Holy Guacamole! Chuy's Stock Soars on Spicy-Hot Earnings Growth

Image: Chuy's.

The restaurant business is a volatile one, and as Chuy's Holdings can tell you, investors are often finicky about the results a restaurant company posts. Yet after a tough 2014, Chuy's has done quite a bit better this year, and coming into Tuesday afternoon's second-quarter financial report, Chuy's investors were increasingly optimistic that the worst of the Tex-Mex chain's slowdown was behind it. Chuy's results fueled that fire of optimism, with impressive revenue growth that translated into a huge bottom-line boost for the restaurant company. Let's take a closer look at how Chuy's fared this quarter and whether the Tex-Mex chain can continue its run of success.

Chuy's spices things up again Chuy's really stepped things up in the second quarter compared to some of its previous efforts. The company managed to post consistent growth in revenue, with a 19% rise to $75.4 million marking a faster pace than the 16% that most investors following the stock had expected to see. Where Chuy's really blew things out of the water was in its net income, which soared 56% to $5.4 million. That produced earnings of $0.32 per share, easily beating the consensus estimate of $0.25 per share.

Taking a closer look at its numbers, Chuy's managed to see improvement both from its existing network of stores and through expansion. The company added a single new restaurant during the quarter, bringing the total number of locations in its network to 64. Yet even better news came from Chuy's comparable-restaurant sales growth, which accelerated during the quarter to 3.2%. Interestingly, the company actually saw the number of customers decline from year-ago levels, but those who did come in through the door spent nearly 4% more on their average check. Still, with the restaurant chain having said that last quarter's weakness in comps was due to poor weather, some might have preferred to see an even more dramatic pick-up in comparable-restaurant sales this quarter.

As we saw last quarter, Chuy's did manage to boost its earnings in part by cutting its restaurant operating costs. Chuy's said that lower food costs drove operating margins up by more than two and a half percentage points for the quarter, with the company highlighting dairy, chicken, produce, and grocery items as having a particularly large impact. Lower labor costs also added to the Tex-Mex chain's internal efficiency, although higher occupancy costs offset the gains to some extent.

CEO Steve Hislop was especially pleased with Chuy's cost-cutting measures. With a combination of double-digit revenue growth, a 20-quarter streak of positive comps, more efficient operations, and an ambitious slate of store openings, Chuy's has a lot of enthusiasm about its future.

Chuy's gives investors a nice after-dinner treat The stronger growth that Chuy's has seen inspired it once again to raise its expectations for the remainder of the year. The Tex-Mex chain now believes that it will earn about $0.06 per share more than its previous guidance, with a new range of between $0.82 and $0.85 per share. That comes even without Chuy's changing its expected growth in comps, which is currently 2.5%. The company bumped up its estimate of overhead expenses by about $1 million, but that's fairly consistent with the increase in revenue that the restaurant company has seen so far in the year.

In particular, Chuy's expects its restaurant development to accelerate in the coming quarters. The company already opened a new location in El Paso earlier this quarter, and it expects a total of 10 to 11 restaurants this year. Moreover, although Hislop said that "our development schedule is more back-end loaded this year," the company is "already well into filling our 2016 pipeline," pointing to even more ambitious expansion plans over the long run.

Chuy's investors celebrated the news, sending the stock soaring more than 12% in the first two hours of after-market trading following the announcement. If the Tex-Mex chain can continue to post solid results like this, then investors hope that the shares could eventually get back to their previous all-time highs, which would represent a good return even from current levels.

The article Holy Guacamole! Chuy's Stock Soars on Spicy-Hot Earnings Growth originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Chuy's Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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