Chuy's Holdings, Inc.
Q3 2015 Earnings Call Transcript

Published: 4 Nov 2015

[Operator:]

Please stand by, we're about to begin. Good day, everyone, and welcome to the Chuy's Holdings, Incorporated, Third Quarter 2015 Earnings Conference Call. Today's conference is being recorded. At this time, all participants have been placed in a listen-only mode and the lines will be opened 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. At this time, I'll turn the conference over to Mr. Howie. Please go ahead, sir.

[Jon W. Howie:]

Thank you, Operator, and good afternoon. By now everyone should have access to our third quarter 2015 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 conditions. With that out of the way, I'd like to turn the call over to Steve.

[Steven J. Hislop:]

Thank you, Jon; and thank you to everyone for joining us on the call today. We are very pleased with our third quarter results, which include a revenue growth of over 15% and a net income growth of over 30% compared to the third quarter of last year. We also our comparable store sales increase 4.2% for the quarter, representing our 21st consecutive quarter of positive comparable restaurant sales growth. Contributing to our earnings growth was an approximate 3000-basis-point improvement in our store level profitability. While we have benefited from year-over-year commodity deflation, restaurant operating margins continue to reflect the hard work and dedication of the entire team as they execute the internal initiatives implemented earlier this year, as well as the ongoing consistency of our business driven by improved habits and routines. Our third quarter results also benefited from our new bar menu, which we rolled out in June of this year. This is the first new bar menu we've had – we've introduced in seven years – and features a variety of popular drinks from our LTO bar promotions during the last couple of years, and some newer, larger, fruit-flavored margaritas. The early customer reaction has been very positive and we believe the new bar offerings will be a long-term positive for our overall liquor mix. Switching to development, we opened two new Chuy's restaurants during the third quarter; one in El Paso, Texas, and one in Tulsa, Oklahoma. Subsequent to the end of the quarter, we've opened our seventh and eighth new Chuy's restaurant of 2015 in Tuscaloosa, Alabama, and Columbus, Ohio respectively. As of today, we expect to open 10 new Chuy's restaurants this year. We continue to be pleased with the performance of our new restaurants, not only as it relates to their initial sales volumes, but also with regard to their early profitability, which are meeting or exceeding the prototype margins. One of our key areas of focus this year has been on the store-level operating margin, glide path of all our new restaurants. And we have seen a quicker improvement on our new store margins in this year's class of stores. Looking ahead, our 2016 development plan is coming together nicely with 10 new leases signed. We're currently expected to open – we currently expect to open 11 to 13 new restaurants next year. We continue to believe we have a huge runway for growth ahead of us. Now, I would like to turn the call over to our CFO, Jon Howie, for a more detailed review of our first third quarter results.

[Jon W. Howie:]

Thanks, Steve. Revenues increased 15.3% year-over-year to $73.9 million for the third quarter, ended September 27, 2015. The increase included $9 million in incremental revenues from an additional 102 operating weeks produced by 11 new restaurants opened during and subsequent to the third quarter last year. We had a total of approximately 831 operating weeks during the third quarter of 2015. Comparable restaurant sales grew 4.2% during the third quarter driven by a 4.4% increase in average check, offset by a 0.2% decrease in traffic. There were 48 restaurants in our comparable base during the third quarter 2015 including two new restaurants added to the base at the beginning of the quarter. We consider restaurants to be comparable in the first full quarter following 18 months of operation. Looking ahead, I should point out that in September, we lapped a 1% price increase taken in 2014. As a result, our effective price entering the fourth quarter of this year is little under 2.5%. Additionally, as most of you know, this year's fourth quarter provides some calendar related challenges related to the timing of Halloween and Christmas during the respective weeks. We would expect timing of these holidays to negatively impact our fourth quarter by approximately 60 basis points. Turning to expenses, cost of sales as a percentage of revenue improved approximately 160 basis points year-over-year to 26.6% as we experienced a favorable impact from lower grocery, dairy, and chicken cost during the quarter, offset by increases in beef and produce cost. Looking ahead, we don't expect major sequential pricing changes in our commodity basket from the third quarter to fourth quarter. However, we do expect added inefficiency as a result of our back-end loaded development schedule to result in fourth quarter cost of sales in the high 26% to low 27% range. Labor cost as a percentage of our restaurant revenue improved 190 basis points from last year to 32%, as we continue to gain operating efficiencies through our labor and manager rationalization initiative, in addition to leveraging our comparable store sales growth. Approximately 30 basis points of the improvement resulted from a short-term decrease in managers in training head count, as our manager rationalization initiative has allowed us to more efficiently reallocate our current managers. We do not expect this benefit going forward in 2016. Similar to our cost of sales, we also expect that labor margin benefit from our current initiatives to be partially offset in the fourth quarter due to the backend concentration of new store openings, and the calendar change in our holiday season. Restaurant operating cost as a percentage of revenue improved slightly by 20 basis points to 13.8%. Cost increases associated with the Affordable Care Act were more than offset by lower workers' comp expense and travel costs and leverage from our same-store sales growth during the quarter. Occupancy cost as a percentage of revenue increased approximately 60 basis points year-over-year to 6.5%, driven by higher rental expense and property taxes as a percentage of sales in our newer locations. General and administrative expenses increased $1.2 million to $4.1 million in the third quarter. As a percentage of revenue, G&A increased approximately 100 basis points year-over-year to 5.5%. The increase was driven primarily by an increase in performance-based bonuses, stock-based compensation and additional investments in new employees. Pre-opening expenses during the third quarter of 2015 was approximately $1.1 million, compared to $1.3 million in last year's third quarter. This decrease is primarily the result of differences in timing of our development schedule. We opened two new restaurants during the current quarter and one early in the fourth quarter while we opened four new restaurants in the same quarter last year. Depreciation and amortization expenses increased approximately $0.6 million to $3.2 million in the third quarter of 2014, primarily driven by increases in equipment and higher gross leasehold improvement costs associated with new restaurants. Income tax expense due to higher pre-tax income levels and the utilization of the company's remaining federal net operating loss carry-forwards in the first half of 2015, the company's federal statutory tax rate increased from 34% to 35% in the third quarter of 2015 and began paying federal tax obligations from operating cash flows. This increase in tax rate along with the lower employment tax credits on the employee tips as a percentage of pre-tax income increased the company's effective tax rate to 38.3% for the third quarter, compared to 26.3% during the same period in 2014. We expect that our effective rate for the fourth quarter will range from 29% to 31%. Net income in the third quarter of 2015 increased 31% to $4.1 million, or $0.24 per share as compared to $3.1 million, or $0.19 per share in the third quarter of last year. Finally, we ended the quarter with $10.6 million of cash on the balance sheet and no outstanding debt under our current credit facility. As a side note, we did amend our current credit facility, which extended the maturity date to October 30, 2020, from November 30, 2017, and revised the applicable margins and leverage ratios that determine the commitment fees and interest rates payable by the company. Switching to our 2015 outlook, based on our year-to-date financial performance, we are updating our annual diluted net income per share guidance to $0.86 to $0.88 versus our previous range of $0.82 to $0.85. This compares to the diluted net income per share of $0.69 in 2014. Our net income expectation for fiscal 2015 is based in part on the following annual assumptions – comparable store sales growth of 2.9%, which implies growth of approximately 2.4% for the fourth quarter; restaurant operating expenses – pre-opening expenses, excuse me, of approximately $4.2 million to $4.7 million. We now expect G&A expenses to approximate $16.3 million. Our effective tax rate for the fourth quarter is estimated to be between 29% and 31%. We continue to expect our annual weighted average diluted shares outstanding of 16.7 million and 16.8 million. Our development plans for 2015 remain on track to open 10 new Chuy's restaurant, of which eight have already opened. Lastly, our capital expenditures net of tenant improvement allowances are projected to be approximately $27 million. Now, I'll turn the call back over to Steve to wrap up.

[Steven J. Hislop:]

Thanks, Jon. In closing, we are pleased with the momentum of our operating results and remain excited about the prospects of our business. Our freshly-prepared Mexican-inspired offerings, tremendous value and energetic atmosphere has led to industry leading average unit volumes and a long history of same-store sales growth. Our teams continue to embrace the sales and operational enhancing initiatives that we put in place earlier this year, which is reflected in our recent profitability growth. And while our backend-loaded opening schedule will likely curtail that profitability somewhat in the fourth quarter, we continue to be very pleased with our revised development strategy and remain excited about the continued growth of our restaurant base with sales volumes and returns well ahead of industry norms. Before I turn the call back over to the operator for questions, I'd like to take a moment to thank all of our Chuy's employees. Our success has always been a testament to their hard work and dedication to earning the dollar every single day. With that, we're happy to answer any questions. Thank you.

[Operator:]

We'll go first to David Tarantino with Robert W. Baird. Please go ahead.

[David E. Tarantino:]

Hi. Good afternoon and congratulations on delivering outstanding results. I've got a couple of questions here. First, on the comps, can you – Jon, clarify the components of the comps between pricing and mix? And then I think mix is positive this year, could you explain what drove that? Was that the bar menu or something else?

[Jon W. Howie:]

Sure. Our pricing, we have for the quarter just a little over 3.2% pricing. As you know, our 1% price increase in September of 2014 rolled off this quarter, so a little over 3.2% pricing for the quarter. The rest is mix and most of it relates to the new bar menu. Because of the bigger drinks we're getting more sales revenue per drink. And that's helping us out in the mix.

[David E. Tarantino:]

Great. That's helpful. And then on the transaction side, the – what was the impact from the new stores or new restaurants entering the comp base in the quarter?

[Jon W. Howie:]

Right now, the headwind that we always talk about was about 40 basis points in this quarter.

[David E. Tarantino:]

Got it, okay. That's helpful. And then, I guess – if I look at the restaurant-level margins performance in the quarter it was very strong and I guess on the last call, you had cautioned us to think about less improvements than what you saw on the first half. And I guess, what drove the upside relative to that outlook in your mind, was it greater-than-expected efficiencies or was there something else underneath that, that drove it?

[Jon W. Howie:]

Well, there is a couple of things, David. One, I wasn't given the inflation that I expect in cost of sales. I was really expecting the cost of sales to be in the higher 26%s versus 26.6%, so that helped out a little bit. And then labor was the big driver. I mean, we continued to get the efficiencies, plus we had a couple of stores that moved into the fourth quarter from the third quarter, which – so we didn't get the inefficiencies that I was expecting in that labor line either.

[Steven J. Hislop:]

Yeah. David, we're very pleased with the improvement on the labor piece, definitely on the existing stores and extremely excited about the stores that are in the non-comp and those really, really improved for us.

[David E. Tarantino:]

Great. And on that point Steve, I guess are you getting greater-than-expected efficiencies there? Are they coming earlier? I think the theme so far has been they were coming earlier, but it seems like you might be getting greater-than-expected efficiencies. And if so, where do you think the margins in those units, where do you think that we're going to see those settle as they get to that third year relative to the targets you've outlined previously?

[Steven J. Hislop:]

Yeah. And David, I think they have moved a tiny bit quicker. And I think I mentioned in my script that I was talking about that, definitely in the 2015, we're ramping those up a little bit quicker as far as the glide path goes for us on the newer stores. The sales increases in the 13, 14 stores are comparable, maybe a tad bit higher than the company, the existing company base so far. But I think it's just a little bit earlier and that's what I'd say.

[David E. Tarantino:]

And I guess the prior margin targets you outlined, are those still...

[Steven J. Hislop:]

Yeah, it's too early to change anything on that. I think we are very, very comfortable on the prototype margins that we explained throughout this whole year.

[David E. Tarantino:]

Great. Thank you very much.

[Steven J. Hislop:]

Very welcome.

[Operator:]

We'll go next to Imran Ali with Wells Fargo. Please go ahead.

[Imran Ali:]

Hi. Good afternoon. Thanks for taking my questions. You talked about seeing continued commodity favorability going to the second half of the year and I was just wondering what commodity inflation levels you're seeing right now and what the early read is on the inflation next year?

[Jon W. Howie:]

Sure. For the current quarter, we were actually down about 3.2% for the current quarter as far as deflation-wise. If I'm looking at the year-to-date over the average prices for 2014 currently, we're down about 3.8%. And that's where I would expect our current prices really to continue into the fourth quarter. I really don't expect seeing really too much in the way of decreases or increases. We have a little of both and I think they'll offset each other.

[Imran Ali:]

Got it. And you're saying it's not flattish, but you expect the same degree of favorability going to 2016. Is that fair?

[Jon W. Howie:]

No, going to the fourth quarter...

[Imran Ali:]

Okay, okay.

[Jon W. Howie:]

Yeah, yeah. We haven't talked about 2016.

[Imran Ali:]

Okay, understood. Okay. And just – one of your peers actually, it was today, I think they talked about casual dining dinner traffic declined by around I think 3% in the third quarter. And this is the trend that I think had been driven by – well, weekend traffic in particular. And I was wondering are you seeing a similar dynamic between day parts and week parts?

[Jon W. Howie:]

No, no. We're pretty much on a pretty even keel over the last year or so.

[Imran Ali:]

Got it, got it. And lastly if I could. There's been a lot of discussion I think just lately in this quarter about Texas locations in the restaurant space and given your exposure, I think, have you seen any particular regional softness or trends among your Texas locations relative to...

[Steven J. Hislop:]

In Texas, we're definitely up. If we've seen anything we've seen a little bit of softening – I think I've talked about this on the last call – a little bit of softening in Houston and San Antonio, but no softening at all in Austin or Dallas. And again, we have 30 stores in our base here and again, they're up as a whole. So, just maybe a tad bit, I think more than anything it might have been the roads closing on me on certain highways, but again we're not seeing that within our system.

[Imran Ali:]

Got it. Understood. Thanks very much.

[Operator:]

We'll go next to Chris O'Cull with KeyBanc. Please go ahead. Once again, Chris O'Cull with KeyBanc, your line is open. Please check your mute button.

[Christopher O'Cull:]

Yes, thanks. Sorry. I was muted. Steve, any update on when we will see some openings in the Chicago area?

[Steven J. Hislop:]

Yes. Right now, Chris, it's a great question. We've really looked over the last – basically I started a year ago but we're looking – on a lucky side we'll be looking at the end of probably fourth quarter, third quarter – fourth quarter of 2016, if we're lucky, but really hitting it hard in 2017.

[Christopher O'Cull:]

How do you approach that market? Are you going to be going to the suburbs or you're going to be going downtown or?

[Steven J. Hislop:]

We'll probably – Chris, we're looking at both. We're looking at both and we're looking for some billboard sites on either ones, but we like obviously the suburbs, or bigger than Austin, any of those suburbs, but we like both but we're looking all the way through, but right now we're probably looking mostly to start probably in the suburbs.

[Christopher O'Cull:]

Okay. And then, Jon, occupancy cost has been running higher than we've been projecting, is the company leasing a greater percentage of their stores or is there more investment per store being financed to lease that or how should we think about that going forward?

[Jon W. Howie:]

Well, Chris, you're going to continue to see that increase, some of the newer stores as we head up East and into the North in the Chicago area, obviously as a percent of revenue those things are going up as we see higher real estate costs there. We are looking at taking less in the way of TI dollars to bring some of that margin – or increase the margin on some of that. But right now, you will see that continue to increase in 2016 as well.

[Christopher O'Cull:]

On the free-standing sites, is it – I mean, it's just ground leases, right. Are or you leasing the build – are you having – are you doing build-to-suits with the building or...

[Jon W. Howie:]

A little of both, I mean we have ground lease and we also have remodels and build-to-suits.

[Christopher O'Cull:]

Okay. Okay. Great, thanks.

[Jon W. Howie:]

Yeah.

[Operator:]

Okay. Next to Will Slabaugh with Stephens. Please go ahead.

[Will Slabaugh:]

Yeah. Thanks guys. And congrats on the quarter. It looks like Texas held up pretty well for you, but I was wanting to dig in more importantly just given the strong comps, it looks like this implies that many of the stores built in the class of 2013 and then maybe a few in the 2014 class that may have initially opened up a little bit softer than expected are now accelerating and maybe even out-comping the base. So just wondering if my math is correct there.

[Steven J. Hislop:]

Well, I think I mentioned it earlier, we're pleased with the movement there. But they're probably pacing maybe slightly ahead of the original comp base. But they've been pretty consistent with that. So we're actually very, very pleased with that.

[Will Slabaugh:]

Great. And then back on the tax rate, if I could, Jon, so I show that if you were to normalize what you're guiding the tax rate to be, probably an additional $0.04 or so in the quarter, so can you go back through sort of what happened again and why that hit you in 3Q, and why it goes back down in 4Q?

[Jon W. Howie:]

Sure. We were, as you know, over the last few years, we burned off a lot of NOLs. So effectively, as a company, we've never hit over that $10 million threshold in taxable income, thus getting us into 35% tax rate from a statutory standpoint. We met that threshold this quarter, after we filed our tax returns. We got a better transparency into when we would hit that obviously because we had TARS that we implemented and a lot of other things that were outstanding. So that just really culminated and hit us in the third quarter. So, we needed to increase that rate and all of that increase is related to that increase in the effective tax rate.

[Will Slabaugh:]

Got it. Thank you.

[Operator:]

Okay, next to Robert Derrington with Telsey Advisory Group.

[Bob M. Derrington:]

Yeah. Thank you. Jon, can you help us understand two things. One, as we look at obviously labor costs, which were – appeared really terrific in the quarter. What was the wage component or wage inflation piece? And then I've got a follow-up on that.

[Steven J. Hislop:]

Robert, there's not a whole bunch in the wage, except for competitive groups and restaurants might have (22

[Bob M. Derrington:]

Okay, all right. And then as we think about obviously going forward, as you look at a change in the footprint of where you operate your restaurants, Steve, trying to think through how will your wage rates be affected ultimately by that. Any kind of color you can provide us with?

[Steven J. Hislop:]

And again over the next two years, I'm seeing it go up incrementally, that we'll be able to handle it within our price increases.

[Bob M. Derrington:]

Terrific. Thank you.

[Jon W. Howie:]

Yeah.

[Steven J. Hislop:]

And also – I'm sorry, Bob, and also tiered pricing by the way.

[Jon W. Howie:]

Okay.

[Operator:]

We'll go next to Nick Setyan with Wedbush Securities. Please go ahead.

[Nick Setyan:]

Hi, thank you. And congrats on another fantastic quarter. A quick question on the implied Q4 guidance, one of your peers last night said their Texas units in October during the week that the Mexico hurricane went through Texas, all their Texas units were down double-digit in sales. What did you guys see in Texas during that week?

[Steven J. Hislop:]

Well, it was a little softer, but nothing at all like that. No. It was a little softer than our trend, but it definitely didn't help us with the hurricane in those – week and actually the rain that followed it, but no, we're still up.

[Nick Setyan:]

Okay, got it. And then kind of going forward obviously the mix was a big benefit in Q3, any reason to think why that should change in any way in terms of magnitude going forward?

[Steven J. Hislop:]

Well.

[Nick Setyan:]

Given the alcohol and the bar innovation.

[Steven J. Hislop:]

I mean, we'll have some mix going forward, but remember, we do have that 1% rolling off, so effectively going into the fourth quarter we only have about 2.5% price.

[Nick Setyan:]

Got it. And just kind of coming back on the labor piece again, again industry-wide we're seeing a lot of inflationary pressure on labor and a lot of comments about a tighter labor market, particularly with the managers. What are you guys seeing?

[Steven J. Hislop:]

As far as managers, we're in a great spot with managers, we're doing very well, we're definitely set up very, very well on managers. As far as the employee group, it's definitely more competitive than it was two years ago. But again, I think that's all handled within the inflationary numbers.

[Nick Setyan:]

Thank you.

[Steven J. Hislop:]

Thank you.

[Operator:]

We go next to Paul Westra with Stifel. Please go ahead.

[Paul Westra:]

Great. Thank you. Good afternoon.

[Steven J. Hislop:]

Good afternoon.

[Paul Westra:]

Just actually a quick follow-up on the tax question, John maybe, should we be thinking for the year, it looks like it would come out to be at least on a GAAP basis 32%, is that a sort of a good new normal for our models going forward?

[Jon W. Howie:]

No, I think, it was a little higher during the quarter, because we had a discrete event in that we had to adjust our deferreds. So on an effective tax rate going forward, you should be looking at about a 29% to 31% tax rate going forward.

[Paul Westra:]

Great. Okay. Then I guess maybe a follow-up question on your sort of implied fourth quarter; I guess store level margin guidance. I mean, in order to get to what you're implying for the fourth quarter EPS number of around $0.11 to $0.13, you pretty much are guiding at least in the midpoint pretty much no leverage on a year-over-year basis outside of the cost of goods sold line, assuming that my math is right. And I was just wondering, is it really just the inefficiencies in new stores or why wouldn't you expect a little bit better than that?

[Jon W. Howie:]

I expect – from a store level standpoint, I would see a little bit of incremental increase in your EBITDA, maybe we can talk offline to see where you're coming, but – so we initially said that we'd be down 40 basis points or 50 basis points in labor. With how our initiatives are going, we do have the offsetting, so we do not expect obviously to have that 190 basis points favorability in the fourth quarter. But we do expect something in the terms of about 60-basis-points, 70-basis-point favorability in that.

[Paul Westra:]

Okay. And then maybe just one more question on, I guess, the monthly comp trends throughout the quarter and into October, so it sounds like obviously you had some storm issues in October but clearly if your quarter's guidance is 2.5 and the point rolled off in price and the 50-basis-point hit on the calendar shift, I guess it didn't – your underlying trend doesn't seem to – as far as underlying traffic trends – doesn't seem to be altered much as far as you've rolled through the quarter and into October?

[Steven J. Hislop:]

Yeah, we agree.

[Paul Westra:]

Great, okay. Thank you. Congrats on a great quarter.

[Steven J. Hislop:]

Thank you.

[Jon W. Howie:]

Thank you.

[Operator:]

And next to Brian Vaccaro with Raymond James. Please go ahead.

[Brian M. Vaccaro:]

Hi, thanks, and good evening, guys. A couple quick ones from me. Just on the new unit opening pipeline, can you remind us where the two remaining openings are in the fourth quarter, and Steve, maybe give a little color on the 10 signed leases that you have so far for – in place for 2016?

[Steven J. Hislop:]

Yeah, as far as what we'll – and we'll end it up – we are going to add our second store in Dayton, Ohio, that will be Beavercreek, that will be coming up either late November or maybe early December and then we have Orlando, Florida, which is the Waterford Oaks area. And then in 2016, as I mentioned 11 to 13, as we've always – as we've done the last year 80% will probably be in existing markets. We will be entering one new market in Lafayette, Louisiana, that we will be going into next year. And all the rest should be back in existing markets per se, although we have a Chattanooga, which is really run out of our Nashville market and we have Rockville, Maryland that will be basically run out of our Northern Virginia-D.C. market. But we're looking at continuing to build out three new stores up in the Virginia area. We'll be hitting Tallahassee which is up with our Orlando stores and we'll basically have another one or couple in Texas, Corpus Christi, San Marcos and a few more.

[Brian M. Vaccaro:]

Okay, very helpful. Thank you. Jon, quick one on the CapEx budget. I know you reiterated a $27 million net. Can you remind us how much TI you're expecting this year and should we assume a pretty similar TI per store as we think about the 2016 CapEx budget?

[Jon W. Howie:]

Yeah. I mean we average about $600,000 to $700,000 per location for TI. So you can kind of calculate that out. And it should be somewhat similar in the 2016, although we're looking at like I said before, change of strategy, and given our cash situation and maybe not taking as much TI to improve the margins.

[Brian M. Vaccaro:]

Yes. Got it. Okay. And then just last one from me, on the food cost outlook, I appreciate the color on the fourth quarter. But Jon, as you look at sort of 2016, how are you thinking about the inflation outlook, kind of the puts and takes on different lines? Is there any anything we should be mindful of in terms of contracts that might have been artificially low or high in 2015 and just kind of any big picture help you could provide on the inflation outlook on the food cost line would be appreciate? Thank you.

[Jon W. Howie:]

Yeah. We're not at a point that we can give much guidance on that. But we're not expecting any big differences one way or the other in 2016, probably similar to what some others are saying at this point.

[Brian M. Vaccaro:]

Okay. Helpful. Thank you.

[Operator:]

We'll go next to Andrew Strelzik with BMO Capital Markets.

[Andrew Strelzik:]

Hey. Good afternoon. I wanted to first ask on pricing. Is there any intention to replace some of the pricing that's rolled off? And then building on that, you have wage inflation that's better than some of your peers. We're hearing about a increasingly competitive environment also from some of the peers and then talking about somewhat flattish COGS next year, so I'm wondering how you are thinking about pricing going forward?

[Steven J. Hislop:]

Yeah. Over the last eight years, we've averaged, even with the last year, the 2.5% and then the one that we took in September. Over the last eight years, we've averaged about 1.8%, 1.85% on the average over the eight years (31

[Andrew Strelzik:]

Okay, great. And then, you also made reference to investments in your employees on the G&A side, I'm just wondering specifically what you're referring to there, is that one-time or is that ongoing?

[Steven J. Hislop:]

That's just building the infrastructure for growth as we continue on. It's ongoing.

[Jon W. Howie:]

Yeah.

[Andrew Strelzik:]

Okay. Great. Got it, thank you.

[Jon W. Howie:]

Thank you.

[Operator:]

Okay, next to Sam Beres with Robert W. Baird.

[Sam J. Beres:]

Hi. Good afternoon. Thanks for taking the question. Just wanted to follow up on the unit growth and I know you've talked about – after a little bit of slower growth in 2015 accelerating back up to that 20% plus level over time, but the 11 to 13 openings in 2016 implies a little bit of a slower growth rate than that 20%. So, just want to make sure that you're still thinking about unit growth longer term as 20% plus annually and maybe when you could see yourself getting back to that level? Thanks.

[Steven J. Hislop:]

Yeah. We're still comfortable on that range and we like the 20%. Last year, when we made the moves, we just want to be very thoughtful how we're moving into these markets and really backfilling to make sense for us. So, yeah long term, when we expect it to be at 20% and you'll see that end of 2017 probably.

[Sam J. Beres:]

And in terms of the slightly slower rate in 2016, is that just a function of finding the correct real estate sites that you guys want? It seems like you're in a good spot in terms of the people side of the growth infrastructure?

[Steven J. Hislop:]

Yeah. That's exactly it.

[Sam J. Beres:]

Great. Thanks.

[Steven J. Hislop:]

Thank you.

[Operator:]

And at this time, there are no further questions. I'd like to turn the conference back over to the management for any additional or closing remarks.

[Steven J. Hislop:]

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

[Operator:]

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation.