Q3 2023 Chuy's Holdings Inc Earnings Call
Okay.
Good day, everyone and welcome to the <unk> Holdings first quarter of 2023 earnings Conference call.
Today's call is being recorded.
At this time, all participants have been placed in listen only mode and the lines will be open for questions. Following the prepared remarks.
On todays call, we have Steve Hislop, President and Chief Executive Officer.
And John Hobby, Vice President and Chief Financial Officer of <unk>, hopefully see incorporated.
At this time I'll turn the call.
Please go ahead Sir.
Thank you operator, and good afternoon by now everyone should have access to our third quarter 2023 earnings release, if not it can be found on 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 discussion 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. Looking ahead, we plan to release, our fourth quarter 2023 earnings on Thursday February 22024, after market close with that all the way I'd like to.
Turn the call over to <unk>, President and CEO, Steve Hislop.
Thank you John Good afternoon, everyone and thank you for joining us on our call today.
We're pleased with our solid performance during the third quarter highlighted by revenue growth of over 6% and comparable sales increase of 2%, including positive comp growth across all periods equally important our ability to maintain a strong value gap relative to our peers has a lot of our traffic performance to exceed.
The broader casual dining peers as we continue to gain share.
We also drove improved profitability with a 17.6% increase in restaurant level profit dollars in it.
And the St leading restaurant level margin of 19 point for.
Percent, representing a 190 basis point improvement over last year. This result, further demonstrates our team's ability to effectively and efficiently execute our four wall operations we.
We are proud of what our team was able to accomplish during the quarter as we look towards the end of the year. We will continue to make progress on the various initiatives, we have put in place to drive sustainable topline growth and profitability.
With that let me update you on our growth drivers our team's focus on menu innovation has allowed us to generate one of our most successful choose knockouts are C. K O campaigns during the quarter with items like hatch Green Chili Burger steak Burrito Bowl and chicken Tanga, Antral, itis, clearly resonating with our guests and driving incremental.
Traffic to our restaurants to build upon this momentum and keep our offerings top of mind, we are adding a slight twist to our next TK Oh offering in late October we introduced our first barbell approach to the CK all platform with braised short ribs, and they're higher priced CK, all menu item along with stuffed avocado and.
Elvis Presley Memorial combo offering we are encouraged by the early feedback thus far.
We are also pleased with the continued strength of our off premise channel during the quarter mixed sitting at approximately 28% of total sales as compared to 26% last year similar to last quarter. We enjoyed another solid performance from our from the delivery channel, which was mixing at an approximate 11.4% about.
Third quarter sales, a 300 basis point increase versus last year catering also performed well with mixing increases 80 basis points year over year to three 3% of total sales.
To further capitalize on the catering opportunities ahead, we recently partnered with easy cater and are currently in the process of rolling out the platform to all of our restaurants. We continue to believe our off premise channel will remain at least in the mid twenties of our sales with catering catering contributed approximately four to six of total sales long term.
Turning to marketing initiatives, we continue to optimize our digital media campaign, using Google Tictoc, Instagram and Facebook, including organic Influencer content Youtube video advertising and promotional advertising with door Dash and Uber ultimately we believe this approach to marketing.
Yields the best results in our effort to effectively communicate our defining differences.
Our incredible value our made from scratch food and drink to the exciting CK offerings and overall differentiated experience at every chili's restaurants.
Finally, I would like to provide an update to our development plan during the third quarter. We successfully opened our third restaurant of the year and Harker Heights, Texas, bringing our total restaurant count to a 100. We are also on track to open one additional new restaurant in December for a total of four openings for fiscal 2023 due.
Due to continued construction and inspection delays are new Brownsville, Texas restaurant originally expected to open towards the end of December well now open in late January as we look forward to fiscal 2024, we were initially expecting to open six to eight new restaurants with a focus on markets, where our concept has proven with higher <unk>.
And brand awareness the delay of our new Brazos opening will likely move our development target to the higher end of this range. Overall, we're very pleased with the performance of our recent openings and remain excited about our organic growth opportunities ahead for the brand with that I'll now turn the call over to our CFO Jon Howie.
Our third quarter results in greater detail.
Thanks, Steve revenues for the third quarter increased six 4% to $113 5 million compared to $106 7 million in the same quarter last year. The increase was primarily related to the growth of our comparable restaurant sales as well as an additional 65 operating weeks from new restaurants opened.
Went to the third quarter of 2022 in total we had approximately 1300 operating weeks during the third quarter of 2023 and off premise sales were approximately 28% of total revenue as compared to 26% a year ago comparable restaurant sales in the third quarter increased 2% versus the <unk>.
Last year, primarily driven by a three 8% increase in average check partially offset by one 8% decrease in average weekly customers effective pricing during the quarter was approximately three 5% we expect to carry about the same amount of pricing for the remainder of the year.
Turning to expenses cost of sales as a percentage of revenue decreased 220 basis points to 25, 1%.
Driven by overall commodity deflation of approximately 5% as compared to last year as well as leverage on menu price taken subsequent to the third quarter of last year based on the current market conditions. We now expect a low single digit commodity deflation for the fourth quarter as well.
As the fiscal year labor costs.
As a percentage of revenue held steady during the quarter at 34%, primarily due to hourly labor inflation of approximately 5% at comparable restaurants, which was offset by menu price increase taken subsequent to the third quarter of last year. We continue to expect elevated labor inflation of mid single digits for the fiscal year.
And the fourth quarter operating cost as a percentage of revenue increased 50 basis points to 16, 8% driven by higher delivery service charges from an increase in delivery sales and increase in restaurant repair and maintenance costs and higher insurance premiums, partially offset by lower utility cost.
<unk> as compared to last year.
General and administrative expenses increased seven 9 million.
<unk> $7 9 million in the third quarter from $6 7 million in the same period last year, driven mainly by higher performance based bonuses.
As a percentage of revenue G&A increased to six 9% from six 3% during the same period last year in summary, net income for the third quarter of 2023 increased $2 1 million or 41, 8% to $7 1 million or <unk> 39 per diluted share.
Compared to 5 million or <unk> 27 per diluted share in the same period last year. During the third quarter of 2023, we incurred 1 million or <unk> <unk> per diluted share and impairment closed restaurant and other costs compared to $1 2 million or <unk> <unk> per diluted share in the same period last year the decrease.
It's primarily related to a reduction in rent paid on previously closed restaurants, taking that into account adjusted net income for the third quarter of 2023 increased $2 million or 33% to $7 9 million or <unk> 44 per diluted share compared to $5 nine.
<unk> 31 per diluted share in the same period last year.
Moving to our liquidity and balance sheet as of the end of the corridor, we had $69 $9 million in cash and cash equivalents, no debt outstanding and $35 million available under our revolving credit facility.
Also purchased 538907 shares of our common stock during the quarter for a total of $20 million.
And year to date, we purchased 622428 shares of our common stock for a total of approximately $23 million.
As of the end of the quarter, we had $27 million remaining under our $50 million repurchase program, which will expire on December 30, 31 2024.
Finally, let me provide an update on our outlook for 2023, we are now expecting adjusted EPS.
<unk> 85 to $1 95 to.
To $1 90 per share again, $1 85 to $1 90 per share, which includes an estimated $8 10 per share positive impact due to the fourth quarter of 2023 containing 14 weeks versus 13 weeks in fiscal 2022.
This is based in part on the following annual assumptions.
G&A expense of $30 million to $31 million.
Four new restaurants, net capital expenditures of approximately $35 million to $37 million.
Restaurant Preopening expenses of approximately two to $2 3 million effective annual tax rate of approximately 13% to 14%.
And annual weighted diluted shares outstanding of $17 $9 million to $18 million with that I will turn the call back over to Steve.
Thanks, John overall, we believe our business fundamentals remain strong our team morale remains eager and energized to provide our guests with a unique chili's experience. They have come to expect when they visit one of our restaurants with our continued focus on four wall operational excellence disciplined capital allocation and solid pipeline of unit.
Growth, we have put <unk> on a path to maximize long term value for our shareholders with that we're happy to answer any questions. Operator, Please open the lines for questions.
Thank you, Sir ladies and gentlemen, we will now be conducting the question and answer session.
Hey, Good luck helps a question. Please press Star then one on your telephone keypad.
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After this question comes from Chris Combe of Keith.
Please go ahead.
Oh.
No.
Yeah.
Yes.
Chris Your line is open you can ask your question.
Oh, sorry.
Yeah.
I had the mute button on.
Yes, My question relates to traffic performance traffic's been negative the past couple of quarters and.
The rate of check growth has started to slow. So I'm just curious what do you think needs to happen to reverse that traffic decline.
I mean are there specific company initiatives that can deliberately gains or is it going to require just a better consumer spending environment.
Well great question, Chris as we're looking at right now we feel pretty good about where we're going with our food initiatives. We definitely have seen incremental bumps during our CK hours of roughly 100 to 101 to one 5%.
We need to stay the course on that and then the rest of it is really just operating with excellence and stay inside our four walls.
And just continue to execute out there.
And Thats, what our main main focus on is really kind of keeping our heads down but again I think we have the proper amount of <unk> and the proper amount of really getting our messages out about our defining differences and I think we will continue to stay that course.
Okay. That's that's helpful. And then John I had a question about labor costs and labor costs as a percentage of sales were flat year over year, but if you look at the cost per operating week. It was only up.
I guess at a lower rate than the wage inflation. So has the company made any improvements or changes to the labor management system or are there anything that you guys are doing to try to keep labor cost tight.
No I mean, we're doing more of the same.
Do have great transparency into kind of the.
The hours that are spent and the hours per entree that or spend per store.
We continue to look at that and manage that.
We've.
And the other thing too.
Is that we're doing a better job in overtime decreasing overtime, which has helped.
Dramatically.
And kind of the overall.
Inflation of labor as well.
Do you think there's a lot left in terms of reducing overtime.
A little bit, but not much I think we've taken a lot out of that as we've gotten fully staffed.
So I think.
We're probably I mean, we're pretty happy where we are.
There are some efficiencies that I think will gain as sales grow but I think we're pretty happy where we are.
Okay, great. Thanks, guys. Thanks.
Thanks, Chris.
The next question comes from Todd Brooks of Benchmark Company. Please go ahead.
Hey, good evening, thanks for taking my questions.
First I wanted to lead off on.
If you look at the last couple of classes and I know, where we're kind of legging back into a more normalized unit growth cadence, but can you look back on maybe the last couple of years of openings and talk through how those stores have.
Produce relative to corporate average just soon as we can kind of have an idea of the productivity with the strategy of filling in kind of chewy intense awareness markets.
Yeah, Todd Great question and.
Performing better than our expectations or at least at or better than our expectations and those expectations were a little better considering that we are in five of our states, where the <unk> are better than the company average. So we've been very pleased with this strategy and it's coming to fruition and we will continue this stat.
<unk> for the near future definitely next three to four years.
Okay, Great that's helpful. Thanks.
Second question I had.
John is there any view on kind of contracting items I know.
Deflation has been a benefit here and that's still looking.
Like a contributor in Q4 for you, but as you start to look to 'twenty four.
What's the what's kind of the contracting window and how is that looking out there for for items that you can pick some pricing.
Yes, we continue to strive to contract about 40% to 45% of our total commodity basket right now the biggest driver I think on most inflationary commodity baskets out there is beef we're contracted through the first quarter and a little past that at pricing.
A little more than what we're paying now but not extravagant. So we're very pleased with that so overall from a commodity standpoint, it's really too early to tell but I think it's going to be more normalized inflation next year with obviously the inflation in the beef cost and offset by some other things.
Great and then last one for me and I'll jump back in queue. Thanks.
Thanks for the updated guidance just trying to get a sense. The dollars 85 to $1 90 guidance whats kind of imply for either same store sales assumption or traffic assumptions.
In the fourth quarter for shoes.
Well I mean, given the uncertainty environment out there of what's going on and we have some.
Some some bigger match ups, if you will in the fourth quarter, because we are rolling over the implementation of Uber.
In the fourth quarter, which that was.
Approximately two to 300 basis points as we spelled out in our release there. So that's going to be a higher match up going forward in the fourth quarter.
<unk>.
I think the sales will remain solid from here, but from on a comp basis, it'll be a little flattish to up.
Okay perfect. Thanks, Sean.
Our next question comes from Brian Vaccaro of Raymond James. Please go ahead.
Hi, Good evening guys could you just go back to the sales could you provide a little more perspective on the cadence you saw through the quarter and any update you can provide on what you're seeing quarter to date.
Sure. So the quarter was it started out at.
About two to three in front of me.
It was.
2%.
Two.
I'm sorry, Steve Alright that July was $2 three August was around $3, one and September was about eight yes as far as our sales cadence throughout the quarter.
And what we're seeing here in October is flattish to slightly down in October.
And overall comp.
And a key part of that as John just mentioned was rolling over the 300 basis point improvement on DSP that we mentioned in our delivery partners.
Yes, great. Okay. Thank you for that.
And Steve just thinking about the pipeline in 2004 I am curious what you expect the average build out cost to be and how that might compare to 2023 and John maybe you could talk to us.
The real estate strategy that Youre on the client can you just remind us how that's impacting your <unk>.
<unk> and into 'twenty four.
Once you go over the real estate strategy, yes, so right now obviously as you know the build out cost is probably.
40% higher than it was prior to the pandemic now we're also doing.
Development work of the site land work versus getting the site delivered a curbs in like we were prior to the pandemic. So thats added some cost as well so youre looking at an overall cost and probably that.
Three $5 million to $4 million range.
What we are doing to combat. This is given that our cash situation gives us a little flexibility in our real estate is buying a lot of our properties. Since we've got to do the land development anyway buying a property is doing the land and development and then.
In the future.
The cap rates come back down and doing a sales lease back to recapture some of that cost and increase the overall over a high ROI and get it to those cash on cash returns that were looking at.
30%.
Okay.
Okay, that's great and can you remind us how many pieces of land do you currently own.
I think it's right around five to 10 currently yeah, yeah, Okay and about half I think about half of what we are opening in 'twenty for our purposes, yes.
Okay perfect. Thank you and then just last one for me if I may.
Sorry did you have a comment.
No go ahead, okay, great just on labor costs.
Kind of big picture and a little bit.
For most of the post pandemic period, you have been thinking that that would get into the low 30 as say the low say, 32% or so range and I guess the question is are we now at the point in late 2023, where this level in the 30% 31 range might be the new normal or are there still a level of hours or investment.
You need to make in that line. Thank you.
I appreciate you know going into our lowest indexing quarter as the fourth so we probably are in that 31 plus range is what our objective probably would be.
Yes.
Thanks.
Yes, 31, 31, and a half right in there.
Okay.
Yes.
Thank you. Our next question comes from Nick <unk> of <unk>.
<unk> Securities. Please go ahead.
Think about comp drivers going forward.
Can you just maybe new memory and then you've got the comp drivers for Nebraska Q4.
24, you lap that.
Rollout.
Okay.
Yes, I would say the two main drivers are obviously.
Catering catering is as Ben and exceeded our expectations kind of each quarter on quarter. So we did close to 4% last year in catering I think we will surpass that this year in the fourth quarter and then also our <unk> continue to drive incremental growth those are the two main factors.
As well as as we're upping our advertising spend in the fourth quarter as well along also with a great time of really getting into the gift card season, obviously through the holiday.
Okay.
What generic mark great to be in Q4.
On the year I will break down into about a one 4%.
For the whole year, but I added about 300 Grand ended at $1 four for the third for the fourth quarter.
So we've seen an uptick in marketing.
As a percent of apparel.
I'm, sorry, Nick you're kind of breaking up a little but can you say it again.
Can we see an uptick in sales as a percentage of.
Marketing as a percentage of sales next year as well.
No no I mean, we're still going to budget that right around that one and a half.
Okay.
Thanks very much.
Thanks, Nick.
Our next question comes from Tyler <unk> of Stephens. Please go ahead.
Hey, Thanks for taking my question today.
So some of your peers. During this earnings season that called out it returned to normalized seasonality and spending patterns, reflecting maybe a similar cadence to that pre COVID-19 I would love to get your thoughts on industry trends and how that might relate to what youre seeing in our restaurant level by income cohort as far as trade down or mixed management.
Okay.
Right now I'd say for us our first normalized quarter. We felt was the same time last year.
That's why when we felt we were starting to get back to some normalized and as throughout this year. It is it was very similar to the cadences that we saw in pre Covid days, yes.
It didn't get somewhat normal until the fourth quarter of 2022.
Yes.
Very helpful. I appreciate that.
As far as the G&A guidance, how should we think about that going into fiscal year 'twenty four.
Sure probably more <unk>.
Right now its got a little more performance based bonus on that what we normally try to do from a G&A perspective, as we basically budget target bonus and we look at G&A as kind of flat to the next year, just adding on about 80% of our store growth.
So you can look at maybe adding about 5% onto the G&A for next year How's.
However, with with the target bonus.
The extra bonus on there, it's probably going to be flat with what it is this year.
Next year. So you can kind of use the cadence that you're seeing on a quarterly basis for G&A next year.
Great with that.
And just one last one here if I can sneak it in.
So I appreciate the G&A guide sorry, as far as DNA, how should we think about that for the fourth quarter in fiscal year 'twenty four.
As far as from a percentage standpoint or.
Yes.
Christina.
A DNA I mean, I would take it I mean, just trended as it's trending.
Percentage basis.
Great. That's all for me today. Thank you alright. Thanks. Thank you.
Yes.
Thank you ladies and gentlemen, just a reminder, you can answer the question you're welcome to press Star and then one to place yourself in the question queue.
Our next question comes from Juno of bid.
Please go ahead.
Thanks for taking the question. My first one is just on Q4 margins is there any way to contextualize the level of restaurant margin improvement you expect in Q4, it sounds as though commodity cost or the cost of sales line should remain very favorable again, providing a nice tailwind. So I guess is it right to think we could see a similar less.
Will have margin expansion year over year as we saw in Q3 or any other puts and takes you could should consider as it relates to the fourth quarter.
Great question and thanks.
Thanks for the question, Yes, I think youre not going to see it's going to be more like probably the first quarter.
Because we're going to see a little higher.
Labor in the fourth quarter, that's going to offset that favorability in the cost of sales.
As well as higher.
Operating cost and so the way we're looking at it it may be kind of flat to last year's margin.
However, adding on to that about 60 to 100 basis points relative to the extra weeks.
Sure.
Weighting that we get on that extra week as far as the the.
The 50 <unk> week, the 50 <unk> week on the weighted sales on the fixed expenses, we get an extra 70 to 100 basis points. So youre looking at.
Probably 70 to 100 basis points better than last year.
Okay.
That's very helpful. And then one looking ahead to 2024, I guess with signs it's still relatively modest total inflation here in the fourth quarter I guess, how should we start to think about the inflation backdrop for 2024 for commodities and labor based on what Youre seeing out there today, maybe if you could provide some context.
Our guard rails on commodity inflation and labor inflation for 2024, and how that is informing your view on taking price next year as you cycle that the increase in February.
Sure, it's still way too early to tell so I mean.
But what I said earlier was that we think next year is going to be a more normalized inflation year from a commodities perspective, I don't see labor changing much from this year, so probably in that mid single digits next.
Next year inflation, so that's kind of what we're seeing today, but again.
It's really too early and we will give you more input on that when we release, our fourth quarter numbers, but you won't see us probably get back to our historical before Covid type of price increases with that information. John just gave you and that 2.5% to 3% range and we usually do one price increase a year and it will be.
At the beginning of February when we do that so like I said.
At two 5% to 3% range.
Yeah.
Very helpful.
Okay.
Thank you. Our next question comes from Andrew Wolf of C. L. King. Please go ahead.
Hi, Good afternoon, I just wanted to ask on the development side very generalized kind of question on.
You know you kind of your confidence.
Thank you can you know effectively double new restaurants.
Given.
It's been such a frustrating environment.
I know I know you have a different plant longer term, but you know just sort of in terms of <unk>.
Jack in the boxes on permitting and making sure equipments around and contractor show up.
The nitty gritty of actually getting that the building open.
Yeah frustrating, it's been frustrating this year, though our pipeline is.
Really really strong for the next few years, we've worked really hard on it this year and we're further down the road then we feel real comfortable on that.
Six to eight that I mentioned and with new Boswell moving back a little bit.
Like I said I think the high end of that range looks pretty comfortable to talk about so that's what we did so again I think we're down the road and a lot of these so we feel pretty we feel good about the six to eight and getting back into that 25, we still feel good about getting back to that 10% percent and solid growth in 'twenty five.
Sure.
Okay and my other thing because this is a follow up on the <unk>.
So I guess I'd fully lapped in October and partially in September.
It was basically week 41, so just slightly after quarter end in Q3.
Okay.
So if that is going on flat and the business as if the business is flat versus an exit rate of about two.
That means the though.
I'm doing my math right like the 88% of the business, it's not delivered.
Is actually.
Improving sequentially a little bit.
Like in store dining or something is actually at a slightly.
We're seeing a little we're seeing a little bit improvement on that we also that fourth quarter for the industry.
Yes.
Okay, I'm, just trying to make sure I.
You can understand that okay. Yeah, you are right.
And something else.
No that's fine.
Okay.
Okay. That's it for me thank you.
Thanks, Andrew.
Thank you ladies and gentlemen, we have reached the end of today's question and answer session.
I would now like to turn the call back over to Mr. Steve Zhang.
Thank you Raimo.
Thank you so much John and I. Appreciate your continued interest in <unk> and are available to answer any and all questions again, Thank you and have a good evening.
Thank you, ladies and gentlemen that concludes todays event.
Thank you for attending and you may now disconnect your lines.
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