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This Restaurant Can Deliver Long-Term Gains

August 06, 2014 | About:
jaggom

jaggom

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Chuy’s Holdings (CHUY) started off fiscal 2014 on the front foot with fantastic quarterly results that exceeded the company’s expectation. Chuy’s dedicated workforce and its robust moves to overcome challenges helped it see growth all over its business. Let us take a look at how Chuy’s plans to maintain its momentum.

Some challenges

Chuy’s saw strong customer engagement, resulting in solid revenue growth of 19.8% to $56 million. Best-in-class services with a good dining experience helped Chuy’s strengthen its position. Despite solid financials, the company did see some weakness in earnings. Though the company’s revenue rose, Chuy’s posted flat earnings. This can be a reason for worry.

But fiscal 2014 seems to be unfolding well for Chuy’s. The reason for growth can be attributed to its strong sales momentum. Moreover, Chuy’s restaurants are preferred for their fun and exciting dining experiences. This is the company’s USP.

Chuy’s is worried about the weakness and the challenges that it is facing. It is facing challenges in maintaining cost effectiveness. The cost pressure is higher than expected due to labor inefficiency and a harsh winter. However, on the other hand, the company’s comp sales are improving nicely, and it is expecting a stronger customer turn out in its restaurants.

Strategies for the future

The expansion strategy of Chuy’s involves opening new restaurants. In 2014, the company is planning for further expansion by increasing awareness about its restaurants. In line with this, Chuy’s is going to open 10 to 11 new restaurants this year. During the first quarter, its newly opened food joints in Rogers, Arkansas, Orlando, Florida, and Addison, Texas, did well, and the momentum is expected to continue going forward.

Chuy’s is also making aggressive moves to maintain a solid profit margin. Under this, the company is focusing on cutting down cost of sales. The increase in costs is mainly due to higher feed, dairy and product costs that hurt Chuy’s profit margins. On the other hand, Chuy’s is expecting to face some pressure in the profit margin due to higher costs in the future, as cost of sales are expected to range between 27.7% to 27.9% for the year.

In this new fiscal, Chuy’s will be focusing on local store marketing, as well as backfilling these markets with additional stores. More focus will also be given on training of associates. Also, Chuy’s is expecting labor inefficiencies to become normal later in fiscal 2014.

Chuy’s is introducing new ingredients in the menu. With the addition of freshly prepared Mexican and Tex-Mex inspired food, Chuy’s is expecting to engage a wider audience. This will help Chuy’s gain market share, and attract more customers into its locations.

Conclusion

The ratios present a different picture of Chuy’s. It has a trailing P/E of 49.59, which indicates that the company is expensive. However, the forward P/E of 33.06 makes the stock look impressive as it indicates earnings growth. But it is the future five-year growth expectation that might prove to be a key reason for investors to choose Chuy’s. The company is expected to report solid growth of 25% for the next five years. So, as far as an investment in Chuy’s is concerned, the company will be profitable in the long run. Investors seeking long-term gains can pick Chuy’s for their portfolios.


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