chuy-20230625

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________

FORM 10-Q

__________________________________


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 25, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 001-35603

__________________________________

CHUY’S HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

__________________________________


Delaware						20-5717694
(State of Incorporation or Organization)						(I.R.S. Employer Identification No.)

1623 Toomey Rd.

Austin, Texas 78704

(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code: (512) 473-2783

__________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CHUY	Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☐

Accelerated filer

☑

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares of the registrant’s common stock outstanding at July 21, 2023 was 18,038,554.

Table of Contents



Part I – Financial Information			3
Item 1. Financial Statements			3
Unaudited Condensed Consolidated Balance Sheets			3
Unaudited Condensed Consolidated Income Statements			4
Unaudited Condensed Consolidated Statements of Stockholders' Equity			5
Unaudited Condensed Consolidated Statements of Cash Flows			6
Notes to Unaudited Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3. Quantitative and Qualitative Disclosures about Market Risk			15
Item 4. Controls and Procedures			15
Part II – Other Information			16
Item 1. Legal Proceedings			16
Item 1A. Risk Factors			16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			16
Item 3. Defaults Upon Senior Securities			16
Item 4. Mine Safety Disclosures			16
Item 5. Other Information			16
Item 6. Exhibits			16

Table of Contents

Part I—Financial Information

Item 1. Financial Statements

Chuy's Holdings, Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


	June 25, 2023		December 25, 2022
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	82,624	$	78,028
Accounts receivable	2,296		2,004
Lease incentives receivable	900		900
Inventories	1,667		2,069

Prepaid expenses and other current assets	6,456		4,817
Total current assets	93,943		87,818
Property and equipment, net	196,998		185,956
Operating lease assets	142,677		146,920
Deferred tax asset, net	4,370		4,958
Other assets and intangible assets, net	3,865		3,160

Tradename	21,900		21,900
Goodwill	24,069		24,069
Total assets	$	487,822	$	474,781
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	5,219	$	8,059
Accrued liabilities	27,315		23,321
Operating lease liabilities	12,575		12,499
Income tax payable	102		479




Total current liabilities	45,211		44,358

Operating lease liabilities, less current portion	178,143		183,670
Other liabilities	3,061		2,192



Total liabilities	226,415		230,220

Contingencies
Stockholders’ equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 18,038,554 shares issued and outstanding at June 25, 2023 and 17,998,170 shares issued and outstanding at December 25, 2022	180		180
Preferred stock, $0.01 par value; 15,000,000 shares authorized and no shares issued or outstanding at June 25, 2023 and December 25, 2022	—		—
Paid-in capital	94,476		96,586
Retained earnings	166,751		147,795
Total stockholders’ equity	261,407		244,561
Total liabilities and stockholders’ equity	$	487,822	$	474,781

See Notes to the Unaudited Condensed Consolidated Financial Statements

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Chuy's Holdings, Inc.

Unaudited Condensed Consolidated Income Statements

(in thousands, except share and per share data)


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022
Revenue	$	119,001	$	110,946	$	231,499	$	211,432
Costs and expenses:
Cost of sales	29,432		30,874		58,150		57,117
Labor	35,159		32,267		69,261		62,092
Operating	18,896		17,493		36,974		33,723
Occupancy	8,116		7,556		15,998		15,208
General and administrative	7,698		6,494		15,504		13,148
Marketing	1,693		1,614		3,243		3,027
Restaurant pre-opening	613		342		1,094		467

Impairment, closed restaurant and other costs	482		734		853		2,013

Depreciation	5,222		4,981		10,362		9,963
Total costs and expenses	107,311		102,355		211,439		196,758
Income from operations	11,690		8,591		20,060		14,674
Interest income, net	(854)		(75)		(1,631)		(47)
Income before income taxes	12,544		8,666		21,691		14,721
Income tax expense	1,810		795		2,735		1,332
Net income	$	10,734	$	7,871	$	18,956	$	13,389
Net income per common share:
Basic	$	0.59	$	0.42	$	1.05	$	0.70
Diluted	$	0.59	$	0.41	$	1.04	$	0.70
Weighted-average shares outstanding:
Basic	18,080,327		18,919,473		18,050,381		19,009,613
Diluted	18,154,921		18,983,553		18,161,837		19,136,313

See Notes to the Unaudited Condensed Consolidated Financial Statements

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Chuy's Holdings, Inc.

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share and per share data)


	Thirteen Weeks Ended
	Common Stock					Retained
	Shares	Amount		Paid-in Capital		Earnings		Total
Balance, March 26, 2023	18,121,408	$	181	$	96,380	$	156,017	$	252,578
Stock-based compensation	—	—		1,062		—		1,062
Proceeds from exercise of stock options	73	—		3		—		3
Settlement of restricted stock units	826	—		—		—		—
Repurchase of shares of common stock	(83,521)	(1)		(2,960)		—		(2,961)
Indirect repurchase of shares for minimum tax withholdings	(232)	—		(9)		—		(9)
Net income	—	—		—		10,734		10,734
Balance, June 25, 2023	18,038,554	$	180	$	94,476	$	166,751	$	261,407

Balance, March 27, 2022	18,937,768	$	189	$	115,587	$	132,458	$	248,234
Stock-based compensation	—	—		987		—		987


Settlement of restricted stock units	1,256	—		—		—		—
Repurchase of shares of common stock	(58,700)	—		(1,332)		—		(1,332)
Indirect repurchase of shares for minimum tax withholdings	(407)	—		(10)		—		(10)
Net income	—	—		—		7,871		7,871
Balance, June 26, 2022	18,879,917	$	189	$	115,232	$	140,329	$	255,750

	Twenty-Six Weeks Ended
	Common Stock					Retained
	Shares	Amount		Paid-in Capital		Earnings		Total
Balance, December 25, 2022	17,998,170	$	180	$	96,586	$	147,795	$	244,561

Stock-based compensation	—	—		2,098		—		2,098
Proceeds from exercise of stock options	9,630	—		276		—		276
Settlement of restricted stock units	157,724	2		(2)		—		—
Repurchase of shares of common stock	(83,521)	(1)		(2,960)		—		(2,961)
Indirect repurchase of shares for minimum tax withholdings	(43,449)	(1)		(1,522)		—		(1,523)
Net income	—	—		—		18,956		18,956
Balance, June 25, 2023	18,038,554	$	180	$	94,476	$	166,751	$	261,407

Balance, December 26, 2021	19,538,058	$	195	$	135,659	$	126,940	$	262,794

Stock-based compensation	—	—		2,055		—		2,055


Settlement of restricted stock units	172,746	2		(2)		—		—
Repurchase of shares of common stock	(776,812)	(7)		(21,045)		—		(21,052)
Indirect repurchase of shares for minimum tax withholdings	(54,075)	(1)		(1,435)		—		(1,436)
Net income	—	—		—		13,389		13,389
Balance, June 26, 2022	18,879,917	$	189	$	115,232	$	140,329	$	255,750

See Notes to the Unaudited Condensed Consolidated Financial Statements

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Chuy's Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Twenty-Six Weeks Ended
	June 25, 2023		June 26, 2022
Cash flows from operating activities:
Net income	$	18,956	$	13,389
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	10,362		9,963
Amortization of operating lease assets	5,011		4,747
Amortization of loan origination costs	43		44
Impairment, closed restaurant and other costs	84		456
Stock-based compensation	1,968		1,950

Loss on disposal of property and equipment	116		57

Deferred income taxes	588		869
Changes in operating assets and liabilities:
Accounts receivable	(292)		(12)
Lease incentive receivable	—		(1,000)
Income tax receivable and payable	(377)		103
Inventories	402		(83)
Prepaid expenses and other assets	(2,313)		(1,713)
Accounts payable	(3,850)		258
Accrued and other liabilities	4,863		100

Operating lease liabilities	(6,142)		(6,861)


Net cash provided by operating activities	29,419		22,267
Cash flows from investing activities:
Purchase of property and equipment, net	(20,615)		(10,142)

Net cash used in investing activities	(20,615)		(10,142)
Cash flows from financing activities:










Repurchase of shares of common stock	(2,961)		(21,052)
Proceeds from the exercise of stock options	276		—
Indirect repurchase of shares for minimum tax withholdings	(1,523)		(1,436)
Net cash used in financing activities	(4,208)		(22,488)
Net increase (decrease) in cash and cash equivalents	4,596		(10,363)
Cash and cash equivalents, beginning of period	78,028		106,621
Cash and cash equivalents, end of period	$	82,624	$	96,258

Supplemental disclosure of non-cash investing and financing activities:
Property and equipment and other assets acquired by accounts payable	$	1,010	$	1,350

Supplemental cash flow disclosures:
Cash paid for interest	$	22	$	30
Cash paid for income taxes	$	2,538	$	361

See Notes to the Unaudited Condensed Consolidated Financial Statements

Chuy's Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Tabular dollar amounts in thousands, except share and per share data)

1. Basis of Presentation

Chuy’s Holdings, Inc. (the “Company” or “Chuy’s”) develops and operates Chuy’s restaurants throughout the United States. Chuy’s is a growing, full-service restaurant concept offering a distinct menu of authentic, freshly-prepared Mexican and Tex-Mex inspired food. As of June 25, 2023, the Company operated 99 restaurants across 16 states.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements and the related notes reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented. The unaudited condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”), except that certain information and notes have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (the “SEC”). Results for interim periods are not necessarily indicative of the results that may be expected for the full fiscal year. The unaudited condensed consolidated financial statements should be read in conjunction with consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2022. The accompanying condensed consolidated balance sheet as of December 25, 2022, has been derived from our audited consolidated financial statements.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the period. Actual results could differ from those estimates.

The Company operates on a 52- or 53- week fiscal year that ends on the last Sunday of the calendar year. Each quarterly period has 13 weeks, except for a 53-week year when the fourth quarter has 14 weeks. Our 2023 fiscal year consists of 53 weeks and our 2022 fiscal year consisted of 52 weeks.

2. Recent Accounting Pronouncements

The Company reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on the Company's consolidated financial statements.

3. Net Income Per Share

The number of shares and net income per share data for all periods presented are based on the historical weighted-average shares of common stock outstanding.

Basic net income per share of the Company's common stock is computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period.

Diluted net income per share of common stock is computed on the basis of the weighted-average number of shares of common stock plus the effect of dilutive common stock equivalents outstanding during the period using the treasury stock method for dilutive options and restricted stock units (the options and restricted stock units were granted under the Chuy's Holdings, Inc. 2012 Omnibus Equity Incentive Plan (the "2012 Plan") and the Chuy's Holdings, Inc. 2020 Omnibus Incentive Plan (the "2020 Plan")).

For the thirteen weeks ended June 25, 2023 and June 26, 2022, there were approximately 4,951 and 93,137 shares, respectively, of common stock equivalents that were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive. For the twenty-six weeks ended June 25, 2023 and June 26, 2022, there were approximately 1,130 and 54,334 shares, respectively, of common stock equivalents that were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive.

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Chuy's Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Tabular dollar amounts in thousands, except share and per share data)

The computation of basic and diluted net income per share is as follows:


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022
BASIC
Net income	$	10,734	$	7,871	$	18,956	$	13,389

Weighted-average common shares outstanding	18,080,327		18,919,473		18,050,381		19,009,613
Basic net income per common share	$	0.59	$	0.42	$	1.05	$	0.70

DILUTED
Net income	$	10,734	$	7,871	$	18,956	$	13,389

Weighted-average common shares outstanding	18,080,327		18,919,473		18,050,381		19,009,613
Dilutive effect of stock options and restricted stock units	74,594		64,080		111,456		126,700
Weighted-average of diluted shares	18,154,921		18,983,553		18,161,837		19,136,313
Diluted net income per common share	$	0.59	$	0.41	$	1.04	$	0.70

4. Stock-Based Compensation

The Company has outstanding awards under the 2012 Plan and the 2020 Plan. On July 30, 2020, the Company’s stockholders approved the 2020 Plan, which replaced the 2012 Plan and no further awards may be granted under the 2012 plan. The termination of the 2012 Plan did not affect outstanding awards granted under the 2012 Plan. Options granted under these plans vest over five years from the date of grant and have a maximum term of ten years. As of June 25, 2023, the Company had 1,819 of stock options outstanding and exercisable with a remaining weighted average contractual term of less than one year.

Restricted stock units granted under the 2012 Plan and 2020 Plan vest over four years to five years from the date of grant. As of June 25, 2023, a total of 746,856 shares of common stock were reserved and remained available for issuance under the 2020 Plan.

Stock-based compensation expense recognized in the accompanying condensed consolidated income statements was approximately $1.0 million and $0.9 million for the thirteen weeks ended June 25, 2023 and June 26, 2022, respectively. Stock-based compensation expense recognized in the accompanying condensed consolidated income statements was approximately $2.0 million for the twenty-six weeks ended June 25, 2023 and June 26, 2022.

A summary of stock-based compensation activity related to restricted stock units for the twenty-six weeks ended June 25, 2023 is as follows:


	Shares	Weighted Average Fair Value		Weighted Average Remaining Contractual Term (Year)
Outstanding at December 25, 2022	383,098	$	27.06
Granted	132,050	36.70
Vested	(157,724)	24.38
Forfeited	(3,770)	27.45
Outstanding at June 25, 2023	353,654	$	31.85	2.84

The fair value of the restricted stock units is the quoted market value of our common stock on the date of grant. As of June 25, 2023, total unrecognized stock-based compensation expense related to non-vested restricted stock units was approximately $10.0 million. This amount is expected to be recognized evenly over the remaining vesting period of the awards.

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Chuy's Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Tabular dollar amounts in thousands, except share and per share data)

5. Long-Term Debt

Revolving Credit Facility

On July 30, 2021, the Company entered into a secured $35.0 million revolving credit facility with JPMorgan Chase Bank, N.A. (the “Credit Facility”). The Credit Facility may be increased up to an additional $25.0 million subject to certain conditions and at the Company’s option if the lenders agree to increase their commitments. The Credit Facility will mature on July 30, 2024, unless the Company exercises its option to voluntarily and permanently reduce all of the commitments before the maturity date.

On June 30, 2023, the Company and JPMorgan Chase Bank, N.A., entered into Amendment No. 1 (the “Amendment”) to the Credit Agreement. The Amendment replaced the London Interbank Offered Rate (“LIBOR”) interest rate with an Adjusted Term Secured Overnight Financing Rate (“SOFR”) interest rate.

The Credit Facility contains representations and warranties, affirmative and negative covenants and events of default that the Company considers customary for an agreement of this type. The agreement requires the Company to be in compliance with a minimum fixed charge coverage ratio of no less than 1.25 to 1.00, and a maximum consolidated total lease adjusted leverage ratio of no more than 4.00 to 1.00. The Credit Facility also has certain restrictions on the payment of dividends and distributions. Under the Credit Facility, the Company may declare and make dividend payments so long as (i) no default or event of default has occurred and is continuing or would result therefrom and (ii) immediately after giving effect to any such dividend payment, on a pro forma basis, the consolidated total lease adjusted leverage ratio does not exceed 3.50 to 1.00.

Borrowings under the Credit Facility accrue interest at a per annum rate equal to, at the Company’s election, either Adjusted Term SOFR plus a margin of 1.5% to 2.0%, depending on the Company’s consolidated total lease adjusted leverage ratio, or a base rate determined according to the highest of (a) the prime rate, (b) the federal funds rate plus 0.5% or (c) Adjusted Term SOFR plus 1.0%, plus a margin of 0.5% to 1.0%, depending on the Company’s consolidated total lease adjusted leverage ratio.

An unused commitment fee at a rate of 0.125% applies to unutilized borrowing capacity under the Credit Facility.

The obligations under the Company’s Credit Facility are guaranteed by certain subsidiaries of the Company and, subject to certain exceptions, secured by a continuing security interest in substantially all of the Company’s assets. As of June 25, 2023, the Company had no borrowings under the Credit Facility, and was in compliance with all covenants under the Credit Facility.

6. Accrued Liabilities

The major classes of accrued liabilities at June 25, 2023 and December 25, 2022 are summarized as follows:


	June 25, 2023		December 25, 2022
Accrued compensation and related benefits	$	12,722	$	9,117
Other accruals	5,668		5,202
Sales and use tax	3,324		3,007
Property tax	3,010		2,820
Deferred gift card revenue	2,591		3,175

Total accrued liabilities	$	27,315	$	23,321

7. Stockholders' Equity

Share Repurchase Program

On October 28, 2021, the Company’s Board of Directors replaced the Company's previous $30.0 million share repurchase program and approved a new share repurchase program under which the Company may repurchase up to $50.0 million of its common shares outstanding. This repurchase program became effective on October 28, 2021. The Company repurchased 58,700 shares for approximately $1.3 million during the second quarter of 2022 and 776,812 shares for approximately $21.1 million during the twenty-six weeks ended June 26, 2022. As of December 25, 2022, the Company completed its previous $50.0 million repurchase program.

On October 27, 2022, the Company’s Board of Directors approved a new share repurchase program under which the Company may repurchase up to $50.0 million of its common shares outstanding through December 31, 2024. During the twenty-six weeks ended June 25, 2023, the Company repurchased 83,521 shares of its common stock for a total of approximately $3.0 million. As of June 25, 2023, the Company had $47.0 million remaining under its $50.0 million repurchase program.

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Chuy's Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Tabular dollar amounts in thousands, except share and per share data)

Repurchases of the Company's outstanding common stock will be made in accordance with applicable laws and may be made at management's discretion from time to time in the open market, through privately negotiated transactions or otherwise, including pursuant to Rule 10b5-1 trading plans. There is no guarantee as to the exact number of shares to be repurchased by the Company. The timing and extent of repurchases will depend upon several factors, including market and business conditions, regulatory requirements and other corporate considerations, and repurchases may be discontinued at any time.

8. Contingencies

The Company is involved in various legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our condensed consolidated financial position, results of operations, or cash flows.

9. Leases

The Company determines if a contract contains a lease at inception. The Company's material long-term operating lease agreements are for the land and buildings for our restaurants as well as our corporate offices. The lease term begins on the date that the Company takes possession under the lease, including the pre-opening period during construction, when in many cases the Company is not making rent payments. The initial lease terms range from 10 to 15 years, most of which include renewal options totaling 10 to 15 years. The lease term is generally the minimum of the noncancelable period or the lease term including renewal options which are reasonably certain of being exercised up to a term of approximately 20 years.

Operating lease assets and liabilities are recognized at the lease commencement date for material leases with a term of greater than 12 months. Operating lease liabilities represent the present value of future minimum lease payments. Since our leases do not provide an implicit rate, our operating lease liabilities are calculated using the Company's secured incremental borrowing rate at lease commencement. We estimate this rate based on prevailing financial market conditions, comparable companies, credit analysis and management judgment. Minimum lease payments include only fixed lease components of the agreement, as well as variable rate payments that depend on an index, initially measured using the index at the lease commencement date.

Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepaid or accrued lease payments, initial direct costs and lease incentives. Lease incentives are recognized when construction milestones are met and reduce our operating lease asset. They are amortized through the operating lease assets as reductions of rent expense over the lease term.

Operating lease expense is recognized on a straight-line basis over the lease term. Variable lease payments that do not depend on a rate or index, escalation in the index subsequent to the initial measurement, payments associated with non-lease components such as common area maintenance, real estate taxes and insurance, and short-term lease payments (leases with a term with 12 months or less) are expensed as incurred. Certain of the Company’s operating leases contain clauses that provide for contingent rent based on a percentage of sales greater than certain specified target amounts. These variable payments are expensed when the achievement of the specified target that triggers the contingent rent is considered probable. As of June 25, 2023, all of the Company's leases were operating.

Components of operating lease costs are included in occupancy, closed restaurant costs, restaurant pre-opening, general and administrative expense and property and equipment, net:


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
Lease cost	June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022
Operating lease cost	$	6,000	$	6,145	$	12,041	$	12,354
Variable lease cost	481		357		931		736
	$	6,481	$	6,502	$	12,972	$	13,090

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Chuy's Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Tabular dollar amounts in thousands, except share and per share data)

Supplemental cash flow disclosures and other lease information:


	Twenty-Six Weeks Ended
	June 25, 2023		June 26, 2022
Cash paid for operating lease liabilities	$	13,238	$	14,593
Operating lease assets obtained in exchange for operating lease liabilities(a)	841		4,528

(a) The twenty-six weeks ended June 25, 2023 includes a $2.7 million increase due to extending remaining lives of certain leases, partially offset by a $1.9 million decrease as a result of a purchase of an existing operating lease. The twenty-six weeks ended June 26, 2022 includes a $2.4 million increase to operating lease assets and liabilities related to new lease commencements, a $2.6 million increase due to extending remaining lives of certain leases, partially offset by a $0.5 million decrease as a result of a termination of a closed restaurant lease.

The Company recorded no deferred lease incentives during the twenty-six weeks ended June 25, 2023 and $1.0 million of deferred lease incentives during the twenty-six weeks ended June 26, 2022.

Supplemental balance sheet disclosures:


Operating leases	Classification	June 25, 2023			December 25, 2022
Right-of-use assets	Operating lease assets	$	142,677		$	146,920

Deferred rent payments	Operating lease liability	7			84
Current lease liabilities	Operating lease liability	12,568			12,415
		12,575			12,499

Deferred rent payments	Operating lease liability, less current portion	65			68
Non-current lease liabilities	Operating lease liability, less current portion	178,078			183,602
		178,143			183,670

Total lease liabilities		$	190,718		$	196,169

Weighted average remaining lease term (in years)		12.2			12.7
Weighted average discount rate		7.6		%	7.6%

Future minimum rent payments for our operating leases for the next five years as of June 25, 2023 are as follows:


Fiscal year ending:
Remainder of 2023	$	13,250
2024	26,689
2025	26,805
2026	25,824
2027	23,419
Thereafter	176,364
Total minimum lease payments	292,351
Less: imputed interest	101,633
Present value of lease liabilities	$	190,718

As of June 25, 2023, operating lease payments exclude approximately $8.3 million of legally binding minimum lease payments for leases signed but which we have not yet commenced payments.

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Chuy's Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Tabular dollar amounts in thousands, except share and per share data)

10. Income Taxes

The following is a reconciliation of the expected federal income taxes at the statutory rates of 21%:


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022
Expected income tax expense	$	2,634	$	1,819	$	4,555	$	3,091
State tax expense, net of federal benefit	409		341		710		568
FICA tip credit	(1,334)		(1,474)		(2,331)		(2,372)

Officers' compensation	105		98		181		157
Stock compensation	(6)		—		(387)		(127)
Other	2		11		7		15
Income tax expense	$	1,810	$	795	$	2,735	$	1,332

Deferred tax assets are reduced by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred taxes will not be realized. Both positive and negative evidence is considered in forming management’s judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified. The tax benefits relating to any reversal of the valuation allowance on the deferred tax assets would be recognized as a reduction of future income tax expense. As of June 25, 2023, the Company believes that it will realize all of its deferred tax assets. Therefore, no valuation allowance has been recorded.

The Internal Revenue Service ("IRS") audited our tax return for the fiscal year 2016. In August 2020, the IRS issued a Notice of Proposed Adjustment to the Company asserting that the tenant allowances paid to us under our operating leases should be recorded as taxable income for years 2016 and prior. The Company disagrees with this position based on the underlying facts and circumstances as well as standard industry practice. The Company estimates if the IRS's position was upheld, the Company's tax liability associated with this position could range between $0.5 million and $2.5 million. In accordance with the provisions of FASB Accounting Standards Codification Subtopic 740-10, Accounting for Uncertainty in Income Taxes, the Company believes that it is more likely than not that the Company's position will ultimately be sustained upon further examination, including the resolution of the IRS's appeal or litigation processes, if any. As of June 25, 2023 and June 26, 2022, the Company recognized no liability for uncertain tax positions.

It is the Company’s policy to include any penalties and interest related to income taxes in its income tax provision. However, the Company currently has no penalties or interest related to income taxes.

The tax years 2021, 2020 and 2019 remain open for IRS audit. The Company has received no notice of audit or any notifications from the IRS for any of the open tax years.

11. Impairment, Closed Restaurant and Other Costs

The Company reviews long-lived assets, such as property and equipment, operating lease assets and intangibles, subject to amortization, for impairment when events or circumstances indicate the carrying value of the assets may not be recoverable. In determining the recoverability of the asset value, an analysis is performed at the individual restaurant level and primarily includes an assessment of historical undiscounted cash flows and other relevant factors and circumstances. The Company evaluates future cash flow projections in conjunction with qualitative factors and future operating plans and regularly reviews any restaurants with a deficient level of cash flows for the previous 24 months to determine if impairment testing is necessary.

Recoverability of assets to be held and used is measured by a comparison of the carrying value of the restaurant to its estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the carrying value, we determine if there is an impairment loss by comparing the carrying value of the restaurant to its estimated fair value. Based on this analysis, if the carrying value of the restaurant exceeds its estimated fair value, an impairment charge is recognized by the amount by which the carrying value exceeds the fair value.

We make assumptions to estimate future cash flows and asset fair values. The estimated fair value is generally determined using the depreciated replacement cost method, the income approach, or discounted cash flow projections. Estimated future cash flows are highly subjective assumptions based on the Company’s projections and understanding of our business, historical operating results, and trends in sales and restaurant level operating costs.

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Chuy's Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(Tabular dollar amounts in thousands, except share and per share data)

The Company’s impairment assessment process requires the use of estimates and assumptions regarding future cash flows and operating outcomes, which are based upon a significant degree of management judgment. The estimates used in the impairment analysis represent a Level 3 fair value measurement. The Company continues to assess the performance of restaurants and monitors the need for future impairment. Changes in the economic environment, real estate markets, capital spending, overall operating performance and underlying assumptions could impact these estimates and result in future impairment charges.

The Company recorded impairment, closed restaurant and other costs as follows:


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 25, 2023		June 26, 2022		June 25, 2023		June 26, 2022

Property and equipment impairment	47		—		47		—
Total impairment charge	47		—		47		—

Closed restaurant costs	435		757		806		2,036
Loss on lease termination	—		(23)		—		(23)

Impairment, closed restaurant and other costs	$	482	$	734	$	853	$	2,013

Closed restaurant costs represent on-going expenses to maintain the closed restaurants, such as rent expense, utility and insurance among other costs required to maintain the remaining closed locations.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise specified, or the context otherwise requires, the references in this report to "Chuy's," “our Company,” “the Company,” “us,” “we” and “our” refer to Chuy’s Holdings, Inc. together with its subsidiaries.

The following discussion summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 25, 2022 (our "Annual Report") and the unaudited condensed consolidated financial statements and the accompanying notes thereto included herein.

Overview

We are a growing, full-service restaurant concept offering a distinct menu of authentic, freshly-prepared Mexican and Tex-Mex inspired food. We were founded in Austin, Texas in 1982 and, as of June 25, 2023, we operated 99 restaurants across 16 states.

We are committed to providing value to our customers through offering generous portions of made-from-scratch, flavorful Mexican and Tex-Mex inspired dishes. We also offer a full-service bar in all of our restaurants providing our customers a wide variety of beverage offerings. We believe the Chuy’s culture is one of our most valuable assets, and we are committed to preserving and continually investing in our culture and our customers’ restaurant experience.

Our restaurants have a common décor, but we believe each location is unique in format, offering an “unchained” look and feel, as expressed by our motto “If you’ve seen one Chuy’s, you’ve seen one Chuy’s!” We believe our restaurants have an upbeat, funky, eclectic, somewhat irreverent atmosphere while still maintaining a family-friendly environment.

Performance Indicators

We use the following performance indicators in evaluating our performance:

•Number of Restaurant Openings. Number of restaurant openings reflects the number of restaurants opened during a particular fiscal period. For restaurant openings, we incur pre-opening costs, which are defined below, before the restaurant opens. Typically, new restaurants open with an initial start-up period of higher than normalized sales volumes, which decrease to a steady level approximately six to twelve months after opening. However, operating costs during this initial six to twelve month period are also higher than normal, resulting in restaurant operating margins that are generally lower during the start-up period of operation and increase to a steady level approximately nine to twelve months after opening.

•Comparable Restaurant Sales. We consider a restaurant to be comparable in the first full quarter following the 18th month of operations. Changes in comparable restaurant sales reflect changes in sales for the comparable group of restaurants over a specified period of time. Changes in comparable sales reflect changes in customer count trends as well as changes in average check. Our comparable restaurant base consisted of 94 restaurants at June 25, 2023.

•Average Check. Average check is calculated by dividing revenue by total entrées sold for a given time period. Average check reflects menu price increases as well as changes in menu mix.

•Average Weekly Customers. Average weekly customers is measured by the number of entrées sold per week. Our management team uses this metric to measure changes in customer traffic.

•Average Unit Volume. Average unit volume consists of the average sales of our comparable restaurants over a certain period of time. This measure is calculated by dividing total comparable restaurant sales within a period of time by the total number of comparable restaurants within the relevant period. This indicator assists management in measuring changes in customer traffic, pricing and development of our brand.

•Operating Margin. Operating margin represents income from operations as a percentage of our revenue. By monitoring and controlling our operating margins, we can gauge the overall profitability of our Company.

The following table presents operating data for the periods indicated:


	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	June 25, 2023			June 26, 2022			June 25, 2023			June 26, 2022
Total open restaurants (at end of period)	99			97			99			97
Total comparable restaurants (at end of period)	94			92			94			92
Average unit volumes (in thousands)	$	1,201		$	1,162		$	2,347		$	2,216
Change in comparable restaurant sales(1)	3.2		%	1.7		%	5.5		%	6.1		%
Average check	$	19.23		$	18.15		$	19.02		$	17.94

(1) We consider a restaurant to be comparable in the first full quarter following the 18th month of operations. Change in comparable restaurant sales reflects changes in sales for the comparable group of restaurants over a specified period of time.

Our Fiscal Year

We operate on a 52- or 53-week fiscal year that ends on the last Sunday of the calendar year. Each quarterly period has 13 weeks, except for a 53-week year when the fourth quarter has 14 weeks. Our 2023 fiscal year consists of 53 weeks and our 2022 fiscal year consisted of 52 weeks.

Key Financial Definitions

Revenue. Revenue primarily consists of food and beverage sales and also includes sales of our t-shirts, sweatshirts and hats. Revenue is presented net of discounts associated with each sale. Revenue in a given period is directly influenced by the number of operating weeks in such period, the number of restaurants we operate and comparable restaurant sales growth.

Cost of sales. Cost of sales consists of food, beverage and merchandise related costs. The components of cost of sales are variable in nature, change with sales volume and are subject to increases or decreases based on fluctuations in commodity costs.

Labor costs. Labor costs include restaurant management salaries, front- and back-of-house hourly wages and restaurant-level manager bonus expense and payroll taxes.

Operating costs. Operating costs consist primarily of restaurant-related operating expenses, such as supplies, utilities, repairs and maintenance, travel cost, insurance, employee benefits, credit card fees, recruiting, delivery service and security. These costs generally increase with sales volume but may increase or decrease as a percentage of revenue.

Occupancy costs. Occupancy costs include rent charges, both fixed and variable, as well as common area maintenance costs, property taxes, the amortization of tenant allowances and the adjustment to straight-line rent. These costs are generally fixed but a portion may vary with an increase in sales when the lease contains percentage rent.

General and administrative expenses. General and administrative expenses include costs associated with corporate and administrative functions that support our operations, including senior and supervisory management and staff compensation (including stock-based compensation) and benefits, travel, legal and professional fees, information systems, corporate office rent and other related corporate costs.

Marketing. Marketing costs include costs associated with our local and national restaurant marketing programs, community service and sponsorship activities, our menus and other promotional activities.

Restaurant pre-opening costs. Restaurant pre-opening costs consist of costs incurred before opening a restaurant, including manager salaries, relocation costs, supplies, recruiting expenses, initial new market public relations costs, pre-opening activities, employee payroll and related training costs for new employees. Restaurant pre-opening costs also include rent recorded during the period between date of possession and the restaurant opening date.

Impairment, closed restaurant and other costs. Impairment costs include impairment of long-lived assets associated with restaurants where the carrying amount of the asset is not recoverable and exceeds the fair value of the asset. Closed restaurant costs consist of any costs associated with the closure of a restaurant such as lease termination costs, severance benefits, other miscellaneous closing costs as well as costs to maintain these closed restaurants through the lease termination date such as occupancy costs, including rent payments less sublease income, if any, and insurance and utility costs.

Depreciation. Depreciation principally includes depreciation on fixed assets, including equipment and leasehold improvements.

Interest income, net. Interest income, net consists primarily of interest income earned on the excess cash invested in money market funds, reduced by interest on our outstanding indebtedness, if any, uncommitted credit facility fees and the amortization of our debt issuance costs.

Results of Operations

Potential Fluctuations in Quarterly Results and Seasonality

Our quarterly operating results may fluctuate significantly as a result of a variety of factors, including the timing of new restaurant openings and related expenses, profitability of new restaurants, weather, increases or decreases in comparable restaurant sales, general economic conditions, consumer confidence in the economy, changes in consumer preferences, competitive factors, changes in food costs, changes in labor costs and changes in gas prices. In the past, we have experienced significant variability in restaurant pre-opening costs from quarter to quarter primarily due to the timing of restaurant openings. We typically incur restaurant pre-opening costs in the five months preceding a new restaurant opening. In addition, our experience to date has been that labor and direct operating costs associated with a newly opened restaurant during the first several months of operation are often materially greater than what will be expected after that time, both in aggregate dollars and as a percentage of restaurant sales. Accordingly, the number and timing of new restaurant openings in any quarter has had, and is expected to continue to have, a significant impact on quarterly restaurant pre-opening costs, labor and direct operating costs.

Our business is also subject to fluctuations due to seasonality and adverse weather. The spring and summer months have traditionally had higher sales volume than other periods of the year. Timing of holidays, severe winter weather, hurricanes, thunderstorms and similar conditions may impact restaurant unit volumes in some of the markets where we operate and may have a greater impact should they occur during our higher volume months. As a result of these and other factors, our financial results for any given quarter may not be indicative of the results that may be achieved for a full fiscal year.

Thirteen Weeks Ended June 25, 2023 Compared to Thirteen Weeks Ended June 26, 2022

The following table presents, for the periods indicated, the condensed consolidated statement of operations (in thousands):


	Thirteen Weeks Ended
	June 25, 2023		% of Revenue		June 26, 2022		% of Revenue		$ Change		% Change
Revenue	$	119,001	100.0	%	$	110,946	100.0	%	$	8,055	7.3	%
Costs and expenses:
Cost of sales	29,432		24.7		30,874		27.8		(1,442)		(4.7)
Labor	35,159		29.5		32,267		29.1		2,892		9.0
Operating	18,896		15.9		17,493		15.8		1,403		8.0
Occupancy	8,116		6.8		7,556		6.8		560		7.4
General and administrative	7,698		6.5		6,494		5.9		1,204		18.5
Marketing	1,693		1.5		1,614		1.5		79		4.9
Restaurant pre-opening	613		0.5		342		0.3		271		79.2

Impairment, closed restaurant and other costs	482		0.4		734		0.7		(252)		(34.3)

Depreciation	5,222		4.4		4,981		4.4		241		4.8
Total costs and expenses	107,311		90.2		102,355		92.3		4,956		4.8
Income from operations	11,690		9.8		8,591		7.7		3,099		36.1
Interest income, net	(854)		(0.7)		(75)		(0.1)		(779)		*
Income before income taxes	12,544		10.5		8,666		7.8		3,878		44.7
Income tax expense	1,810		1.5		795		0.7		1,015		127.7
Net income	$	10,734	9.0	%	$	7,871	7.1	%	$	2,863	36.4	%

* Not meaningful

Revenue. Revenue increased $8.1 million, or 7.3%, to $119.0 million for the thirteen weeks ended June 25, 2023 from $110.9 million for the comparable period in 2022. The increase was primarily related to an increase in our comparable restaurant sales as well as incremental revenue from an additional 53 operating weeks provided by new restaurants opened during and subsequent to the second quarter of 2022. For the second quarter of 2023, off-premise sales were approximately 28% of total revenue compared to approximately 27% during the same period in fiscal 2022.

Comparable restaurant sales increased 3.2% for the second quarter of 2023 compared to the same period last year primarily driven by a 5.8% increase in average check, partially offset by a 2.6% decrease in average weekly customer.

Cost of sales. Cost of sales as a percentage of revenue decreased to 24.7% during the thirteen weeks ended June 25, 2023 compared to 27.8% during the comparable period in 2022 primarily driven by leverage on menu price increases taken subsequent to the second quarter of last year as well as overall commodity deflation of approximately 4% for the thirteen weeks ended June 25, 2023.

Labor costs. Labor costs as a percentage of revenue increased to 29.5% during the thirteen weeks ended June 25, 2023 from 29.1% during the comparable period in 2022 largely as a result of hourly labor rate inflation of approximately 5% at comparable restaurants as well as an incremental improvement in our hourly staffing levels as compared to last year. This increase was partially offset by menu price increases taken subsequent to the second quarter of 2022.

Operating costs. Operating costs as a percentage of revenue increased to 15.9% during the thirteen weeks ended June 25, 2023 from 15.8% during the same period in 2022 primarily driven by a 30 basis points ("bps") increase in delivery service charges as a result of increased delivery sales, an increase in restaurant repair and maintenance costs of 10 bps, partially offset by lower utility costs of 20 bps and higher sales leverage on insurance costs of 10 bps as compared to the second quarter of 2022.

General and administrative expenses. General and administrative expenses increased to $7.7 million for the thirteen weeks ended June 25, 2023 as compared to $6.5 million for the same period in 2022. The increase was primarily driven by higher performance-based bonuses and an increase in management salaries. As a percentage of revenues, general and administrative expenses increased to 6.5% in the second quarter of 2023 from 5.9% in the second quarter of 2022.

Restaurant pre-opening costs. Restaurant pre-opening costs increased to $0.6 million for the thirteen weeks ended June 25, 2023 as compared to $0.3 million for the same period in 2022 primarily due to an increase in restaurant development and timing of new store openings.

Impairment, closed restaurant and other costs. Impairment, closed restaurant and other costs decreased to $0.5 million during the thirteen weeks ended June 25, 2023 from $0.7 million during the comparable period in 2022. The decrease was primarily related to a reduction in rent paid on previously closed restaurants. Closed restaurant costs include rent expense, utilities, insurance and other costs required to maintain the remaining closed locations.

Depreciation. Depreciation expense increased to $5.2 million during the thirteen weeks ended June 25, 2023 from $5.0 million recorded during the comparable period in 2022 primarily due to an increase in depreciation associated with our new restaurants.

Interest income, net. Interest income, net increased to $0.9 million in the second quarter of 2023 as compared to $0.1 million for the same period in 2022. The increase was mainly a result of a higher rate of return on the excess cash invested in money market funds.

Income tax expense. We recorded an income tax expense of $1.8 million in the second quarter of 2023 compared to an income tax expense of $0.8 million during the comparable period in 2022. The effective income tax rate for fiscal 2023 was 14.4% compared to 9.2% in the same period last year. The increase in the effective tax rate was mainly attributed to a decrease in the proportion of employee tax credits to estimated annual income.

In August 2020, the IRS issued a Notice of Proposed Adjustment to the Company asserting that the tenant allowances paid under our operating leases should be recorded as taxable income for years 2016 and prior. The Company disagrees with the IRS's position and believes that it is more likely than not that the Company's position will ultimately be sustained upon further examination, including the resolution of the IRS's appeal or litigation processes, if any. As a result, no further tax accrual was made. The Company estimates if the IRS's position was upheld, the Company's tax liability associated with the IRS's position could range between $0.5 million and $2.5 million.

Net income. As a result of the foregoing, net income was $10.7 million during the thirteen weeks ended June 25, 2023 as compared to $7.9 million during the comparable period in 2022.

Table of Contents

Twenty-Six Weeks Ended June 25, 2023 Compared to Twenty-Six Weeks Ended June 26, 2022

The following table presents, for the periods indicated, the condensed consolidated statement of operations (in thousands):


	Twenty-Six Weeks Ended
	June 25, 2023		% of Revenue		June 26, 2022		% of Revenue		$ Change		% Change
Revenue	$	231,499	100.0	%	$	211,432	100.0	%	$	20,067	9.5	%
Costs and expenses:
Cost of sales	58,150		25.1		57,117		27.0		1,033		1.8
Labor	69,261		29.9		62,092		29.4		7,169		11.5
Operating	36,974		16.0		33,723		15.9		3,251		9.6
Occupancy	15,998		6.9		15,208		7.2		790		5.2
General and administrative	15,504		6.7		13,148		6.2		2,356		17.9
Marketing	3,243		1.4		3,027		1.5		216		7.1
Restaurant pre-opening	1,094		0.5		467		0.2		627		134.3

Impairment, closed restaurant and other costs	853		0.4		2,013		1.0		(1,160)		(57.6)

Depreciation	10,362		4.4		9,963		4.7		399		4.0
Total costs and expenses	211,439		91.3		196,758		93.1		14,681		7.5
Income from operations	20,060		8.7		14,674		6.9		5,386		36.7
Interest income, net	(1,631)		(0.7)		(47)		(0.1)		(1,584)		*
Income before income taxes	21,691		9.4		14,721		7.0		6,970		47.3
Income tax expense	2,735		1.2		1,332		0.7	%	1,403		105.3
Net income	$	18,956	8.2	%	$	13,389	6.3	%	$	5,567	41.6

SEC Form 10-Q filed by Chuy's Holdings Inc.