Chuy's Holdings, inc (CHUY) Q3 2021 Earnings Call Transcript

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Chuy's Holdings, inc (CHUY 1.17%)
Q3 2021 Earnings Call
Nov 6, 2021, 2:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Chuy's Holdings Third Quarter 2021 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] On today's call, we have Steve Hislop, President and Chief Executive Officer; and Jon Howie, Vice President and Chief Financial Officer of Chuy's Holdings, Inc.

And now at this time, I'd like to turn the conference over to Mr. Howie. Please go ahead, sir.

Jon Howie -- Vice President and Chief Financial Officer

Thank you, operator, and good afternoon. By now, everyone should have access to our third quarter 2021 earnings release. If not, it can be found on our website at www.chuys.com in the Investors section. Before we begin our review of formal remarks, I need to remind everyone that part of our discussions today will include forward-looking statements. These forward-looking statements are not a guarantee of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

With that out of the way, I'd like to turn the call over to Steve.

Steve Hislop -- President and Chief Executive Officer

Thank you, Jon. Good afternoon, everyone, and thank you for joining us on our third quarter earnings call today. I hope everyone is staying safe and healthy. We are pleased to report a solid top line growth of over 24% during the third quarter, despite the emergence of the COVID-19 Delta variant in our core markets. Moreover, our continued focus on cost management and operating efficiencies allowed us to grow our restaurant level operating margin to over 23%, an increase of approximately 180 basis points compared to last year and 880 basis points compared to 2019, despite industrywide staffing challenges and inflationary pressures. As I noted, our third quarter performance was negatively impacted by two major macro challenges. During the quarter, our business was negatively impacted by the emergence of the Delta variant, particularly in August, including stricter locally mandated capacity restrictions in many markets in which we operate.

This temporarily halted the sales recovery momentum that we had seen during 2021, with comparable restaurant sales declining to 2.4% compared to 2019. However, we are encouraged that as the cases came down in September and with the restrictions being lifted once again, our sales trend significantly improved late in the quarter and have continued into October. In fact, our October comparable sales increased 0.8% compared to 2019, exceeding the pre-COVID sales volume for the first time since the pandemic began. Our second challenge is one that is impacted not just our company but the entire restaurant industry, labor availability. While all of our restaurants operated at 100% capacity during the third quarter, we were only able to reach between 80% to 85% staffing levels system wide. And in some cases, we've been forced to limit the number of tables we can make available in order to ensure a quality guest experience. 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.

This included our $1.6 million manager retention bonus program paid out in the second and third quarters of 2021. With that, let me quickly summarize the work we've done related to our three key pillars that have been the backbone of our operations throughout the pandemic and continue to resonate well with our guests. Safety is now more important than ever, both for our guests and our team members. While our guests are craving for our high quality made-from-scratch food and drink at a tremendous value, they need to be able to do so in a safe and comfortable environment to improve upon the peace of mind, we continue to work on minimizing touch points between our team members and guests. During the third quarter, we continue our push for contactless payment by rolling out pay-at-the-table and QR code payment method to more restaurants. We also expanded our pay-by-tech solutions to more stores with the plan to roll out all of these solutions system wide by the end of the year. Our second pillar is convenience. We believe that allowing our guests to enjoy our unique offerings where whenever and wherever they want is equally important, given the environment we live in.

Our solid 26% off-premise mix during the third quarter and 27% during the second quarter clearly demonstrate this. If you recall, our mix was approximately 12% to 14% prior to the pandemic. And given how well our food travels, we believe we can continue to maintain a low to mid-20s off-premise mix going forward. Lastly, 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, including the highly requested Taco and some of our more popular combo plates. In terms of development, we successfully opened one new restaurant in Brentwood, Tennessee during the third quarter, which completed our development land for 2021. In total, we opened four new restaurants during the year, bringing our total restaurant count to 96. As we look ahead, we are planning to open between six to eight new restaurants 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.

With that, I will now turn the call over to our CFO, Jon Howie, to discuss our third quarter results in greater detail.

Jon Howie -- Vice President and Chief Financial Officer

Thanks, Steve. Revenues for the third quarter ended September 26, 2021, increased 24.3% to $101.9 million compared to $82 million in the same quarter last year. The increase was primarily related to growth in customer traffic as we continue to relax indoor dining capacity restrictions for all of our restaurants as well as a $3.1 million of incremental revenue from new restaurants opened during fiscal year 2021. For the third quarter of 2021, off-premise sales were approximately 26% of total revenue compared to approximately 33% in 2020 and 12% in 2019. In total, we had approximately 1,240 operating weeks during the third quarter of 2021. Comparable restaurant sales increased 20.5% during the third quarter versus last year and included a 22.2% increase in average weekly customers, partially offset by a 1.7% decrease in average check. For a more accurate picture of our sales recovery, third quarter comparable restaurant sales declined 2.4% versus 2019. As Steve mentioned earlier, this decline was mainly due to the emergence of the Delta variant, which impacted our stores heavily in the month of August.

Turning to expenses. Cost of sales as a percentage of revenue increased 30 basis points to 24.5%, primarily due to overall commodity inflation of approximately 3.6%, partially offset by a decrease in the mix of family -- fajita family kits sold as compared to the prior year. Based on current trends, we expect commodity inflation of 7% to 9% for the fourth quarter of 2021. Labor cost as a percentage of revenue increased approximately 10 basis points to 29.2%, largely as a result of hourly labor rate inflation of approximately 8.3% in part due to increased overtime. This was mostly offset by sales leverage on management labor costs. We also incurred $0.8 million of incremental manager bonuses in conjunction with our $1.6 million manager retention program that we started in the second quarter. As labor challenges persist, we expect hourly labor inflation to increase approximately 10% to 11% for the fourth quarter of 2021. Operating costs as a percentage of revenue improved 70 basis points to 14.7%, with sales leverage on fixed restaurant operating costs. Marketing expense as a percentage of revenue increased 50 basis points to 1.1% as we resumed our digital advertising and local marketing campaigns system wide. Occupancy cost as a percentage of revenue decreased 190 basis points to 7.2%, primarily because of sales leverage on fixed occupancy expenses, partially offset by a higher percentage rent as well as occupancy expenses related to four new stores opening during fiscal 2021.

General and administrative expenses increased to $7 million in the third quarter from $5.7 million in the same period last year, primarily driven by higher performance-based bonuses in fiscal 2021 as well as rolling over some reduced salaries during 2020. As a percentage of revenue, G&A held steady at about 6.9%. The company recorded income tax expense of $1.2 million in the third quarter of 2021 compared to $0.5 million during the same period in fiscal 2020. The increase in income taxes was driven by an increase in estimated annual net income. In summary, net income for the third quarter of 2021 increased 112.3% to $6 million or $0.30 per diluted share compared to $2.8 million or $0.14 per diluted share in the same period last year. During the third quarter of 2021, we incurred $4 million, $3.1 million net of tax or $0.15 per diluted share in impairment, closed restaurant and other costs. Included in this charge is the termination of three closed restaurant operating leases as well as closed restaurant costs for the remaining closed stores such as rent expense, utility and insurance. Taking that into account, adjusted net income for the third quarter of 2021 increased 48.8% to $9.1 million or $0.45 per diluted share compared to $6.1 million or $0.31 per diluted share in the same period last year.

Moving to our liquidity and balance sheet. As of the end of the quarter, we had $105.1 million in cash and cash equivalents, no debt and $35 million of availability from our new credit facility we closed at the beginning of the third quarter. As a reminder, this facility can be expanded to $60 million based upon certain requirements if we chose to do so. This new credit facility will mature in July of 2024. During the third quarter of 2021, the company repurchased approximately 197,000 shares of its common stock for a total of $6.1 million. Since the beginning of the current share repurchase program, the company has repurchased approximately 287,000 shares of common stock for a total of $7.5 million through September 26, 2021. As of the end of the third quarter, the company had approximately $22.5 million remaining under its $30 million repurchase program. However, subsequent to the quarter end, the company's Board of Directors replaced the share purchase program and approved a new repurchase program under which the company may repurchase up to $50 million of its common stock outstanding. This repurchase program became effective on October 22 -- October 28, 2021, and expires on December 31, 2023. Lastly, while we're still not in a position to provide our usual financial guidance, I will give you some directional metrics that I hope will be helpful. As Steve mentioned earlier, we have now completed our 2021 development plan with a total of four openings. We continue to expect net capital expenditures net of tenant improvement allowances to be approximately $15 million to $17 million. We are now expecting restaurant preopening expenses to be approximately $2 million in 2021. And lastly, our effective annual tax rate is expected to be approximately 14% to 16%.

With that, I'll turn the call back over to Steve.

Steve Hislop -- President and Chief Executive Officer

Thanks, Jon. While the operating environment remains uncertain due to the virus and its variants, we believe our underlying business recovery continues to be very strong. With a healthy pent-up demand for our high-quality made -from -scratch food, we will continue to work on properly staffing our restaurants in order to increase our dinging room capacity while focusing on the three pillars that have resonated well with our guests throughout the pandemic, again, safety, convenience and value. Lastly, I'd like to recognize all of our team members for their hard work and dedication to ensure our guests can continue to enjoy the unique Chuy's atmosphere safely. They are truly the backbone of our recovery, and I'm proud to be working alongside them during this uncertain time.

With that, we are happy to answer any questions. Thank you.

Questions and Answers:

Operator

[Operator Instructions] We'll take our first question from Nick Setyan with Wedbush Securities. Please go ahead.

Nick Setyan -- Wedbush Securities -- Analyst

Thank you, and congratulations on another amazing margin when your peers are struggling. The commentary going forward, obviously, we're going to see a little bit more inflation, both in food cost and labor. So maybe you could tell us what kind of pricing you're thinking of in Q4 and maybe into 2022 to maybe partially offset some of that inflation? And what was pricing in Q3?

Steve Hislop -- President and Chief Executive Officer

Remember what Q3 was?

Jon Howie -- Vice President and Chief Financial Officer

Q3, I mean, we have a little over 3% in pricing at 3.2%, I believe.

Steve Hislop -- President and Chief Executive Officer

And as we move forward, Nick, we do pricing, and we've traditionally done it once a year, unless there's anything that is going to be a fixed cost that's going to remain, i.e., the year that Obama Care came into effect. But we've averaged in that 2%, 2.25% average. And so we're looking currently at doing our price increases at the beginning of period two in 2022, which is at the beginning of February. And we're right now looking in that 2-plus range currently. And again, we'll continue to look at the environment and what's happening out there because, as you know, the way we do our price increases, we look at our value spread in every single one of our markets compared to our competitive set. So we feel pretty good where we've been and where we're going. But right now, that's where it's looking at current price. And again, like I said, we only do once a year. But we'll monitor the year as it goes forward, and we'll look further. But right now, we're kind of thinking what we've been averaging.

Nick Setyan -- Wedbush Securities -- Analyst

Got it. And so I guess that begs the question in terms of the margins. Obviously, you continue to exceed your own expectations, including Q3. But is there any way to frame up where do you know the market the current sales trends sustained through the end of the quarter?

Jon Howie -- Vice President and Chief Financial Officer

As we've talked about in the past, again, we're still at the end of what we'd consider. Hopefully, it is the end of what we've considered our and how we run our restaurants, which is a limited menu at the limited hours at times. And we're continuing with that tool really all the way through this variant. And we'll start out on menu items as I see fit right now as I see probably at the beginning of the second period of the year coming up that you're going to see us add a few items back on to our menu, probably seven to eight items. I think I mentioned the shrimp in a lot of our combos that will come back in. And as we've stated over the last few quarters, we expect to maintain and have an increased margin of about that 300 to 350 basis point margin improvement over 2019. We think that's a little conservative, but that's what we're projecting as we move forward. And so I think if you look at 2019, that margin was around 15%, so 300 to 350 basis points on top of that is where we think we're going to settle once we get fully operating in a full menu back out there

Nick Setyan -- Wedbush Securities -- Analyst

Got it. And then just a clarification -- just a quick clarification. Jon, did you say 1,240 operating weeks in Q3?

Jon Howie -- Vice President and Chief Financial Officer

Yes. I believe that's correct, 1,240 -- I'm sorry, 1200 points.

Nick Setyan -- Wedbush Securities -- Analyst

Okay, perfect.

Jon Howie -- Vice President and Chief Financial Officer

Thanks, Nick. We appreciate it.

Operator

Thank you. We'll hear next from Andrew Strelzik with BMO.

Andrew Strelzik -- BMO -- Analyst

Hey, good afternoon. My first question, I'm just trying to think about how much some of the restrictions and the staffing challenges is kind of limiting the sales recovery. So have you thought about it is there anyway fee to frame kind of what the magnitude was in the quarter? And then as you kind of exited the quarter, you mentioned the 80% to 85% staff. How has that trended? Have you seen that progress at all contributing to some of that sales recovery that you talked about into October?

Operator

Thank you. One moment as we reconnect the speakers. Again one moment as we reconnect the speakers.

Jon Howie -- Vice President and Chief Financial Officer

Back up to Andrew.

Operator

And the management team has been reconnected.

Jon Howie -- Vice President and Chief Financial Officer

Sorry. Sorry, Andrew, we got drop, buddy.

Andrew Strelzik -- BMO -- Analyst

That's OK. I was trying to think about the extent to which whether it was the local restrictions you mentioned in the quarter, the staffing limitations in the quarter. And then even as that's continued to a certain extent, currently, how much that's holding back sales? And so is there any way to kind of frame the magnitude or how you guys think about that, number one? And number two, when you think about either the exit rate on staffing relative to that 80% to 85% at the October levels, is there -- how has that progressed?

Steve Hislop -- President and Chief Executive Officer

I'll answer at the end of the latter part first. As far as -- we've been -- not stuck, but we've been in that for the whole quarter in that 80% to 85%. It's also sometimes exasperated a little bit by if there's a COVID incident and then the tracing that you have to do, they obviously need to be out of work for a period of time. So one thing that I'm bang on is you do what you can with what you have and it uphold your standards and your hospitality levels. So we won't overserve someone that, hey, if you're ever going to wait, you'll wait at the door and I've table. So that's something. So we definitely -- although we're opening at 100% capacity, we're probably in that 80% to 85% inside our four walls because of our staffing levels that we're working hard on moving forward.

Andrew Strelzik -- BMO -- Analyst

Got it. Okay. That makes sense. And then on the food cost on the COGS side, first, in terms of the impact from adding a couple of those menu items back that you talked about in the first quarter, how impactful will that be? And then what's kind of the expectation on the progression with the menu from there?

Jon Howie -- Vice President and Chief Financial Officer

Yes. Right now, as we mentioned, to, we don't anticipate the combos will be in the -- except for inflation rates, they're not going to be a hindrance to the cost mix, the combos and/or the shrimp. That's how we're looking at that. But the way our menu is, as you remember, in last November, we added about seven items back onto the menu. Then we -- and a few want to drink menu in February. We're going to add on seven to eight items, and that will be the menu for the foreseeable future. That will be our full menu. You will see us as the year progresses in the second half of the year, you'll see us bring back some specials, probably in the second quarter of the year that will run some weekend specials. And then you will see us for the first time and forever is for us to run certain LTOs starting in the third quarter of 2022 that you'll see how we evolve our menu from that point of view as we move forward.

Andrew Strelzik -- BMO -- Analyst

Okay. And then just one quick follow-up on that. Just as it relates to the food inflation outlook kind of beyond 4Q. I don't know if you're prepared to give any kind of color there, but do you have hedges or do lock some of your basket? Can you just give us some context about the visibility in the '22 on the food cost

Jon Howie -- Vice President and Chief Financial Officer

Sure. So right now, we're locked in to heat of beef through the middle of next year. We're still looking to lock in the rest of the year whenever we can, when it's favorable to do so. We're locked in with ground beef through the end of the year. If you're looking at pricing today, that's probably about 20% to 30% higher than what we're locked in at. So we need to look at that. What we're looking for is a strategy, possibly maybe only locking in a percentage of that next year and let the rest float considering that we think maybe by the end of next year, it might come back. Because what we're hearing is, obviously, commodities are inflated. They're thinking they'll come down a little bit next year.

But on a five-year average, we'll still be inflated somewhat at the higher end of that five-year average. One thing on ground beef to note though, since we've shut down our Nacho Car, our usage of ground beef is not as great as it used to be. And so most of our beef from that standpoint has been locked in at the fajita beef level. We still have locks in on some of our grocery items like beans and other things, but beans have been going up as well. So there's going to be some inflation next year for sure. We haven't -- I don't think we're prepared to really quantify that at this time. But definitely, probably what you've been hearing from others as well, I think they're anticipating it. So...

Andrew Strelzik -- BMO -- Analyst

God, thank you. That's that's helpful. I appreciate it.

Jon Howie -- Vice President and Chief Financial Officer

Thanks, Andrew.

Operator

We'll take our next question from Chris O'Cull with Stifel.

Chris O'Cull -- Stiefel -- Analyst

Hey, good afternoon, guys. Jon, I was hoping you could just help us understand how we should be thinking about margin next year. And I believe the company expects labor to get back to the low to mid-30% range, would be a couple of hundred basis points. I mean, 200, 300 basis points higher than what you're likely to end up this year. So I'm just trying to understand, is there going to be any offsets when we think about margin over the next 12 months other than pricing?

Jon Howie -- Vice President and Chief Financial Officer

I think one is your leverage on sales increases. That's one, definitely from your operating cost and also your occupancy. And we've been saying from a labor standpoint, you're right, low to mid, but I would say it's probably in that 32% to 33% range is kind of what we're thinking once we get back. Right now, we're -- from the new items that we're bringing back on the menu, we don't think it'll have a significant impact on cost of sales. So that's why Steve and I are still conservatively saying that we can maintain that 350 basis in margin. So we're looking at next year, if you look at that compared to 2019, probably in those high teens into that 18% to 20% kind of in that 19% range is kind of where we're looking.

Chris O'Cull -- Stiefel -- Analyst

Yes. That's kind of what I was thinking. And just by my math, if you have the margin in that level, then it would seem unlikely the company is going to be able to grow earnings without a sizable comp next year. And is that a fair assumption or a fair way to look at it?

Jon Howie -- Vice President and Chief Financial Officer

I think -- and I think we've been saying that, Chris. I think that's probably fair to say for next year and then growing from there after we get back to kind of our baseline, if you will.

Steve Hislop -- President and Chief Executive Officer

Yes. And again, Chris, when you look at the first, second and third quarter mode, obviously, we weren't then had the whole menu, and that's part of what we've been talking about the whole time.

Chris O'Cull -- Stiefel -- Analyst

Okay. That makes sense. I just want to make sure we level set everyone. And then when you think about the the recent store openings look like they performed extremely well, and a lot of them, I think, have been backfilled markets like Brentwood, Tennessee. I mean when you think about the unit openings next year, are those going to be in core markets like Texas and Tennessee primarily?

Jon Howie -- Vice President and Chief Financial Officer

Yes, they will.

Steve Hislop -- President and Chief Executive Officer

Yes. And we'll continue -- and that's going to be kind of our strategy as we move forward, Chris, especially with the smaller prototype is we're just really going to be adding stores in markets that we've been pretty successful in currently, and that's in the next -- that's only over the next three or four years, you're going to see us in that type of mode.

Chris O'Cull -- Stiefel -- Analyst

Okay. And then just my last question. I know prior to the pandemic, you guys were making a big cushion to expanding catering as a part of the business. Do you think you'll get back on that track of maybe adding two or three markets a quarter with catering?

Steve Hislop -- President and Chief Executive Officer

Yes, great question. Right now, we ended up coming back and we're opening -- we're actually now this quarter getting back to where we were pre-pandemic, which is up to 13, 14 markets. And then what you'll see us do next year is we'll probably add a market per supervisor one each quarter, maybe possibly two in each quarter, so we can get it all back heavy and hard into 2022. And where we -- by the end of '22, we have borne in every single supervisory market in the company. And in some of them, you'll have a second one. But yes, we believe that's an upside on that what Jon and I have mentioned earlier that we expect to maintain that 20 to -- mid- to low 20s to go, but we think a plus on that could be enhanced catering as we continue to ramp that up. We are pretty pleased in the last two periods of seeing that come back a little bit before it was probably of 1/3 our what we used to do in 2019. And the last couple of periods, we've seen it almost matching 2019. So we're pretty excited about what we can do with that as we continue to roll that back out and enhance it in 2022.

Chris O'Cull -- Stiefel -- Analyst

It's great. Well, congrats on the good quarter, guys.

Steve Hislop -- President and Chief Executive Officer

Thanks. Appreciate it.

Operator

We hear next from James Rutherford with Stephens, Inc. Please go ahead.

James Rutherford -- Stephens -- Analyst

Hey, Steve, John, good afternoon.

Jon Howie -- Vice President and Chief Financial Officer

Good afternoon.

James Rutherford -- Stephens -- Analyst

I wanted to ask about traffic. By my math and feel free to correct this. But by my math, your traffic is down about 11% versus 2019 levels, which is roughly the same as what you're running last quarter, I think. Just curious what you think the main thing is it gets you back to 2019 traffic? Is it truly staffing or perhaps certain markets there's still some COVID hesitancy or maybe it's the slim down menu that's coming back more to a full normal level? I mean what are the pieces that get you back to that 2019 traffic

Steve Hislop -- President and Chief Executive Officer

I thought you did a great job answering that. I think, again, when you're looking at the third quarter and why it's similar to the second quarter, it was really specifically in August with the Delta variant really took a smack at us. And then, as we mentioned to you earlier, you've seen a nice -- we saw a nice period 10 for us, which was what we just finished in October where we're now actually positive, at least on a comp sales basis on 2019. There's a few things. Number one is definitely get the staffing. That's our biggest focus is to get the staffing levels up to where we can open all the tables and really have the hospitality levels that we can increase sales in customer counts. And that's the biggest thing I'd say we're focused on. And again, a continued relax and understanding and getting through this pandemic, and that's what we're also looking at. But those are a couple of the main ones. But like I said, I thought you did a good job answering the question yourself.

James Rutherford -- Stephens -- Analyst

Well, I didn't mean to leave the witness on that, that was very helpful. On Staffing, Steve, I just love to hear your thought you mentioned focusing more on staffing. But specifically, what are you doing? I mean, if wages is one component of it, what are you doing? What are your managers doing to bring people back in? Are there creative things? And I mean, what's the line of sight to getting back to 100% if that, in fact, is the goal kind of just a path forward, if you would?

Steve Hislop -- President and Chief Executive Officer

There's a multiple store level things that you're doing, whether it be referral bonuses and getting out -- the first thing is the keep what you have. We have roughly about 90% -- 89% employee turnover, which is a great number. We're excited about that. That's our number one thing continuing with keeping what you have. That's the main thing. And then we really focus first on the managers because we know if we can keep the management teams in place and be stable, that's what employees like in a stable environment. So that's why we really did the retention bonuses that we talked about in second and third quarters of this year because we really want to do that. And we're pretty pleased there. I mean we have industry-leading turnover for managers. We're about 22.5% currently, which is a great, great number. So really, we want to work on stabilization, but then referrals and what we want to do is just keep and rerecruit our existing employees all the time and then look for referrals or their friends that have similar likes and wants of our existing employee base and talk to them about our culture and how great it is to be here. We're continuing to really pump that. But then there's a whole bunch of store level things that we execute on a daily, weekly basis.

James Rutherford -- Stephens -- Analyst

All right. Great. Jon, just one last quick one for you. And maybe you mentioned this and I missed it, but G&A stepped up a little bit in the quarter of around $7 million. Just maybe what was driving that? And what's the outlook on that going forward?

Jon Howie -- Vice President and Chief Financial Officer

Yes. Thanks. So the biggest thing on that was our performance bonuses on that. We kind of fully funded that this quarter. So that should step down a little bit, probably about somewhere between $300,000 to $500,000 in the next quarter from where it is today.

James Rutherford -- Stephens -- Analyst

Perfect, very helpful.

Operator

[Operator Instructions] We'll hear next from Mary Hodes with Baird.

Mary Hodes -- Baird -- Analyst

Good afternoon. Thanks for taking the question. Just a couple on unit development. What are you seeing on real estate and construction costs? And then how should we think about the targeted return profile for these smaller prototype locations that you're planning to open?

Steve Hislop -- President and Chief Executive Officer

What was -- as far as real estate, we haven't seen -- everybody is still paying up for A sites, and that's what we haven't seen any loosening in the market per se on that. As far as construction costs and possibly a little bit why we're a little heavier stated on our openings in the second half of next year, right now, the construction costs we're seeing an increase in that -- from bids in that 20% to -- 25% to even 30% range. That's why we pushed back a few of them into '22 -- the end of '22. So that -- right now, that's running kind of high. Anything on the model there, Jon.

Jon Howie -- Vice President and Chief Financial Officer

No. I think the return, we're still looking at that 25% to 30% cash-on-cash return. And like Steve said, we're still working to value engineer that new box. But we're looking net of TI dollars in that $2.8 million to $3 million range. So 3.5 and somewhere between 16% to 18% comp -- or excuse me, margin, we should get that 25% to 30% as that approaches $4 million -- back to $4 million in some of these better locations since we are focusing in on the markets over the next three to four years, where we have very proven high AUVs and that gets back to 4, I think you can look at even better margins than that.

Mary Hodes -- Baird -- Analyst

And then do you still think that you can get to double-digit growth in 2023 based on what you're currently seeing?

Jon Howie -- Vice President and Chief Financial Officer

Yes. I think we've said that we were looking at six to eight next year, and then you'll see the double-digit growth in that 10% range starting in '23.

Mary Hodes -- Baird -- Analyst

Okay, thank you very much. That's it for me.

Jon Howie -- Vice President and Chief Financial Officer

Thank you so much.

Operator

We'll take our next question from Brandon Sonnemaker with Raymond James.

Brandon Sonnemaker -- Raymond James -- Analyst

Yes, thanks. Thank you guys. This is Brandon on for Brian Vaccaro. Just circling back on a prior question around traffic, it looks like your dine-in sales relative to 2019 were down a similar amount in 3Q and perhaps understandably so, given the Delta cause. Just trying to get a sense of how much labor really needs to be added back to support the eventual return of dine-in sales equivalent to '19 levels. I'm thinking about labor per week versus '19 down about 17% in the past few quarters now with implied dine-in down 14%. So should we think about that relationship as consistent heading into '22.

Jon Howie -- Vice President and Chief Financial Officer

I'm not sure about that question, but let me just kind of fire off some things that I think might answer your question. Currently, we're probably at -- from an hourly perspective, we're at about 70 -- in the low 70s, 70%, 72% of the hourly employees that we had in 2019. And we basically said that we think we're 80% to 85% staff. So based upon that, I think you can see that our targets are a lot lower. Our par levels are a lot lower. So that 80 to 85, so we're talking another 15% to get fully staffed up. Now I will say that about 1/3, maybe 1/3 or 1/4 of our inflation this quarter was related to overtime. So as we get staffed up, that premium will go down. And so you kind of have a net-net cost as we increase staffing as well, if that makes sense.

Brandon Sonnemaker -- Raymond James -- Analyst

Yes. Okay. That's helpful. And relatedly, I think staffing was also around 85% last quarter. Could you just give us an update on hourly turnover? I appreciate the perspective on GM turnover 22.5%. But how is hourly GM current over trended over the past few quarters now? And should we think about the 4Q step-up in wage inflation, the 10% to 11% is sort of the peak? Or do you envision a further step-up of staffing levels do not progress?

Steve Hislop -- President and Chief Executive Officer

I think you'll look at that. But right now, our turnover, as I've already mentioned earlier, it was right around 89%, which is a very good number for us. And again, that's why we're so focused on retaining that piece, which is the key for us as we move forward.

Jon Howie -- Vice President and Chief Financial Officer

We were expecting -- I think we said that starting in Q1, where we were expecting some of this inflation in the labor as we started rolling over some of the mixes from -- they got comparable to last year because one thing that was saving us, we were seeing this inflation. However, the mix was keeping it down as we were increasing our dining room staff compared to our back of the house. And so the mix was keeping that down, and now the mix is pretty well flat to last year. And so that's why we're seeing that increased inflation in our labor cost. But again, as the sales go up, we will also continue to see some leverage in our management like we saw this quarter as well. So we'll continue to see some leverage there.

Brandon Sonnemaker -- Raymond James -- Analyst

Got it. Appreciate guys.

Jon Howie -- Vice President and Chief Financial Officer

Thank you.

Operator

And that does conclude today's question-and-answer session. I would like to turn the conference back over to Mr. Hislop for any additional or closing remarks.

Steve Hislop -- President and Chief Executive Officer

Okay. Thank you so much. Jon and I appreciate your continued interest in Chuy's, and we will always be available to answer any and all questions. Again, thank you. Stay healthy, and have a good evening.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Jon Howie -- Vice President and Chief Financial Officer

Steve Hislop -- President and Chief Executive Officer

Nick Setyan -- Wedbush Securities -- Analyst

Andrew Strelzik -- BMO -- Analyst

Chris O'Cull -- Stiefel -- Analyst

James Rutherford -- Stephens -- Analyst

Mary Hodes -- Baird -- Analyst

Brandon Sonnemaker -- Raymond James -- Analyst

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