Chuy’s(CHUY) - 2019 Q2 - Quarterly Report

Part I – Financial Information Financial Statements The company's financial statements show revenue growth, flat net income due to rising costs and one-time expenses, and significant balance sheet changes from new lease accounting standards Condensed Consolidated Balance Sheets Total assets and liabilities significantly increased due to the adoption of the new lease accounting standard, recognizing substantial operating lease assets and liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 (Unaudited) | December 30, 2018 | | :--- | :--- | :--- | | Total Assets | $455,193 | $277,084 | | Cash and cash equivalents | $11,752 | $8,199 | | Operating lease assets | $170,094 | $0 | | Total Liabilities | $256,901 | $83,233 | | Operating lease liabilities (Current & Non-current) | $225,311 | $0 | | Total Stockholders' Equity | $198,292 | $193,851 | - The adoption of ASU 2016-02 Leases (Topic 842) on December 31, 2018, was the primary driver for the significant increase in assets and liabilities, with the initial recognition of $170.3 million in operating lease assets and a corresponding lease liability[24][26] Unaudited Condensed Consolidated Income Statements Revenue increased for both Q2 and H1 2019, but net income remained flat or slightly decreased due to higher operating costs and a legal settlement Q2 2019 vs Q2 2018 Performance (in thousands, except per share data) | Metric | Thirteen Weeks Ended June 30, 2019 | Thirteen Weeks Ended July 1, 2018 | | :--- | :--- | :--- | | Revenue | $113,132 | $106,340 | | Income from operations | $6,346 | $7,190 | | Net income | $6,245 | $6,456 | | Diluted EPS | $0.37 | $0.38 | H1 2019 vs H1 2018 Performance (in thousands, except per share data) | Metric | Twenty-Six Weeks Ended June 30, 2019 | Twenty-Six Weeks Ended July 1, 2018 | | :--- | :--- | :--- | | Revenue | $215,243 | $200,190 | | Income from operations | $9,717 | $10,865 | | Net income | $9,462 | $9,639 | | Diluted EPS | $0.56 | $0.56 | Unaudited Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased in H1 2019, driven by net income and partially offset by common stock repurchases - Key activities affecting stockholders' equity in the first half of 2019 included net income of $9.5 million ($3.2M in Q1 and $6.2M in Q2) and the repurchase of common stock totaling approximately $5.7 million ($1.8M in Q1 and $3.9M in Q2)[15] Unaudited Condensed Consolidated Statements of Cash Flows Net cash from operating activities decreased, while cash used in investing activities significantly decreased and cash used in financing activities increased due to share repurchases Cash Flow Summary for the Twenty-Six Weeks Ended (in thousands) | Cash Flow Activity | June 30, 2019 | July 1, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $24,671 | $26,622 | | Net cash used in investing activities | ($14,723) | ($23,149) | | Net cash used in financing activities | ($6,395) | ($1,968) | | Net increase in cash | $3,553 | $1,505 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail the material impact of new lease accounting, a legal settlement accrual, restaurant closure costs, and the company's undrawn revolving credit facility - The company adopted ASU 2016-02 Leases (Topic 842) on December 31, 2018, which required recognizing right-of-use assets and lease liabilities for operating leases on the balance sheet[24] - As of June 30, 2019, the company had no borrowings under its $25.0 million Revolving Credit Facility, which matures in October 2020[35] - The company accrued $0.8 million for a pending legal settlement related to an overtime compensation lawsuit filed on behalf of assistant managers[39] - Closure costs of $0.6 million were recorded for the twenty-six weeks ended June 30, 2019, related to two restaurants closed in the first quarter[47] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue growth to new restaurants and comparable sales, but operating income declined due to increased costs and G&A expenses, while the company continues its growth and capital allocation strategies Overview and Growth Strategies Chuy's operates 102 restaurants and pursues growth by opening new locations in major markets, backfilling existing ones, and leveraging its infrastructure - The company's growth is based on pursuing new restaurant development, delivering consistent same-store sales, and leveraging infrastructure[52] - During the first 26 weeks of 2019, the company opened four new restaurants, with one more opening after the quarter-end[52] Results of Operations Revenue increased for Q2 and H1 2019 due to new stores and comparable sales, but profitability declined due to commodity inflation, higher occupancy costs, and a legal settlement Key Performance Indicators | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Change in comparable restaurant sales | 1.9% | 1.0% | 2.5% | 0.3% | | Average check | $15.91 | $15.23 | $15.73 | $15.12 | | Total restaurants (end of period) | 102 | 96 | 102 | 96 | - Q2 2019 comparable sales growth of 1.9% was driven by a 3.9% increase in average check, partially offset by a 2.0% decrease in average weekly customers[62] - Cost of sales as a percentage of revenue increased in Q2 2019 due to higher costs for beef (approx. 40 bps) and produce (approx. 50 bps)[62] - A legal settlement of $0.8 million was recorded in Q2 2019, impacting net income by $0.6 million after tax, or $0.04 per diluted share[64] Liquidity and Capital Resources The company's liquidity relies on cash from operations and an undrawn $25.0 million credit facility, with capital primarily allocated to restaurant expansion and share repurchases - Principal sources of cash are net cash from operations and the $25.0 million Revolving Credit Facility, which had no borrowings as of June 30, 2019[70][35] - As of June 30, 2019, the company had $20.7 million remaining under its share repurchase program, which is authorized through December 31, 2019[70][37] Quantitative and Qualitative Disclosures about Market Risk No material changes were reported regarding the company's quantitative and qualitative market risk disclosures since the last Annual Report - There have been no material changes to the company's market risk disclosures since the last Annual Report[84] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[85] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[87] Part II – Other Information Legal Proceedings The company is involved in various legal actions, including a collective action settlement for which $0.8 million has been accrued - The company refers to Note 9 of the financial statements for information on legal proceedings, which details a lawsuit for which an $0.8 million settlement has been accrued[87][39] Risk Factors No material changes to risk factors were reported since the company's last Annual Report on Form 10-K - No material changes to risk factors were reported since the last Annual Report[88] Use of Proceeds and Issuer Purchases of Equity Securities The company repurchased 176,171 shares for $3.9 million in Q2 2019, with $20.7 million remaining under its share repurchase authorization Share Repurchases for Q2 2019 | Period | Total Shares Purchased | Average Price Paid Per Share | Approximate Value Remaining for Purchase (in millions) | | :--- | :--- | :--- | :--- | | April 1 - June 30, 2019 | 176,171 | $21.99 | $20.7 | - The share repurchase program authorizes up to $30.0 million in repurchases through December 31, 2019[89] Other Items (Items 3, 4, 5, 6) The company reported no defaults, mine safety disclosures, or other material information, and provided a list of exhibits - The company reported "None" for Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information)[90][91][92] - Item 6 provides a list of exhibits filed with the Form 10-Q, including officer certifications and XBRL data files[94]