Marketing, Off-Premise Provide Runway for Chuy's Continued Growth
It has been a nice run for casual dining lately. Credit off-premise. Tax reform. Better marketing. Perhaps even a more spender-friendly economy. Chuy’s president and chief executive officer Steve Hislop has an additional take.
“I think people are getting numb to [President Donald] Trump, even when he's on Twitter all the time,” Hislop said in a conference call following the chain’s first-quarter report. “So I think the viewership of all those things, and getting things back to normal, everybody [is panicking less].”
Chuy’s business is stabilizing as well, even after a quarter that missed Wall Street expectations. Comparable same-store sales declined 1.5 percent on a fiscal basis. They dropped 0.6 percent on a calendar basis. But take away a 170 basis-point impact from unfavorable weather conditions, timing of Easter, and strategic cannibalization, and the 95-unit Mexican brand turned in another solid period. Earnings per share were 19 cents, which missed by 3 cents. Revenue of $93.85 million came up short by about $800,000. Expecting positive weather to turn results, Chuy’s reaffirmed its earnings per share guidance for the year.
In the chain’s fourth-quarter review, where comps grew 1.3 percent, Hislop outlined a few initiatives designed to improve Chuy’s profitability going forward. He provided some updates.
Firstly, Chuy’s is in the final stages of selecting a full-time marketing firm to take its local-store messaging and social media to the next level. Hislop said this could help the brand promote a value message in addition to the quality-driven one it’s shared in the past.
“What we've done I think over the last three years is really talk about our defining differences, not that we've ignored our value, but I don’t think we've get it out there hard enough,” he said. “… You can eat inside my menu all day for $20, you don't need a discount for that. And so that's definitely something that we're going to work hard with, not only with our own marketing department, but with our partner as we get going in that.”
Chuy’s continues to progress with Olo on its online ordering system. It expects to test the platform in the coming quarter and plans on completing a systemwide rollout by early third quarter.
A big push for Chuy’s has been catering. In the last call, Hislop shared that the brand’s off-premise business was totaling about 12.25 percent of sales. That was the largest mix in Chuy’s 36-year history. Its catering pilot expanded from Nashville, Tennessee, to Dallas and Houston in Q4. Hislop said those new pilots are performing well and Chuy’s is now considering additional markets or possible expansion during the year. Chicago, Washington, D.C., and possibly Cincinnati/Dayton, Ohio markets could be next. Off-premise sales for the 1Q were up 11.68 percent over the previous period.
Chuy’s was optimistic about the longevity of these results given a recent trend. Hislop said he expected a “pretty decent drop” given the lack of a Christmas boost. But one never really came. Chuy’s achieved about $200,000 in sales last quarter compared to $180,000 in this one.
Jon Howie, Chuy’s chief financial officer, said there is also room to grow with online ordering. The company is expecting average ticket to lift once it gets moving. “Obviously it's not going to start right off the bat, because we need to advertise that as soon as we get it up and running. But from what I've researched, we can expect that ticket average to grow once we get that online and once we start advertising that,” he said.
Chuy’s is in the final stages of a new labor management tool with its point-of-sale system and expects to complete the integration during the second quarter as well.
Labor cost as a percentage of restaurant revenue increased about 150 basis points to 35.7 percent in the quarter. The increase was attributable to hourly labor rate inflation of about 2.8 percent, new store labor inefficiencies, and higher hourly rates in new markets, Howie said. The new system will help with scheduling, Hislop said.
“The key for us there, believe it or not, with all the labor losses, is getting rid of the early punches and the late punches, and that's what we're going to be able to do with this system that we have in and whether it's a 15-minute early punch, but that adds up a lot,” he said. “And I think that the second thing we do with it … it's called problem projections, as far as scheduling projections. And I don't think we have a ton of that when we look at that even though it's a little bit more of a manual process. I think the biggest savings you're going to see with us is the known hours that we have by the sales hour, and that's in there, and the biggest one is the time clock reinforcement.”
On the development front, Chuy’s opened two units in the first quarter—in Doral, Florida, and Orland Park. Subsequent to the end of the first quarter, additional stores debuted in Lakewood, Colorado, and New Tampa, Florida. The company expects to open between eight and 12 units this year.
“Our strong unit economics and flexible real estate strategy, our strong balance sheet also enables us to return excess capital to our shareholders, most recently through our share repurchase during the first quarter. All-in-all, we believe we have a long runway for expanding the Chuy's brand in 2018 and beyond,” Hislop said.