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Even with no symptoms, Chuy’s is grilled on coronavirus

The casual chain posted a 2.9% comp gain and a 5.4% rise in revenues, but investors wanted to learn more about pandemic what-ifs.
Photograph: Shutterstock

At any other time, investors might have fixated on Chuy’s 2.9% same-store sales increase and net loss of $1.4 million for the fourth quarter ended Dec. 29. But with the results released amid mounting fears of an economic crisis triggered by coronavirus, executives were asked pointedly about the possibility of devastation.

If sales were to drop 20% to 30%, one analyst asked at the start of the chain’s quarterly conference call, how much leeway did headquarters have to temper the impact by tightening costs? Is Chuy’s locked into food purchases? And what about labor?

“Are you going to continue paying your hourly employees even if they don't come to work?” asked Nick Setyan of Wedbush Securities. “How should we think about that scenario?

Chuy’s CEO Steve Hislop said the chain hasn’t seen any falloff in customer traffic because of the emerging pandemic to date, including in the first month of 2020’s first quarter.

CFO Jon Howie added, “We're taking some precautions, but we're just kind of waiting and seeing and hopefully this will correct itself. But obviously there is some concern out there.

He estimated that 70% to 80% of Chuy’s normal expenses could be reset in accordance with a free fall in sales.

But that didn’t satisfy all of the participating financial analysts.

“Most of your system isn't located in the so-called virus hot spots, so your overall comp hasn't been impacted,” said Chris O’Cull of Stifel, as recorded in a SeekingAlpha.com transcript of the call. “But have you seen any locations where there has been a perceptible change in sales trends that could be influenced by just slower tourism or slower conference usage or anything like that?”

“We haven't got into the spring breaks or really anything yet and so as of now, not really,” said Hislop.

With that, the conversation shifted—but only for a moment. Executives were asked about the other catastrophe in the news this week, the deadly tornado that chewed up Nashville and the surrounding areas of Tennessee. Hislop assured the participating analysts that the chain’s restaurants and employees were safe and back in normal mode.

Chuy’s stock price has risen 4% since posting earnings, to $19.27 per share.

It’s not as if the chain’s executives didn’t have other developments to discuss. Hislop revealed that Chuy’s is testing a pay-at-the-table function at a high-volume unit, and handheld server ordering devices are being tried at a second store. The former is expected to speed service, while the latter is intended to increase the time waitstaffers are in the dining room, interacting with patrons.

“While both of these devices are still in early stages, the feedback so far has been very favorable,” Hislop said.

He also disclosed plans to roll out catering to two markets per quarter during 2020, which would make the service available in 19 areas by 2021. Catering sales rose to $2.2 million in Q4, compared with $600,000 in the year-ago period.

“A key component of our catering success to date has been the addition of a dedicated catering manager for each new market,” Hislop said.

He also revealed that Chuy’s use of DoorDash as its chainwide third-party delivery partner was reducing delivery costs. A portion of the savings will be reinvested in improving delivery processes and packaging, Hislop said.

Howie noted that Chuy’s is permitted under its pact with DoorDash to deal with other delivery services if the business coming through DoorDash should decline.

Chuy’s Q4 loss compares with a profit for the year-ago quarter of $3.4 million. Howie said profits were lowered during 2019 in part by a $5.6 million impairment charge for the closing of four restaurants during Q4.

Commodity costs for Q4 increased 2%, and hourly wages rose 3.2%, according to the company.

The 2.9% rise in comps came despite a 1% decline in traffic. The average guest tab rose 3.9%, with menu prices rising by an average of 3.9%, Howie said.

 Revenue rose 5.4%, to $102 million.

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