Chuy's Holdings, Inc.
Q4 2014 Earnings Call Transcript

Published: 3 Mar 2015

[Operator:]

Good day, everyone, and welcome to the Chuy's Holdings Incorporated Fourth Quarter 2014 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 Howie:]

Thank you, operator, and good afternoon. By now, everyone should have access to our fourth quarter 2014 earnings release. It can also be found at our website at www.chuys.com in the Investors section. Before we begin I'll review the 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. Also during today’s call, we will discuss non-GAAP financial measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and the reconciliation to comparable GAAP measures is available in our earnings release. With that out of the way, I’d like to turn the call over to Steve.

[Steve Hislop:]

Thank you, Jon, and thank you everyone for joining us on the call today. As most of you know, in January we announced selected preliminary results for our fourth quarter including comparable store sales growth of 3.8%, an increase in total revenue of over 20% and a full year earnings per share of $0.67 to $0.69, which implies $0.12 to $0.14 for the quarter. As it relates to our earnings, I am pleased to say that we came out at the high end of our expected range. Additionally, the growth in our same-store sales marked our 18th consecutive quarter of positive same-store sales growth as our fresh, authentic, made-from-scratch Mexican food upbeat atmosphere and great value continued to resonate with our guests. As we entered 2015, one our key areas of focus are on initiatives to drive sales and improve margins, especially as they relate to our non-comp units. As most of you know, the class of 2013 skewed heavily towards new markets, which where we lacked the same level of brand awareness that we have in our existing markets. As a result, sales at the number of these restaurant settled in below our internal targets. Initiatives such as enhanced local store marketing and branding designed to highlight our key strength and points of differentiation have been put in place to drive sales growth and are beginning to gain traction. As we fill out these markets in 2015 and beyond and brand awareness continues to improve, we believe we will see a corresponding improvement in AUV. Additionally, to improve labor efficiencies at these restaurants, we've implemented labor best practices for scheduling as well as management rationalizations based on volumes, which we're implementing in the first half of this year. Switching to development, during the fourth quarter, we opened our 11th and final restaurant of the year in Springfield, Virginia, outside Washington DC, which brought us up to a total of 59 restaurants in 14 states at the end of fiscal 2014. We've opened two new restaurants to date in 2015, one is Southlake Texas and one additional restaurant in Orlando, Florida. As we previously noted , we've slightly revised our development target for 2015 and expect to open 10 to 11 new Chuy's restaurants during the year. We're also taking a different strategic approach to our restaurant development. Beginning in 2015, we will focus on getting to larger, denser markets more quickly as we grow our restaurant base. While we have in recent years grown our restaurants in a so much sequential manner from our existing hubs, we believe our entire restaurant base will benefit from greater brand awareness by ramping up development in new larger markets more quickly before backfilling into medium and smaller markets. This is similar to the approach we've taken in Washington DC area during 2014, and we're pleased with the results to date. In the coming years, we will also look to larger markets like Chicago and Miami similar to the DC area and population density, with a healthy competitive set leading to a larger customer base with a good propensity to eat Mexican food. In addition, we've added a new Director of Real Estate to our team and added a second master broker to our system. We believe these changes will help enhance the quality of our new restaurant sites. While 2015 development will be modest below our long-term target, we remain excited about the tremendous white space opportunity ahead for us to grow the Chuy's brand going forward. Now I would like to turn the call over CFO, Jon Howie, for a more detailed review of our fourth quarter results.

[Jon Howie:]

Thanks Steve. Revenues increased by 21.7% year-over-year to $61.8 million for the fourth quarter ended December 28, 2014. The increase included $10.5 million in incremental revenues from an additional 148 operating weeks, produced by 13 new restaurants opened during and subsequent to the fourth quarter of last year. We had a total of 763 operating weeks during the fourth quarter. As Steve mentioned, comparable restaurant sales grew 3.8% year-over-year for the fourth quarter, Comparable restaurant sales growth was driven by a 1% increase in traffic and a 2.8% increase in average check. There were 41 restaurants in the comparable base during the fourth quarter of 2014, 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 operations. As we reminder, our restaurants can open at volumes greater than the normalized run rate. In the case of our strongest opening, the honeymoon period may last longer than 18 months than the 18 months we allow before a restaurant drops into the comp base. Given the small number of restaurants currently in a comparable base, the timing and strength of our new unit openings may create a short term headwind in our comparable restaurant sales growth in some quarters. To date, that headwind has typically reduced our comparable restaurant sales growth rate by 50 basis point to 120 basis points in any given quarter. Switching over to the expenses, our cost of sales as a percentage of revenue increased approximately 120 basis points year-over-year to 28.4%. Overall food cost inflation was 7.6% for the quarter, driven by increases in dairy, beef, and chicken. Labor cost as a percentage of restaurant revenue increased 50 basis points year-over-year to 34.6%, primarily due to the increased training and staffing levels coupled with labor inefficiencies at some of our non-comparable restaurant locations, which still account for 31% of our overall restaurant base. Labor in our comparable restaurants as a percentage of revenue improved 110 basis points year over year. As Steve noted, we are currently in the process of implementing best practices for labor scheduling as well as management rationalizations based on volumes. While we are pleased with the results we have seen to date, we would expect to see more tangible improvement in labor margins during the second half of 2015. Restaurant operating cost as a percentage of revenue decreased approximately 60 basis points year-over-year to 14.2%. The improvement was driven primarily by lower liquor taxes as a result of the new liquor tax law in Texas, which went into effect on January 01, 2014 offset by increases in utilities and insurance. As a reminder, a couple of items to note for 2015, our first quarter of 2014 included approximately 77,000 of one-time adjustments for rebates related to our new beverage contract. Secondly, our employee benefit expenses are included in our restaurant operating line and we expect the impact from the implementation of the affordable care act to result in an incremental increase in this line item of approximately $500,000 for 2015. Occupancy cost as a percentage of revenue increased approximately 50 basis points year-over-year, to 6.5%. Last year's occupancy includes adjustments to estimated property and real estate taxes on newer locations, which had a favorable impact on occupancy expense of approximately 40 basis points last year. Additionally we still are experiencing increased rent and property taxes as a percentage of sales at newer locations and some deleveraging on lower volumes as certain non-comparable restaurants. As a result we expect occupancy as a percentage of sales of 6.5% to 6.6% in 2015. General and administrative expenses increased $3 million -- increased to $3 million in the fourth quarter from $2.3 million in the fourth quarter of last year. As a percentage of revenue G&A increased approximately 30 basis points year-over-year to 4.8%. The increase in margin was largely driven by an increase in stock-based compensation related to our new long-term incentive program partially offset by lower performance based bonuses. Depreciation and amortization expenses increased 500,000 to $2.9 million from $2.4 million in the fourth quarter of 2013. The increase is driven by increases in equipment and lease hold improvement task associated with new restaurant. Our effective tax rate was approximately 21.5% compared to 24.9% during the fourth quarter of 2013. The lower rate this year is primarily attributable to higher percentage of employment tax credit, a pretax income this year versus last year. Net income in the fourth quarter of 2014 was $2.3 million or $0.14 per share as compared to $2.5 million or $0.15 per share in the fourth quarter of last year. With respect to our 2015 outlook, we're providing the following annual guidance our diluted net income per share is expected to range from $0.74 to $0.77. This compares to diluted net income per share of $0.69 in 2014. Our net income guidance for fiscal year 2015 is based in part on the following annual assumptions. Our revenue expectations include a comparable store sales increased for the full year of approximately 2.5%. Restaurant pre-opening expenses are expected to range between $4.2 and $4.7 million. We expect G&A expenses to run between $14.5 million and $15 million. We expect our pro forma effective tax rate for the full year to range between 28% and 30% and we expected annual weighted average diluted shares outstanding up 16.7 million to 16.8 million. Lastly our development plans for 2015 called for 10 to 11 new tourist restaurants but which two have already opened, our capital expenditures net of – improving allowances are projected to be approximately $27.5 million to $30 million. And now I’ll turn the call back over to Steve to wrap up.

[Steve Hislop:]

Thanks, Jon. In closing, we are excited about the short and long term prospects of our business, including the continued growth of our restaurant base with sales volumes and return well ahead of industry norms, are freshly prepared, crave-able, Mexican inspired offerings, tremendous value and energetic atmosphere have led to industry leading average unit volumes and a long history of same store sales growth. We continue to tackle the near term challenges, we believe that the sales driving and operational enhancing initiatives put in place are along with continued – of the developing markets on track those results to a company average. We're using the learnings from all of our recent openings to optimize our new unit model going forward. Before I turn the call back over to the operator for questions, I’d first like to take a moment to thank all of our tourist employees. Our success has always been a testament to the hard work and dedication to earn a dollar every single day. With that, we’re happy to answer any and all questions. Thank you.

[Operator:]

Thank you. [Operator Instructions] We’ll take our first question from Will Slabaugh with Stephens Incorporated.

[Will Slabaugh:]

Yeah, thanks guys, can you go to into a little bit more detail about the labor and other caution issues that you put into place in your new restaurants and what that might mean in terms of the time to ramp these new units up toward your target profitability.

[Steve Hislop:]

Hi, Will this is Steve. Thank you. Well as far as -- obviously the cost of goods initiatives are obviously based on a little bit of the commodity pricing that we're seeing ease up a little bit on us. You see us we’re probably projecting a 1% to 2% on the commodity increases for the year. As far as the labor efficiencies, as I mentioned when we were on the road earlier this year, we have a base productivity standardization, which is basically sales per hour and the needs and how we’re going to ramp up the new stores much, much quicker. And as I mentioned in my script, labor scheduling best practices has basically taken the stores that are really, really doing well and moving those standards into the newer stores and making them move much, much quicker. And then finally, the neighbor managers rationalization based on volumes is depending on how many managers will be in the unit. Again, we are in the middle of really jumping and putting that into practice right now. We've seeing some nice initial reaction to this and through the whole first half of this year, we'll implement the whole deal, where we'll start seeing some better results and more tangible results in the second second half of the year.

[Will Slabaugh:]

And one quick follow up if I could, it looks like it was a first quarter in maybe five quarters or so where your non-comp average weekly sales grew, I think they were up around 11% or so. So is that a trend you expect to continue in terms of -- you were moving off of that 2013 class, it was all new markets, and now as you back the little bit more and go into bigger markets, would you expect that average weekly sales number for new units to be able to continue to grow here.

[Steve Hislop:]

I would, and thanks for bringing that up, so you’re absolutely right If you remember last year, it was about 20% down and then it has gradually gotten better during the year as far as when you're comparing it to the last year. So, yeah we are about 10%. We would expect that to keep that trend going forward.

[Will Slabaugh:]

Great, thanks guys.

[Steve Hislop:]

Thank you.

[Operator:]

And next one is David Tarantino with Robert W. Baird.

[David Tarantino:]

Hi, good afternoon, my question is related to the new store performance or new unit performance, and you recently outlined a target for new units with volumes around $3.75 million and restaurant level margin target of 15% to 16.5%. So two parts here; one, is that where you think that 2014 class is settling into? Are those the right numbers to think about for the class you most recently opened? And then secondly, I guess could you talk about your confidence level in being able to deliver those numbers for the 2015 and ’16 classes that you’re working on now.

[Jon Howie:]

I’ll start out now and give it to Steve, yes we expect the 2014 stores coming around those numbers, David. Currently we’re at AUV rates in excess of about 4344. We expect them to settle down at a normality rate of right around $3.8 million and so we think we can capture those margins that we talked about.

[Steve Hislop:]

And as far as the confidence, we are fairly confident as we move forward David, especially with the adjustments were made in the real estate structure and strategy that we feel really comfortable moving forward with the guidance that we’ve given as a blended rate of openings.

[David Tarantino:]

Got it, and then just a clarification on that margin structure Jon, is that assuming that you get some of the cost savings that you talked about, is that -- in other words, are those required to get to that 15% to 16.5%, or was that just the upside versus that number if you got those cost optimization in?

[Jon Howie:]

Those -- at those lower levels, those are included, the quicker ramp up that Steve was talking about earlier at some of those newer stores.

[Steve Hislop:]

Yes having said that, we have stores that are at that three seven number that are doing those type of margins currently, David.

[David Tarantino:]

Got it. Great. That's helpful and then Jon as you think about kind of new units coming in at margins that are lower than the existing base, when do you think you'll start to see equilibrium on the restaurant margin line, is that something -- can you -- do you think you'll be able to hold the restaurant margin line in 2016 or is that going to be difficult to do in next year?

[Jon Howie:]

I think it's going to be difficult to do in '16, but I think we'll start to seeing something in '17 a little bit.

[David Tarantino:]

Great. Okay. Thank you very much.

[Operator:]

Next we'll take Imran Ali with Wells Fargo.

[Imran Ali:]

Hey guys, thanks for taking my questions. Earlier you mentioned, you pointed to a 50 to 120 basis points interest sales headwind from new units entering the comp base. Given that the class of 2013 units are entering the comparable base this year, would you expect this to be a tailwind to same-store sales this year?

[Steve Hislop:]

We don't expect a tailwind. We would expect it to be less than what we've seen in the past, but you still have a selection of stores in those that do have that high opening rate and we'll have the normal fall off. So we're not expecting a tailwind, but we're not expecting as much headwind as we've seen in the past.

[Imran Ali:]

Understood and just shifting to guidance real quick, your 2015 EPS guidance at the midpoint roughly was 10% year-over-year growth and I guess what would you expect cadence of this EPS growth to look like? Would it be more backend weighted or front end loaded or have you any split?

[Steve Hislop:]

I would think it's going to be a little more backend loaded as we implement some of these initiatives and labor, we'll see some labor favorability in the back half of the year versus the front half.

[Imran Ali:]

Got it. And then if I may one last question. I think I might have missed this earlier, but did you mention what your COGS and labor is percent of sales may look like in 2015.

[Jon Howie:]

In 2015?

[Imran Ali:]

Yes.

[Jon Howie:]

We haven't got into that, so…

[Imran Ali:]

Okay. Just making sure. Okay. Great. Thanks very much.

[Jon Howie:]

But I think Steve did mention that we're expecting inflation of 1% to 2%. As I spoke in my comments we had about 7.6% for the quarter and 5.5% for the year in commodity inflation. So we don't expect that of inflation next year.

[Imran Ali:]

Understood. Thanks very much.

[Jon Howie:]

You're welcome.

[Operator:]

And next we have Andy Barish with Jefferies.

[Andy Barish:]

Hey good afternoon, guys.

[Jon Howie:]

Hey Andy.

[Andy Barish:]

The 2.8% of check average, was that all price in the fourth quarter?

[Jon Howie:]

Yes, I mean for the part, there is a little mix involved, but for the most part, as you remember we took 1.5% to 2% in the first part of the year and then we took another 1% there at the end of the year.

[Steve Hislop:]

In September.

[Jon Howie:]

In September. So not all that flow through obviously. So some of it mix and some of private.

[Andy Barish:]

Right, and so you're running that what did you do in February in terms of lapping that price increase? Basically are you expecting kind of 2.8% to continue until September?

[Jon Howie:]

I think -- Andy as you know, we always take our price increase and again if you remember, September we're really getting ready for the Obama care, that's why we plan on why did it in that one. So we just and -- in February we take our price increase. So we took approximately between that 2% and 2.5% price increase for the company in 2.15. So we're looking anywhere from 2.5% to 3%.

[Andy Barish:]

Okay. And any significant comp improvement here? I mean, the comps have been terrific, but anything in the first quarter like we've seen with some other casual dining companies or are you expecting sort of the 2.5% guidance fairly equally through the year?

[Steve Hislop:]

Yes, right now I would say it's pretty even for the beginning of the year, but we did start Andy, the first seven weeks of the year, which is little bit buzz out there in the numbers that we've set her, but we just -- we lost quite a bit of a runway over the last two weeks where a lot of our stores, our Nashville, Atlanta, Birmingham and the even Norman and little bit of Dallas definitely got affected by quite a bit in the last two weeks.

[Andy Barish:]

Okay, thanks you guys.

[Jon Howie:]

Yep.

[Operator:]

Next we’ll move to David Carson with KeyBanc.

[David Carson:]

Hey, guys how it is going.

[Jon Howie:]

Great.

[David Carson:]

Just real quick question in the G&A guidance I think it was assuming somewhere between 24% to 28% up this year, what is that when you kind of look at across the Board what is really the margin assumption at the store level to get to the $0.74 to $0.77 EPS guidance?

[Steve Hislop:]

I have given that, but I’ll talk to you about the G&A guidance, the big thing that -- the big driver on that is the performance based bonus. As you know, we took it down quite a bit last year and so all of that increase over what we've been saying as far as leveraging our G&A by 60%, 70% of overall revenue growth that’s because we’re expecting the target bonus this year and we reduced it substantially last year to the tune of $600,000, $700,000. So a lot of that increase this year is that as well as the continued amortization of our LTI program, which when we get four years into that program that should flatten out and then we should get back to some of that leverage that we see on the G&A line.

[Jon Howie:]

And we’ll back to that leverage next year.

[Steve Hislop:]

Yeah.

[David Carson:]

Okay, thanks guys. I’ll hop back if I have anything else.

[Steve Hislop:]

Thank you.

[Operator:]

[Operator Instructions] We’ll move next to Andrew Strausik with BMO Capital Markets.

[Andrew Strausik:]

Hey, good afternoon everyone.

[Steve Hislop:]

Hey Andrew.

[Andrew Strausik:]

So you gave some good color on some of the cost saving opportunities that you’re implementing, but can you talk more about the sales driving initiatives and kind of what has you most encouraged and some of the specific changes that you've made?

[Jon Howie:]

Sure, sure and again we’ve tested a lot of them throughout the year of 2014 and we’re starting to implement them basically again through the first half of this year, but a few other things that we did is as we've moved out, we've learned a lot about making sure we talk about our defining differences. So starting the very first day of this year, we changed our menu covers in the entire company, basically its soft and original Tex-Mex that we’re highlighting on the menu and on the back page, all the freshness that we have and I’m going to only talk about our defining differences whether it be our hand rolled tortillas or specifically that you can customize any plate and do it the way you want it. So that’s on the cover of every menu. As far as Media and TV demos, again we’re really aggressive with marketing, but we're on TV on the time on cooking shows, where we're invited to do some stuff on that and we’ve done that quite a bit. We're also on the testimonials and radio personalities. We're on their shows. We're feeding them and they're actually doing some of their shows from our restaurants. As far as some of the events and the program events, or we have this thing where we do it once a month with local bloggers and journalists when we do a visit day, where we walk through the kitchen, again really explaining our dining differences and what we do differently. We have a new residence program where we’re involved in a community not only our new sales of homes but also condos and apartments. Obviously we've always done our community ties and partnership we do in a community as far as how we're getting involved in the community and then obviously a few little ones as pharmaceutical rep happy hours that we do. And then every single store has its own local Facebook page, where we talk about all the new things that are happening in our restaurants as far as community activity, although just a name of few and we’re excited in all.

[Andrew Strausik:]

That’s helpful and then can you also talk about real estate and the availability of real estate as you go to some of these more densely populated cities and kind of how that’s changed versus the previous strategy?

[Steve Hislop:]

Sure, the big thing is as I mentioned to you, we’re still staying in the geographical footprint that we've always talked about. We‘re just jumping to the major density populated ones like the DC market we did in ’14 and I think I mentioned Chicago’s coming in ’16 and what will do is we'll plant our flags in the Chicago area, like we did in the DC area because all then between my stores the ones that I have in Indiana and then all the way up to Chicago. There is a lot of those things travel back and forth to the bigger markets first. So that’s actually our way and that's when we’re going to go back in and developing those our smaller market after we enter the bigger one, so the awareness will be helped up there as far as the availability of real estate. One cool thing about Chuy's is if you've seen one Chuy's, you've seen one Chui. We're very chameleon like in our approach on how we can build out our stores as long as our kitchen lines fit in perfectly, but we like going into bottom of office buildings. We like going in bottom of residential buildings. So we like taking older restaurants and what we call Hermit crab and remodel those and then we obviously have a couple of different prototypes that we do ranging 6,500 to 7,500 square feet. So again we see the availability out in Northern markets we're going to go to is attractive for us and we're looking good. Right now we're well set on’15 and we’re really working may be on a capital more at the end ’16 and ’17 right now. So we’re looking very, very good there. As far the price of them, yes as we move north a little bit, the pricing is a little bit more higher, but again within our tiered menu system we have the ability to maintain our control going common because of the tiered menu.

[Andrew Strausik:]

Okay and if I can just squeeze in one more, you talked about restaurant level margin pressures into 2017, but I’m wondering what that looks like from an operating profit margin perspective? You talked about G&A leverage may be in ’16, so wondering if you are expecting to see that trend little bit quicker than restaurant level margins.

[Steve Hislop:]

Well, I think the restaurant level margins to may turn a little bit this year, just because of cost to sales, we’re expecting obviously decreases in cost, sales during last year. So that's going to help the margin out. As far as labor, until we can get all these initiatives implemented, we want to -- don’t want to go into too much detail on that, but we do think, our labor is slightly going to be higher in the first half of the year compared to last year and that will be flat to slightly positive in the back half of the year. So we’re looking at flat to slightly positive on the labor line this year.

[Andrew Strausik:]

Okay, great. Thanks a lot guys.

[Jon Howie:]

Thank you.

[Operator:]

Next we’ll move to Nick Setyan with Wedbush Securities.

[Nick Setyan:]

Thank you. So did I understand that correctly, the pricing is expected to be about 2.5% to 3% of 2015 menu pricing?

[Jon Howie:]

That includes of September 1 approximately 1% price increase and approximately 2 %to 2.5%. That's what just took him February. So right around that 3% number is right.

[Nick Setyan:]

For full year 2015?

[Jon Howie:]

Yes.

[Nick Setyan:]

Okay.

[Jon Howie:]

Well, it’s going to drop up that the 1% that we took in September will drop off -- and then will be back to the 2 to 2.5.

[Nick Setyan:]

So on average it will probably be somewhere in that sort of 2.5% range.

[Jon Howie:]

Yeah.

[Nick Setyan:]

Okay. So can you guys kind of take me through comp where that imply transaction growth guidance is flat at that point?

[Jon Howie:]

As far as come back again.

[Nick Setyan:]

Well your full year guidance for comp is 2.5% I know your pricings are I guess 2.5% for 2015, so maybe just …

[Steve Hislop:]

Sure and what that is as, What I think Jon mentioned in his script as we still have an headwind of those stores rolling on the comp base from no longer than the 18 month honeymoon and we’ve always said it's about 0.5% to 1.25%. We do see it I think last year it was 6.6% to 0.8%. We still see a little bit of headwind going into 2015?

[Jon Howie:]

We also got hit here in the first quarter as Steve was talking about, so we’ve in two weeks we got hit pretty hard.

[Nick Setyan:]

Got it, got it, okay and was it possible for you guys to may be just tell us what the non-comp margin is at this point in Q4?

[Jon Howie:]

You know what, I don't have that broken out with me right now Nick, but it would be -- the non-comp would probably be in mid to high single digits.

[Nick Setyan:]

Okay, thanks guys.

[Jon Howie:]

Thank you.

[Operator:]

Next we’ve Robert Derrington with Wunderlich Securities.

[Robert Derrington:]

Yeah, thank you. Couple questions if I may Steve, there has been a lot of buzz around the concern of the slower Texas economy and you obviously have a lot of restaurants down there. Can you give your view of, are you seeing or feeling any impact then on Texas from any energy related issues with the economy there.

[Steve Hislop:]

Robert, again this is kind of back like in 2008 when we started our growth and there was a big recession at that particular time and that’s when we actually started our growth and started doing we'll. Again obviously Huston has been layoffs, but I don’t know if those are really my customers Rob. So at the end of the day, we haven’t seen anything until the two last weeks when we had all the weather, particularly the weather, we haven't seen any material slow down in our business or our visit.

[Robert Derrington:]

Got you. Thank you. As far as development Steve goes, in some of the Midwest markets I know many of those are union markets, and I am just curious as you look into some of those territories like Chicago or maybe into DC, St. Louis, Indianapolis etcetera, do you anticipate that the cost of development of new stores will be going up and will be offset by any kind of incremental AUV that you anticipate or how are you thinking about that?

[Steve Hislop:]

It's too early to say if it's incremental AUV, but I won't tell you. In most of the markets that we're going in plan inertia. We don't really run into that a whole bunch, definitely not in DC, but as you get into Chicago, actually there is some -- it's not all that bad there. It's actually more in the Columbus and more in Cincinnati, Ohio a little bit and a little bit in Illinois, but not up in the Chicago area. But right now again how we plan on doing that is really specifically our Tiered menu.

[Robert Derrington:]

Got it and then lastly Jon, did you give us any pre opening or excuse me, guidance for pre-op or for this year.

[Jon Howie:]

For pre-opening?

[Robert Derrington:]

Yes, any kind of…

[Jon Howie:]

Yes, there was the -- its right around, 42 to 47.

[Robert Derrington:]

Okay, terrific. Thank you.

[Jon Howie:]

Thanks Robert.

[Operator:]

[Operator Instructions] And we’ll move next to David Carson with KeyBanc.

[David Carson:]

Hi, guys just a quick follow up, just to confirm did you, do you said, you expect to hold the line in terms of labor as a percentage of sales in ’15?

[Jon Howie:]

We can -- again the first half of the year, we're going to be probably higher than the last or the first half of last year and then will be better than the back half, so we will be flat, but hopefully positive in labor this year.

[David Carson:]

As a percentage of sales, okay and then can you just real quickly, help us out on some of the timings throughout the quarters of the 10 to 11 openings.

[Jon Howie:]

Sure, they're fairly even opened. We’re going to -- by the end of the first quarter, we'll have three opened. We’ll have three opened in quarter two and then we’ll have three opened in two to three in quarter three and then the last one in the fourth quarter.

[David Carson:]

Thank you, guys.

[Operator:]

Next we have Brian Vaccaro with Raymond James.

[Brian Vaccaro:]

Hi good evening guys and thanks for taking my call, just wanted to ask about the -- in 2015 your opening, can you remind us the next new and existing market Steve?

[Steve Hislop:]

Yeah, at the end of the day, it's kind of what our plan was in 2014 is to make sure 80% of the stores that we’ve opened are in existing markets and you'll see that again this year. Probably the new market would be getting up in Columbus, Ohio which is actually North of our Cincinnati market, but everything else will be in our back flow and back in -- back on in all our stores.

[Brian Vaccaro:]

Okay, thank you. And then one another one, as you think about entering some of these larger metro markets more dense retail area etcetera, will you also be elevating kind of the quality of the sites as well, may be waiting for a second, third, fourth location in that market may be through the Hermit Crab as some time call it and maybe going for kind of more Maine on Maine real estate in the beginning and how you’re thinking about the cost if that is the cast. Thank you.

[Steve Hislop:]

Yeah and the answer is yes. Obviously, what was learned and I think I mentioned this at the ICR and so forth. We've learned as we moved out that yes, we got to be Maine and Maine, but doesn’t necessarily need to be a new proto type. It needs to be on and on, Maine and Maine and be able to do that, you have to have good ingress, egress. You have to have great signage. You have to have plenty of parking on site not garage parking and so forth. So we've learned all that. But yes, we will be going into -- our Bill Board site would be first one as we enter the market and that will continue to go out and what we want to do when we also go into these major markets, is going there rather quick to have a real good plan that you end up doing through two possibly three first year and then be able to follow that up with two to three the following year and two to three following year after that. So really knowing the market very, very well and the awareness. As far as the cost doing that is exactly what I said earlier whether it be unions or non unions, it’s the tiered menus that would help us as we enter those markets to have a controllable income being consistent.

[Brian Vaccaro:]

Okay, that’s helpful. Thank you.

[Steve Hislop:]

Thank you.

[Operator:]

That does conclude our question-and-answer session. At this time I’ll turn it back over to the management for final closing remarks.

[Steve Hislop:]

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

[Operator:]

And everyone, that does conclude our conference call for today. We do thank you all for your participation.