Off-premises accounted for 33 percent of sales in Q3.
With rising COVID cases across the country, Chuy’s felt it was important that consumers know where it stands amid the growing crisis.
The 101-unit brand resumed its marketing efforts with messaging in three key areas—safety, convenience, and value.
To further protect guests in dining rooms, the chain is testing pay-at-the-table devices to allow consumers to finish their visit with minimum interaction. For those choosing to eat outside the four walls, Chuy’s is focused on enhancing its off-premises business, which is more than double pre-COVID sales. To capture value, the concept has streamlined its menu by reducing entrées and adding family meals and beverage kits.
The message appears to be working as same-store sales have lowered 14.2 percent in October after a slide of 26.3 percent in July.
“While uncertainty surrounding COVID-19 remains, our business is recovering with ample liquidity and strong financial footing, positive sales trajectory, relentless dedication of each and every one of our team members, and the strength of our concepts,” said CEO Steve Hislop during the brand’s Q3 earnings call. “We are equipped to weather the ever-changing market conditions and are ready to capitalize on our improved business operations once this pandemic subsides.”
Comp sales dropped 19.8 percent in Q3. The slide was due to a 27.5 percent decrease in traffic, offset by a 7.7 percent increase in average check. Off-premises accounted for 33 percent of sales, compared to 12 percent in the year-ago period. Seventy to 80 percent of stores are selling alcohol to-go, which represents about 3.1 percent of sales.
One bright spot in the pandemic has been efficiencies in operation. Chuy’s managed to grow its operating profit by 12 percent to $17.7 million and increase its margins to 21.5 percent year-over-year despite lower sales. Hislop acknowledged that as restrictions loosen and sale volumes return, some of those gains will be deducted, but he believes changes to the P&L will have long-term implications.
Store have also adapted by pivoting to outdoor dining. Patio sales are roughly 11.5 percent compared to 7.3 percent in 2019. In October, the figure jumped to 13.3 percent.
“We're still seeing some decent days to be out in the patio definitely in the Southern markets,” Hislop said. “And so we continue to build that. Obviously when we get into the heavy winter, that may come back a little bit, but we've done a lot of things to extend that patio. We've extended the patios, but then we've put heaters out there and things like that just in that patio season. So we're pretty happy where we are. But we do know in the winter months that that could come back a little bit.”
THE COVID-19 ROAD FOR CHUY'S SO FAR
Average weekly sales in October were $68,464. It’s a $2,500 improvement from July, but a slight slip compared to September. Hislop attributed the stagnation to a combination of capacity restrictions and constant news about rising COVID cases. A store in Chicago reverted back to off-premises only because of local restrictions; the same is true for a store in El Paso, a city that’s seen a spike in COVID cases.
Hislop said that with 6-foot social distancing rules in place, restaurants can hold no more than 50 percent capacity. To combat this, Chuy’s will seek improvements in larger parties and home dining over the holiday period and more catering in November and December.
“We also believe with a little bit of marketing that we've added on that we didn't start again until the beginning of the fourth quarter—we’re one month into that talking about safety, convenience in our value message—we believe will resonate with our customers also,” Hislop said. “So we do believe we have some capacity as we move forward through the rest of the year from our numbers in August and September.”
Nine stores remain temporary closed. Hislop said the team is taking a hard look at the units to determine a path forward. He will revisit the stores in Q4 to understand the changes in the market in terms of competition and the COVID environment.
“We're going to make sure that we have the opportunity not only to build but also grow or will make a tough decision possibly not to open them,” Hislop said. “So we'll look at all of that stuff.”
After opening one store in February, Chuy’s suspended development for the rest of the year. However, Hislop said that barring any changes, the chain plans to restart unit growth next year with four to six openings. According to the CEO, each store will be in existing markets where Chuy’s has strong AUV. A store in Pembroke Pines, Florida, and Indianapolis are expected in the first half of 2020.
But that’s not to say Chuy’s has eyes on prime real estate because of mass closures. Hislop doesn’t expect much to become available until sometime next year.
"I haven't seen a whole bunch,” Hislop said. “And I really don't anticipate to see a whole bunch. We’ve heard that some of the smaller ones, local guys, might have gone out, but I think it's going to really be after the holidays is where you're going to see it during the first quarter. And that's what we're looking for and that's why we'll be really taking a look at our existing market points and what's happening in the competitive landscape as we move forward.”
Revenue came in at $82 million, a decline from $109.1 million last year. Chuy’s swung a net income of $2.8 million, compared to a net loss of $1.8 million in 2019.