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Chuy's Holdings Inc  (NASDAQ:CHUY)
Q3 2018 Earnings Conference Call
Nov. 06, 2018, 5:00 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 2018 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, Incorporated.

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

Jon Howie -- Chief Financial Officer, Vice President

Thank you, operator, and good afternoon. By now, everyone should have access to our third quarter of 2018 earnings release. It can also be found under our website at the 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 guarantees 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 & Chief Executive Officer

Thank you, Jon, and thank you to everyone for joining us on the call today. Let's begin with a high-level overview of our quarterly results and progress we've made to our various initiatives. For the third quarter, revenue grew 9.7%, including a 0.5% increase in comparable restaurant sales on a calendar basis. Despite a modest top-line improvement, our third quarter was a challenging one as we continue to face industrywide labor cost pressures, which negatively impacted our restaurant-level profitability. In addition, we experienced heavier rainfall than normal during much of the quarter, including the wettest September in history in most of our core Texas markets, which further muted our results by reducing our patio sales by over 18%. However, we have several initiatives under way that we believe will help us overcome these short-term challenges and build a foundation for a long-term sales growth and profitability.

With that, let me update you on the progress of these initiatives. Beginning with marketing, we continue to work closely with our new Media Marketing Partner Kelly Scott Madison to focus on improving our brand awareness and value messaging in both core and new markets, through local store marketing and social media campaigns. We recently started our digital campaign in mid-September that includes paid search and mobile location-based advertising, which is the first for our -- for the Company.

Additionally, we identified three specific markets, Chicago, Washington DC and Nashville to test targeted marketing through the holidays, which includes the use of billboards, metro rail posters, sponsorships, digital media, and iHeart Radio and ESPN Radio campaigns. These initiatives will build added awareness and frequency and help us create a successful marketing plan for 2019. On the technology front, our partnership with Olo to provide our guests with a robust, online ordering system is progressing well. In fact, we recently finished integrating our new online ordering with our POS system at the end of October and have rolled out the Olo system to all of our restaurants.

\While it's still in its infancy, with little to no marketing behind it, early adoption rate is encouraging with Olo now representing 8% to 10% of all-to-go ordering. We will use this system as a stepping stone for future loyalty program during 2019. Lastly, with regards to labor initiatives, we completed the integration of our new labor management tool with our POS system during the third quarter and now in the process of rolling it out systemwide. While we won't begin to see the benefits until 2019, this new tool will help us mitigate the ongoing labor pressures by optimizing our labor productivity, as well as enhancing our sales projections going forward.

Now, let me quickly touch on our development. We opened two Chuy's restaurants during the third quarter; one in Kendall, Florida and one in Miami, which now gives us three restaurants in the Miami area. We've also opened the two additional restaurants subsequent to the end of the quarter, the first in Overland Park, Kansas, which is our third restaurant in Kansas City market and the second one in Houston, Texas located in vintage park (ph) a premier destination for shopping, dining and entertainment. This vintage park restaurant marked our 100th restaurant opening and we are excited to have reached this milestone. It also our ninth new restaurant opening of the -- of 2018 and we've now completed our development plans for this year.

As we look ahead, we remain disciplined in our capital allocation, balancing new store growth with an ongoing focus on building brand awareness and traffic, while also improving margins. With this focus front and center, we will limit our development during 2019 to five to seven new restaurants. All of our 2019 development will be in existing markets. We believe that this moderate growth rate should allow us to better focus on the opportunities we have to grow sales in our existing restaurants, as well improve margin. We believe this approach, along with our initiatives in marketing and technology is the best strategy to drive shareholder value in this tough environment and set us up well for success for a successful 2019.

With that, I'd like to turn the call over to our CFO, Jon Howie for a more detailed review of our third quarter results.

Jon Howie -- Chief Financial Officer, Vice President

Thanks, Steve. Revenues increased 9.7% year-over-year to $101.2 million for the third quarter ended September 30, 2018, driven primarily by $10.4 million in incremental revenue from an additional 144 operating weeks. In total, we had approximately 1,264 operating weeks during the third quarter of 2018.

Turning to comparable restaurant sales. Due to the inclusion of the 53rd week in fiscal 2017, there was a one-week calendar shift in the comparison of the third fiscal quarter of 2018 to last year's third quarter. On a fiscal basis, comparable restaurant sales decreased 0.4% for the 13-week period ended September 30, 2018 compared to the 13-week period ended September 24, of 2017. On a calendar basis, which we believe is more reflective of the year-over-year change in the business, comparable restaurant sales increased 0.5% for the 13-week period ended September 30, 2018, compared to the 13-week period ended October 1, 2017. The 0.5% increase in comparable restaurant sales on a calendar basis was driven primarily by 1.7% increase in average check, partially offset by a 1.2% decrease in average weekly customers. As Steve noted, we received an unusually high amount of rainfall in our core Texas markets during the quarter that impacted still during August and September.

We estimate the unfavorable weather conditions during the third quarter of 2018 more than offset the favorable impact from lapping Hurricanes Harvey and Irma last year by approximately 30 basis points. Effective pricing during the quarter was approximately 1.5% to 2%. There were 80 restaurants in our comparable base at the end of the third quarter of 2018.

Turning to a discussion of selected expense items, cost of sales as a percentage of revenue decreased 110 basis points to 25.6% helped largely by favorable produce and chicken prices. We continue to expect a year-over-year improvement in cost of sales in the fourth quarter, albeit (ph) at a smaller magnitude as we've begun to see increases in cost of beef we use for (inaudible) in addition to rising tomato and avocado prices in a top -- again October of this year. Year-to-date, our commodity inflation was approximately flat with last year and we are still expecting to end up between 0% and 0.5% for the full year. Labor cost as a percent of revenue increased approximately 180 basis points to 37%. The increase was attributable to hourly labor rate inflation in our comparable stores have approximately 3.6% and new store labor inefficiencies as well as higher labor rates in some of our newer markets. We continue to expect our labor inflation to be approximately 3% to 3.5% for the year.

Restaurant operating cost as a percentage of revenue increased by 50 basis points to 14.8%. The increase was primarily due to an increase in delivery charges related to over a 14% increase into go-sell as well as higher insurance cost. Occupancy cost as a percentage of revenue increased 60 basis points to 7.6% primarily due to higher rental expense at certain newly opened restaurants as we continue to expand into larger markets and higher straight-line rent from extended lease terms of certain existing restaurants.

General and administrative expenses held steady at $4.8 million in the third quarter to the same period last year. As a percentage of revenue, G&A improved by 40 basis points year-over-year to 4.8%. As a part of regular review during the third quarter, we incurred a non-cash asset impairment charge of approximately $12.3 million or approximately $11 million net of tax related to six restaurants. Because of the impairment, charge we incurred a tax benefit of $1.3 million during the quarter. Excluding the impact of the non-cash loss on asset impairment, our income tax rate decreased to a benefit of 6.9% during the third quarter. We now expect our tax rate for the year to be in the 6% to 8% range.

In summary, net loss for the third quarter of 2018 was $7.5 million or $0.44 per diluted share compared to a net income of $3.2 million or $0.19 per diluted share a year ago period. Excluding the impairment charge, adjusted net income for the third quarter of 2018 was $3.5 million or $0.20 per diluted share compared to the year-ago period. We ended the quarter with $10.8 million in cash on the balance sheet and we currently have no debt.

Now turning to guidance. We are adjusting our 2018 outlook. Our revised expectations largely reflect increased labor cost, decreased sales in the third and some in the fourth quarter, and lower expected earnings per share for the third quarter and some in the fourth quarter. We now expect adjusted 2018 diluted earnings per share, after excluding the asset impairment charge, of between $0.88 and $0.92 compared to the previous range of $1.09 to $1.13. This compares to 2017 adjusted net income per diluted share of $0.96, or $0.89, after excluding approximately $0.07 per diluted share as a result of the extra week in 2017.

Our guidance is based on the following updated assumptions; flat comparable restaurant sales growth compared to previous guidance of up to 1% on the 52-week fiscal basis. Restaurant preopening expenses are now expected to be approximately $4.3 million to $4.4 million compared to $4.4 million to $4.8 million previously. We continue to expect G&A expenses between $20.5 million to $21 million. We now expect an effective tax rate of approximately 6% to 8% compared to previous expectation of 10% to 11%. We continue to model annual weighted average diluted shares outstanding of 17.1 million to 17.2 million shares. As we noted, we have now completed our development for 2018 at nine Chuy's restaurants this year. Lastly, our capital expenditures, net of tenant improvement allowances, are projected to be between $34 million and $37 million.

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

Steve Hislop -- President & Chief Executive Officer

Thanks, Jon. While near-term industry challenges persist, our core fundamentals remain unchanged as we focus on taking care of our guests by delivering high-quality made-from-scratch food and drink with the exceptional service standards and unique and upbeat atmosphere. We have the initiatives in place to help us weather this near-term macro challenges and we believe these will help build stronger foundation for the Company in the years to come. Of course, all of this would not have been possible without the dedication, hard work of our employees and we would like to thank them for their tireless efforts in making our brand unique.

With that, we're happy to answer any and all questions.

Questions and Answers:

Operator

Well, thank you. (Operator Instruction) Our first question comes from David Tarantino with Baird.

David Tarantino -- Robert W. Baird & Co. -- Analyst

Hi. Good afternoon. I guess my first question is about sort of the new store performance and how much that is influencing your change in profit outlook for this year. So first of all, could you comment on how the current class or recent class of openings is performing relative to your expectations? And then I do have a follow-up on the overall earnings guidance for the year.

Jon Howie -- Chief Financial Officer, Vice President

We've had a bit of a mixed result in the Chicago area. We mentioned earlier, we have two that are doing a little bit lower than we expected and one doing more than we've expected. Miami, we've had the one that we're very disappointed in, and one we're excited about, and one is in the middle. Overall, it's down a little bit from our expectation.

David Tarantino -- Robert W. Baird & Co. -- Analyst

And thank you. Even then I guess, when I think about the changing guidance, I guess, how much of that change in guidance is related to the new store performance, because I guess, if I -- if I flow through one point of same-store sales and look at what that would mean, and then look at the change and the implied guidance for profitability, there is a -- there's a pretty big disconnect here. So I guess, can you help to piece that together, Jon?

Jon Howie -- Chief Financial Officer, Vice President

Sure. I mean, the biggest thing was, after the second quarter based upon where, kind of -- or the produce pricing was, we were expecting cost of sales to be very deflationary in the fourth quarter as it was in the third quarter. We were well over -- we were down well over 3% in the third quarter, and I was expecting down over 2%. But with the hurricanes that hit us in September and October, again it spiked the produce prices. We are also seeing a phenomenon with our (inaudible) because of a bunch of exporting to Japan, those have spiked on us a little bit in the year. So now we're expecting some inflation in the range of around 2% for the -- for the fourth quarter. So that differential alone was about 80 basis points to 90 basis points. The labor fluctuated, we were expecting a lot less labor and with the weather that we got in October, the deleverage, that changed about 70 basis points kind of in our projections as well. And then from -- when you're looking at consensus ops expense, they have that projected similar to last year in the op expense, but recall last year that we had some adjustments in our ACA accrual that came down about 80 basis points in that. So we're not seeing a deleverage that we did last year in that line item. So those things there are the big bulk of the items along with the reduced sales volumes.

David Tarantino -- Robert W. Baird & Co. -- Analyst

Got it. And then the impairment that you took on the sixth restaurant, can you maybe explain the profile of those six restaurants, whether those are recent classes of openings or longer-dated restaurants, if you could just help us understand what those are?

Steve Hislop -- President & Chief Executive Officer

Well, I won't get into geographics, but it's kind of a mix to be quite honest, David. It's probably half and half. Some of the -- there is some that are newer, and then there are some that are older restaurants.

David Tarantino -- Robert W. Baird & Co. -- Analyst

Okay, thank you very much.

Jon Howie -- Chief Financial Officer, Vice President

Thanks.

Operator

And next will be Will Slabaugh with Stephens Inc.

Hugh Gooding -- Stephens Inc. -- Analyst

Hey guys, thanks for taking my questions, and this is Hugh on for Will this afternoon. I was just wondering if you could talk a little more about the cadence of same-store sales trends throughout the quarter? I know you said August and September were negatively impacted by weather, but just trying to better understand where we were in July and how significant that weather headwind became both in August and then in September, and then if you could kind of give us some idea of where we're sitting through October?

Steve Hislop -- President & Chief Executive Officer

Yeah, Hugh. In period seven, we were up slightly in period seven, then we are pretty big in period eight, but that's when we lapped the hurricane from a year ago, we were up a little bit, we were up pretty good then. And then with this rain and all the weekends we didn't have for patios and anything, we were down in September by 1.4%. October started just like September as far as the rain and like I've already mentioned to you, we're flat probably right now in October, but we had again the rain for every single weekend and probably just 90% of the time and all that with all the flooding that actually happened down in Austin and so forth. So it's the same thing. Luckily, we had a break last week and some weather that was happy to -- we were happy to see that, and that's the cadence.

Hugh Gooding -- Stephens Inc. -- Analyst

Got it. Yeah, no. Thanks for that. And then I just wanted to touch on the competitive dynamics in your core markets. We've seen some of your larger competitors report now and I was just wondering, if you think there's maybe some lost market share there, and if you think there are opportunities, either from a value off-premise, or menu initiatives to maybe stabilize some of those share gains or losses?

Steve Hislop -- President & Chief Executive Officer

Yeah. As we mentioned on our last quarterly call, we're going to expand in the fourth quarter, catering a little bit more. We're also going to -- we just talked about Olo a second in my prepared remarks that we are expecting some nice movement from there as we go through the year and really specifically in 2019.

Hugh Gooding -- Stephens Inc. -- Analyst

Great, thanks for taking my questions.

Steve Hislop -- President & Chief Executive Officer

Thank you.

Operator

And Andy Barish with Jefferies is next.

Alexandra Chan -- Jefferies & Co. -- Analyst

Hi, this is Alex (ph) on for Andy. Thanks for taking the question. Just thinking about the cost of goods, losing some of that favorability in the fourth quarter and then the persistent labor inflation, how should we think about that the gives and takes on the rest of the margin in 2019? I know that comparable basis has been running about that 3.5% wage inflation, but I think Jon, last quarter you talked about the new stores could come in around 5%. So what are you expecting in 2019, and how much is sort of that natural wage inflation versus the impact from new store inefficiencies?

Jon Howie -- Chief Financial Officer, Vice President

I just want to make sure that, when I think 5%, that's really the increase in the weighted average rate. Once they become a comparable restaurant, I don't think that those are inflating at 5%, that makes that -- it's just because they're coming in at a higher rates, it's driving our weighted average up over the previous year, but on comparable basis, I think we'll still see kind of the same inflation rate. But as far as some of the initiatives we have in place, especially around labor and then drive-in sales, we're looking -- we're always looking to save on margins and with our reduced development, that's what we're going to focus on next year. And we've got some great initiatives in labor and marketing and some other things as far as menu development, and not really menu development, menu analysis, back of the house analysis and things that we're doing that we're excited about in 2019 debt. To the extent that we can, if the marking turns around and gives us a lift with that 2.5%, 3%, I think we could see our margin stabilize.

Alexandra Chan -- Jefferies & Co. -- Analyst

So with the new POS integration, with the labor management tool, that obviously could gain some traction in 2019. And where do you think the real impact is there, is it around scheduling and deployment at peak versus off-peak? Or I think in the past you've talked about just managing the schedule with the time clock, and punch in, punch out. Are you seeing any modest improvement yet?

Jon Howie -- Chief Financial Officer, Vice President

Well, right, it's both of those. So it's clocking enforcement and then it's scheduling at the peak hours and often in the down hours and scheduling properly. We have that now integrated. We haven't rolled it all out to the stores, it's been in maybe 40 stores right now. So that is -- we're waiting to see that benefit in 2019, but the biggest thing is, we're doing some other things in labor as well as far as glide path on the new stores and getting those down to kind of the base hours a lot earlier in the seven-month time frame and things like that, that I think will see some benefit on in 2019.

Alexandra Chan -- Jefferies & Co. -- Analyst

Got it. I guess -- and just the last question. Steve you mentioned this future loyalty program that you could leverage digitally with. Any sort of detail or color on that timing of the program? And I guess I would ask, what is the typical frequency of your current dining guest and obviously it's very early on digital, but are those sales suggesting that you got an increased frequency from those users?

Steve Hislop -- President & Chief Executive Officer

Yes, it did, it's a little too early for me to throw that at you right now because we just have started in September. So, that is -- we have a two-week look at it, so I'm now (ph) hesitant to talk anything on that thing. But -- damn it, what was the question?

Jon Howie -- Chief Financial Officer, Vice President

I think that was it. I mean --

Steve Hislop -- President & Chief Executive Officer

Yes, the frequency -- well the timing, the timing of the royalty. We are going to be looking at that probably around the June, July time frame, and that's where we'll have enough of the information with our -- not only -- we are also working with our new real estate tool that also work outs from the phone systems and so forth. Along with our marketing with Kelly Scott Madison, I think we'll have enough information and have a good tool box to go right by the middle of 2019.

Alexandra Chan -- Jefferies & Co. -- Analyst

Great. Thank you.

Steve Hislop -- President & Chief Executive Officer

Thank you.

Operator

And next will be Chris O'Cull with Stifel Financial Corporation.

John -- Stifel -- Analyst

This is John (ph) on for Chris. I was just wondering if you could give a little bit of color around pricing for 2019? Do you have any plans to take increased pricing with the labor pressure you're seeing?

Steve Hislop -- President & Chief Executive Officer

Well, right now, we usually take our price increase in the first, the second -- the first day of the second period of the year. Right now, we've been looking at over the last few years, we've been in that -- for the 10-year average, we're in that 1.5% to 2% range and right now, I don't anticipate going anything higher than that at all, maybe a tad bit lower, but we'll see that. But we'll look at all opportunities at that particular time. We currently have four-tiered menus based on geographics and we will pay some attention closely to each tier. What we're finding out in our Tier 4 is that we have a little bit more value spread than in Tier 1. So we might look at something like that, but I must say right now in this -- where I'm at today, I'd say it's going to stay in that 1.5% to 2% range.

John -- Stifel -- Analyst

Okay, great. And then I just one more. I know you guys are planning on putting five to seven stores in existing markets. Should we be thinking about those stores going into core markets, or are they going to be building out non-core market? And is there any sort of cannibalization that we should expect in those?

Steve Hislop -- President & Chief Executive Officer

There will be no cannibalization planned on at all. But I would say, over half of them are what we call core, but they're all in very well run markets and that we're doing well.

John -- Stifel -- Analyst

Okay, great. Thank you.

Steve Hislop -- President & Chief Executive Officer

Yeah.

Operator

And next will be Andrew Strelzik with BMO Capital Markets.

Andrew Strelzik -- BMO Capital Markets -- Analyst

Hey, good afternoon. My first question is about performance in the stores outside of Texas. Obviously Texas is impacted by weather in the quarter, as you said, but if you back that out, and I guess I'd like to look at on a two-year and three-year basis, it doesn't seem like things are getting any better, the industry was doing relatively well. So just wondering what you saw outside of Texas through the quarter.

Jon Howie -- Chief Financial Officer, Vice President

Yes, outside of Texas, in some of our markets like Kentucky, Arkansas, and Indiana, we saw some very valuable sales, Colorado -- Colorado is not in our GAAP base, but we've seen some very good sales there outside of Texas, which is really, we haven't seen that as much in the past. So that was very, very good to see.

Steve Hislop -- President & Chief Executive Officer

And a lot of the storms that we're talking about with Texas rolled all the way up into the Southeast. Those are part of the patio days missing. And (inaudible) meaning Nashville and Atlanta and so forth.

Andrew Strelzik -- BMO Capital Markets -- Analyst

Got you. That makes sense. My second question, wondering how flexible is the development pipeline for 2019? Obviously expecting it to be a little bit more restrained next year than initially expected. And what is -- once you get past some of the operational stuff, and some of the efficiencies that you're looking to achieve, how do you think about what a good sustainable growth rate is going forward?

Jon Howie -- Chief Financial Officer, Vice President

Right now, we're thinking we're in that 12% to 15% range. The key for us is -- the big thing for us is -- we have to continue to really focus inside our four walls and that's increasing guest counts. And I think I've said it on the last call or the call before that, that's going to be what was -- that's what will change our growth pattern. As we get up in same-store sales and specifically guest counts, we will look at bringing that number back up to the rates, I just said.

Andrew Strelzik -- BMO Capital Markets -- Analyst

Okay. And then my last one, you talked about stabilizing margins with some of the initiatives you have kind of in the hopper here for 2019. But with respect to marketing, as you do some of the targeted stuff that you haven't done before, how should we think about the step up in marketing, assuming that those things are successful?

Jon Howie -- Chief Financial Officer, Vice President

Yes, right now, if you look at our marketing spend, I think we had around 0.25% from 0.75% to 1% and then I would denote right around that 1% to 1.1%. If I'm really excited about what's going to happen over the holiday period of time, we might invest another couple of basis point -- like another 20 basis points in it if we're excited about it, and we'll use that. Obviously opening that store, that'd be a nice use of our money if we can drive some top line. So that's what we'll look at and we'll discuss that through the test period of the end of the year.

Andrew Strelzik -- BMO Capital Markets -- Analyst

Great, thank you very much.

Jon Howie -- Chief Financial Officer, Vice President

Thank you.

Operator

(Operator Instructions) The next question comes from Nick Setyan with Wedbush.

Nick Setyan -- Wedbush Securities -- Analyst

Thank you. Can we just go over the chronology of these sales initiatives again? So you had the -- that the search tools in mid-September. It sounds like DC and other markets, the roll-out is in Q4 who's got loyalty in the middle of next year, and maybe just give us a little bit more detail about the initiative with Olo.

Steve Hislop -- President & Chief Executive Officer

Sure. And why don't you go with Olo, Jon, I'll take the immediate plans for the markets.

Jon Howie -- Chief Financial Officer, Vice President

Sure, Nick. This is Jon, Olo we just completed the rollout last week of Olo stores. Currently like Steve said, the mix or the rate is we're seeing anywhere from 8% to 10% of our to-go sales now on Olo. And that's without any marketing in the period. So we're going to start putting marketing behind that. We're very pleased with how that's going and how smooth it's going at the stores. So I think that will be definitely a benefit going forward.

Steve Hislop -- President & Chief Executive Officer

As far as the meeting plans in for Chicago and the Nashville and the Washington DC, that will start probably like a week, a week to 10 days before Thanksgiving. They'll include what we've talked about, our radio, Spotify or Hulu. We'll be also doing some cross promotions with the radio stations on charities that we will do, and we'll have some remotes at all -- all the stores in these markets along with the billboards and again the paid social and digital. And that's when that starts to now run right through the holiday.

Nick Setyan -- Wedbush Securities -- Analyst

Got it. And with reduced the unit growth next year, what's the CapEx which you think about, Jon, the next year?

Jon Howie -- Chief Financial Officer, Vice President

If you are looking at one thing that frees up some cash versus stock buybacks, it's well -- but I'm sorry, I don't have that in front of me, but it should be probably about almost half of what you see this year. So I would say probably $20 million like that.

Steve Hislop -- President & Chief Executive Officer

You can get more specific on -- (multiple speakers)

Jon Howie -- Chief Financial Officer, Vice President

(inaudible).

Nick Setyan -- Wedbush Securities -- Analyst

Yes, OK. And then just the other OpEx, it sounds like the third-party delivery goes in there and we are already seeing a little bit of a bump, how should we think about that in 2019, is that 40 basis points bump, is that a 50 basis point bump?

Jon Howie -- Chief Financial Officer, Vice President

That's a good question. I mean that's something that we are focusing in on the delivery charge. I'm sure that's being a big item in a lot of people's P&L. So we're looking at ways that we can reduce that, but as, like we said we were up 14% on our to-go. So it has a bigger impact on a basis in our OpEx. So we could probably see that increase 10% or 20% if we continue to drive our delivery and off-premise sales another by 10 basis points or 20 basis points.

Nick Setyan -- Wedbush Securities -- Analyst

And then just last question on the -- on how we recognize occupancy and brands and another is a change in accounting standards coming next year, how does that impact you guys?

Jon Howie -- Chief Financial Officer, Vice President

Nick, it shouldn't have any impact on the P&L, it should have very little or immaterial impact on the P&L, but it will have a huge impact on the balance sheet.

Nick Setyan -- Wedbush Securities -- Analyst

Got it. Thank you.

Jon Howie -- Chief Financial Officer, Vice President

Thanks, Rob -- or Nick.

Operator

And that does conclude the question-and-answer session. I'll now turn the conference back over to management.

Steve Hislop -- President & Chief Executive Officer

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 and have a good evening.

Operator

Thank you. That does conclude today's conference. We do thank you for your participation. Have a wonderful day.

Duration: 34 minutes

Call participants:

Jon Howie -- Chief Financial Officer, Vice President

Steve Hislop -- President & Chief Executive Officer

David Tarantino -- Robert W. Baird & Co. -- Analyst

Hugh Gooding -- Stephens Inc. -- Analyst

Alexandra Chan -- Jefferies & Co. -- Analyst

John -- Stifel -- Analyst

Andrew Strelzik -- BMO Capital Markets -- Analyst

Nick Setyan -- Wedbush Securities -- Analyst

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