Chuy’s Holdings (CHUY) expectations for growth may be higher than warranted for Q1, and longer term the new units opened farther away from its Texas home may underperform its Lone Star State locations as the newer consumer population is less familiar with its Mexican food offerings, says Nick Setyan, Senior Equity Analyst at Wedbush Securities.
“I have an ‘underperform’ rating on Chuy’s,” Setyan said. “On Chuy’s, near term I believe the same-store sales growth expectations are still not low enough in Q1. They just reported Q4 results. They talked about Q1 trends that were below expectations in terms of the comp trends. I don’t know if consensus will actually go low enough at this point.”
Setyan says CHUY will suffer from tough comps, as they will go against their honeymoon periods. Moreover, he says, $700,000 to $800,000 have been shifted from Q1 to Q4. The Mexican food restaurant also faces difficulties in the longer term with cash-on-cash returns, which could put the unit growth rate at risk.
“Even in the best of times, their transaction growth is flat to slightly positive. They only take about 1.5 percentage points of price increases every year; longer term, I don’t expect commodity inflation to be less than 2%, I don’t expect labor inflation to be less than 2% — in fact, I think the health care legislation that’s going to start impacting restaurants across the board in 2014 may even result in an acceleration of that inflation rate on the labor side — and with flat to slightly positive transaction trends, I don’t expect there to be much leverage on some of the other unit-level expenses such as occupancy and other operating costs,” Setyan said.
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