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Chuy's Holdings, Inc. Announces Fourth Quarter and Fiscal Year 2017 Financial Results

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Chuy's Holdings, Inc. (NASDAQ:CHUY) today announced financial results
for the 14-week and 53-week periods ended December 31, 2017.

Highlights for the 14-week fourth quarter ended December 31,
2017, compared to the 13-week fourth quarter ended December 25, 2016
were as follows
:

  • Revenue increased 21.5% to $96.0 million from $79.1 million in the
    fourth quarter of 2016. The extra operating week in fiscal 2017
    contributed approximately $7.3 million in revenue.
  • Comparable restaurant sales increased 1.3% as compared to the same
    period in 2016 (13 weeks vs. 13 weeks).
  • GAAP net income was $15.9 million, or $0.93 per diluted share,
    compared to GAAP net income of $2.3 million, or $0.14 per diluted
    share, in the fourth quarter of 2016. Fourth quarter 2017 results
    included a gain on insurance settlements of $1.4 million pre-tax and
    fourth quarter 2016 results included closure costs of $1.1 million
    pre-tax related to one closed restaurant.
  • H.R.1, commonly referred to as The Tax Cuts and Jobs Act of 2017 ("Tax
    Act"), positively impacted GAAP net income by $11.7 million or $0.69
    per diluted share for the revaluation of our net deferred tax balance.
  • Adjusted net income(1) increased 2.0% to $3.2 million, or
    $0.19 per diluted share compared to $3.1 million, or $0.18 per diluted
    share in the same period in 2016. Fourth quarter 2017 adjusted net
    income was negatively impacted by approximately $0.01 per diluted
    share as a result of the temporary closure of one restaurant due to
    damage from Hurricane Harvey.
  • Restaurant-level operating profit(1) increased to $15.2
    million or 15.0% from $13.2 million in the fourth quarter of 2016.
  • Four new restaurants opened during the fourth quarter of 2017.
    Additionally, we reopened a restaurant temporarily closed due to
    Hurricane Harvey.

Highlights for the 53-week fiscal year ended December 31,
2017, compared to the 52-week fiscal year ended December 25, 2016 were
as follows
:

  • Revenue increased 11.8% to $369.6 million from $330.6 million in the
    2016 fiscal year. The extra operating week in fiscal 2017 contributed
    approximately $7.3 million in revenue.
  • Comparable restaurant sales decreased 0.7% as compared to the same
    period in 2016 (52 weeks vs. 52 weeks).
  • GAAP net income was $29.0 million, or $1.70 per diluted share,
    compared to $17.2 million, or $1.02 per diluted share during the
    fiscal year 2016. Fiscal year 2017 results included a gain on
    insurance settlements of $1.4 million pre-tax and fiscal year 2016
    results included closure costs of $1.5 million pre-tax related to one
    closed restaurant.
  • The Tax Act positively impacted GAAP net income by $11.7 million or
    $0.69 per diluted share for the revaluation of our net deferred tax
    balance.
  • Adjusted net income(1) decreased to $16.3 million, or $0.96
    per diluted share compared to $18.3 million, or $1.08 per diluted
    share during the fiscal year 2016. Fiscal year 2017 adjusted net
    income was negatively impacted by approximately $0.04 per diluted
    share as a result of the temporary closure of one restaurant due to
    damage from Hurricane Harvey.
  • Restaurant-level operating profit(1) increased to $64.6
    million or 1.2% from $63.8 million during the 2016 fiscal year.
  • A total of eleven new restaurants opened during 2017.

(1) Adjusted net income and restaurant-level operating profit
are non-GAAP measures. For reconciliations of adjusted net income and
restaurant-level operating profit to the most directly comparable GAAP
measure see the accompanying financial tables. For a discussion of why
we consider them useful, see "Non-GAAP Measures" below.

Steve Hislop, President and Chief Executive Officer of Chuy's Holdings,
Inc. commented, "Our fourth quarter results were highlighted by
double-digit growth in revenue and a return to positive comparable
restaurant sales. Our focus remains on taking care of our customers by
offering exceptional service standards and delivering high-quality,
made-from-scratch food and drinks in a unique and upbeat atmosphere."

Hislop added, "We successfully opened 11 restaurants in 2017, increasing
our store base by 14%, and we remained excited with the long-term growth
prospect of the Chuy's brand. We expect to open 8 to 12 new restaurants
during 2018 with a blend of new and existing markets. With a healthy
development pipeline, a renewed focus in marketing to increase brand
awareness and our value messaging, and labor initiatives to improve our
labor management in the face of rising labor costs, we look forward to a
productive year."

Fourth Quarter 2017 Financial Results

Revenue increased 21.5% to $96.0 million in the fourth quarter of 2017
compared to $79.1 million in the fourth quarter of 2016. The Company's
fourth quarter of 2017 included 14 weeks compared 13 weeks in fiscal
year 2016. Revenue attributed to the extra operating week was $7.3
million. In addition to the extra operating week, the increase in
revenue was primarily driven by $22.0 million in incremental revenue
from an additional 276 operating weeks provided by 14 new restaurants
opened during and subsequent to the fourth quarter of 2016. This
increase was partially offset by a $0.7 million decrease in revenue
related to a temporary closure of one restaurant as a result of
Hurricane Harvey and our non-comparable restaurants that are not
included in the incremental revenue discussed above. Revenue for these
non-comparable restaurants is historically lower as the restaurants
transition out of the 'honeymoon' period that follows a restaurant's
initial opening.

Comparable restaurant sales increased 1.3% during the 13-week comparable
period ended December 24, 2017 as compared to the same period in 2016.
The increase in comparable sales was driven by a 1.6% increase in
average check, partially offset by a 0.3% decrease in average weekly
customer. Comparable restaurant sales were positively impacted by about
100 basis points as a result of an extra operating day in fiscal 2017
due to the Company's restaurant closing schedule on Christmas Day in
fiscal year 2016. This positive impact was partially offset by
unfavorable weather conditions and sporting events of approximately 40
basis points and strategic cannibalization of 45 basis points from two
Austin restaurants. The comparable restaurant base consisted of 70
restaurants during the fourth quarter of 2017.

Total restaurant operating costs as a percentage of revenue increased to
84.2% in the fourth quarter of 2017 from 83.3% in the fourth quarter of
2016. This increase was primarily driven by higher labor costs as a
percentage of revenue due to new store labor inefficiencies related to
two additional store openings in the current quarter as compared to last
year, hourly labor rate inflation and higher commodity and insurance
costs. The overall increase was partially offset by increased operating
leverage due to an extra week and an hourly health plan accrual
adjustment.

GAAP net income in the fourth quarter of 2017 increased to $15.9
million, or $0.93 per diluted share, compared to GAAP net income of $2.3
million, or $0.14 per diluted share in the fourth quarter of 2016. GAAP
net income for the fourth quarter of 2017 included approximately $0.07
per diluted share from the extra operating week.

During the fourth quarter of 2017, the Company recorded a non-recurring
favorable deferred tax balance revaluation adjustment of $11.7 million
and a $1.4 million gain on insurance settlements mainly related to
Hurricane Harvey. During the fourth quarter of 2016, the Company
incurred closure costs of $1.1 million pre-tax related to the closing of
one restaurant.

Adjusted net income increased 2.0% to $3.2 million, or $0.19 per diluted
share compared to $3.1 million, or $0.18 per diluted share in the same
period in 2016. Please see the reconciliation from GAAP net income to
adjusted net income in the accompanying financial tables.

Fiscal Year 2017 Financial Results

Revenue increased 11.8% to $369.6 million in fiscal 2017 compared to
$330.6 million in fiscal 2016. The Company's fiscal year 2017 included
53 weeks compared 52 weeks in fiscal year 2016. Revenue attributed to
the extra operating week was $7.3 million. In addition to the extra
operating week, the increase in revenue was primarily driven by $44.6
million in incremental revenue from an additional 567 operating weeks
provided by 23 new restaurants opened during and subsequent to fiscal
year 2016. This increase was partially offset by a decrease in our
comparable sales, a $1.9 million decrease during the second half of the
fiscal year as a result of Hurricanes Harvey and Irma as well as revenue
from our non-comparable restaurants that are not included in the
incremental revenue discussed above. Revenue related to non-comparable
restaurants is historically lower as the stores transition out of the
'honeymoon' period that follows a restaurant's initial opening. The
honeymoon period refers to the weeks following a restaurant's initial
opening, during which sales are typically higher than normal.

Comparable restaurant sales decreased 0.7% during the year for the
52-week comparable period ended December 24, 2017 as compared to the
same period in 2016. This decrease in comparable restaurant sales was
primarily driven by a 2.3% decrease in average weekly customer,
partially offset by a 1.6% increase in average weekly check. Comparable
restaurant sales were negatively impacted by unfavorable weather
conditions and sporting events of approximately 40 basis points and
strategic cannibalization of approximately 40 basis points from two
Austin restaurants. This decrease was partially offset by about 20 basis
points as a result of an extra operating day in fiscal 2017 due to the
Company's restaurant closing schedule on Christmas Day in fiscal year
2016.

Total restaurant operating costs as a percentage of revenue increased to
82.4% in fiscal 2017 from 80.7% in fiscal 2016. This increase was
primarily driven by higher labor costs as a percentage of revenue due to
new store labor inefficiencies driven by delayed openings, hourly labor
rate inflation, higher food costs, higher insurance and higher utilities
costs. This overall increase is partially offset by an hourly health
plan accrual adjustment and increased operating leverage due to an extra
week.

GAAP net income in fiscal 2017 increased to $29.0 million, or $1.70 per
diluted share, compared to GAAP net income of $17.2 million, or $1.02
per diluted share in fiscal 2016. GAAP net income for fiscal 2017
included approximately $0.07 per diluted share from the extra operating
week.

During fiscal 2017, the Company recorded a non-recurring favorable
deferred tax balance revaluation adjustment of $11.7 million and a $1.4
million gain on insurance settlements mainly related to Hurricane
Harvey. During fiscal 2016, the Company incurred closure costs of $1.5
million pre-tax related to the closing of one restaurant.

Adjusted net income decreased to $16.3 million, or $0.96 per diluted
share compared to $18.3 million, or $1.08 per diluted share in the same
period in 2016. Please see the reconciliation from GAAP net income to
adjusted net income in the accompanying financial tables.

Income Taxes

In December 2017, the U.S. government enacted the Tax Act with an
effective date of January 1, 2018. The Tax Act includes many changes,
including a reduction in the federal statutory rate from 35% to 21%. As
a result of this change, we were required to revalue our deferred tax
balance using the new federal statutory tax rate. This revaluation
resulted in a non-recurring one time favorable adjustment to our net
deferred tax balance of $11.7 million with a corresponding decrease to
the provision for income taxes in the fourth quarter of 2017. Excluding
the impact of the revaluation adjustment, our effective tax rate for
fiscal year 2017 was 26.4% as compared to 29% for the comparable period
in 2016. The decrease in rate is primarily driven by favorable discrete
tax items.

Development Update

During the fourth quarter, four new Chuy's restaurants were opened in
Pasadena, Texas; Schaumburg, Illinois; Annapolis, Maryland and
Alpharetta, Georgia. Additionally, we reopened a restaurant temporarily
closed in the third quarter of 2017 due to Hurricane Harvey. There were
91 Chuy's restaurants in operation as of the end of the fourth quarter
of 2017.

2018 Outlook

The Company currently expects 2018 net income per diluted share of $1.12
to $1.16. This compares to adjusted net income per diluted share of
$0.89, after excluding approximately $0.07 per diluted share from the
extra week in 2017. The net income guidance for fiscal year 2018 is
based, in part, on the following annual assumptions:

  • Comparable restaurant sales growth of 1.0% to 1.5% (on a 52-week
    comparable basis);
  • Restaurant pre-opening expenses of $3.7 million to $5.5 million;
  • General and administrative expense of $21.3 million to $21.8 million;
  • An effective tax rate of 13% to 14%;
  • The opening of 8 to 12 new restaurants;
  • Annual weighted average diluted shares outstanding of 17.1 million to
    17.2 million shares; and
  • Net capital expenditures (net of tenant improvement allowances) of
    $30.0 million to $40.0 million.

As a result of the Tax Act we intend to reinvest approximately $1.5
million or 40 basis points of savings into national-level marketing
initiatives and investments in our off-premise initiatives including
to-go packaging, on-line ordering and catering.

We report our financial statements on a fiscal calendar basis. Due to
the 53rd week in fiscal year 2017, our financial statement comparison
will be one week different year over year. However, we believe that
reporting our comparable restaurant sales on a comparable calendar basis
will help facilitate period-over-period comparisons.

The table below sets forth our fiscal and comparable calendar dates.

  Fiscal Calendar Basis   Comparable Calendar Basis
         
First Quarter January 1, 2018 - April 1, 2018 January 1, 2018 - April 1, 2018
vs. vs.
    December 26, 2016 - March 26, 2017   January 2, 2017 - April 2, 2017
         
Second Quarter April 2, 2018 - July 1, 2018 April 2, 2018 - July 1, 2018
vs. vs.
    March 27, 2017 - June 25, 2017   April 3, 2017 - July 2, 2017
         
Third Quarter July 2, 2018 - September 30, 2018 July 2, 2018 - September 30, 2018
vs. vs.
    June 26, 2017 - September 24, 2017   July 3, 2017 - October 1, 2017
         
Fourth Quarter October 1, 2018 - December 30, 2018 October 1, 2018 - December 30, 2018
vs. vs.
    September 25, 2017 - December 31, 2017   October 2, 2017 - December 31, 2017
         
Year January 1, 2018 - December 30, 2018 January 1, 2018 - December 30, 2018
vs. vs.
    December 26, 2016 - December 31, 2017   January 2, 2017 - December 31, 2017
 

The following definitions apply to these terms as used in this
release:

Comparable restaurant sales reflect changes in sales for the
comparable group of restaurants over a specified period of time. We
consider a restaurant to be comparable in the first full quarter
following the 18th month of operations. Our comparable restaurant sales
calculations are based on 13-week and 52-week periods for the fourth
quarter and for fiscal year 2017, respectively. Changes in comparable
sales reflect changes in customer count trends as well as changes in
average check.

Average check is calculated by dividing revenue by total entrées
sold for a given time period. Average check reflects menu price
influences as well as changes in menu mix.

Average weekly customers is measured by the number of entrées
sold per week. Our management team uses this metric to measure changes
in customer traffic.

Total restaurant operating costs includes cost of sales, labor,
operating, occupancy and marketing costs.

Conference Call

The Company will host a conference call to discuss financial results for
the fourth quarter of 2017 today at 5:00 p.m. Eastern Time. Steve
Hislop, President and Chief Executive Officer, and Jon Howie, Vice
President and Chief Financial Officer, will host the call.

The conference call can be accessed live over the phone by dialing
800-281-7973 or for international callers by dialing 323-794-2093. A
replay will be available after the call and can be accessed by dialing
844-512-2921 or for international callers by dialing 412-317-6671; the
passcode is 5103771. The replay will be available until Thursday, March
15, 2018.

The conference call will also be webcast live from the Company's
corporate website at www.chuys.com
under the investors section. An archive of the webcast will be available
through the corporate website shortly after the call has concluded.

About Chuy's

Founded in Austin, Texas in 1982, Chuy's owns and operates 91
full-service restaurants across 19 states serving a distinct menu of
authentic, made from scratch Tex-Mex inspired dishes. Chuy's highly
flavorful and freshly prepared fare is served in a fun, eclectic and
irreverent atmosphere, while each location offers a unique, "unchained"
look and feel, as expressed by the concept's motto "If you've seen one
Chuy's, you've seen one Chuy's!" For further information about Chuy's,
including the nearest location, visit the Chuy's website at www.chuys.com.

Forward-Looking Statements

Certain statements in this release that are not historical facts,
including, without limitation, those relating to our anticipated
financial performance and our intended uses of the savings resulting
from the Tax Act are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 that involve risks
and uncertainties. Such statements are based upon the current beliefs
and expectations of the management of the Company. Actual results may
vary materially from those contained in forward-looking statements based
on a number of factors including, without limitation, the actual number
of restaurant openings, the sales at the Company's restaurants, changes
in restaurant development or operating costs, such as food and labor,
the Company's ability to leverage its existing management and
infrastructure, changes in restaurant pre-opening expense, general and
administrative expenses, capital expenditures, or our effective tax
rate, changes in the number of diluted shares outstanding, strength of
consumer spending, conditions beyond the Company's control such as
timing of holidays, weather, natural disasters, acts of war or
terrorism, disease outbreaks, epidemics or pandemics impacting the
Company's customers or food supplies, the timing and amount of
repurchases of our common stock, if any, changes to the Company's
expected liquidity position, the possibility that the repurchase program
may be suspended or discontinued and other factors disclosed from time
to time in the Company's filings with the U.S. Securities and Exchange
Commission. Investors should take such risks into account when making
investment decisions. Stockholders and other readers are cautioned not
to place undue reliance on these forward-looking statements, which speak
only as of the date on which they are made. The Company undertakes no
obligation to update any forward-looking statements, except as required
by law.

Non-GAAP Measures

We prepare our financial statements in accordance with GAAP. Within our
press release, we make reference to non-GAAP restaurant-level operating
profit, restaurant-level operating margin, and adjusted net income.
Restaurant-level operating profit represents income (loss) from
operations plus the sum of general and administrative expenses,
restaurant pre-opening costs, impairment and closure costs, gain on
insurance settlements and depreciation and amortization.
Restaurant-level operating profit is presented because: (i) we believe
it is a useful measure for investors to assess the operating performance
of our restaurants without the effect of non-cash depreciation and
amortization expenses; and (ii) we use restaurant-level operating profit
internally as a benchmark to evaluate our restaurant operating
performance and to compare our performance to that of our competitors.
Additionally, we present restaurant-level operating profit because it
excludes the impact of general and administrative expenses, which are
not incurred at the restaurant level, and restaurant pre-opening costs,
gain on insurance settlements and impairment and closure costs. Although
we incur pre-opening costs on an ongoing basis as we continue to open
new restaurants, the pre-opening costs and impairment and closure costs
are not a component of a restaurant's ongoing operating expenses. The
use of restaurant-level operating profit thereby enables us and our
investors to compare operating performance between periods and to
compare our operating performance to the performance of our competitors.
The measure is also widely used within the restaurant industry to
evaluate restaurant-level productivity, efficiency and performance. The
use of restaurant-level operating profit as a performance measure
permits a comparative assessment of our operating performance relative
to our performance based on our GAAP results, while isolating the
effects of some items that vary from period to period without any
correlation to core operating performance or that vary widely among
similar companies. We present restaurant-level operating margin for the
same reasons we present restaurant-level operating profit.

Adjusted net income represents our net income before gain on insurance
proceeds, impairment and closure costs, income tax effect on adjustments
and deferred tax balance adjustment. We believe the use of adjusted net
income provides additional information to enable us and our investors to
facilitate year-over-year performance comparison and a comparison to the
performance of our peers.

Restaurant-level operating profit and restaurant-level operating margin
exclude various expenses as discussed above that may materially impact
our consolidated results of operations. As a result, these measures are
not indicative of the Company's consolidated results of operations. We
present these measures as well as adjusted net income exclusively as
supplements to, and not substitutes for, net income or income (loss)
from operations computed in accordance with GAAP. As supplemental
disclosures, restaurant-level operating profit and adjusted net income
should not be considered as alternatives to net income or income (loss)
from operations as an indicator of our performance or as alternatives to
any other measure determined in accordance with GAAP.

 

Chuy's Holdings, Inc. and Subsidiary

Unaudited Condensed Consolidated Income Statements

(In thousands, except share and per share data)

       
Quarter Ended Year Ended

December 31,
2017

 

December 25,
2016

December 31,
2017

 

December 25,
2016

Revenue $ 96,020 $ 79,053 $ 369,589 $ 330,613
 
Costs and expenses:
Cost of sales 25,337 20,619 96,270 85,542
Labor 34,991 27,873 128,846 110,730
Operating 13,066 11,307 51,462 45,900
Occupancy 6,714 5,567 25,642 22,204
General and administrative 4,271 4,025 18,661 17,560
Marketing 713 474 2,756 2,390
Restaurant pre-opening 2,165 1,203 6,233 5,348
Impairment and closure costs 1,127 1,517
Gain on insurance settlements (1,362 ) (1,362 )
Depreciation and amortization 4,610   4,076   17,560   15,081
Total costs and expenses 90,505   76,271   346,068   306,272
Income from operations 5,515 2,782 23,521 24,341
Interest expense 17   16   65   63
Income before income taxes 5,498 2,766 23,456 24,278
Income tax (benefit) expense (10,384 ) 433   (5,500 ) 7,034
Net income $ 15,882   $ 2,333   $ 28,956   $ 17,244
 
Net income per common share: basic $ 0.94   $ 0.14   $ 1.71   $ 1.03
Net income per common share: diluted $ 0.93   $ 0.14   $ 1.70   $ 1.02
 
Weighted-average shares outstanding: basic 16,917,949   16,829,266   16,894,986   16,676,073
Weighted-average shares outstanding: diluted 17,020,563   16,968,180   17,003,233   16,887,882
 

Reconciliation of GAAP net income and net income per share to
adjusted results:

      Quarter Ended   Year Ended

December 31,
2017

 

December 25,
2016

December 31,
2017

 

December 25,
2016

Net income as reported $ 15,882 $ 2,333 $ 28,956 $ 17,244
Impairment and closure costs 1,127 1,517
Gain on insurance settlements (1,362 ) (1,362 )
Income tax effect on adjustment (1) 360 (338 ) 360 (455 )
Deferred tax balance adjustment (2) (11,696 )   $ (11,696 )  
Adjusted net income $ 3,184   $ 3,122   $ 16,258   $ 18,306  
 
Adjusted net income per common share: basic $ 0.19   $ 0.19   $ 0.96   $ 1.10  
Adjusted net income per common share: diluted $ 0.19   $ 0.18   $ 0.96   $ 1.08  
 
Weighted-average shares outstanding: basic 16,917,949   16,829,266   16,894,986   16,676,073  
Weighted-average shares outstanding: diluted 17,020,563   16,968,180   17,003,233   16,887,882  
 

(1) Reflects the income tax effect associated with the
adjustments based on the Company's effective tax rate prior to the
impact of the Tax Act.

(2) Reflects the revaluation of our net deferred tax balance
using the new lower tax rate pursuant to the Tax Act.

Reconciliation of GAAP income from operations to restaurant-level
operating profit:

      Quarter Ended   Year Ended

December 31,
2017

 

December 25,
2016

December 31,
2017

 

December 25,
2016

Income from operations as reported $ 5,515 $ 2,782 $ 23,521 $ 24,341
General and administrative 4,271 4,025 18,661 17,560
Restaurant pre-opening expenses 2,165 1,203 6,233 5,348
Impairment and closure costs 1,127 1,517
Gain on insurance settlements (1,362 ) (1,362 )
Depreciation and amortization 4,610   4,076   17,560   15,081  
Restaurant-level operating profit $ 15,199   $ 13,213   $ 64,613   $ 63,847  
 
Restaurant-level operating margin (1) 15.8 % 16.7 % 17.5 % 19.3 %

(1) Restaurant-level operating margin is calculated by
dividing restaurant-level operating profit by revenue.

 

Chuy's Holdings, Inc. and Subsidiary

Unaudited Selected Balance Sheet Data

(In thousands)

       

December 31,
2017

December 25,
2016

Cash and cash equivalents $ 8,785 $ 13,694
Total assets 271,967 240,728
Long-term debt
Total stockholders' equity 188,962 157,065
 

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