Chuy’s Holdings, Inc. (NASDAQ:CHUY) Q4 2023 Earnings Call Transcript

Chuy’s Holdings, Inc. (NASDAQ:CHUY) Q4 2023 Earnings Call Transcript February 25, 2024

Chuy’s Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, everyone and welcome to the Chuy’s Holdings Fourth Quarter 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 to questions following the prepared remarks. On today’s call, we have Steve Hislop, President and Chief Executive Officer; and Jon Howie, Vice President and Chief Financial Officer of Chuy’s Holdings Incorporated. At this time, I will now turn the conference over to Mr. Howie. Please go ahead, sir.

Jon Howie: Thank you, operator and good afternoon. By now, everyone should have access to our fourth quarter 2023 earnings release. If not, it can be found on our website at chuys.com in the Investors section. Before we begin our formal remarks, I need to remind everyone that part of our discussions 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 first quarter of 2024 earnings on Thursday, May 9th, 2024 after the market close. With that out of the way, I’d like to turn the call over to Chuy’s President and CEO, Steve.

Steve Hislop: Thank you, Jon. Good afternoon, everyone and thank you for joining us on the call today. I am proud of what Chuy’s accomplished during 2023. We grew revenues almost 9.3% driven by comparable restaurant sales of approximately 3.3%. Our team’s ability to effectively execute on our four-wall operations resulted in a 200 basis point expansion of restaurant-level margins to over 20%, representing our best result in over a decade, excluding the COVID-impacted 2021 and among the best in the industry. And finally, we returned approximately $28.9 million to our shareholders through share repurchases enabled by the ongoing strength of our operating model. As we look ahead, we will continue to do what we do best to provide our guests with fresh, made from scratch food and drinks at an incredible value.

Despite weather issues across the country that has impacted the restaurant industry in January, we believe the initiatives we put in place to drive long-term sustainable top line growth and profitability has positioned us well to weather these near-term challenges. With that, let me provide some update on our growth drivers. Starting with menu innovation. As we mentioned on our last call, we introduced our first barbell approach to the CKO platform during the fourth quarter, and we were very pleased with how well it was received by our guests. In fact, this was our second most successful Chuy’s Knockouts campaign to-date. Following this success, we were thrilled to introduce to our guests the next CKO iteration in late January with Shrimp & Crab Enchiladas with Lobster Bisque sauce as a higher-priced CKO menu item, along with Macho Nachos and the Cheesy Pig Burrito.

Again, early feedback continues to be positive as our CKOs are resonating well with both new and returning guests. Alongside our exciting CKO offering, we recently added several new menu items to our permanent menu, including reintroducing the Appetizer Plate and adding the Burrito Bowls. If you recall, Burrito Bowls were part of our CKO platform during the second and third quarter of 2023 and this menu addition is a reflection of how well our Burrito Bowls performed last year and the high demand from our guests to bring them back to a permanent menu. Chuy’s Knockouts is not only a platform that we created to introduce our guests to exciting new menu innovations but also a tool to help us optimize our regular menu to further drive traffic to our restaurants.

We also delivered another strong off-premise performance during the quarter, mixing at approximately 31% with our delivery channel continuing to perform well at mixing at approximately 12%, a 160 basis point increase from last year. In terms of catering, we continue to roll out the ezCater platform to our restaurants and are on track to complete this rollout by the end of the first quarter. Our channel — our catering channel is currently mixing at approximately 4.8% for the quarter. Going forward, we continue to believe our off-premise channel will be at least 25% of our sales with catering contributing between 4% and 6% of total sales. While the fourth quarter is typically our highest mixing quarter for catering, we are encouraged by the growth we continue to see in the channel and believe we can achieve our long-term catering targets over the next 24 months.

In terms of marketing initiatives, we believe our current approach to marketing has been effective in communicating our defining differences from our made from scratch food and drink offered at an incredible value to our unique CKO offerings and the unique overall experience at every Chuy’s restaurants. To that end, we will continue to put heavy emphasis on digital media and optimize our campaigns through the use of Google, TikTok, Instagram and Facebook, including organic influencer content, YouTube video advertising and promotional advertising with DoorDash and Uber. In addition, we will include some spot on programmatic connected TV targeting live sports events during March Madness. Lastly, let me update you on our development plan. During the fourth quarter, we successfully opened one new restaurant in Terrell, Texas, bringing our total restaurant count to 101 as of the end of fiscal 2023, with four new restaurants opening — opened during this year.

As we look into 2024, we continue to have a robust pipeline with a goal to open between six to eight new restaurants focused primarily in core markets where our concept is already proven with high AUVs and brand awareness. We expect to open two restaurants in the first half of the year, including our first location of the year in New Braunfels, Texas, which opened this week. With that, I’ll now turn the call over to our CFO, Jon Howie, to discuss our fourth quarter results in greater detail.

Jon Howie: Thanks, Steve. Revenues for the fourth quarter increased 11.8% to $116.3 million compared to $104.1 million in the same quarter last year. As a reminder, our fourth quarter of 2023 included 14 weeks compared to 13 weeks in fiscal 2022. With the extra operating week contributing about $8.7 million of revenue. In addition to the extra operating week, the increase was driven by growth in our comparable restaurant sales as well as additional 62 operating weeks from new restaurants opened subsequent to the fourth quarter of 2022. In total, we had approximately [1,403] (ph) operating weeks during the fourth quarter of 2023 and off-premise sales were approximately 31% of total revenue as compared to 29% a year ago. Comparable restaurant sales in the fourth quarter increased 0.3% versus last year on a 13-week comparable basis, primarily driven by a 3.4% increase in average check, partially offset by a 3.1% decrease in average weekly customers.

Effective pricing for the quarter was approximately 3%. Turning to expenses. Cost of sales as a percentage of revenue decreased 240 basis points to 25.1%, driven by overall commodity deflation of approximately 8% compared to last year as well as leverage on our menu prices taken subsequent to the fourth quarter of last year. Looking into 2024, we currently expect commodity inflation in the low-single digits for the year. Labor cost as a percentage of revenue increased 30 basis points to 30.8%, primarily due to hourly labor inflation of approximately 4% at comparable restaurants as well as incremental improvement in our hourly labor staffing level. This was partially offset by menu price increase taken subsequent to the fourth quarter of last year.

We are currently expecting labor inflation of mid-single digits for fiscal 2024. Operating costs as a percentage of revenue increased 10 basis points to 16.7% driven by higher delivery service charges from an increase in delivery sales, an increase in restaurant repair and maintenance and higher insurance costs, partially offset by lower utility costs as compared to last year. General and administrative expenses increased to $8.1 million in the fourth quarter from $6.5 million in the same period last year, driven mainly by higher performance-based bonuses and management salaries as a percentage of revenue, G&A increased to 6.9% from 6.2% during the same period last year. In summary, net income for the fourth quarter of 2023 was $5.5 million or $0.31 per diluted share compared to $2.5 million or $0.14 per diluted share in the same period last year.

During the fourth quarter of 2023, we incurred $3.1 million or $0.14 per diluted share in impairment, closed restaurants and other costs compared to $3.2 million or $0.14 per diluted share in the same period last year. Taking that into account, adjusted net income for the fourth quarter of 2023 was $7.9 million or $0.45 per diluted share compared to $5 million or $0.27 per diluted share in the same period last year. Moving to our liquidity and balance sheet as of the end of the quarter, we had $67.8 million in cash and cash equivalents, no debt outstanding and $25 million available under our revolving credit facility. We also purchased 167,535 shares of our common stock during the quarter for a total of approximately $5.9 million. For the full year of 2023, we purchased a total of 789,963 shares of our common stock for a total of approximately $28.9 million.

As of December 31st, 2023, we had $21.1 million remaining under our $50 million repurchase program, which will expire on December 31st, 2024. With that, we will now provide you with the following outlook for 2024. We are currently expecting adjusted EPS of $1.82 to $1.87 for 2024 as compared to adjusted EPS of $1.87 after adjusting out the 53rd week of 2023. This is based in part on the following annual assumptions. G&A expenses of $30 million to $31 million, six to eight new restaurants, net capital expenditures of approximately $41 million to $46 million, restaurant preopening expenses of approximately $2.7 million to $3.2 million, effective annual tax rate of approximately 13% to 14%, and annual weighted diluted shares outstanding of about $17.4 million (sic) [17.4 million].

With that, I’ll turn the call back over to Steve.

Steve Hislop: Thanks, Jon. We believe our results demonstrate that our focus on our four-wall operational excellence continue to resonate well with our guests. Combined with thoughtful capital allocation, an excellent pipeline of unit growth we are well positioned to capitalize on our positive momentum and the long-term growth opportunities ahead of us, with a goal to maximize shareholder value in 2024 and beyond. In closing, I’d like to thank every Chuy’s team member for their hard work and dedication to earning the dollar every single day without whom none of these accomplishments would have been possible. With that, we’re happy to answer any questions. Operator, please open the line for questions.

See also 20 Most Profitable Email Newsletters on Substack and 20 Most Influential Email Newsletters in 2024.

Q&A Session

Operator: Thank you, sir. At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question that we have comes from David Tarantino from Baird. Please go ahead, sir.

David Tarantino: Hi. Good afternoon. I’ve got a couple of questions. I’ll start with the question on kind of what you’re seeing from a comp perspective in the first quarter. I know, Steve you mentioned some challenges and I know we’ve seen that elsewhere. But if you could maybe give us an update on how you’re running in the first quarter? And then I have a follow-up related to that.

Steve Hislop: Yeah. Obviously, period one, we’re up against an enormous match up, but we also had a little bit of weather that probably cost us about a full percent of sales. But we’ve started off the year in a little tough situation in that 6% to 7% down approximately right around there. And not like — it’s better than that rolling into the second period.

David Tarantino: Got it. And then I guess the real question I had is just on the guidance for the year came in a bit below what we were expecting. And I just wanted to maybe unpack some of the factors that are weighing on the earnings performance for this year. And then, in particular, Jon, if you could maybe give some perspective on what sales or same-store sales assumption is embedded in your earnings guidance?

Jon Howie: Sure. Like Steve said, I mean, the first period was rather challenging around that 7% and the second period, we’re about half to three-fourths of that, so when you’re looking at the sales down, we’ve got a lot to make up to get up to flat. So right now, based upon that and kind of what we’re expecting, especially the rollover Uber that we’ve been talking about, that comprised about of 350 basis points last year of total sales. And so we’re going to start rolling over that full implementation by the end of this quarter. And so we’re looking at kind of flat to up 1% for the year in total same-store sales. Now obviously, with our pricing in that of approximately 3%, just shy of 3%. We’re going to have about 2% negative traffic in that — 1% to 2% negative traffic into that.

So with that being said, some of the changes, if I go through and get a walk forward from the EPS this year to next year, the big items in that is obviously $0.10 on that extra week that immediately takes it down from about $1.97 to $1.87, right. We won’t have that extra week in this year. Also, we were getting fully staffed by the end of last year as far as our staffing is concerned. And so that’s now rolled — that extra cost is rolling over into the current year. And so we’ll have not only inflation of 4% to 5% in labor, but now fully staffed. So that’s going to attribute to anywhere from probably 30 to 60 basis points of the loss to margin there. And then if you flow through kind of the changes, looking at the 53 impact that we talked about, the new store openings, we’re trying to ramp up the new store openings versus four last year.

So your added cost in openings and preopening costs as well as the inefficiency is going to be a larger portion of that as well as the decrease in investment balance, we were getting a sizable amount in interest income as well. So we expect that to be down about $0.06 or $0.07 in and of itself with a decreased balance, and the new store openings is probably another $0.06 to $0.07. So those are the big items.

David Tarantino: Yeah, that’s very helpful. Thanks, Jon.

Operator: Thank you, sir. Our next question we have comes from Andy Barish of Jefferies. Please go ahead.

Andy Barish: Very good evening, guys. Jon, can you address just the occupancy cost? That number really stepped down from kind of what’s in 7% for a while. Is that just sort of getting out of and releasing some leases now and things like that from cleaning up the system over the last few years?

Jon Howie: Are you talking in the fourth quarter, Andy?

Andy Barish: I am, yeah.

Jon Howie: Well, that is — a lot of that, Andy, is the extra week in the quarter. That’s totally leveraging that occupancy.

Andy Barish: Okay. So no fundamental change. That’s still somewhere in the 6.5%, 7% range going forward.

Jon Howie: Yes.

Andy Barish: Okay. And then just secondly, any updates? I mean it hasn’t been a lot of data points, but obviously, the development strategy has been fine-tuned and honed with e-sights. Anything we should be thinking about as you kind of think about sort of first year volumes with these stores in your core markets? And then I think New Braunfels is still the Austin area. So I haven’t thought about it in a while, but any impact or sales transfer that you’re expecting from Austin openings? And I think you have one more maybe this year as well.

Steve Hislop: Yeah. Andy, when we looked at that, we looked at it with the e-sight to make sure and kind of look at it that — would look at anything that has under 5% cannibalization, and actually any ones that we did in the last couple of years has been much better than that on the expectations. New Braunfels is on — it’s halfway between here and San Anton as going down south. So we don’t expect — that’s in between our Selma store, which is in the San Anton and our San Marcos store, it’s about 18 miles from either one of them. So it’s going to be very, very minimal, and we’re pretty excited about it, and we’re really excited, obviously, what we think we’re going to do there. Obviously, when you’re looking at where we’re going to be opening stores, definitely this year and over the next three to four years.

We’re opening, as we mentioned, in roughly five states that we have good AUVs, strong AUVs that are a lot higher than our system-wide AUV, which is currently at $4.5 million. You’ll probably see a pickup of $10 million to $15 million in the five states will — I mean, 10% to 15% in the states that we’re looking at. So we feel real comfortable about our growth over the next three to four to five years.

Andy Barish: Got it. Good to hear. And then one final, just on ezCater and catering. Is that primarily the lunch day part. That’s kind of where I’ve seen ezCater, but I may be not fully aware of how you’re using it.

Jon Howie: Yeah, I think that’s right, Andy. We expect a larger percentage of that coming from lunch. As we — as you know, we’ve got about 72 stores on that right now. We’re hoping to get the rest of them by the end of Q1. Just to give you an indication, last year, we did about $2.5 million in that platform, just shy of under about 1,000 a week per store. And so we’re looking to get that up and running in the first quarter.

Steve Hislop: Yeah. And we’re excited about that actually as people continue to go back to their offices.

Andy Barish: Great. Thanks guys.

Steve Hislop: Thanks, Andy.

Operator: Thank you, sir. The next question we have comes from Brian Vaccaro from Raymond James. Please go ahead.

Brian Vaccaro: Hi. Thanks and good evening, guys. Just on the quarter-to-date and it might be a tough ask, but as you parse through the weather impact, do you think you’ve seen a change in your underlying demand trends or any changes in behavior or order patterns that you’ve noted in recent months compared to the prior couple of quarters?

Jon Howie: Not really, Brian. I mean, we continue to see kind of lower attachment rates in the bar area. We are seeing a little higher attachments in the appetizers, and that’s really due to what we’re doing during the happy hour timeframe with our Chips ‘n’ Dips kind of program. So we are seeing that come back a little bit, but that is a discounted program. And so the dollars are slightly better, but the attachment rates are definitely better.

Steve Hislop: And we’re still seeing a similar mix over the last — even through COVID and back to even pre-COVID with a 40:60 mix at lunch to dinner, and those are staying very, very consistent.

Jon Howie: And really, that to-go, as we said earlier, the off-premise is still staying fairly consistent from a percentage.

Brian Vaccaro: Okay. Okay. And Jon, I think you made a comment on February, you said a decline of around half of the down 7% in January. So I just wanted to make sure I understood that some way down in the mid-3s or —

Jon Howie: Yeah.

Steve Hislop: Yeah, yeah. And that’s again, the key number there for us is rolling over that the implementation of Uber.

Brian Vaccaro: Right, right. Understood. Okay. And then, Jon, on margins, I wanted to just ask on the commodity side. The deflation that you saw in the fourth quarter, I think was much more significant than you kind of expected, could you just provide some color on what drove that favorability?

Jon Howie: Yeah. A lot of it was continuing — just one second here. It’s continuing in — I pull it up here. Yeah, the big items, if I look at it was continuing in chicken and produce were the big items and dairy and cheese, those things came down a lot more than we were expecting.

Brian Vaccaro: Okay. And I think you said low-single digits for the year in 2024. Is there any year-on-year lumpiness or differentials we should be mindful of thinking about the quarters or relatively stable through the year?

Jon Howie: Yeah. If we’re looking at that, I mean, I would say it’s relatively flat — going to be flat in the first quarter and then start growing with our highest quarter probably in the fourth — third and fourth quarters.

Brian Vaccaro: Okay, thank you. I’ll pass it along.

Jon Howie: Thank you.

Operator: Thank you, sir. [Operator Instructions] The next question we have comes from Aisling Grueninger —

Aisling Grueninger: Hi, good afternoon guys —

Operator: From Piper Sandler. Please go ahead.

Aisling Grueninger: Hi, good afternoon guys. You mentioned in the last earnings call that you were going to increase ad spend during the 4Q time period. I’m just wondering if you saw an increase in traffic or any other measurable points from the ad spend that would just influence your decision on how much you’re going to spend going into 2024?

Steve Hislop: Yeah. We didn’t know so much to increase the ad spend. We just reallocated it a little bit because our normal cash spend percentage-wise on marketing is roughly in that 1.45%, 1.5% range, and we’re anticipating that throughout 2024. But we did reallocate it a lot. And as I mentioned in the call, it will mostly be a lot of social with Google, YouTube, programmatic TV and Yelp and so forth on what I mentioned earlier. But just a reallocation for what we really were excited about in 2023 and do more of that and most of the things we weren’t excited about, but we’ll still stay on those major channels and the spend will be very consistent from a year ago.

Aisling Grueninger: That’s great. You mentioned I know at ICR that you were confident in your ability to return to a 10% unit growth in 2025. Just what have you seen or is your real estate team done so far this year to support this goal and just the confidence in reaching that?

Steve Hislop: Yeah. We’re very confident as far as what we’re doing on the ground with our master broker system. And so we got there. But probably our pipeline is as good with sites over the next couple of years as it’s ever been. So we’re pretty, pretty excited about that. The thing we’re not excited about is the cost. They’re up 35% to 40%. They’ve moderated, but they have not started coming down yet. Also the developers aren’t doing anymore the site cost, which is $1 million on top of that development cost. So that’s the thing that we’re working the hardest with our people on. Also on a daily basis going in to make sure we’re value engineering and everything we’re doing inside our four walls and going with it. But that’s the disappointment I think when you’re looking at your cash on cash, you’re going to be looking at that dollars and 40% increase.

Aisling Grueninger: Thank you. That’s very helpful. I’ll pass it back.

Steve Hislop: Thank you.

Operator: Thank you, ma’am. The next question we have comes from Nick Setyan from Wedbush Securities. Please go ahead.

Nick Setyan: Hi. Thanks, Jon. So just kind of the margin, I guess, trajectory, given the sort of the context you already gave us. It sounds like COGS 10, 20 bps of leverage, maybe slightly more, labor maybe 70 to 80 bps of deleverage and operating the deleverage as well. Is that kind of the right way to think about the various buckets?

Jon Howie: Yeah. I think the only thing I would add is, we’re looking at probably flat from a cost of sales standpoint as far as being in kind of the low-single digits, which are with our — which we’re thinking 2% to 3%. And so basically, our pricing would cover that. So probably not much leverage there, but the other items that you said as far as operating expenses, deleveraging and the labor deleveraging, yes.

Nick Setyan: Okay. And then I mean understanding sort of the period 1, period 2 challenges, we do have to kind of come over to Uber, Lyft. Maybe just walk us through some of the other comp drivers for the rest of the year?

Steve Hislop: Yeah. The comp drivers for us is, again, what I’ve already mentioned, the marketing and the one thing that we’re pushing on everything that we have out there is our value within our menu. I mean I know you’ve been out there seeing a lot of our competitor have said, are going back to the 2019 ways of doing all their promotion and their price offs. And obviously, they haven’t done that for three years. So when they pop back in the market in the third and fourth quarter of last year, people are trying that out. We don’t think we need to do that, obviously, because you can eat in our menu all day long for $20. So we’re pretty excited about really pushing our value message again. And then also the increases in what we’re doing with our CKOs and keeping things new and fresh.

And as I mentioned earlier, that we had a little bit — we added a few different items back on the menu, whether it be the Burrito Bowls and so forth. And the key for all — everything that we do is we’re turtles and what we approach. And what we want to do right now is, this is when we want to tuck in to our four walls and execute, execute every single day, every single shift, every single hour. And that’s the thing that we believe, while everybody is out there looking for a silver bullet, we believe that’s what’s really going to drive demand into our restaurants short and long-term.

Jon Howie: And on that, Nick, I might add, we look at the sentiment scores that we get from Black Box and you don’t necessarily compare it with others, but we compare it with ourselves and make sure those are increasing. We’ve seen a significant betterment of those sentiment scores over the last six months. So I think those will turn into sales as we continue to increase in the sentiment scores towards the back half of the year.

Nick Setyan: Perfect. Thank you very much.

Steve Hislop: Thanks, Nick.

Operator: Thank you. The next question we have comes from Chris O’Cull from Stifel. Please go ahead.

Chris O’Cull: Just for taking the question, guys. Good afternoon. Steve, just given the recent traffic performance, I’m just curious if the company debated whether to spend more on advertising this year and maybe even use more paid media in markets where you have good density and it could help maybe improve top-of-mind awareness.

Steve Hislop: Yeah. Chris, we’re looking at that partly, and that’s always on. We’re very nimble on that approach within our marketing budgets, and we’ll look at that continuing. And as you know, the one thing about a lot of digital is you can pivot on a dime. So we’re constantly looking at that, and we’ll continue to look at that as we’re going on right now.

Chris O’Cull: Would you consider things like broadcast, like TV in certain markets?

Steve Hislop: And certain ones, but right now, as you heard me talk about programmatic TV currently. Right now, we’re doing a lot on ESPN and a lot of stuff around sports, especially as we were mentioning to you on the call about looking at it more so in — as we get into March Madness and so forth. But we’ll definitely look in probably more on the programmatic side of it, probably not major media.

Chris O’Cull: Okay. And then, Jon, can you describe the visibility you have into that low single-digit commodity inflation for this year?

Jon Howie: Sure. So I mean, the biggest component would be our beef. Our beef, we’ve got locked in through the third quarter of this year as far as fajita beef, those are at increased prices as well as our ground beef. We only have locked in through the Q1 we expect when we start buying that after Q1 that will be elevated compared to the prices of this year. And so those are the two big drivers as well as some of the — maybe the chicken coming back a little bit as well, since we had it — since it was down so much last year.

Chris O’Cull: Okay, great. Thanks, guys.

Steve Hislop: Thanks, Chris.

Operator: Thank you. [Operator Instructions] The next question we have comes from Todd Brooks of The Benchmark Company. Please go ahead.

Todd Brooks: Hey, thanks for squeezing me in. I only have a couple left here. One, I was just wondering, can we get an update on the stores that were kind of mothballed during the start of the pandemic. How many of those are you still kind of carrying? And the cost that we saw for — just the underperforming and discontinued performance in the quarter, is that against those stores fully? Or are you looking at anything in the base that you impaired? And do we need to think about any closures against the openings planned for this year?

Jon Howie: Well, I mean, as you know, the impairment is a fundamental kind of exercise from an accounting standpoint. So that particular impairment was one of our stores in Denver area. We don’t plan on closing anyone anytime soon, but that is a challenge store. So we’ll continue to look at that store. As far as the ones that we mothballed, we’ve gotten rid of most of them. I think we’re still working on three of them, and we’re pretty close to getting those out of here. And so again, that will just go back to — I think there’s like three of them are currently on subleases that there’s a little differential in the sublease. But other than that, we almost have them all done.

Todd Brooks: Great. And then, Steve, just a question. I know we’re working our way back to the 10% unit growth. In the past, you’ve talked about that being related to what you’re seeing in kind of traffic trends and the strength of your customer. With what you’re seeing now, is this the right time to accelerate from kind of the 6% to 8% this year? Or do you need to see a pickup in the consumer? Or just with the challenges in getting the real estate you want in your markets and the fact that you’re doing infills, are you comfortable with the 10% growth in ‘25?

Steve Hislop: Yeah. I’m comfortable for this year in that 6% to 8% range, because as I mentioned to you before, or I mentioned earlier, it’s just the initial cost of getting into these and while we’re retooling our building, even again, it’s at 40%. That’s huge. And then put the site cost on top of that. So that’s the big thing. Hopefully, we’ll see some reasonable in this happened throughout 2024 on that, that gets it and where it makes sense from a capital side to get to that 10% growth. But right now, for this year, I’m comfortable in that 6% to 8% range.

Todd Brooks: Okay, great. Thank you, both.

Steve Hislop: Thanks, Todd.

Operator: Thank you, sir. The last question we have comes from Andrew Wolf of CL King & Associates. Please go ahead.

Andrew Wolf: Okay, thank you. I just have a couple of follow-ups. First is on development. I mean, recently, you’ve talked about targeting a 30% cash-on-cash return. But you still — I mean, you called out how expensive it is to build the buildings, and you’ve kind of talked about buying the land and doing an eventual sale and leaseback. So could you just unpack for me is, one, is that 30% cash-on-cash return which is a strong return, still realistic? Or is it — is that going to change? And if you’re going to keep it, is it predicated on doing an eventual sale and leaseback just based on market rates to build out a restaurant?

Jon Howie: Well, there’s a lot to unpack there. So yes, I mean, our ultimate target is 30% cash-on-cash return with the cost the way they are, and that’s why we’re trying to do a lot of value engineering that we spoke of. We’ve actually hired two additional architects to kind of go through our whole current building and our prototype and all the layers that we have in it and suggest different ways to build it, different ways to design it, different layers and different alternative materials on the layers that we have in the restaurants as well as even looking at the equipment package that we have and totally — so we’re doing a soup to nuts, if you will, of kind of value engineering right now. Now initially, we’re getting some fairly good results.

Obviously, we don’t have one of the new ones in the ground, but some of the plans coming back we’re liking. But currently, I would say those targeted cash-on-cash returns are more in the way of about 25% versus 30%, but our ultimate target is 30%. And those — it really we look at the purchase and when we’re doing the pro forma. So if it makes sense and if we can do a purchase, looking at the sales leaseback and seeing what we get back from the sales leaseback to actually boost those returns on cash-on-cash return. But all that goes into the decision of whether to buy or to lease and then ultimately, this value engineering. Currently, to-date, we have about seven properties that we own. There’s about two or three other properties that we’re looking at right now to buy.

And the development in the current year, we do not have any properties that we have purchased. They will fall into 2025. But hopefully, I answered all of your questions there.

Andrew Wolf: Yeah, very much. I really appreciate the detail. Can I just ask another follow-up, but just on the Uber Eats comparisons. So it sounds like it’s 350 bps this quarter as a headwind. And I guess you got another quarter or two of that. And then it must ease in the fourth quarter, which is sort of the other way of asking how much was it — how much was the Uber Eats headwind in the quarter you just reported, the fourth quarter – last year’s fourth quarter ‘23?

Jon Howie: Well, yeah, if you look at it, so basically, Uber Eats was about 2.1% of our sales in the fourth quarter of 2022 when we implemented it. And that grew — kept growing in the first quarter. It was about 2.8% of sales until eventually, for all of 2023, it was about 3.5%. So you’re looking at 300 to 400 basis points that we’re rolling over, which is a little challenging.

Andrew Wolf: Okay, got it. All right. Thank you.

Operator: Thank you, sir. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Steve Hislop for closing remarks. Please go ahead, sir.

Steve Hislop: Thank you. Thank you so much. Jon and I appreciate your continued interest in Chuy’s and are available to answer any and all questions. Again, thank you, and have a good evening.

Operator: Thank you. Ladies and gentlemen, that then concludes today’s conference. Thank you for joining us. You may now disconnect your lines.