Chuy’s(CHUY) - 2021 Q4 - Annual Report

PART I Business Chuy's Holdings operates 96 Tex-Mex restaurants across 17 states, focusing on authentic cuisine, unique atmosphere, and value - Company Overview (as of Dec 26, 2021) | Metric | Value | | :--- | :--- | | Number of Restaurants | 96 | | States of Operation | 17 | | Average Annual Unit Volume (Comparable) | $4.2 million | | Average Check | $17.30 | | Alcoholic Beverage Sales % of Total | ~16% | - The company's brand motto is "If you've seen one Chuy's, you've seen one Chuy's!", reflecting a strategy of unique, eclectic decor for each location to create an "unchained" look and feel[12][15] - In response to the COVID-19 pandemic, the company developed a new operating model to handle increased off-premise business, right-sized its labor model, and maximized profitability at reduced sales volumes As of year-end 2021, all restaurants were operating without capacity restrictions[12][14] - The company plans to open five to eight new restaurants in existing markets during 2022[18] Our Business Strengths and Strategies This section details the company's core competitive advantages and strategic initiatives for growth and operational efficiency - Core business strengths include: - Authentic Cuisine: Use of fresh, made-from-scratch ingredients and recipes from founders' families - Value Proposition: Generous portions with an average check of $17.30, appealing to a broad demographic - Unique Atmosphere: Eclectic, irreverent decor with signature elements like hand-carved wooden fish and vintage hubcaps - Strong Company Culture: Emphasis on fun, community involvement, and employee training, leading to favorable turnover rates - Flexible Business Model: High average unit volumes ($4.2 million for comparable stores) and a flexible real estate strategy using both conversions and new builds[15][17] - Key business strategies are: - New Restaurant Development: Focus on expanding in major markets and backfilling existing ones - Comparable Sales Growth: Drive traffic by consistently providing high-quality food, service, and value - Infrastructure Leverage: Utilize existing corporate infrastructure to support growth efficiently, expecting G&A costs to grow slower than revenue[18] Real Estate and Site Selection This section describes the company's approach to restaurant location, property leasing, and investment in new sites - As of year-end 2021, the company leased 106 locations (91 free-standing, 15 end-cap/in-line) and owned two properties Leases are typically long-term (10-15 years initial) with extension options[19] - The site selection process targets high-traffic locations with a strong concentration of the core demographic (ages 21-44, median income >$60,000) The company uses a flexible model, pursuing both conversions of existing sites and ground-up prototypes[22] - For 2022, the estimated cash investment for a new restaurant is $3.0 million to $4.0 million The process from site identification to opening takes approximately 14 to 18 months[23] Operations and Marketing This section covers the company's supply chain, marketing strategies, and expansion of off-premise dining options - The company relies on a primary national distributor, Performance Food Group (PFG), for most supplies, with specialized suppliers for items like chicken and Hatch green chiles[26][28] - Marketing strategy combines national digital initiatives (paid search, social media, influencers) with local store marketing focused on community relationships and charity events[30][31][32] - Off-premise initiatives have been expanded through online ordering platforms and partnerships with third-party delivery services, with DoorDash as the preferred national partner[33][34] Human Capital Management This section details the company's employee base, turnover rates, and investment in training and culture - As of December 26, 2021, the company had approximately 6,700 employees, none of whom are unionized[42] - The company reports favorable employee turnover rates, which it attributes to its strong culture and investment in training As of year-end 2021, annual turnover was approximately 25% for store managers and 94% for hourly employees[42] - Significant resources are devoted to employee training, including multi-month programs for managers and "Culture Clubs" that impart the company's history and values[42] Risk Factors The company faces significant risks across operations, labor, regulatory compliance, financial stability, and market factors - The COVID-19 pandemic is cited as a primary risk, having previously harmed the business through closures and restrictions, and potentially continuing to do so through new variants, supply chain disruptions, and changes in consumer behavior[47] - A significant geographic concentration risk exists, with approximately 41% of restaurants located in Texas, making the company susceptible to economic, weather, and other trends in that state[59] - The company is exposed to risks from changes in food availability and costs, particularly for volatile commodities like produce, beef, chicken, and cheese, and does not currently use financial instruments to hedge this risk[63][65] - Labor shortages and rising labor costs, driven by minimum wage increases and a competitive hiring market, are identified as significant risks that could harm business operations and growth[78][79] Properties Chuy's operates 96 restaurants across 17 states, primarily leasing locations under long-term agreements, with a significant concentration in Texas - Restaurant Locations by State (Top 5) | State | Number of Restaurants | | :--- | :--- | | Texas | 39 | | Florida | 8 | | Tennessee | 7 | | Ohio | 6 | | Virginia | 6 | - The company generally leases all land, parking, and buildings for its restaurants Most leases include a base rent plus a contingent rent based on a percentage of gross sales above a certain threshold[104] Legal Proceedings The company is involved in routine legal actions, which management believes will not materially impact its financial position or results - Information regarding legal proceedings is referenced in Note 13 to the Consolidated Financial Statements[105] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Chuy's common stock trades on Nasdaq, with the company prioritizing earnings retention for growth and share repurchases over cash dividends - The company does not currently pay dividends and expects to retain future earnings for business operations, growth, and share repurchases[109] - Share Repurchase Activity (Q4 2021) | Period | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | Sep 27 - Oct 24, 2021 | — | $— | | Oct 25 - Nov 21, 2021 | 134,751 | $32.64 | | Nov 22 - Dec 26, 2021 | 130,181 | $30.75 | | Total Q4 2021 | 264,932 | $31.71 | - On November 4, 2021, the board approved a new share repurchase program authorizing up to $50.0 million in repurchases, effective October 28, 2021, and expiring December 31, 2023 As of December 26, 2021, $41.6 million remained available under this program[110] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strong 2021 recovery, marked by significant revenue and net income growth and robust liquidity - Key Performance Indicators | Metric | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Total Restaurants (EOP) | 96 | 92 | 100 | | Comparable Restaurants (EOP) | 92 | 86 | 88 | | Average Unit Volumes (thousands) | $4,197 | $3,477 | $4,318 | | Change in Comparable Sales | 22.1% | (22.1)% | 2.6% | | Average Check | $17.30 | $16.93 | $15.74 | - The company's growth strategy focuses on opening 5 to 8 new restaurants in fiscal 2022, primarily by developing additional locations in existing major markets and backfilling smaller ones to build brand awareness[118][120] - As of December 26, 2021, the company had a strong financial position with $106.6 million in cash and cash equivalents, no debt, and $35.0 million of availability under its revolving credit facility[140] Results of Operations This section details the company's financial performance, including revenue, cost of sales, labor costs, and net income for the fiscal year - Consolidated Statement of Operations Highlights (FY 2021 vs. FY 2020) | Metric (in thousands) | FY 2021 | FY 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $396,467 | $320,952 | $75,515 | 23.5% | | Cost of Sales (% of Revenue) | 24.3% | 24.6% | - | - | | Labor Costs (% of Revenue) | 28.7% | 30.6% | - | - | | Income (Loss) from Operations | $34,402 | $(8,544) | $42,946 | * | | Net Income (Loss) | $30,176 | $(3,294) | $33,470 | * | - The 23.5% revenue increase in 2021 was driven by growth in customer traffic as indoor dining capacity restrictions were relaxed Comparable restaurant sales increased 22.1% due to a 19.4% increase in weekly customers and a 2.7% increase in average check[129] - Labor costs as a percentage of revenue decreased from 30.6% in 2020 to 28.7% in 2021, primarily due to sales leverage on management labor, despite hourly labor rate inflation of approximately 4.6%[129][131] - Impairment, closed restaurant and other costs decreased significantly to $10.2 million in 2021 from $26.8 million in 2020 The 2021 costs included a $2.4 million loss on lease terminations and a $2.7 million non-cash impairment charge[131] Liquidity and Capital Resources This section analyzes the company's cash flow, capital expenditures, and credit facility, highlighting its financial flexibility - Cash Flow Summary (in thousands) | Cash Flow Activity | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $49,780 | $42,714 | $43,431 | | Net cash used in investing activities | $(16,413) | $(12,149) | $(33,274) | | Net cash (used in) provided by financing activities | $(13,563) | $46,178 | $(8,282) | - For 2022, the company estimates capital expenditures between $25.0 million and $40.0 million, which includes opening 5 to 8 new restaurants and $8.0 million for maintenance and remodels[142] - In July 2021, the company entered into a new secured $35.0 million revolving credit facility maturing in July 2024 As of year-end 2021, there were no borrowings under this facility[144][146] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are unhedged interest rate fluctuations on its credit facility and commodity price volatility for key food products - The principal interest rate exposure relates to the variable-rate Revolving Credit Facility As of December 26, 2021, there were no borrowings outstanding[156] - The company is exposed to market price fluctuations in food products, particularly produce, chicken, beef, and cheese It does not currently use financial instruments to hedge this commodity price risk[157] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, including balance sheets, income statements, and cash flows - The independent registered public accounting firm, RSM US LLP, issued an unqualified opinion on the consolidated financial statements and on the effectiveness of the company's internal control over financial reporting[190][191] Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific fiscal year-ends - Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 26, 2021 | Dec 27, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $106,621 | $86,817 | | Total current assets | $114,464 | $94,561 | | Property and equipment, net | $179,369 | $185,105 | | Total assets | $495,324 | $493,675 | | Liabilities & Equity | | | | Total current liabilities | $42,372 | $43,318 | | Operating lease liabilities, non-current | $188,735 | $207,601 | | Total liabilities | $232,530 | $251,817 | | Total stockholders' equity | $262,794 | $241,858 | Consolidated Statements of Income This section details the company's revenues, expenses, and net income (loss) over the reported fiscal periods - Consolidated Income Statement Summary (in thousands) | Metric | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Revenue | $396,467 | $320,952 | $426,357 | | Income (loss) from operations | $34,402 | $(8,544) | $3,436 | | Net income (loss) | $30,176 | $(3,294) | $6,215 | | Diluted EPS | $1.50 | $(0.18) | $0.37 | Notes to Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements - In Q2 2020, the company issued 3,041,256 shares of common stock in an At-The-Market (ATM) offering, receiving net proceeds of $48.2 million, which was used to repay debt and for general corporate purposes[240] - Impairment, Closed Restaurant and Other Costs (in thousands) | Cost Category | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Total impairment charge | $2,689 | $20,850 | $12,692 | | Closed restaurant costs | $5,092 | $5,099 | $1,487 | | Loss on lease termination | $2,401 | $— | $— | | COVID-19 related charges | $— | $845 | $— | | Total | $10,182 | $26,794 | $14,179 | - The IRS audited the company's 2016 tax return and proposed an adjustment related to tenant allowances The company disagrees with the IRS's position and estimates a potential tax liability of $0.5 million to $2.5 million if the position were upheld, but has not recognized a liability as it believes its position is more likely than not to be sustained[257] Controls and Procedures Management and the independent auditor concluded that the company's disclosure and internal controls were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year (December 26, 2021)[158] - Management concluded that the company's internal control over financial reporting was effective as of December 26, 2021 The independent registered public accounting firm, RSM US LLP, also issued an attestation report concurring with management's assessment[160][165] PART III Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Certain Relationships Information for directors, executive officers, corporate governance, compensation, and security ownership will be provided in a future amendment - Information for Items 10, 11, 12, 13, and 14 is not included in this report and will be provided in a future amendment[170] PART IV Exhibits and Financial Statement Schedules This section provides an index of all exhibits filed with the Form 10-K, including corporate governance documents and material contracts - This section provides an index of all exhibits filed with or incorporated by reference into the Form 10-K, including corporate governance documents, material contracts, and certifications[172][175]