to continue to iterate and experiment.
With their platform determining what resonates best with our guests in the long term.
Following the success of our first TKL late January saw a return of our fan favorite veggie Enchiladas as well as an introduction of our new WILDBERRY, though and hatch beef tacos, while we're only three weeks into the CECO period. We're excited by the results we've seen thus far.
Next we will return to off premise I'm a man on a momentum continued with the growth of our off premise, which represented approximately 29% of total sales for this quarter. The delivery channel helped drive our off premise growth as consumers embraced the opportunity enjoy choice high quality made from scratch food from the comfort of their own home.
We also continue to fill out our existing catering markets and have further opportunities to expand in several other new markets in 2023 to complete the rollout of the kitting program system wide.
Catering represented almost 4% of our fourth quarter sales and approximately 2.6% of our annual sales. We continue to believe that off premise will represent a low to mid twenties of ourselves over time with catering contributed approximately 4% to 6%.
Finally in terms of our marketing initiatives, we continue to put heavy emphasis on digital media, including the use of tech talk organic influencer programs on Instagram Youtube video advertising and promotional advertising partnership with door Dash. These initiatives initiatives have allowed us to effectively communicate our defining difference.
<unk> from our made from scratch food and drinks offered at an incredible value to our newly introduced CK all offerings and a unique overall experience at every chili's restaurants.
Along with our new website, we believe these initiatives will help us to better connect with both new and returning guests.
Moving to profitability, our ongoing focus on operational efficiencies and cost management resulted in a strong 17% restaurant level operating margin, representing a 270 basis point improvement over 2019, we achieved these results despite double digit commodity inflation and high single digit.
Labor inflation.
Looking at 2023 at the end of January It took approximately three 5% pricing. We believe this is an appropriate level to balance our strong value proposition to our consumers as well as solidifying our margin profile, we have not made any decisions on any additional pricing actions for the year and we will.
Will reevaluate as necessary given the macro environment.
Lastly, before I turn the call over to John Let me update you on our development plan during the fourth quarter. We successfully opened two new restaurants in our core markets of Texas, and Tennessee, bringing our total development of three restaurants. During the year. We also closed one restaurant at the end of its lease term as we have already developed in other restaurants.
More desirable location for the trade area in total we had we had 98 restaurants at the end of fiscal year <unk>.
As we look ahead, we are excited about the organic growth opportunities ahead for the brand through accelerated unit expansion for 2023, where we've developed a robust pipeline now consisting of six to seven new restaurants focused on markets, where our concept has proven with high Avs and brand awareness. This includes our Fayetteville.
Arkansas, a restaurant, which is slated to open in late February early March with that I'll now turn the call over to our CFO , Jon Howie to discuss our fourth quarter results in greater detail.
Thanks, Steve and revenues for the fourth quarter increased five 5% to $104 1 million compared to $98 7 million in the same quarter last year the.
The increase was primarily related to improvement in our comparable restaurant sales as well as an additional 22 operating weeks from new restaurants opened subsequent to the fourth quarter of 2021 in total we had approximately 269 operating weeks during the fourth quarter of 2022 and off premise sales were approximately <unk> <unk>.
9% of total revenue comparable restaurant sales in the fourth quarter increased three 4% versus last year, primarily driven by a six 1% increase in average check partially offset by a two 7% decrease in average weekly customers effective pricing during the quarter was just shy of 7% compared to.
2019 comparable restaurant sales increased three 1%.
Turning to expenses cost of sales as a percentage of revenue increased 170 basis points to 27, 5% driven by an increase in the cost of beef and chicken as well as fresh produce cheese and grocery items overall commodity inflation during the quarter was in line with our expectations at approximately 15.
<unk> and partially offset by menu price taken during the year.
Based on the current market condition. We are currently expecting commodity inflation of mid single digits for fiscal 2023 with high single digits for the first quarter labor cost as a percentage of revenue increased approximately 140 basis points to 35% primarily due to hourly labor inflation of approximately 9%.
Our comparable restaurants as well as an improvement in our hourly staffing levels as compared to last year. This was partially offset by menu price increase taken during the year. We are currently expecting hourly labor rate inflation.
Inflation of mid single digits for fiscal 2023 with a high single digit inflation for the first quarter. In addition to a continuation of the year over year staffing level increases.
Operating costs as a percentage of revenue increased 120 basis points to 16, 6% due to higher delivery charges and to go supplies as well as continued inflationary pressure on other operating expenses, including increase in utility cost restaurant repair and maintenance cost insurance premiums.
And credit card fees.
Marketing expenses as a percentage of revenue increased 40 basis points to one 4% as the company reinstated digital advertising nationwide.
Our occupancy cost as a percentage of revenue decreased 30 basis points to 7%.
As a result of sales leverage on fixed occupancy costs.
Administrative expenses increased $66 5 million in the fourth quarter from $6 1 million in the same period last year, driven by higher management salaries as well as an increase in public company and travel cost as a percentage of revenue G&A held steady at six 2% in summary, net income for the fourth quarter of 2022.
<unk> was $2 5 million or 14 cents per diluted share compared to $6 million or <unk> 30 per diluted share in the same period last year. During the fourth quarter of 2022, we incurred $3 2 million or <unk> 14 per diluted share.
An impairment closed restaurants, and other costs compared to $2 5 million or 10% per diluted share in the same period last year the.
The increase was primarily related to a noncash loss on long lived assets.
Jordan retro, partially offset by a reduction in rent paid on previously closed restaurants, taking that into account adjusted net income for the fourth quarter of 2022 was $5 million or 27 cents per diluted share compared to $7 9 million or <unk> 40.
Per diluted share in the same period last year, moving to our liquidity and balance sheet as of the end of the quarter we.
We had $78 million in cash and cash equivalents no debt at $35 million of availability from our credit facility as we mentioned on our last call. During the fourth quarter of 2022, we purchased approximately 327000 shares of our common stock for a total of $7 8 million and completed our existing $50 million repurchase.
Program in conjunction with that the board has also approved a new share repurchase program effective October 27, 2022 within the authorization to repurchase another $50 million of our common shares as of December 25, 2022, the company had $50 million remaining under that new program.
We believe this further demonstrates the strength of our financial position and our ongoing commitment to long term shareholder value turning to our 2023 outlook. We are currently expecting adjusted EPS of $1 60 to $1 65 per share which includes an estimated eight to 10.
Per share positive impact to the fourth quarter of 2023 containing 14 weeks versus the normal 13 weeks in fiscal 2022. This is based in part on the following annual assumptions.
<unk> expenses of 28 to 29 million six to seven new restaurants.
Net capital expenditures of approximately $35 million to $39 million restaurant pre.
Pre opening expenses of approximately two $5 million to $3 million effective annual rate of effective annual tax rate of approximately 13%.
And annual weighted diluted shares outstanding of 18, 1% to $18 2 million shares with that I'll turn the call back over to Steve.
John We believe our business fundamentals remained strong this combined with our focus on four wall operational excellence have positioned our company to capitalize on our positive momentum and the vast opportunities ahead of us together with our disciplined capital allocation and accelerated unit growth plan, we believe will put <unk> on a path to Maxim.
Shareholder value in 'twenty, three and beyond.
That we are happy to answer any questions. Operator, please open the line for questions.
Thank you.
We will now be conducting a question and answer session if.
If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the Q4.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
We have our first question from the line of Mary Hodes with Baird. Please go ahead.
Good afternoon, and thanks for taking the question first of all you can be willing to share a specific update on telecom search track to date in Q1, it seemed like the broader industry indicators have improved in your prepared remarks suggest that you may have experienced that as well, but wondering if you'd be willing to share a specific update on the quarter to date comp.
Well I think with everybody else I mean, we're rolling over the omicron. So yes, I mean in the first period.
We're up double digit just because we're rolling over that omicron, yeah in the second period, we ran over a little bit of weather. Although we did have a little weather, we ran over a much worse a year ago.
But they're coming back.
Yeah.
Yes.
And then would you also be line this year, what youre assuming for same store sales in the 2023 outlook that you provided.
Not at this time.
Isn't it would be and it would be in the low single digits.
Low to mid single digits.
Thank you.
Then based on the expected cost inflation you laid out in the mid single digits and pricing I guess, how are you thinking about restaurant margins, how that shapes up in 2023 at that level.
Comp I think.
You'd previously talked about returning to delivering that 300 to 350 basis points in the second half of the year does that still look like it could be possible.
In the second half of the year, Yes, I mean, we're looking at inflation like we said in our remarks.
Especially in cost of sales and also labor.
Up into the high single digits in that to kind of toned down in the back half of the year. So we're looking at labor and.
Cost of sales and kind of that mid single digit.
So given kind of what we're talking about the price increase we're looking at margins that are flat to down if we can get a little higher sales, we could see some leverage.
Okay, Great. That's helpful. Thank you.
Okay.
Thank you again, if you wish to ask a question. Please press star followed by one on you touched on for now.
We have a next question from the line of Chris I'll call with Stifel. Please go ahead.
Hi, This is <unk> on for Chris Thanks for taking the question.
Just had a quick question.
It looks like lowered the top end of your unit add guidance for 2023.
Could you just give us some color on what drove that decision and what shape do you expect the openings to take throughout the year.
And I think over the last two quarters, we've always said in that six plus a category and we always said, we're very comfortable on the low end of that range in that six to seven range taken a look at what we've dealt with with the supply chain and permitting in time spent just waiting for things to get there and specifically.
The increase in construction costs in that 20% to 25% range. We thought it was prudent to push some of them back although as you look at some of the openings. This year youll see a pretty balanced attack and throughout the year of our openings quarter to quarter, so there'll be pretty evenly done, but mostly it's just.
The permitting the supply chain and honestly that the actual cost that we do expect to see some relief in the second half of the year.
Okay.
Understood. Thank you and another.
Another question is.
I appreciate the guidance on kind of your commodity inflation outlook could you let us know.
What specific commodities, you're kind of contemplating when it comes to potentially taking pricing or anything outside of commodities that might drive your decision making there.
Well right now as we mentioned in our script and so forth that we've already taken our about around three approximately three 5% price at the beginning of our set compare to the year right now contemplating that being our price increase for the year unless something goes.
Crazy throughout the rest of the year, which we don't anticipate at this particular time.
Got it. Thank you so much youre welcome.
Thank you participants if you wish to ask a question. Please press star followed by one on your Touchtone phone now.
Yeah.
As there are no further questions from the participants at this time I'd like to turn the floor back over to Steve Hislop CEO for closing comments, how would you say.
Thank you. Thank you so much John I. Appreciate your continued interest in <unk> and are available to answer any and all questions and again, thank you and have a good evening.
Thank you ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your thoughts.
[music].