Why Chuy's Shares Tumbled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chuy's Holdings (NASDAQ: CHUY  ) were getting spat out by investors today, falling as much as 12% after an unsavory earnings report.

So what: The restaurant chain of the same name posted a 24.6% gain in sales to $46.7 million, slightly ahead of estimates, and comparable sales were up 2.3%. Earnings per share jumped from a penny a year ago to $0.16, beating expectations by $0.02. CEO Steve Hislop said, "We generated impressive revenue growth during a challenging quarter for the industry," and he credited operators for driving profitability. Chuy's narrowed its EPS guidance for the year, saying it now expects EPS of $0.67 to $0.69, in line with estimates, and sees same-store sales growth of 1% to 1.5%.

Now what: Shares of the Mexican-food chain bounced back after dipping early in the session today, finishing down just 3.3%. While the company beat estimates, it seems investors were expecting more, especially on the same-store-sales front. Nearly all of Chuy's sales growth came from new restaurants, as opposed to organic, higher-margin growth from stores already open. Same-store sales are also often a sign of brand strength. With its P/E over 50 and hardly any organic growth to speak of, I'd stay away from Chuy's.

Don't miss out your next helping of Chuy's. Add the stock to your Watchlist right here.


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  • Report this Comment On May 07, 2013, at 9:31 PM, foolrandallsorg wrote:

    Have you ever eaten at a Chuy's? Organic growth is tough when the stores are already packed open to close. Have you looked at average ticket sales and table turns? Stores can only increase their margin if the skip on quality or service, and that's a recipe for disaster. Growth can only come from expansion, and when your free cash flow is enough to finance your own expansion that warrants the high multiple.

  • Report this Comment On May 08, 2013, at 1:25 PM, Nkdshrtsrcrooks wrote:

    Bingo fooolrandsorg. A restaurant that always has open tables can grow by just getting more people in the door. Chuys is always packed and the only way they can grow is build more restaurants or add tables. Prices have already gone up and it would be a mistake to raise them much more. Anyone expecting more doesn't understand their investment.

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