Tex-Mex restaurant chain Chuy's Holdings (NASDAQ:CHUY) has gone through plenty of growing pains in its brief time as a public company, with many investors putting a lot of pressure on it to emulate the success of fast-casual giant Chipotle Mexican Grill (NYSE:CMG). Yet even with the volatility in the company's stock price, Chuy's investors came into Tuesday's third-quarter financial report focused primarily on whether the restaurant chain would be able to continue to post an impressive rate of growth in its revenue and earnings. Chuy's did a good of delivering on the fundamentals, with better sales and net income than most of those following the stock had expected to see. Let's look more closely at Chuy's and what the company told us this quarter that could have big implications for the company and its peers in the months and years to come.
Chuy's Holdings stokes its growth fires
Chuy's enjoyed yet another set of impressive numbers in the third quarter. Revenue jumped 15% to $73.9 million, eking just above the consensus forecast among investors on the top line. Net income climbed at an even steeper 31% rate, and that produced earnings of $0.24 per share, topping expectations by $0.03 per share and proving that the company's second-quarter results weren't merely a one-time fluke.
Looking more closely at the results, the best news was arguably Chuy's ability to see accelerating growth in comparable-restaurant sales. Comps for the quarter jumped 4.2%, marking the 21st consecutive quarter that Chuy's has posted positive results in that metric. Even though the number of customers actually fell slightly, increases in the average check more than made up for that decline. Further revenue gains came from Chuy's opening two new store locations during the quarter, and adding two more openings that occurred after the end of the third quarter, the restaurant chain has opened eight new locations so far this year, bringing its total store count to 67.
At the same time, Chuy's has done a good job of cutting its costs. Operating expenses dropped by three full percentage points to 79.7%, with Chuy's attributing the savings to lower grocery, dairy, and chicken costs, as well as falling labor-related expenses. On the other hand, Chuy's finally ran through all of its net operating tax losses during the first half of 2015, and so the company's tax rate soared by 12 percentage points to 38.3%, eating into profit growth.
CEO Steve Hislop once again celebrated the restaurant chain's success. "Our brand continues to resonate well with our guests," Hislop said, "through our made-from-scratch, Tex Mex-inspired menu, commitment to value, and upbeat, irreverent atmosphere."
Another outlook boost sends Chuy's prospects higher
Chuy's results were good enough that the company raised its guidance for the full 2015 year once again. The company added $0.03 to $0.04 per share to its previous earnings guidance, now expecting net income to land in a range between $0.86 and $0.88 per share. Comparable-restaurant sales should rise at 2.9% rate for the year, up from previous guidance for 2.5%, and Chuy's remains on track to open 10 new locations in 2015.
Chuy's now has an impressive network of restaurants spread across 14 states. Although the chain's home state of Texas has the most locations, restaurant-goers can find locations as far north as Ohio and as far east as Virginia. The expansion plan will remain a key part of the Tex-Mex chain's overall growth strategy for years to come.
Nevertheless, it's important to realize that Chuy's will likely not see the same level of growth that Chipotle Mexican Grill did in its heyday. Chipotle's same-store sales growth was routinely in double-digits, with the fast-casual chain's store layout being much easier to replicate in new locations than Chuy's full-service locations. Yet at least for now, even modest growth in store counts has a big impact on Chuy's overall results, and that can drive growth for the foreseeable future.
Chuy's stock rose on the favorable results and guidance, sending shares higher by 3% in aftermarket trading following the announcement. With such tasty results, Chuy's investors can still hope that the Tex-Mex chain can eventually create a similar nationwide sensation that Chipotle Mexican Grill brought on in its high-growth phase.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Chuy's Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.