Is This Chain About to Buck the Restaurant Recession?
Restaurants have had a tough go of things over the past couple of years, as decreasing customer counts have caused comparable-restaurant sales (comps) to drop for several consecutive quarters.
After six full years of positive comps, Tex-Mex chain Chuy's Holdings (NASDAQ: CHUY) finally fell victim to the "restaurant recession" in late 2016 and hasn't recovered since. In fact, the company posted its worst comps performance as a public company in the most recent quarter.
So why do I think Chuy's has a good chance to break through to positive comps again when it reports its Q4 2017 earnings in February? Let's look at the evidence.
Image source: Getty Images.
Chuy's history of outperforming the averages
In general, Chuy's has a solid history of beating industry comps.
| Time period | Q3 2016 | Q4 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 |
|---|---|---|---|---|---|---|
| Restaurant industry year-over-year comps growth (decline) | (1%) | (2.4%) | (1.6%) | (1%) | (2.2%) | 0.4% |
| Chuy's year-over-year comps growth (decline) | 0.3% | (1.1%) | (0.7%) | (1%) | (2.1%) | ? |
Data source: TDN2K's Black Box Intelligence, Chuy's Holdings earnings releases.
As you can see from the table above, in four of the five most recently reported quarters, Chuy's results have come in ahead of the industry's. That held true even in the most recent quarter, when Chuy's -- with a concentration of restaurants in the Southeast and Texas -- suffered an extra hit due to hurricanes Harvey and Irma, which impacted a whopping 36% of its locations. Management estimates its comps would have been 0.9 percentage points higher if not for the storms.
The second reason for optimism is that, according to data from TDN2K'S Black Box Intelligence, the industry saw its first quarter of positive sales growth in two years during Q4 2017, with same-store sales rising roughly 0.4%. Assuming Chuy's is able to best the industry averages again, this seems to point the way toward a big comps recovery in Q4.
Traffic trends tell the same story
Comps growth can be broken down into two components: increases in the average guest check and increases in the number of customers. And though the average guest check for the industry has been rising modestly over the past couple of years (fueled mainly by price increases), customer traffic has been steadily falling.
Looking specifically at customer counts over the past several quarters, we can see that Chuy's traffic numbers -- even though they're declining -- have also consistently fared better than the industry's.