Chuy's North Lamar location in Austin. Source: Chuy's.
Investors in Chuy's Holdings have been happy with 2015 so far, as the stock has bounced from its lowest levels since immediately after its 2012 IPO on hopes that the Tex-Mex restaurant chain would start to see sales and profits climb. Coming into Monday afternoon's first-quarter financial report, Chuy's shareholders had gotten nervous due to poor results from some of its rivals in the Mexican food arena, with fears that the trend favoring the niche might be reversing itself. Chuy's results, showed that impact that its rapid expansion plans have had on its overall growth, even as it didn't completely address the company's long-term future. Let's look a bit more closely at Chuy's most recent results and what's next for the Tex-Mex chain.
Chuy's adds some jalapeno to its resultsAs we saw last quarter, Chuy's gave its investors a mixed bag in terms of its results. Revenue climbed at more than a 19% pace to $66.8 million, but that growth rate fell just short of the 20% that most of those following the stock had hoped to see from the company. On the bottom line, though, Chuy's posted an even more impressive 23% gain from the year-ago quarter, posting $3.2 million, or $0.19 per share. With investors expecting flat earnings per share compared to 2014's first quarter, the overall results gave them a nice positive surprise.
Looking more closely at the results, Chuy's has done a good job of expanding its network of restaurants, adding three more restaurants during the first quarter. The problem, though, is that the Tex-Mex chain hasn't managed to demonstrate the kind of loyalty among its customers that shows up in comparable-restaurant sales growth. Comps climbed by just 1.9% during the quarter, with the company saying that bad winter weather cost the company about two percentage points in comparable sales, essentially cutting the figure in half from what it would have been. Indeed, even though average check sizes climbed by 3.3%, average weekly customers actually dropped by 1.4%.
One way that Chuy's added to its bottom-line success was through attention to costs. Lower food costs helped the company cut its total restaurant operating costs by a percentage point, with dairy and produce prices having a particularly notable effect. Lower labor costs also reflected some of the moves that Chuy's has made to improve efficiency internally.
CEO Steve Hislop once again celebrated Chuy's growth potential. In Hislop's words, "Our results demonstrated the strength of our brand as we differentiate ourselves through our made-from-scratch, Tex Mex-inspired menu; commitment to value; and upbeat, irreverent atmosphere."
Chuy's lifts its sights higherThe strong results in the first quarter led Chuy's to lift its overall guidance for the full 2015 year. The restaurant company now expects earnings of $0.76 to $0.79 per share, up $0.02 from its previous guidance. Yet Chuy's also expects higher overhead costs by about $300,000 from previous projections, and the Tex-Mex chain didn't make any positive changes to its projections for comparable-restaurant sales growth of just 2.5%.
Chuy's has taken strides to expand not just in existing areas of strength but also into new regions that don't have as much competition. Although one of the company's new restaurants was in its home state of Texas, Chuy's also had new locations in Orlando and in Arkansas, and after the quarter ended, Chuy's opened its fourth location of the year in Dayton, Ohio. The company has worked hard to expand its geographical presence, and hopefully, demand will be longer-lasting in areas that don't have as many Tex-Mex and Mexican food options.
Chuy's shares responded quite favorably to the good news, with gains of more than 8% in the first two hours of after-market trading following the announcement. Yet even with the jump, Chuy's stock is still down more than 40% since early last year. That shows that even with modest gains, Chuy's should still have plenty of room to run higher as long as it can continue to demonstrate its ability to grow and attract customers in new areas as it expands its reach across the nation.
The article Chuy's Earnings Heat Up As Expansion Boosts Growth originally appeared on Fool.com.
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