Chuy's Holdings, Inc. (CHUY) Q4 2023 Earnings Call Transcript
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Overview
The earnings call reveals several concerns: declining comparable restaurant sales, increased labor and operating costs, and lower earnings guidance for 2024. Despite positive net income growth and share repurchases, the absence of the 53rd week, rising development costs, and unclear management responses on addressing traffic decline weigh negatively. The company's strategy does not sufficiently offset these challenges, leading to a negative sentiment.
Key Financial Performance
Revenue $116.3 million (up 11.8% year-over-year from $104.1 million), driven by an extra operating week contributing about $8.7 million and growth in comparable restaurant sales.
Comparable Restaurant Sales Increased 0.3% on a 13-week comparable basis, driven by a 3.4% increase in average check, partially offset by a 3.1% decrease in average weekly customers.
Restaurant-Level Margins Expanded by 200 basis points to over 20%, representing the best result in over a decade, driven by effective execution on four-wall operations.
Net Income $5.5 million or $0.31 per diluted share (up from $2.5 million or $0.14 per diluted share), with adjusted net income at $7.9 million or $0.45 per diluted share (up from $5 million or $0.27 per diluted share).
Cost of Sales as a Percentage of Revenue Decreased 240 basis points to 25.1%, driven by overall commodity deflation of approximately 8% and leverage on menu prices.
Labor Cost as a Percentage of Revenue Increased 30 basis points to 30.8%, primarily due to hourly labor inflation of approximately 4% and incremental improvement in staffing levels.
General and Administrative Expenses Increased to $8.1 million from $6.5 million, with G&A as a percentage of revenue rising to 6.9% from 6.2%, driven by higher performance-based bonuses and management salaries.
Cash and Cash Equivalents $67.8 million, with no debt outstanding and $25 million available under the revolving credit facility.
Share Repurchases Purchased 167,535 shares for approximately $5.9 million in the quarter, totaling 789,963 shares for approximately $28.9 million for the full year.
Operating Highlights
New Menu Items: Introduced Shrimp & Crab Enchiladas with Lobster Bisque sauce, Macho Nachos, and Cheesy Pig Burrito as part of the CKO platform.
Permanent Menu Additions: Reintroduced the Appetizer Plate and added Burrito Bowls to the permanent menu.
New Restaurant Openings: Opened one new restaurant in Terrell, Texas, bringing total to 101, with plans for 6-8 new restaurants in 2024.
Restaurant-Level Margins: Achieved a 200 basis point expansion of restaurant-level margins to over 20%, the best result in over a decade.
Off-Premise Sales Performance: Off-premise sales accounted for approximately 31% of total revenue, with catering at 4.8%.
Marketing Initiatives: Emphasizing digital media and optimizing campaigns through platforms like Google, TikTok, Instagram, and promotional advertising with DoorDash and Uber.
Risk or Challenges
Weather Issues: Weather issues across the country have impacted the restaurant industry in January, posing a challenge to sales and operations.
Labor Inflation: Hourly labor inflation of approximately 4% at comparable restaurants is expected to continue, with projections of mid-single digits for fiscal 2024, increasing operational costs.
Commodity Inflation: While commodity deflation was noted in the previous quarter, there is an expectation of low-single digit commodity inflation for 2024, which could affect cost management.
General and Administrative Expenses: General and administrative expenses increased due to higher performance-based bonuses and management salaries, which could impact profitability.
Impairment Costs: The company incurred $3.1 million in impairment, closed restaurants, and other costs, indicating potential risks in maintaining operational efficiency.
Economic Factors: The overall economic environment and consumer spending patterns could pose risks to future sales and profitability.
Guidance & Outlook
Revenue Growth: Chuy's achieved a revenue growth of 9.3% in 2023, driven by comparable restaurant sales of approximately 3.3%.
Restaurant-Level Margins: Restaurant-level margins expanded by 200 basis points to over 20%, marking the best result in over a decade.
Share Repurchases: Returned approximately $28.9 million to shareholders through share repurchases.
Menu Innovation: Introduced new menu items including Shrimp & Crab Enchiladas and Burrito Bowls, which have been well received.
Off-Premise Sales: Off-premise sales accounted for approximately 31% of total revenue, with catering contributing around 4.8%.
Marketing Initiatives: Emphasis on digital media marketing through platforms like Google, TikTok, Instagram, and promotional advertising with DoorDash and Uber.
Development Plan: Opened one new restaurant in Q4 2023, with plans to open 6-8 new restaurants in 2024.
2024 Adjusted EPS: Expecting adjusted EPS of $1.82 to $1.87 for 2024.
G&A Expenses: Projected G&A expenses of $30 million to $31 million.
New Restaurants: Plan to open 6-8 new restaurants in 2024.
Net Capital Expenditures: Estimated net capital expenditures of approximately $41 million to $46 million.
Restaurant Preopening Expenses: Anticipated preopening expenses of approximately $2.7 million to $3.2 million.
Effective Annual Tax Rate: Expected effective annual tax rate of approximately 13% to 14%.
Weighted Diluted Shares Outstanding: Projected annual weighted diluted shares outstanding of about 17.4 million.
Shareholder Return Plan
Share Repurchases: Chuy's returned approximately $28.9 million to shareholders through share repurchases in 2023, purchasing a total of 789,963 shares of common stock. In Q4 2023 alone, 167,535 shares were repurchased for about $5.9 million. As of December 31, 2023, there is $21.1 million remaining under the $50 million repurchase program, which expires on December 31, 2024.
Key Q&A
Earnings Word Cloud
CHUY Transcript
The earnings call reveals several concerns: declining comparable restaurant sales, increased labor and operating costs, and lower earnings guidance for 2024. Despite positive net income growth and share repurchases, the absence of the 53rd week, rising development costs, and unclear management responses on addressing traffic decline weigh negatively. The company's strategy does not sufficiently offset these challenges, leading to a negative sentiment.
CHUY Report
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