Chuy's Holdings, Inc.
Q4 2017 Earnings Call Transcript

Published: 9 Mar 2018

[Operator:]

Good day, everyone. And welcome to the Chuy's Holdings, Incorporated Fourth Quarter 2017 Earnings Call. As a reminder, today's conference is being recorded. At this time, all participants have been placed in a listen-only mode, and the lines will be open for your questions following the presentation. 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. And at this time, I'll turn the conference over to Mr. Howie. Please go ahead, sir.

[Jon Howie:]

Thank you, operator, and good afternoon. By now, everyone should have access to our fourth quarter 2017 earnings release. It can also be found on 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 guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. With that out of the way, I'd like to turn the call over to Steve.

[Steve Hislop:]

Thank you, Jon, and thank you to everyone for joining us on the call today. I'll start the call with the brief overview of our fourth quarter, discuss our 2018 initiatives and then share our thoughts and development for the year. Jon, will then review our fourth quarter financial results in a more detail before we open up the call for your questions. For the fourth quarter of 2017, we reported adjusted earnings per share of $0.19 of revenues of $96 million. As a reminder, our fiscal 2017 included an extra week in the fourth quarter of which Jon, will provide additional color. As we noted on our last call, in August we had to close one restaurant in the Houston area due to severe damage of the results of Hurricane Harvey. Our team did a fantastic job in getting this restaurant back up in running in late November, as it was literally taken down to the studs. However, the loss of operations negatively impacted our fourth quarter results by approximately one penny. We were pleased to our comparable restaurant sales return to positive territory during the fourth quarter, increasing 1.3% on a comparable 13-week basis. Comparable restaurant sales were positively impacted by approximately 100 basis points as a result of an extra operating day in the comparable period of 2017. Largely offset by unfavorable weather conditions and strategic cannibalization were approximately 85 basis points combined. We also faced a 70 basis point headwind, as a result of the new units entering the comp base on the back end of their honeymoon curve. As we look to 2018, our focus remains on our core fundamentals, taking care of our customers by offering exceptional service standards and delivering high quality made from scratch food and drinks in a unique atmosphere. However, we are also working to ensure that our business evolves naturally with the changing consumer needs and loss. To that end, we are working on several strategic initiatives this year that we believe will help our business over the long run. The marketing front, we continue to look for ways to improve our brand awareness and value messaging through updated local store marketing and social media campaigns. We are currently in the process of engaging a full time marketing firm to help bring our marketing efforts to a new level. We have now our options and are expecting to complete our search by the end of the second quarter. Turning to our technology initiatives, we just finished system-wide implementation of our new point of sale software during the fourth quarter and are working closely with Olo to create a robust online ordering app and backend system that will make it easier for our guest to conveniently order our food. This platform will ultimately be a stepping stone for the introduction of a new royalty program. We are currently in a testing phase with a plan to fully rollout this online ordering system by the third quarter of this year. As we discussed in our last call, after offering limited catering in Nashville, we expanded a test to include catering in Dallas and Houston during the fourth quarter. Catering gives us an opportunity to utilize a new avenue of revenue growth, while simultaneously improving awareness of the Chuy’s brand. Well it’s still early; we are pleased with the initial results and will consider adding additional markets where appropriate as the year progresses. Lastly, on our labor initiatives, with the implementation of our new point of sales system we are now ready to fully integrate our labor scheduling module that should enhance our sales projections and further assist us in optimizing our labor productivity. We are in track to complete this integration in the second quarter and would expect to see labor cost improvements as our team gets familiar with the new system. Switching to development, we opened four new Chuy’s restaurant during the fourth quarter, one in Pasadena, Texas, just outside of Houston; one in Schaumburg, Illinois, our second restaurant in the Chicagoland area; one in Annapolis, Maryland, our second in Maryland and are the 6th overall in the Washington DC metropolitan area; and one in Alpharetta, Georgia, our fourth restaurant in Atlanta. We also as I mentioned before, reopened our restaurant in Humble, Texas late in the fourth quarter that had been closed since August as a result of hurricane damage. Overall, we opened 11 new restaurants during 2017 effectively increasing our store base during 2017 by 14% to a total of 91 restaurants. For 2018, we continue to expect to open between 8 and 12 units. In closing, with a healthy development pipeline, our renewed focus in marketing to increase brand awareness in our value messaging and labor initiatives to improve our labor management in the phase of rising labor costs, we look forward to a very busy and productive year in 2018. With that, I’d like to turn the call over to our CFO, Jon Howie, for a more detailed review of our fourth quarter results.

[Jon Howie:]

Thanks Steve. Revenues increased 21.5% year-over-year to $96 million for the fourth quarter ended December 31, 2017. As Steve mentioned, our fourth quarter of 2017 included 14-weeks, compared to 13-weeks in fiscal 2016. Revenue attributed to the extra operating week with $7.3 million. In addition to the extra operating week, the increase was driven by $22 million in incremental revenues from an additional 276 operating weeks produced by 14 new restaurants opened during and subsequent to the fourth quarter of last year. This increase was partially offset by $0.7 million decrease in revenue related to a temporary closure of one restaurant as a result of Hurricane Harvey as well as our non-comparable restaurant that are not included in the incremental revenue above. Total operating weeks in the fourth quarter of 2017 increased to 1,242 including 91 additional weeks as a result of the 14th week during the quarter. Also contributing to our revenue growth during the fourth quarter was a 1.3% increase in comparable restaurant sales on a 13-week comparable basis. As Steve noted, comparable restaurant sales were positively impacted by one extra operating day in 2017 in that 52-weeek basis, as a result of our restaurants closing on Christmas day during the fourth quarter of 2016. This 100 basis point benefit was largely offset by unfavorable weather conditions in Texas in the Southeast and the impact of Houston Astros in this year’s World Series negatively impacting comparable sales by approximately 40 basis points and the strategic cannibalization of two restaurants in Austin, has negatively impacted comparable sales by approximately 45 basis points. The overall growth in comparable restaurant sales included a 1.6% increase in average check, offset by a 0.3% decrease in traffic. Effective pricing during the quarter was approximately 1.5%; there were 70 restaurants in a comparable base at the end of the fourth quarter of 2017. Turning to a discussion of selected expense items, cost of sales as a percentage of revenue increased approximately 30 basis points year-over-year to 26.4%, driven largely by inflation of 2.9% in commodities related to produce and to a lesser degree dairy, partially offset by favorable beef cost and to a lesser degree chicken cost. Looking to 2018, we currently expect inflation in the 1% to 2% range similar to 2017. We would expect higher inflation in the first of the year and lower later in the year. Labor cost as a percentage of revenue, increased approximately 110 basis points to 36.4%, the increase was attributable to hourly labor rate inflation, new store labor and efficiencies related to two additional store openings in the quarter as compared to last year, entering new markets with higher tip wage and manager training and due to delayed store openings. For 2018, we expect labor inflation to be approximately 3%. Restaurant operating cost as percentage of revenue decreased 70 basis points to 13.6%, primarily due to increased operating leverage from an extra week as well as hourly health, an hourly health plan adjustment. Occupancy cost as a percentage of revenue held steady year-over-year at 7%, primarily due to the leverage from the extra week or we would have expected this to be up approximately 20 basis points. General and administrative expenses increased approximately $246,000 or $4.3 million in the fourth quarter, driven primarily by an increase in stock-based compensation, salaries and professional fees, offset by lower performance based bonuses. As a percentage of revenue G&A decreased approximately 70 basis points year-over-year to 4.4%. In summary, net income for the fourth quarter of 2017 was $15.9 million or $0.93 per diluted share compared with $2.3 million or $0.14 per diluted share in a year ago period. During the fourth quarter of 2017, the federal government enacted the Tax Cuts and Jobs Act of 2017. This reduced the federal statutory rate from 35% to 21%, as a result of this we were required to revalue our deferred tax balance using the new federal statutory tax rate. This revaluation resulted in a non-recurring one-time favorable adjustment to our provision for income taxes in the fourth quarter of 2017, totaling $11.7 million or $0.69 per diluted share. Additionally, we recorded a $1.4 million gain on insurance settlements related to the hurricane and for the same period last year, we incurred closure cost of $1.1 million pre-tax related to the one relocation, relocation of one restaurant. Excluding these one-time gains and charges, adjusted net income was $3.2 million or $0.19 per diluted share compared to $3.1 million or $0.18 per diluted share in the year ago period. Our fourth quarter 2017 results included an estimated $0.07 per share positive impact due to the extra week in the most recent fourth quarter. Additionally, as Steve noted, loss of operations during the fourth quarter as a result of hurricane related closure of our Humble, Texas restaurant negatively impacted our fourth quarter results by approximately $0.01. We ended the quarter with $8.8 million of cash on the balance sheet and we currently have no debt. With that, let me go through our outlook for 2018. We currently expect 2018 diluted earnings per share of $1.12 to $1.16. This compares to a 2017 adjusted earnings per share of $0.89 after excluding the benefit of the extra week. Our guidance is based on the following assumptions. We expect comparable restaurant sales growth of 1% to 1.5% on a comparable 52-week basis. We expect restaurant pre-opening expenses of $3.7 million to $5.5 million. We expect G&A expenses between $21 million to $21.8 million, as a result of the enactment of the tax act, our effective tax rate was reduced and is estimated to be between 13% and 14% with the savings from this reduction in rate, we intend to invest approximately $1.5 million or approximately 40 basis points during the 2018 international level marketing and off-premise initiatives including to go packaging online ordering and catering. We expect annual weighted average diluted shares outstanding of $17.1 million to $17.2 million shares and we expect to open 8 to 12 new Chuy’s restaurant this year. Lastly, our capital expenditures net of tenant improvement allowances are projected to be between $30 million and $40 million. With that, I’ll turn the call back over to Steve to wrap up.

[Steve Hislop:]

Thanks Jon. We remain confident in the long-term prospects of our business, of the broad appeal of Chuy’s concepts, our focus on core fundamentals, discipline, a disciplined development strategy and store level initiatives that were outlined earlier. We believe we have a long runway of opportunity ahead to grow the Chuy’s brand and bring our authentic, freshly prepared Tex-Mex inspired food to both new and returning guest. Before I turn the call back over to the operator for questions, I’d like to thank all of our employees for their tireless work and dedication in delivering the Chuy’s experience to our guest every day. With that, we’re happy to answer any questions. Thank you.

[Operator:]

[Operator Instructions]. And first we have David Tarantino from Baird.

[David Tarantino:]

Hi, good afternoon. I guess couple of questions here, first on the same-store sales, which encouraging I guess in the fourth quarter. Can you talk about kind of what you are seeing so far in the first quarter and a little deep into the quarter here?

[Steve Hislop:]

Yes, David, how are you doing? What we’re seeing is a, we were into some splashy weather again it seems like in the first two periods. You take out that noise, so and I think you’ve been pretty comparable to what we saw in the fourth quarter, take away the noise of the weather.

[Jon Howie:]

That noise is about $960,000.

[Steve Hislop:]

Yes $960,000.

[David Tarantino:]

Okay, for the negative weather impact quarter to-date that’s the number do you think…?

[Steve Hislop:]

Yes take that out and we’re pretty much on the same trend that we had in the fourth quarter.

[David Tarantino:]

Great, is that when you talk about the fourth quarter is that inclusive of all of the puts and takes you talked about in terms of calendar and cannibalization, so it would be the actual reported number that you are entering on?

[Jon Howie:]

It would be, what Steve is referring to it would be less the roll ins. He was talking about a 70 basis point in roll ins to take that out of that and yes you are on about the same.

[David Tarantino:]

Got it, okay. And then Jon, just on the earnings outlook for 2018, if my math is right, there is some downward pressure on restaurant margins. So, could you maybe give us a framework to think about restaurant margin for 2018, where the pressure points are going to be what the magnitude of those are, because I guess the inflation numbers you gave didn’t seem to owner. So, I was just wondering why or sort of what your outlook is for the restaurant margins?

[Jon Howie:]

Sure, I mean we gave, so we’re looking at currently 3% labor inflation and then overall we think we’ll end up right around that between the 1% and 2% currently though, year-over-year, year-to-date through the first quarter we’re a little over 3% in our labor right now, are not in our labor in our cost of sales right now. But, we think it will come back here by the end of the year. But the biggest thing is, we have the shift, this shift for us is rather big, you are talking one of the largest weeks of our year is shifted into last year. And so that week alone is about $1.4 million out of the first quarter, along with your, the weather that we are talking about as well. So, the first quarter is going to be down significantly and that has a big leveraging, deleveraging effects especially on labor and some of the other items. But, the other thing is occupancy, a big thing in occupancy, normally that’s going to about 20 basis points this year. We had some revalue, we had to revalue from a GAAP standpoint to straight-line we ended, some of these older stores we had to re-up our lease and it increased our rent on those as well as the new stores coming in. So, the big thing there is, I’m looking at probably 40 to 50 basis points increase related occupancy this year, over last year. And then in G&A we’re seeing an increase as well. I was hoping that would be some leverage impact, but in G&A we’re seeing about 30 basis points of deleverage on that line, mainly related to the performance bonus this year that was basically reversed and as you know we always budget, we budget the target bonus. So, with that added back that’s what causing that deleverage on that. And those are the big items.

[David Tarantino:]

Yes, thank you that’s really helpful. And then Jon, as you think about the outlook beyond this year for restaurant margin, with the slower rates of unit growth. When does the margin start to inflect or stabilize, with the unit growth being lower and what type of, on a normalized basis if you assume a couple of points of inflation, what type of comp do you think you need to hold the margins flat as you look at the next several years?

[Jon Howie:]

I think from the top-line standpoint, look at this year it would be little different, but from a store level, I think we need probably that 2.5 to 3 with the current inflation rates, with everything being equal. Now like Steve, we haven’t really factored in some of our changes and improvements we’re looking at in labor, those aren’t factored in, but everything been equal, we probably need about 2.5 to 3 to leverage or remain flat and leverage those margins for 2018.

[David Tarantino:]

Great, thank you very much.

[Steve Hislop:]

Thanks David.

[Operator:]

Moving on from Stephens we have Will Slabaugh.

[Will Slabaugh:]

Hey thanks guys, I want to ask you about the comment on national media and then one week type million dollar investment. I’m curious what that would look like just getting your brand is in, fairly organic and local from the start, so curious kind of how you plan on going out about the national piece of that?

[Steve Hislop:]

National might be a little bit aggressive on that as far as, it is right now we’re looking at people and we’d be looking at little bit more on the digital side of our business, enhancing the messages to more focus, more laser light focus on what we believe the drivers are. You will see some of the major media side, you might do some, there is some radio where we’ll be looking at more of a testimonial type radios. Right now we’re currently testing iHeartRadio up in our DC market and we’re actually have it also done in our market down in Miami and we actually doing it, the first we’ve opened there which is a couple of weeks away. And again we will be looking at that and then the strategy we got out as we get closer to hiring an agency to work with us.

[Will Slabaugh:]

Got it, it’s helpful. And then I want to ask you about catering too, can you talk give me more about what you’ve seen early on in those launches and maybe what you’re looking for in terms of any sort of metrics that you might be willing to give and also along that same line what you are looking thought to be rolled that out into additional markets?

[Steve Hislop:]

Yes again we are pleased with that, I think we ended up getting in these, I mean in Dallas and Houston mark with sometime in the middle of the fourth quarter, where we actually rolled it. And again we’re pleased with the initial coverage, again as I mentioned it’s just not the catering, it’s also having that awareness out there of really doing the big parties and getting out there. So brand awareness in the market is helpful on that, like I said it’s a little too early to throw it, grow some specific numbers out there, but again we’re pretty pleased with the amounts as you know, probably in the fourth quarter, little bit north of 200 grant was on just some big parties that we didn’t have before. And you know, you would expect that a little bit with the holiday season, but we’re fairly pleased again with the start of the first couple of periods in 2018 where it’s probably a little bit north of a 100 grants. So, we’re kind of pleased with that, and as we look, I will strategically add different trading trucks and probably stocked at markets as it’s prudent.

[Will Slabaugh:]

Good to hear.

[Jon Howie:]

This is Jon, I mean if we’re looking at total off-premise for the fourth quarter, we came in about 12.25% this quarter, which was pretty good for us. I think it’s the highest quarter we’ve had ever. And we’re back to double digit growth in that area. So, we’ve been very pleased with those results.

[Will Slabaugh:]

Great, thanks for that. And then last thing from me, I was just curious if you can give us the update on newer stores and then newer markets and then maybe some of the large amounts that you’ve gone into more recently, particularly to Denver and Chicago?

[Steve Hislop:]

Yes, I mean at Denver we still only have the one unit there we’ll be adding another one here in a few months. We’re pleased with that and it’s been a nice entrance, obviously we know we need to get more stores in that market to have the penetration. And the same thing in Chicago, Chicago is one of the newer ones we went in there in Warrenville and we just opened in the fourth quarter, I think Schaumburg, Illinois, we’ll be looking at, I think Orland Park coming up here in the next couple of months, much, much bigger market, lot more stores that we need to get in there that really penetrated. And we’re pleased with our entrance in there, but again as in our stores if you look, we have 91 stores right now over the last 7, 8 years we’ve opened up on a base of 8 all stores, so you can kind of say we’re all in, kind of emerging markets take away Texas and we definitely would like to work harder to get our brand message out there little quicker and that’s part of the reason you’ll see the, more emphasis on few extra dollars into the marketing fund and really work on brand awareness.

[Will Slabaugh:]

Makes sense, thanks guys.

[Steve Hislop:]

Thank you.

[Operator:]

Next question will be from Jeff Farmer with Wells Fargo.

[Jeff Farmer:]

Thanks and good afternoon. I’m just curious, what menu approaching and traffic assumptions are reflected in that 1% to 1.5% same-store sales guidance range?

[Steve Hislop:]

Yes it’s approximately 1.5% pretty much we’ve been over the last 9 to 190 years. And it’s actually, is it, that’s already gone in and went into the first period, the first week of period too.

[Jon Howie:]

So, that would basically imply flat traffic once you roll, have the roll in. So, I mean we’re from an existing store base, we’re counting on probably 50 to 60 basis points in positive traffic with the roll ins is going to cross that out.

[Jeff Farmer:]

Okay and then, I think you are, you know a bunch of other companies who asked this question to us whether or not you thought that tax reform would have any impact on consumer behavior. Now that you had a little time to look at it, have you seen any change in your consumer, sort of your customers’ behavior post tax reform?

[Jon Howie:]

I think it’s, I think it’s still little early. I think they just now started getting their tax decrease, if you along their checks. So, hopefully we’ll start seeing that a little more, but and plus we had a lot of noise in the first quarter like Steve said, with weather. But, I think it’s still early Jeff.

[Jeff Farmer:]

Okay, and just a couple of other quick ones. So, turn over at levels hourly manager, any change, material change there, accelerating, decelerating getting…

[Steve Hislop:]

Our management spend prior, right around that 25% and the ROEs right around 98%, again we’re pleased we kind of right in the same ballpark would be in all year.

[Jeff Farmer:]

Okay and then just last question, I think kind of moves, if you talk about this off-premise, I think was mid 10% or 10.5% for most of the back-half of 2017, where you are comfortable with that number going to, or growing to ultimately?

[Steve Hislop:]

Well I think as Jon mentioned, I think our fourth quarter was around 12.25. And you know what we’ve done over the last four to, actually four years and to last year was a high like 8 or 9, we’d like to see that just increase in the double-digit rate yearly.

[Jeff Farmer:]

Okay, yes so, I missed that, so like the third quarter 2017 it was 10.3 and it jumped to 12 and change in the fourth quarter of 2017, you touched on that, but what drove that, is that seasonality or from a sequential improvement was, how are you guys more ultimately more impact or effective?

[Steve Hislop:]

Yes I think there is a few things, I think its number one, I think we really worked on to go throughout the year just not now, but as years. And we had again the catering, I think that’s about $200,000 number on top of that little while ago, as I was talking about that and then we probably getting a little bit more of the delivery services also.

[Jeff Farmer:]

All right, thank you.

[Steve Hislop:]

You’re welcome.

[Operator:]

Next from Stifel, we have John [indiscrenible].

[Unidentified Analyst:]

Hi guys, thanks for taking my question.

[Steve Hislop:]

Hi John.

[Unidentified Analyst:]

Steve, I just had another question for you on the Chicago store, I believe that Chicago stores opened with a slightly higher price menu, do you have any concerns that the higher prices hurt the menu Chicago?

[Steve Hislop:]

No, no I think if you look at we have four different menus ranging from the one we have in Texas all the way up to the four which we actually have Miami and DC and Chicago. Our value spread and when we do pricing, we look at all our competitive menus just not Mexican, we look at all the casual dining. Our value spread in the Chicago are tier 4 is a much wider spread than even our tier 1, if anything what I’ve been nervous about there, as we’ve gone into DC we’re doing some customer intercepts. As they sometimes think were too cheap and don’t understand the quality we give, so we need to spend more time explaining that. But, our value spreads very strong in those markets.

[Unidentified Analyst:]

Okay great. And then just to kind of shift gears a little bit over to the marketing front, should we expect that $1.5 million to be spread out over even over the course of the year or is it going to be more weighted to the back-half as that marketing agency comes on?

[Steve Hislop:]

Go ahead.

[Jon Howie:]

We kind of, I think you can spread that out as kind of 1% of our sales kind of throughout the quarters. But, the 500 of that will pipe in the back-half, the 500,000 is going to be related to our off-premise and really basically new packaging on to go packaging which will coincide with us rolling out our online ordering. So, that will be in the back-half.

[Unidentified Analyst:]

Okay great. And then just one last quick one, I know last quarter you guys announced a share repurchase program, doesn’t look like you guys bought back any stock this quarter, do you guys have any plans to increase that or being more aggressive what that as a result of tax reform?

[Jon Howie:]

Well we want to be, I guess we want to at this point in time until, we want to be a little opportunistic with that, we actually had some orders in, by the time we were able to trade the stock it kind of ran from us. So, we didn’t get an opportunity to do that, we don’t want to just buy in any price and we only have a three week window after we release with where we can buy. We’re looking to possibly put in a 10b5-1 plan that maybe put some limits in that, we can buy outside of the period, but we haven’t drafted that yet. So, we’re still looking to have opportunities to do that, but right now given the run up and stock, we just we haven’t buying it back. This year we at least want to buy back the dilution.

[Unidentified Analyst:]

Okay, great. Thank you very much.

[Operator:]

[Operator Instructions]. Next from BMO Capital Markets, Andrew Strelzik.

[Andrew Strelzik:]

Hey good afternoon everyone. A number of your peers in casual dining have been using some of the tax savings to reinvest them at labor side and you guys, taking a bit of a different route, so I guess I’m wondering what made you comfortable not making that investment in wages and, you concerned it all that you are going to see those turn over levels they got, then what would you do if that was the case?

[Steve Hislop:]

I think if you look at what we have done over the last two years, if you look at 2016 is where we really jumped in and you saw a big jump in our wages rates and where we were about 4% reinvested in 2016 as a whole and then over the last year was over 3%, we’re looking at another 3, is that this year and we were always seem to be investing and that’s where we are planning on doing it, right now we just thought, we’d look at the compelling message of what Chuy’s is in our emerging markets.

[Andrew Strelzik:]

Okay, and on the commodity side, you said right now it’s running a little bit over 3%, so higher than you’re expecting for the year, what items within your basket are really driving that outsized inflation that you are expecting to come back down?

[Jon Howie:]

Well it’s really the, when you are looking the year-over-year, you are looking at the higher prices at the end of the year versus the lower prices beginning in the year.

[Andrew Strelzik:]

And what we end up for the whole year, 1.25 and 1.5?

[Jon Howie:]

Yes we ended up about 1.3% for the year. So, if you are looking at, I don’t have that in front of me right now, I’ll get back with you that, with you on that Andrew.

[Andrew Strelzik:]

Okay and my last question, based on some of our industry conversations we’ve heard about loosening real estate market, kind of starting to emerge, I’m wondering if you guys are seeing that it all or if you are expecting that to materialize going forward?

[Steve Hislop:]

There has been people talking about that for a while, we haven’t seen a whole bunch, it’s been kind of as we moving forward. We definitely had a couple of that, we’ve been able to renegotiate that we’re going to walk from, so that’s a positive thing for us. But overall, I’m seeing pretty much a stable market on the real estate for us.

[Andrew Strelzik:]

Great, thank you very much.

[Steve Hislop:]

Thank you.

[Operator:]

Next we have Nick Setyan with Wedbush Securities.

[Nick Setyan:]

Hey thank you. Jon, the 3% labor inflation with the one-half on menu pricing place kind of 50 basis points or so of deleverage just from the wage inflation portion, can you just kind of clarify in terms of the new unit impact, the new unit and efficiency impact on top of that we should think about in 2018?

[Jon Howie:]

Yes, I mean we’re looking to get a little leverage on some of the things that we’re talking about on the existing source, which will lessen that impact that you are talking about. So, overall we’re looking at kind of labor increasing around 50 or 60 basis points for the year is kind of where we’re looking at.

[Nick Setyan:]

Got it, so all in 50, 60 bips for the year?

[Jon Howie:]

Yes.

[Nick Setyan:]

Okay, and then just to clarify the quarterly commentary is that taking the 1.3 in Q4 adding the 70 bips in terms of the source coming into the comp base, and that’s attracting the weather impact?

[Jon Howie:]

Go through that one more time.

[Nick Setyan:]

To take the Q4 1.3 comp, add the 70 bips from the stores coming in, so I guess that gets you about 2ish and that’s attracting the 960k or so of the weather impact?

[Jon Howie:]

Well you got to take out the 100 bips related to the extra day.

[Nick Setyan:]

Got it.

[Jon Howie:]

So basically, we’re, we’ll just say quarter-to-date we’re looking at just shy of 1%, that’s kind of what we’re talking about without the weather impact.

[Nick Setyan:]

Okay, okay perfect. Thank you.

[Jon Howie:]

Without the weather impact in the roll ins I should say.

[Nick Setyan:]

Got it, got it, thank you.

[Steve Hislop:]

Thanks Nick.

[Operator:]

And ladies and gentlemen, does conclude our question-and-answer session. I’d like to turn the floor back to management for any additional or closing remarks.

[Steve Hislop:]

Thank you so much everybody. Jon and I appreciate your continued interest in Chuy’s and we will always be available to answer any and all questions. Again, thank you and have a good evening.

[Operator:]

Ladies and gentlemen that does conclude today’s earnings call. Thank you for joining us. You may now disconnect.