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Chuy's Holdings, Inc. Announces First Quarter 2019 Financial Results

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Chuy's Holdings, Inc. (NASDAQ:CHUY) today announced financial results
for the first quarter ended March 31, 2019.

Highlights for the first quarter ended March 31, 2019 were as follows:

  • Revenue increased 8.8% to $102.1 million from $93.9 million in the
    first quarter of 2018.
  • Comparable restaurant sales increased 3.2%.
  • Net income was $3.2 million, or $0.19 per diluted share, compared to
    net income of $3.2 million, or $0.19 per diluted share, in the first
    quarter of 2018. Net income in the first quarter of 2019 included
    closures costs of $0.4 million ($0.4 million, net of tax or $0.02 per
    diluted share).
  • Adjusted net income(1) was $3.6 million, or $0.21 per
    diluted share compared to net income of $3.2 million, or $0.19 per
    diluted share, in the first quarter of 2018.
  • Restaurant-level operating profit(1) was $15.7 million
    compared to $15.3 million in the first quarter of 2018.
  • One restaurant opened during the first quarter of 2019.
(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 measures see the accompanying financial tables. For a
discussion of why we consider adjusted net income and
restaurant-level operating profit useful, see "Non-GAAP Measures"
below.
 

Steve Hislop, President and Chief Executive Officer of Chuy's Holdings,
Inc. stated, "We were pleased with the trajectory of our top-line during
the first quarter, resulting in positive comparable restaurant sales and
the return of positive traffic. We believe our recent marketing efforts
have contributed to the stabilization of our traffic trends as we have
focused on improving brand awareness in newer markets and driving
frequency in our existing markets. Looking ahead, we will continue to
leverage our marketing, in addition to initiatives around technology,
labor, and off-premise. Together with a disciplined development strategy
and restaurant operation enhancements, we will continue to focus on
opportunities to improve profitability."

Hislop added, "We successfully opened one new restaurant during the
first quarter and have subsequently opened two additional restaurants
during the second quarter. We are pleased with the performance of these
three recent openings thus far as our operators and development team
continue to do an excellent job of instilling the Chuy's culture in our
new restaurants. To better balance new unit growth with driving sales
and improving restaurant profitability, we are maintaining our 2019
development plan of five to seven restaurants."

First Quarter 2019 Financial Results

Revenue increased $8.3 million, or 8.8%, to $102.1 million in the first
quarter of 2019 compared to the first quarter of 2018. The increase was
driven by $7.1 million in incremental revenue from an additional 99
operating weeks provided by new restaurants during the thirteen weeks
ended March 31, 2019 as well as an increase in our comparable restaurant
sales. These increases were partially offset by a decrease in sales
related to our non-comparable restaurants that are not included in the
incremental revenue discussed above. Revenue for 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 3.2% for the thirteen weeks ended
March 31, 2019 compared to the thirteen weeks ended April 1, 2018. The
increase in comparable restaurant sales was primarily driven by a 2.9%
increase in average check and a 0.3% increase in average weekly
customers. The Company estimates that comparable sales were positively
impacted by approximately 30 basis points due to the timing of New
Year's Eve and Easter, net of unfavorable weather conditions during the
quarter. The comparable restaurant base consisted of 83 restaurants at
the end of the first quarter of 2019.

Total restaurant operating costs as a percentage of revenue increased to
84.6% in the first quarter of 2019 from 83.8% in the first quarter of
2018. The increase in restaurant operating costs as a percentage of
revenue was primarily driven by higher cost of sales as a result of
unfavorable commodity pricing, higher labor costs due to new store labor
inefficiencies; an increase in marketing expenses as a result of new
national-level marketing initiatives; and an increase in occupancy costs
as a result of higher rental expense on certain newly opened restaurants.

Total general and administrative expenses increased $0.7 million, or
12.7%, to $6.2 million for the first quarter of 2019 as compared $5.5
million for the same period in 2018. The increase was primarily driven
by an increase in management salaries and equity compensation due to
additional headcount to support our growth, an increase in
performance-based bonuses driven by company performance during the first
quarter of 2019 and an increase in professional fees.

During the first quarter of 2019, the Company incurred costs of $0.4
million ($0.4 million, net of tax or $0.02 per diluted share) related to
closure of two restaurants.

Effective income tax rate for the first quarter of 2019 was 3.5%
compared to 13.0% during the comparable period in 2018. The decrease in
our effective tax rate for the quarter is primarily related to an
increase in employee tax credits in proportion to our estimated taxable
income offset by a negative impact of certain discrete items.

As a result of the foregoing, net income in the first quarter of 2019
was flat compared to the same period last year at $3.2 million,
or $0.19 per diluted share.

Adjusted net income increased to $3.6 million, or $0.21 per diluted
share in the first quarter of 2019 compared to $3.2 million,
or $0.19 per diluted share, in the first quarter of 2018. Please see the
reconciliation of net income to adjusted net income in the accompanying
financial tables.

Development Update

During the first quarter, one new restaurant was opened in Colorado
Springs, Colorado and two restaurants were closed, one in Atlanta,
Georgia, and one in Miami, Florida.

Subsequent to the end of the first quarter, two additional restaurants
were opened, one in Hamburg, Kentucky and one in Huntsville, Alabama.

Share Repurchase Program

During the first quarter of 2019, the Company repurchased approximately
80,000 shares of common stock for a total of $1.8 million. Since the
beginning of the current share repurchase program, the Company has
repurchased approximately 240,000 shares of common stock for a total of
$5.4 million. As of the end of the first quarter, the Company had $24.6
million remaining under its $30.0 million repurchase program that
expires on December 31, 2019.

2019 Outlook

The Company reaffirmed its expectation of the 2019 net income per
diluted share of $0.91 to $0.95. This compares to adjusted net income(1)
per diluted share of $0.88 for fiscal year 2018. The net income guidance
for fiscal year 2019 is based, in part, on the following annual
assumptions:

  • Comparable restaurant sales growth of 1.5% to 2.5%;
  • Restaurant pre-opening expenses of $2.1 million to $2.9 million;
  • General and administrative expense of $23.6 million to $24.1 million
    versus a previous range of $23.3 million to $23.8 million;
  • An effective tax rate of 0% to 5% versus a previous range of 6% to 8%;
  • The opening of five to seven new restaurants;
  • Annual weighted average diluted shares outstanding of 17.0 million to
    17.1 million shares versus a previous range of 17.1 million to 17.2
    million; and
  • Net capital expenditures (net of tenant improvement allowances) of
    $24.5 million to $30.7 million.
(1)   Adjusted net income is a non-GAAP measure. For a reconciliation of
adjusted net income to the most directly comparable GAAP measure see
the accompanying financial tables. For a discussion of why we
consider adjusted net income useful, see "Non-GAAP Measures" below.
 

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. 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 first quarter of 2019 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
800-239-9838 or for international callers by dialing 323-794-2551. 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 2573768. The replay will be available until Tuesday, May 14,
2019. The conference call will also be webcast live from the Company's
website at www.chuys.com
under the investors section. An archive of the webcast will be available
through the Company's website shortly after the call has concluded.

About Chuy's

Founded in Austin, Texas in 1982, Chuy's owns and operates 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 related annual assumptions, the strategy to
improve store-level profitability and the anticipated results from our
marketing, technology, labor and off-premise initiatives and, our
development plan and the number of restaurants we will open next year
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 from operations plus
the sum of general and administrative expenses, restaurant pre-opening
costs, closure costs 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 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 closure costs are not
components 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 net income before impairment and closure
costs and income tax effect on 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, restaurant-level operating margin and
adjusted net income 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 exclusively as supplements to,
and not substitutes for, net income or income from operations computed
in accordance with GAAP. As a supplemental disclosure, restaurant-level
operating profit and adjusted net income should not be considered as
alternatives to net income or income from operations as an indicator of
our performance or as alternatives to any other measure determined in
accordance with GAAP.

 
Chuy's Holdings, Inc.
Unaudited Condensed Consolidated Income Statements
(In thousands, except share and per share data)
 
Thirteen Weeks Ended
March 31, 2019   April 1, 2018
Revenue $ 102,111     100.0 %   $ 93,850     100.0 %
 
Costs and expenses:
Cost of sales 25,715 25.2 23,573 25.1
Labor 36,699 35.9 33,468 35.7
Operating 14,559 14.3 13,352 14.2
Occupancy 7,982 7.8 7,097 7.6
General and administrative 6,167 6.0 5,471 5.8
Marketing 1,451 1.4 1,080 1.2
Restaurant pre-opening 718 0.7 1,421 1.5
Closure costs 372 0.4
Depreciation and amortization 5,077     5.0     4,713     5.0  
Total costs and expenses 98,740     96.7     90,175     96.1  
Income from operations 3,371 3.3 3,675 3.9
Interest expense, net 39         16      
Income before income taxes 3,332 3.3 3,659 3.9
Income tax expense 115     0.1     476     0.5  
Net income $ 3,217     3.2 %   $ 3,183     3.4 %
 
Net income per common share: Basic $ 0.19   $ 0.19  
Net income per common share: Diluted $ 0.19   $ 0.19  
 
Weighted-average shares outstanding: Basic 16,870,154   16,936,824  
Weighted-average shares outstanding: Diluted 16,955,324   17,069,140  
 
 
Reconciliation of GAAP net income and net income per share to
adjusted results
(Unaudited, in thousands except share and per share data)
   
Thirteen Weeks Ended Fiscal Year Ended
March 31, 2019   April 1, 2018 December 30, 2018
Net income as reported $ 3,217 $ 3,183 $ 5,539
Impairment & closure costs 372 12,336
Income tax effect on adjustment (1) (19 )   (2,897 )
Adjusted net income $ 3,570   $ 3,183   $ 14,978  
 
Adjusted net income per common share: Basic $ 0.21 $ 0.19 $ 0.88
Adjusted net income per common share: Diluted $ 0.21 $ 0.19 $ 0.88
 
Weighted-average shares outstanding: Basic 16,870,154 16,936,824 16,931,589
Weighted-average shares outstanding: Diluted 16,955,324 17,069,140 17,062,347
 
(1)   Reflects the tax expense associated with the adjustment for closure
costs in the first quarter of 2019 and impairment costs in the
fiscal year 2018. The tax expense was calculated based on the change
in the tax provision calculation after adjusting for the reconciling
item.
 
 
Reconciliation of GAAP income from operations to restaurant-level
operating profit
(Unaudited, in thousands)
 
Thirteen Weeks Ended
March 31, 2019   April 1, 2018
Income from operations as reported $ 3,371 $ 3,675
General and administrative 6,167 5,471
Restaurant pre-opening 718 1,421
Closure costs 372
Depreciation and amortization 5,077   4,713  
Restaurant-level operating profit $ 15,705   $ 15,280  
 
Restaurant-level operating margin (1) 15.4 % 16.3 %
 
(1)   Restaurant-level operating margin is calculated by dividing
restaurant-level operating profit by revenue.
 
 
Chuy's Holdings, Inc.
Unaudited Selected Balance Sheet Data
(In thousands)
   
March 31, 2019 December 30, 2018
Cash and cash equivalents $ 7,345 $ 8,199
Total assets (1) 442,693 277,084
Long-term debt
Total stockholders' equity 194,923 193,851
 
(1)   Includes approximately $170.3 million of operating lease assets
recorded during the first quarter of 2019 as a result of the
adoption of Accounting Standards Update 2016-02, Leases (Topic 842).

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