Eighty percent of hourly employees were furloughed, but a majority have returned.
Back in March, the COVID pandemic hit Chuy’s as hard as any other full-service brand.
The chain was forced to furlough 80 percent of its hourly staff and operate off-premises with limited menus at 92 of its 101 locations. Same-store sales reached a low of 67 percent in the week ending March 22.
But as dining rooms have reopened, sales have increased in subsequent weeks. Chuy’s has seen its pivot in operations—enhanced takeout, curbside pickup, delivery with national partner DoorDash, and family meal and beverage kits—continually flourish into August.
Average weekly sales improved from $38,800 in April with no indoor dining to $70,500 in June with 92 dining rooms open. Off-premises also remains more than double than it was pre-COVID. In Q2, to-go sales mixed 60 percent. Early into Q3, the channel still captures roughly 35 to 40 percent of sales.
As a result, Chuy’s rehired a majority of its furloughed employees by the end of Q2. Quarter-to-date, restaurants are staffed, and salaries have returned to normal. And in June, the chain generated higher free cash flow year-over-year with lower sales.
“While we expect that our restaurant operating costs will increase when the dining room capacity restrictions are further loosened, we are confident that we can build upon our recent operational efficiency to positively impact our business over the long run,” said CEO Steve Hislop during Chuy’s Q2 earnings call.
Same-store sales improved from a decrease of 55.2 percent in April to a decline of 44.8 percent in May and then to a drop of 21.6 percent in June.
In July, comps slightly reversed, coming in at 26.3 percent. That can be attributed to the rise in COVID cases across the country and the reinstitution of stricter mandates, like in Texas and Florida.
Hislop said comps dropped about 13 to 14 percentage points in the first couple of weeks of July. However, he added that “people finally started getting tired of that, and they get out again.” So toward the end of the month, the slide was 5 percentage points.
The CEO explained that Chuy’s has turned to outdoor dining to improve seating capacity. In the past, the patio business used to be 7.9 percent of sales. It’s grown to 10 to 13 percent during the pandemic.
“When we are at 50 percent capacity, which is where we are on most states, I don't know that we can really do inside much more than that—maybe 50 percent or 60 percent because of the 6-foot distancing,” Hislop said. “There are a few things that we can do with the place—the glass on booths, and things like that. However, we don't have that many booths. So that doesn't help expand our dining room that much either. And so, at 6-foot distancing, we can really expand our patio and get a little extra booths, which we're seeing that now. … And the biggest thing is just really promoting and driving the heck out of to-go.”
Comp sales in Q2 dropped 39 percent, including a 42.8 percent slide in average weekly customers and 3.8 percent increase in average check. Revenue dropped from $113.1 million in Q2 2019 to $65.7 million this year, or a 41.9 percent decrease.
Hislop acknowledged that some competition has closed its doors, giving Chuy’s an opportunity to grow in markets even more than they are right now.
However, the company still has nine stores that have been closed since the beginning of the pandemic. The CEO said he plans on visiting those stores soon to get an update on their viability.
“So, after this is normalized and we're comfortable traveling all over the country, I'm going to visit our stores along with our real estate department and really look at what's happened in the environment, and specifically the competitive environment and all those closed stores,” Hislop said. “And then I'll start making determinations whether we're going to open those are not. Until that time, I'm just saying they're all temporarily closed. But obviously, even in some markets where maybe in the past I haven't been able to get into because of the number of stores, we love the hermit crabs. So we like to go into those markets and we look at some opportunity events and see if we can pick up some of those that will expand our footprint in our existing market points.”
Now that dining rooms are open, Hislop said the company will resume its marketing effort in Q4 with key messaging on value, convenience, and safety. The limited menu will stay through Q2, but toward the end of 2020, the brand will have ‘a handful of items pop back on the menu.’
“We had a great quarter, and our sales momentum continued thus far into the third quarter despite the recent roll back in dining room reopenings in certain states,” Hislop said. “Our business operations are more efficient and our balance sheet is strong. While there continues to be a level of uncertainty surrounding COVID-19 in the near future, we believe our team is very resilient and will remain nimble to adapt to any challenges in the market condition.”