Despite staffing issues and commodity inflation, Chuy’s is continuing to focus on three main pillars “that are the backbone of our operations,” CEO Steve Hislop said, including safety, convenience, and value.
Following in line with the first tenet, Chuy’s is working on minimizing touch points between team members and guests, such as the continued roll out of a contactless, QR code payment method. Hislop said the plan is to roll out Chuy’s pay-by-tech solutions systemwide by the end of the year.
In terms of the convenience, off-premises mixed 26 percent in Q3. That’s down from 33 percent in the year-ago period, but a noticeable increase from the 12–14 percent Chuy’s saw pre-pandemic.
“Given how well our food travels, we believe we can continue to maintain a low-to-mid-20s off-premise mix going forward,” Hislop said during the brand’s Q3 earnings call.
As for value, customers can expect the return of some of their favorite menu items in the new year. The Baja Shrimp Taco will be making a comeback, along with several of the restaurant’s more popular combo plates.
“Our guests continue to appreciate the value we are offering in our menu and we are excited to bring back some menu items in the first quarter of 2022,” Hislop said.
Comp restaurant sales increased 20.5 percent during the quarter compared to last year. This included a 22.2 percent increase in average weekly customers, partially offset by a 1.7 decrease in average check.
Compared to 2019, comps were down 2.4 percent.
“This decline was mainly due to the emergence of the Delta variant, which impacted our stores heavily in the month of August,” Howie said.
In light of inflation, Chuy’s will not raise menu prices for the rest of the year.
Hislop said the company won’t implement a change until the beginning of February. At that time, Chuy’s will consider a price increase of around 2 percent.
“We’ll continue to look at the environment and what’s happening out there,” Hislop said. “ … We look at our value spread in every single one of our markets compared to our competitive set.”
Right now, the environment Hislop referred to includes plenty of labor obstacles. Although all of Chuy’s restaurants operated at 100 percent capacity during the third quarter, staffing levels never reached more than 85 percent systemwide, hovering between 80-85 percent for all units. In some instances, Chuy’s has had to limit the number of tables available to guests in order to maintain a standard of quality.
“To combat this near-term challenge, we are focusing our efforts in recruiting and training our employees to ensure that our restaurants are properly staffed and stay ahead of the curve,” he said. “This included our $1.6 million manager retention bonus program paid out in the second and third quarters of 2021.”
Even with that pressure, restaurant level operating margin grew to 23.3 percent in Q3, representing an increase of 180 basis points compared to 2020 and 880 basis points versus 2019.
Revenue for Q3 was $101.9 million compared to $82 million last year, an increase of 24.3 percent. CFO Jon Howie credited the increase to growth in customer traffic as indoor dining restrictions continue roll back.
Labor costs increased approximately 10 basis points to 29.2 percent, due in large part to hourly labor rate inflation of 8.3 percent. Howie said increased overtime was a partial cause of the hourly inflation, which is expected to increase 10 to 11 percent in Q4.
Cost of sales was also affected by inflation, increasing 30 basis points to 34.5 percent. Howie said this was primarily due to overall commodity inflation of roughly 3.6 percent. Based on recent trends, he expects commodity inflation of somewhere between 7 and 9 percent for Q4.
General and administrative expenses increased to $7 million in Q3, up from $5.7 million in the same period last year. The CFO attributed this mostly to higher performance-based bonuses in fiscal 2021 as the company rolled over some reduced salaries. As a percentage of revenue, general and administrative was just under 7 percent.
Operating costs improved 70 basis points to 14.7 percent. Marketing expenses increased 50 basis points to 1.1 percent as Chuy’s resumed digital and local advertising campaigns systemwide.
The end of the third quarter saw Chuy’s complete its final development, opening one new restaurant in Brentwood, Tennessee. In total, Chuy’s has opened four new restaurants in 2021, bringing the total number of units to 96. Chuy’s is planning on opening between six to eight new units in 2022.
“We are excited with the upcoming development pipeline as we plan to utilize a smaller prototype that will further improve operating efficiency and better serve our off-premise guests,” Hislop said.