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Chuy's Holdings Inc (NASDAQ:CHUY)
Q3 2020 Earnings Call
Nov 5, 2020, 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 2020 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'll turn the call 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 2020 earnings release. If not, it can be found at 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 guaranteeing future performance and therefore 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. Hope everyone is staying safe and healthy. I'd like to begin by expressing my appreciation for each and every one of our Chuy's team members. The relentless dedication in serving our loyal guests during this challenging environment has truly made a difference for both the company and our guests. And we believe their hard work is paying off as you can see from our third quarter results.

During the quarter, we continued our business recovery and delivered comparable restaurant sales improvement of negative 19.8% from a negative 39% in the second quarter. As various states were easing their restrictions, we were able to make sequential progress each month through the quarter and culminating with a comparable restaurant sales of negative 13.8% in September. At the end of the third quarter, 92 of our restaurants were opened for indoor dining with various capacity restrictions. In addition, we continue to maintain a strong off-premise business of about 33% of total sales during the quarter or more than double last year levels. Even as we've reopened up more on-premise dining opportunities for our guests, all in all, we continue to see strong demand for our offerings through all current avenues of our business.

We've also continued to make significant progress with regard to our operating efficiencies. For the third quarter, we grew restaurant level operating profit by approximately 12% and increased our restaurant level margin by 700 basis points on lower year-over-year sales. Our restaurant teams have done a tremendous job with cost of sales and labor management despite lower year-over-year sales.

Looking ahead, as in-dining room's restrictions are further loosened and our sales volume returned to a more normalized level, we will deduct [Phonetic] some of our efficiency gains to slow as we bring back additional costs. However, there is no doubt that the hard work of our teams during the last six months will have a long-term benefit to our operations.

We have resumed a portion of our marketing effort with key messaging in the safety, convenience and value, all of which have been resonating very well with our guests during this uncertain time. Naturally, these three key messages translate to what we do in each of our restaurants to ensure our guests can continue to enjoy freshly prepared craveable Mexican-inspired offerings.

Starting with safety. Our investment in technology from this past year has certainly played an important role in keeping our team members and our guests safe while dining in our restaurants. We are currently testing a pay-at-the-table device, which will allow our guests to quickly complete their transactions while minimizing any contact point with our waiters. To further promote convenience, we are continuously improving our off-premise business through enhanced take-out, curbside pick-up procedures and DoorDash delivery services. Even with all our dining rooms open during the third quarter, as I've said, our off-premise business remained strong and performed at more than double our pre-COVID sales.

Lastly, we have promoted value by streaming our menu offerings to feature reduced number of entrees as well as adding convenient family meal and beverage kits, which has proven to be very popular with our guests. As we go into the fourth quarter, we will start to add some of our popular menu items back into our main offerings with the support of digital marketing efforts to drive awareness.

Before I turn the call over to Jon, let me quickly discuss our development. As you know, we opened one restaurant in February and subsequently suspended development for the balance of 2020. Barring major changes in the external environment, we currently expect to resume new store development next year and are targeting four to six new restaurant openings in 2021 starting with a restaurant in Pembroke Pines and one in Indianapolis each expected to open during the first half of the year.

With that, I'll 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 27th, 2020 decreased to $82 million compared to $109.1 million in the same quarter last year, primarily driven by traffic decline due to COVID-19, including the loss of 117 operating weeks on temporary closures of nine restaurants as well as the loss of 52 operating weeks from stores that were permanently closed during fiscal year 2019. In total, we had approximately 1,196 operating weeks during the third quarter of 2020.

Comparable restaurant sales decreased 19.8% during the third quarter. As Steve mentioned, our off-premise sales remained solid during the third quarter at approximately 33% of total revenue. Please refer to today's earnings release for our third quarter sales improvement cadence [Technical Issues].

Turning to expenses. Cost of sales as a percentage of revenue decreased 210 basis points to 24.2%, primarily as a result of switching to a limited menu and eliminating our complimentary buffet style chips and salsa or Nacho Car, partially offset by 70 basis points increase in the cost of beef and 10 basis points increase in the cost of dairy and cheese. Currently through the fourth quarter, cost of sales has increased approximately 80 basis points from the Q2 -- from the, excuse me, the third quarter because of increases in prices of produce and dairy. These prices have remained elevated and we would expect cost of sales percentage in the 25% to 25.4% for the fourth quarter.

Labor costs as a percentage of revenue decreased approximately 640 basis points to 29.1%, primarily due to reduction in hourly employees and store management personnel as the company transitioned to an off-premise operating model with reduced dine-in capacity, coupled with our hourly labor rate deflation of approximately 1.8% during the quarter. Currently, we expect our labor cost to be in the 30% to 31% range during the fourth quarter as more dine-in opportunities open.

Operating cost as a percentage of revenue increased 60 basis points to 15.4% compared to last year's quarter, primarily due to increases in delivery charges and to-go supplies as a result of the growth in off-premise business, partially offset by lower credit card fees and insurance costs. Marketing expense as a percentage of revenue decreased 80 basis points to 0.6%, driven by the suspension of our national level marketing initiatives in response to COVID-19 pandemic, while relying on a more cost-effective local store digital marketing effort. We are planning to increase our marketing spend during the fourth quarter as we resume our digital marketing efforts to around 1% to 1.1% of revenues.

Occupancy expense as a percentage of revenue increased 160 basis points to 9.1%, primarily as a result of sales deleverage of fixed occupancy expenses. General and administrative expenses decreased to $5.7 million in the third quarter from $6 million in the same period last year, primarily driven by reduced travel, recruiting and various other expenses as a result of cost saving measures in response to COVID-19. We expect our G&A to total approximately $6 million during the fourth quarter, including the accrual of special bonus to reward our employees for their performance during this COVID-19 crisis and to make them whole from salary decreases that were implemented earlier in the year.

In summary, net income for the quarter of 2020 was $2.8 million or $0.14 per diluted share compared to a net loss of $1.8 million or $0.11 per diluted share in the same period last year. During the third quarter of 2020, we incurred a $3.1 million -- or $3.4 million in impairment, closed restaurant costs as well as a $6 million in deferred tax revaluation adjustment in conjunction with the CARES Act. Taking that into account, adjusted net income for the third quarter of 2020 increased 61.1% to $6.1 million or $0.31 per diluted share compared to $3.8 million or $0.23 per diluted share in the same period last year.

Before I turn it back to Steve, let me quickly touch on our liquidity and balance sheet. As of the quarter, we had $77.8 million in cash and cash equivalents, no debt and $25 million of available or availability from a revolving credit facility. We firmly believe that based on the steps we've taken at the onset of this pandemic, we are standing on a solid financial footing and continue to aggressively navigate this COVID environment.

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

Steve Hislop -- President and Chief Executive Officer

Thanks, Jon. While uncertainty surrounding COVID-19 remains, our business is recovering with ample liquidity and strong financial footing, positive sales trajectory, relentless dedication of each and every one of our team members and the strength of our concepts we are equipped to weather the ever-changing market conditions and are ready to capitalize on our improved business operations once this pandemic subsides.

And to our team members, I'm proud to be working alongside a tremendous group of people who work tirelessly to earn the dollar every single day.

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

Questions and Answers:

Operator

[Operator Instructions] And our first question will come from Chris O'Cull with Stifel. Please go ahead.

Chris O'Cull -- Stifel -- Analyst

Good afternoon, guys.

Steve Hislop -- President and Chief Executive Officer

I thought there's a new guy on the phone.

Chris O'Cull -- Stifel -- Analyst

Jon, how should we think about the sales and cost correlation as sales recover? I mean, do you think the recent 20% [Indecipherable] in the past two quarters will increase or decrease as sales recover? Well, again, we have limited some of the cost coming back, Chris. And so, as we open the dining rooms, some of those fixed cost like we talked about last quarter were continually starting to bring those back and also labor as far as from the outside world [Phonetic] come back. But we do think that we can maintain at least 300 basis points of some of this margin that we've accomplished in the current environment. So, if you look at the pre-COVID about 300 or 350 basis points on that. I think we can attain that. And you gave some pretty detailed restaurant line item guidance on the last call. So I'm just curious whether something changed in the plans during the quarter -- for the third quarter, or if you were just trying to be conservative in light of the current environment.

Jon Howie -- Vice President and Chief Financial Officer

Well, really just been somewhat. I don't know if the conservative is the word or just not knowing what the environment is going to entail going forward. Because we do have a couple stores that have gone back to go only. So -- and dependent upon the volatility of what we're seeing kind of with the presidential and the lock ups and stuff like that. There's just a lot of uncertainty out there, Chris. So we're being somewhat conservative in that. Yeah, I have a crystal ball at times getting a little bit murky. Yeah, no, I understand. I'll get back in the queue. Thanks guys.

Steve Hislop -- President and Chief Executive Officer

Thank you.

Operator

Our next question will come from Mary Hodes with Baird. Please go ahead.

Mary Hodes -- Robert W. Baird -- Analyst

Good afternoon. Thanks for taking my question. I wanted to ask on the comps, the pace of improvement appears to stall. They may be even reversed a little bit here in October. And I was just wondering if you could walk through why you think that might be, including whether you're running into capacity constraints at that down mid-teens level or whether you think the media attention surrounding the recent rise in COVID cases is having an impact, just any perspective would be helpful?

Steve Hislop -- President and Chief Executive Officer

Yes. So, all of the above. So, again and again, that crystal ball thing is, yeah, definitely -- it's definitely been an uptick in the news, even more so lightly. We do believe that we're doing pretty well. The key thing for us, as we've mentioned in the last two calls, has been the 6-foot distancing. Until that really subsides, 50% to 75% of capacity doesn't really matter because they're at 50% capacity is where we're at with 6-foot distancing. So that's all we've been working on.

So we're definitely getting closer to capacity, although we're not all the way there. We believe we can, through the next few months, even with the existing capacity that we currently have, we believe we have improvements that we can make in larger parties and home dining over the holiday periods at home, possibly a little bit of catering into the last two periods of the fourth quarter. And we also believe with a little bit of marketing that we've added on that we didn't start again until the beginning of the fourth quarter, and we're one month into that talking about safety, convenience in our value message believe will resonate with our customers also. So we do believe we have some capacity as we move forward through the rest of the year from our numbers in August and September.

Jon Howie -- Vice President and Chief Financial Officer

And I guess another thing too is, we've had -- we had some delays in school openings as well that...

Steve Hislop -- President and Chief Executive Officer

Push back.

Jon Howie -- Vice President and Chief Financial Officer

...that pushed it back a little bit, but one thing we look at is really look at the weekly AUVs. And if you look at those weekly AUVs, they were about 68,500 in September and they're about 68,500 in October. So it's staying pretty [Technical Issues].

Steve Hislop -- President and Chief Executive Officer

We're pretty excited with where we're at to be straight up and honestly.

Mary Hodes -- Robert W. Baird -- Analyst

Yeah. That's helpful. And then, separately, can you just talk a little bit about what you're seeing in terms of guest feedback or customer satisfaction since you've move to the simplified menu and changed the labor model here with a fewer number of managers per restaurant?

Steve Hislop -- President and Chief Executive Officer

Yeah. We've seen some consistency and added pre-COVID [Phonetic] through this. I mean, it's been very, very consistent. Obviously the guest number one are happy that we're open with any type of menu in a lot of areas that we're in. And then, they appreciate the speed and the safety issues that we've taken and the concerns that we have for them and our employees. So, again, it's been pretty stable.

As far as the manager reduction a little bit, again, with the simplified menu in different operating hours because we're not open as long as we were before pre-COVID, we closed third Sunday through Thursday at around 8 on weekends with closing at 9. Again, so the level of service levels are remaining very consistent and very good.

Mary Hodes -- Robert W. Baird -- Analyst

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

Steve Hislop -- President and Chief Executive Officer

Thank you so much.

Operator

Our next question will come from Nick Setyan with Wedbush Securities. Please go ahead.

Nick Setyan -- Wedbush Securities -- Analyst

Thank you. And congrats on the amazing margin. A couple of quick questions. Just to follow-up on an earlier question, did you say you went back to just to-go only on a couple of stores and has that impacted the quarter-to-date number?

Steve Hislop -- President and Chief Executive Officer

No, it hasn't impacted it that much, Nick. But in Chicago, it went back to to-go only. As you know, we only have one opened in that market right now. And then, El Paso had spike in COVID cases. And so they've gone back to to-go only. Those weren't significantly high volume units anyway, but those have gone back. So we're ready for those to open back up.

Jon Howie -- Vice President and Chief Financial Officer

Yeah. And then we're talking about a two-week time frame on those deal.

Nick Setyan -- Wedbush Securities -- Analyst

Understood. Just to give a context, any chance you'd be able to tell us like what the 2019 unit level margins for these 92 stores were, just so we understand what the year-over-year comparison is?

Steve Hislop -- President and Chief Executive Officer

I don't have that with me, Nick. I do not have that with me. I can't provide that.

Nick Setyan -- Wedbush Securities -- Analyst

No worries. And then, just overall on the competitive kind of landscape, the Florida six units next year is a pretty aggressive unit growth rate relative to what at least I was expecting. Are you seeing the competitive kind of decline in supply? Have you refined your new unit volume target and even your new unit economic target?

Steve Hislop -- President and Chief Executive Officer

Yeah. We [Indecipherable] go specifically over the last quarter, Nick, I mean. And then, where we're heading moving forward, we feel comfortable right now. If everything says stays like, let's say, it is right now, we're comfortable moving forward with maybe [Phonetic] to do with our management labor, hourly labor, our smaller menu that we can execute and drive margin even in new units as we sit here today. So, as we move forward, that's what we'll be looking at. Again, anything better than that what we're excited about and anything goes backwards, we'll take a hard look at. But that decision on the Florida six is from what we see today are all over specifically the last couple of quarters -- I mean, couple of periods remain the same.

Nick Setyan -- Wedbush Securities -- Analyst

Understood. Thank you very much.

Steve Hislop -- President and Chief Executive Officer

You're very welcome.

Operator

The next question will come from Andy Barish with Jefferies. Please go ahead.

Andy Barish -- Jefferies -- Analyst

Hey, guys. [Technical Issues]

Steve Hislop -- President and Chief Executive Officer

Thanks, Andy.

Andy Barish -- Jefferies -- Analyst

The labor hourly wage deflation is something we really haven't heard much of. In fact, it's been more finding it a little bit tougher staffing and obviously now with the COVID spike, just kind of managing through 60 members and stuff like that. But can you give us a little bit more color on the wage deflation actually?

Steve Hislop -- President and Chief Executive Officer

Sure. What we're seeing on that, Andy, is mainly the front-of-the-house. Back-of-the-house is actually ticked up a little bit. But I think the front-of-the-house, I think we -- as we are waiting to hire people back, I think some found other jobs. So we're hiring them back at some lower rates as well as some of our to-go people were at higher wages. And as we hired them back, to-go has been so busy that they're making so much money that we didn't have to hire them back at the rate that they were. And so, the biggest driver of it is really front-of-the-house and to-go wages.

Andy Barish -- Jefferies -- Analyst

Very helpful. And did you transition exclusively during the 3Q to DoorDash and is that -- do that help as you kind of implemented drive down some of the increase in delivery fees that seem to show up in the 3Q?

Chris O'Cull -- Stifel -- Analyst

No. I mean, we did -- we finalized that at the first of the year and fully got implemented with DoorDash in the first quarter, I mean, [Technical Issues] and so that's been in the whole time. But yeah, we've seen with the increase we also implemented increases in our delivery. So we have a different menu on delivery and increased those prices with our regular menu prices in period too. And so that's how helps out tremendously on those fees, offsetting those fees. Okay. Thanks for the color.

Operator

Our next question will come from James Rutherford with Stephens. Please go ahead.

James Rutherford -- Stephens, Inc. -- Analyst

Hey. Thanks for taking the question. I wanted to go back to expenses line of question, getting the call on margin, just so I was curious if you could break down that 350 basis points of what sounds like sustainable margin step up compared to pre-COVID?

Steve Hislop -- President and Chief Executive Officer

Yeah, I mean, I tell you, most of the [Technical Issues] would probably be at labor. You're talking probably 300 basis points in labor alone and the other 50 like we said, I think when we get our full menu bag, I think our cost of sales will come back but that will be gradual. But we still -- we don't anticipate getting the Nacho Car back. So that's a savings of probably 50 to 100 basis points. So really those are the variables that are totaling up to that 300, 350 basis points.

James Rutherford -- Stephens, Inc. -- Analyst

Okay, got it. And then, on the table side payment, is that just payment or do you envision this being as expanded into maybe ordering and potentially even loyalty down the road. Just curious what the logic behind making that investment in table side payment is?

Steve Hislop -- President and Chief Executive Officer

Right now, we're just looking at table side payments from a contactless standpoint. But we knew that that's all different thing, handheld. We currently still have handheld in some restaurants that we're testing where the servers can take those orders on the handheld. So we continue to test the different items. But this is a new thing at the pay-at-the-table and it's really pay-at-the-table through a QR code in your phone. So it works pretty slick.

James Rutherford -- Stephens, Inc. -- Analyst

I see. If I could sneak just one more in there. I noticed that the average check growth, I think, accelerated sequentially a little bit. I'm just curious what drove that?

Jon Howie -- Vice President and Chief Financial Officer

Yeah. What drove that is obviously when we reduced our menu, some of the things that we took out for a couple of the lower priced appetizer items. So people are moving up. So it's definitely on the product mix side of our business. And that's what's really moved it up. And again if you go out into the marketplace, you're going to see a lot of menu as the same things happen out in the industry.

James Rutherford -- Stephens, Inc. -- Analyst

Okay, thank you.

Jon Howie -- Vice President and Chief Financial Officer

Welcome

Operator

Our next questions come from Andrew Strelzik with BMO Capital Markets. Please go ahead.

Daniel Salmon -- BMO Capital Markets -- Analyst

Hey, guys. It's actually Dan on for Andrew today. Thank you for taking the question. First, I mean, there was four to six openings next year. I know you mentioned [Technical Issues] sound like there'll be an existing markets. But just curious if you're potentially looking at moving into a new market next year or if existing markets are really the focus right now.

Steve Hislop -- President and Chief Executive Officer

There will be all and existing markets where we have strong AUVs already.

Daniel Salmon -- BMO Capital Markets -- Analyst

Got it. That makes sense. And then, Steve, I know that's where you talked about how you guys observed some competitive closures in some of your markets. So I'm just wondering if you've seen that kind of continued through the past few months or even accelerated in any way? And if you could just give us some incremental details on what kind of stores you're seeing close and where those are potential real estate opportunities for Chuy's either new store relocation perspective, I know we've heard some others talk about maybe how some of the real estate [Technical Issues] right now it is lower quality, but I imagine that probably varies by market. So I'm just curious what you guys are seeing.

Steve Hislop -- President and Chief Executive Officer

Yeah, I think what I mentioned last time is the rumor of it all happen. We haven't seen a whole bunch. And I really don't anticipate to see a whole bunch of heard that some of the smaller ones, local guys might have gone out, but I think it's going to really be after the holidays is where you're going to see it during the first quarter. And that's what we're looking for and that's why we'll be really taking a look at our existing market points and what's happening in the competitive landscape as we move forward. Again, not a ton of it so far. Again just rumors, whether it's restaurant news or what you're hearing out there. And again, few locals. But as we get it over through the holiday pass to holiday into the first quarter. I am hearing a little bit more and until that happens, we haven't seen any big trend in the sites -- opportunities, cost opportunities or any of that yet.

Daniel Salmon -- BMO Capital Markets -- Analyst

Okay. That's helpful. And then just, one more quick one, if I could. I know you previously pause the marketing up some time out, it's coming back to your in 4Q, but I'm wondering if there is a second wave of shutdowns. Is there the potential to pause again or are you more comfortable in sort of an off-premise only capacity you can continuing those marketing up if we are pretty goes through a second. [Technical Issues]

Steve Hislop -- President and Chief Executive Officer

Yeah. Thank you. Great question. We're very nimble. Okay. We're very nimble as we've been able to show and what we've been able to do over the last 6 months and will continue to be nimble on any and all weather because expenses or whatever it goes from there. So we have the ability to turn on and off things as we, what I like about this right now is, in this environment three are main issues that we're doing, which is an all digital and it's all page with social and digital. Wwe're talking about the things that I think are really our drivers, which is that there the concerns of our employees and ROEs and our also our customers a safety being number one convenience and ease of execution, number two; and then value being number three. So that I think resonates in this period of time. But obviously we'll be able to turn that work up or down as we see fit. Right now, I'm comfortable over the next two months depending on if we stay where it as that I expect. As Jon mentioned, that will probably and increase our spend up to that 1% and we'll play it by year as we move forward. But I'm anticipating for that to carry over through into the first quarter and second quarter of 2021. Great, thanks guys. Appreciate you taking the questions. My pleasure.

Operator

The next question will come from Todd Brooks with CL King. Please go ahead.

Todd Brooks -- CL King -- Analyst

Hey, guys. Thanks for taking my questions. Just a couple left here. First, if you can talk about -- I know we've got to streamline many, how would you talked about some items coming back on here for holiday? Can you talk about the type of things that you're adding back and the impact on food cost to bring this back on the menu?

Steve Hislop -- President and Chief Executive Officer

Yeah, yeah. And we're talking just a handful. We don't see a big food cost mix change. And so, we don't see a huge effect on our food cost per se, but you'll see us add a few of our appetizers that we want to add on, whether it'd be the case a day is the not chosen the Poncho. So you'll see some of those pop back on, you'll see a couple of things and add on salad that we'll be bringing back, chicken and salad, we'll be bringing back. And then, through the winter time, it makes sense to bring back tortilla soup and all that type of stuff that we make from scratch in our building that we'll do that daily. So those will look be the main ones.

And then we also think coming back into the holidays, we have the tres leches cake that we want to bring back for everybody during the holidays, which makes a lot of sense for us. So, again that's a handful items. And you'll see us stay there probably for the next couple, two, three months and we'll evaluate where we're at in this pandemic and look at some sort of change in our menu round period three of 2021 where we might have some add-ons and a little bit of a new, a menu right around then as long as things are progressing well through the pandemic and we're getting a little less of the social distancing sizes.

Todd Brooks -- CL King -- Analyst

And Steve, with some of these issues being kind of plus items, whether it's appetizers desert, do you think that there is an average check tailwind as you add these back the menu or are they placing things that are in the same categories?

Steve Hislop -- President and Chief Executive Officer

I think it could go down a little bit to be straight up and honest with you. Because again it's bringing back to appetizers, it's a little bit lower check average and if you Baeten in our restaurant to our appetizers, there could be full meals on how people lead them in our restaurant. So it could be a tad bit and again it really goes along with that convenience and specifically value message that I wanted in the holiday time period. But no, I don't expect the check average to go up.

Todd Brooks -- CL King -- Analyst

Okay, great. And then, my final question, if we just talk about maybe how many stores you're able to do alcohol to go with to-go orders. How many of the stores is that in? What percent of off-premise sales is alcohol? And do you think that this now that that GE has been out of the bottle, but this is here to stay and you'll be able to do it.

Jon Howie -- Vice President and Chief Financial Officer

I think it is, yeah.

Steve Hislop -- President and Chief Executive Officer

Thank you. I apologize, I think it is here to stay. I mean, once anybody that had some revenue is going to be hard to move away from it from a tax perspective, especially in the local government. So I think that is here. I'd say, we probably have it in 70% to 80% of our restaurants. And right now, the alcohol sales is about 3.1% of our sales.

Todd Brooks -- CL King -- Analyst

To-go sales?

Steve Hislop -- President and Chief Executive Officer

To-go sales. So we feel pretty good about that. And it's been consistent over the last two to three periods in a row. And again, I see that staying there. And I do think you might end up seeing that 70% to 80% get bigger as time goes by also. So we like it, and will continue with it. I had a quick follow-up, I know you've had some success for cats, do you have further adult beverage kits and development that could drive that mix higher.

Jon Howie -- Vice President and Chief Financial Officer

Right now we have a whole bunch of things we're looking at, but nothing ready to talk about a roll-up.

Todd Brooks -- CL King -- Analyst

Okay, great. Thanks, guys.

Jon Howie -- Vice President and Chief Financial Officer

Thank you.

Operator

[Operator Instructions] Our next question will come from Brian Vaccaro with Raymond James. Please go ahead.

Brian Vaccaro -- Raymond James -- Analyst

Thank you and good evening. Gentlemen, circle back on store margins, if we could and appreciate your fourth quarter guidance there. But could you give us some perspective on the margins, kind of as you move through the third quarter and give us some -- any perspective on where margins were quarter-to-date?

Jon Howie -- Vice President and Chief Financial Officer

As far as quarter-to-date in the 4th quarter?

Brian Vaccaro -- Raymond James -- Analyst

Yeah.

Jon Howie -- Vice President and Chief Financial Officer

Yeah. So we just closed out the period 10. And so we're still finalizing those financial statements. But they're similar, they're little lower by probably 100 basis points, but they're in that range. I think I said on the call last quarter that margins were in that 90% range in July, August and September, they've remain kind of right around that that 19% to 21% to come up with the ones that we had here in the quarter. So they're consistent right around that 20%. I mean, the things that we're looking at in the fourth quarter obviously is, it is our lower indexing quarter. So we will have, it is our lowest indexing quarter -- so we'll continue to have, if there is some, if we take the system, it did have some deleverage there as well. As you know, if it does increase a little bit and we're able to open our dining rooms back. We're going to have some added cost there, but we still expect it to be in those IT.

Brian Vaccaro -- Raymond James -- Analyst

Okay, that's great. And I think I'm speaking to seasonality. When you look back at the fourth quarter, your historical seasonality, if you will, maybe just hone in on Q4 of '19. Can you remind us how much lower are your AWS in December as it relates, October, November or just maybe comparatively October so if I'm looking if I'm looking at Q4 2019. I mean, we are looking at average AUVs in the like 70% -- high-70% range in Q4 2019. And in Q3, we were at last year at about 81,000 to 82,000 a week. So that I give you kind of the drop there.

Steve Hislop -- President and Chief Executive Officer

Having said that..

Brian Vaccaro -- Raymond James -- Analyst

I guess the question was, December -- October through December pretty even or is there a continued fall off as we move into the holiday season as they kind of the cadence quarter effectively yeah, I'm sorry. There is a continued fall off during the holidays, except for that last week of the year. That's probably one of our biggest weeks of the year. Generally I don't know what it's going to be this year, but that week between Christmas and New Year tends to be a very big week for us.

Jon Howie -- Vice President and Chief Financial Officer

Okay. I'm sorry, Steve, I didn't [Indecipherable] what was that?

Steve Hislop -- President and Chief Executive Officer

No, that was said that [Technical Issues] Jon, but I know better.

Jon Howie -- Vice President and Chief Financial Officer

The other thing too, I might mention and asked earlier I think by Nick. The difference between -- if we are looking at our existing stores or what we call the existing that they were in the comp base at the end of the year, which would hit 81 stores. Our margins have increased about 430 basis points on those stores. So, I'm not for sure kind of what the question was but our existing stores have had a significant year-over-year margin savings as well.

Brian Vaccaro -- Raymond James -- Analyst

Okay, great. And real quickly on commodity inflation, has the beef inflation you saw in Q3 abated at all or what are your 4Q commodity inflation expectations? And curious if you have an early look based on your contracts, etc, on how you think '21 can play out from a commodity standpoint?

Jon Howie -- Vice President and Chief Financial Officer

Well, we've actually -- our fajita beef has been somewhat consistent. And we've actually we're starting to lock up 2021 we think will be at a decent price on that, but we did have increase you know in ground beef a little bit, but that's what's driving that. But the biggest thing on that is not as much price that is mix because our mix is really skewed toward the [Indecipherable] and what people are getting at the stores. So that's really what's driving that increase in the cost of sales is a higher priced item at a higher mix.

Brian Vaccaro -- Raymond James -- Analyst

All right. Great. I guess the last one from me, I know it's only been a few hours, but I wanted to ask about the Florida state minimum wage increase that was voted in earlier this week. Could you help us frame how much of a cost pressure that represents. But the tip wage but is expected to increase pretty meaningfully over the next five years and a floor is only, say, 10% or so of your stores. But could you help us bring that at a high level?

Jon Howie -- Vice President and Chief Financial Officer

Well, I'll tell you why. It's just been a few hours. You're right. I still haven't got over, I shouldn't say, but -- so anyway, no. And we were still analyzing that. But I mean, you can see those rates in pretty well. We won't have that entire rate obviously because we're above some of those rates already. Right. So it's not going to be the significance of all of that rate on our wages. But there will be a good piece that obviously will raise the overall rate wages to which we don't know how that will impact until they start being implemented.

Brian Vaccaro -- Raymond James -- Analyst

Okay. And Steve, I guess, while I have you on that, but just generally speaking, thinking about server wages in most markets, are you that much above, say, the tip wage that's allowed in that state. I know back of house, you could see wages that are well above state minimum wage levels. I'm just curious that wage dynamic holds on the server side, say, in Texas to 13, say, in Florida in the 550 [Phonetic], just broadly curious on the server entry wage topic.

Steve Hislop -- President and Chief Executive Officer

Yeah, right now, you're going with the tip wage whatever by market by market. So we're at [Technical Issue] every one of the markets that we're currently already in.

Brian Vaccaro -- Raymond James -- Analyst

Yeah. Well, I mean, one thing to look at that. There are some that are indirectly fit that we will pay more obviously, and some that aren't that we still have at the front of the house and that would be your host. This isn't some of those that are paying it more than -- put more than the regular minimum wage, not tip wage. So that's all going in the front of the house as well. Yeah. Okay, great. All right. Thanks guys.

Steve Hislop -- President and Chief Executive Officer

Thank you, Brian.

Operator

Our next question will come from Chris O'Cull with Stifel. Please go ahead.

Chris O'Cull -- Stifel -- Analyst

Hey, thanks. Most of my questions have been answered. But I had a couple of follow-ups. One was. Steve, do you think it's going to be difficult to rebuild sales in the nine stores that have been closed for the past several months?

Steve Hislop -- President and Chief Executive Officer

Chris. I think those markets will take a hard look at them as again as I told you last time, I'm revisiting those in this fourth quarter really to understand the changes in those markets based on competition and everything that's happened in the market points as we looked at them. We're going to make sure that we have the opportunity not only to build but also grow or will make a tough decision possibly not to open them. So we'll look at all of that stuff.

Chris O'Cull -- Stifel -- Analyst

Okay. And then, I know patio sales were running up, I think, 10%, 13% at the end of the last quarter, which was up year-over-year. Do you guys have an update on the patio mix for the third quarter and then should we expect the tailwind from that to abate in the fourth quarter with cooler weather?

Steve Hislop -- President and Chief Executive Officer

Yeah. So, at the third quarter, we were at about 11.5% for the quarter. And that's compared to 7.3% last year. So we've seen a significant increase in that. If you look at period 10, period 10 in the first period into the fourth quarter, that actually jumped up to 13.3%. So, we're still seeing some decent days to be out in the patio definitely in the southern markets. And so we continue to build that. Obviously when we get into the heavy winter, that may come back a little bit, but we've done a lot of things to extend that patio. We've extended the patios, but then we've put heaters out there and things like that just in that Patio season. So we're pretty happy where we are. But we do know in the winter months that that could come back a little bit.

Jon Howie -- Vice President and Chief Financial Officer

Specifically, in December, January and the beginning of February.

Steve Hislop -- President and Chief Executive Officer

Yeah.

Chris O'Cull -- Stifel -- Analyst

Okay, great. Thanks guys.

Steve Hislop -- President and Chief Executive Officer

Operator?

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Hislop for any closing remarks. Please go ahead, sir.

Steve Hislop -- President and Chief Executive Officer

Again, thank you guys 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: 42 minutes

Call participants:

Jon Howie -- Vice President and Chief Financial Officer

Steve Hislop -- President and Chief Executive Officer

Chris O'Cull -- Stifel -- Analyst

Mary Hodes -- Robert W. Baird -- Analyst

Nick Setyan -- Wedbush Securities -- Analyst

Andy Barish -- Jefferies -- Analyst

James Rutherford -- Stephens, Inc. -- Analyst

Daniel Salmon -- BMO Capital Markets -- Analyst

Todd Brooks -- CL King -- Analyst

Brian Vaccaro -- Raymond James -- Analyst

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