Chuy's Holdings, Inc.

Thank you, operator, and good afternoon. By now, everyone should have access to our third quarter 2012 earnings release that can also be found at www.chuys.com in the Investor Relations section.

Before we begin our review of 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 more detailed discussion of the risks that could impact our future operating results and financial conditions.

We also plan on filing our 10-Q for the third quarter of 2012 on November 7, 2012 and would

encourage you to review that document at your earliest convenience. Also, during today's call, we will discuss non-GAAP 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.

Thank you, Jon, and thank you all for joining us today on the call. We are very pleased with the results of our third quarter.

Overall, our revenues increased 28% led by new store openings and a 1.5% increase in the same-store sales. While net income decreased for the quarter, primarily as a result of a $1.6 million write-off of deferred financing fees, our restaurant-level EBITDA increased 29%.

And our pro forma net income increased approximately 23% to $2.2 million or $0.13 a share. Our results continue to reflect the pride our employees take each and everyday and are providing our guests with a unique dining experience.

Whether it's a hand-rolled tortilla or 1 of our 12 homemade sauces made daily or a hand-squeezed lime juice for our signature margarita, our commitment to made-from-scratch, freshly prepared cooking, while at the same time creating great value for our guests in a fun, energetic environment is instrumental in driving our business momentum. On the development front, we opened 3 restaurants in the third quarter: Gainesville, Florida; Knoxville, Tennessee and Lubbock, Texas; bringing the total number of new restaurants opened year-to-date to 7.

We are on schedule to open our eighth and final restaurant for 2012 in Florence, Kentucky in November.

We continue to be pleased with the performance of our newer units as they continue to hit our expectations. Our operators, development teams, training teams and marketing teams do a fantastic job of instilling the Chuy's culture in our new units and I'm pleased to say that the original vision of our founders of Chuy's is as apparent in restaurant #38, as it is in our original unit in Austin, Texas.

As we look ahead, our EPS growth will be largely driven by new unit growth over the next 5 years. We continue to believe the broad appeal of Chuy's concept, our historical unit economics and flexible real estate strategy with a focus on conversions of existing restaurants, but also with the selective use of our prototype building for ground-up construction, present us with a large runway of opportunity for continued expansion.

For 2013, we expect to open 8 to 9 new Chuy's restaurants. I would like to now turn the call over to our CFO, Jon Howie, to review the results of our third quarter.

Jon?

Thank you. Our third quarter ended September 23, 2012.

Revenue increased 28% to $44.9 million, from $35.1 million in the same period last year. The increase was driven primarily by $9.4 million in incremental revenue provided by an additional 115 operating weeks from the 11 new restaurants opened during and subsequent to the third quarter of 2011.

There were 476 operating weeks during the third quarter of 2012, an increase of 31.9%, compared to 361 operating weeks in last year's third quarter. Also contributing to our revenue growth during the third quarter was a 1.5% increase in comparable restaurant sales, which included a 1.3% increase in average check and a 0.2% increase in traffic.

Effective pricing during the quarter was approximately 1.5%. There were 23 restaurants included in the comparable store base during the third quarter of 2012, which included 2 new restaurants that were added to the comparable store base at the beginning of the quarter.

The comparable store base in the third quarter of 2011 had 17 restaurants. We consider a restaurant to be comparable in the first full quarter following its 18th month of operations.

I would like to remind everyone that many of our restaurants open up at volumes greater than their eventual base run rate. In the case of our strongest openings, this honeymoon period may last longer than the 18 months we allow before a restaurant enters the comparable store base.

Given the small number of restaurants currently in our comparable store base, the timing and strength of our new unit openings may create a headwind in comparable restaurant sales percentage in some quarters in the near term.

Looking at expenses by line item, cost of sales as a percent of revenue declined approximately 70 basis points in the third quarter to 27.1%. The improvement reflects decreases in produce and dairy costs, partially offset by increases in grocery and chicken costs.

For the fourth quarter, we expect the cost of sales to be in the range of 27.7% to 27.9% as a result of sequential cost increases in the cost of dairy and groceries, specifically oil, corn and corn tortilla mix.

Labor costs, as a percentage of revenues, increased approximately 80 basis points to 32.5%, compared to 31.7% in last year's third quarter. This increase was largely attributable to a greater proportion of non-comparable restaurants and our overall store base, which typically run increased training and staffing level at these stores, as these stores have not yet reached maturity.

The increase was partially offset by improved labor productivity in our comparable restaurant store base. Restaurant operating costs improved approximately 50 basis points during the third quarter to 14.4% of revenues.

The improvement was largely due to lower liquor taxes as a result of opening more locations outside of Texas, which charges the higher liquor tax than other jurisdiction, as well as lower credit card fees, partially offset by increases in workers comp insurance, also as a result of opening more units outside of Texas.

Occupancy cost as a percent of revenues increased approximately 20 basis points to 6.1%, primarily attributable to increased ramp for additional parking at certain of our high-volume locations, as well as higher rent expense as a percentage of sales for certain non-comparable restaurants. General and administrative expenses increased approximately $900,000 to $2.5 million in the third quarter of 2012, from $1.6 million in 2011.

The increase was largely driven by an increase in staffing as we continue to strengthen our infrastructure for growth, as well as incremental costs associated with operating as a public company.

Restaurant preopening costs were generally flat at approximately $900,000 during the quarter. On a GAAP basis, interest expense increased to $2.3 million from $1.2 million in 2011.

On a pro forma basis, interest expense totaled approximately $107,000 in the third quarter of 2012 and 2011, respectively. The total outstanding debt under our credit facility at the end of the third quarter was approximately $5 million.

Our GAAP financial results reflect our capital structure prior to our IPO.

GAAP net income in the third quarter was approximately $790,000 compared to $1.2 million in 2011. Net income for the third quarter of 2012 included a $1.6 million write-off of deferred loan origination costs associated with the pay down of debt from the IPO proceeds or $1.1 million net of tax.

Net income available to common stockholders in the third quarter of 2012 was approximately $533,000 or $0.05 per diluted share, compared to $17,000 or $0.8 per diluted share for 2011. Weighted average diluted shares outstanding were $14,033,234 for the third quarter of 2012 and $10,879,773 for 2011.

Please also note that the historical weighted average shares outstanding do not reflect the full impact of our IPO transaction, the conversion of our preferred stock or our stock prepurchase during the second quarter of 2012.

Attached to our press release is a reconciliation of our GAAP results to our pro forma financial results. In connection with our recent IPO, we simplified our capital structure by converting all preferred stock to common stock and reducing our long-term debt.

Our pro forma results included adjustments to reflect our post-IPO capital structure, including our basic and diluted share count as if the IPO conversion of preferred stock and stock repurchase occurred at the beginning of fiscal 2011, as well as other nonrecurring or one-time adjustments.

We believe that our pro forma results provide a useful view of our business given our new capital and post-IPO cost structure. Pro forma net income for the third quarter of 2012 increased 22.9% to $2.2 million, or $0.13 per diluted share from $1.8 million or $0.11 per diluted share in 2011.

Note that we have used a diluted weighted average share count of approximately 16.6 million shares for the third quarter of 2012 and 16.5 million shares for 2011 for our pro forma earnings per share calculations, which reflect our estimated post-IPO share count. With respect to our 2012 outlook, we are providing the following update to annual guidance.

We remind you that 2012 is a 53-week year and our guidance includes an extra week, which will occur in our fourth quarter.

For 2012, our revenue expectations include a comparable store sales increase for the fourth quarter ranging from 1% to 1.5%. Our comparable sales expectations are on an apples-to-apples basis and exclude this year's 53rd week.

Our development plan for 2012 calls for 8 new Chuy's restaurants, of which 7 have opened to date. We are scheduled to open our eighth and final restaurant for the year, Florence, Kentucky in November.

G&A expenses on a pro forma basis, which include public company costs and stock-based compensation, are expected to be approximately $9.5 million for the year. Preopening expenses are expected to be approximately $3.6 million for the year, and our capital expenditures net of tenant improvement allowances are projected to be approximately $20 million.

Our effective tax rate for the full year is expected to be between 29% and 31%. Our updated guidance for pro forma diluted EPS is to range between $0.55 to $0.57 per share on a diluted share basis of between $16.6 million and $16.7 million.

Included in our EPS expectations is a positive $0.02 to $0.03 per diluted share impact from the extra week in the fourth quarter, as previously mentioned. And now, I'll turn the call back over to Steve to wrap up.

Well, thank you, Jon. We continue to be excited about the opportunities we have to grow the Chuy's brand and bring our distinct menu of authentic, freshly prepared Mexican and Tex-Mex-inspired food to a wider audience, while enhancing long-term value for our shareholders.

Before we go to question-and-answer portions of the call, I would like to take a moment to thank all of our Chuy's employees. Our successful results are a testament to their hard work and dedication to earn the dollar every single day.

And with that said, we thank you for your interest in our company. We'll be happy to answer any questions you might have.

First, a quick clarification question on the comp trends during the quarter. Could you maybe give us a sense for how much the new stores entering the comp base hurt the comp, if you have that breakout please?

Sure. If you were to look at the original 18 stores that started in the comp base at the beginning of the year, it would have been 2.4% versus the 1.5%.

And the traffic would have been 0.8%, and the price would be 1.6%.

Great, that's very helpful. And then, Jon, we've heard a lot of casual dining companies talking about some softness throughout Q3, and especially as we've moved into Q4.

Is there any sense that you could give us on the pace of the comps trajectory throughout the quarter in Q3 and, to whatever extent you're comfortable with, talk about the early trends here in Q4?

Yes. Again, we were pleased with our traffic of a 0.8% on the comparable original ones from the beginning of the year.

And we see that trend continuing honestly through the first and the beginning of quarter 4. So we're very pleased with the movement, and we're pretty consistent with where we're going.

Great. And last question, Steve, maybe a bigger picture question about the development outlook, could you give us some thoughts on what the pipeline looks like right now for 2013 and 2014, and if you're seeing any changes in the real estate environment, either positive or negative and your ability to find great sites?

Well, no. It's always hard to go find great sites, but we have been able to do that through the hard work of Michael Hatcher, who's our VP of Development.

But we're doing very well. I'm excited about where we're at.

We have all our sites for 2013, all our hard LOIs. And we probably -- I think we have 6 to 7 of them that are already signed leases.

But we're very, very comfortable in our projections moving forward for 2013. And we're really, really spending a lot of our time actually on 2014 now.

So that's looking good. We have a big meeting coming up in November that's going to really talk about our 2014 year.

So we're pretty strong. We'd like to do about -- 40% of them would be in what we'd consider our heritage markets, would be Texas and Oklahoma, and the rest will be built in the Southeast.

So we're very excited about our progress with Mike Hatcher and the development team.

Steve, you've had -- clearly, you've had some success opening stores around colleges. Do you expect to backfill those markets like in Knoxville?

And do you expect to backfill those markets in the suburbs? And how many stores planned for next year will be located around colleges?

Well, Chris, well, I don't, on purpose, go to them because at the end of the day, if you look at our demographic, we shade a little bit younger than casual dining by a couple of years, and we actually shade a little bit with more than casual dining and probably schooling and some degree. So we just happened to be going there, and a lot of the markets that we're looking at are there.

We've opened the one store in Knoxville, Tennessee. We're working hard to see if we could ever get a second one there.

I'm not sure we can with our volumes though. But that's not a criteria on how we look.

We're just looking for the people, and certain ones of our demographic profiles, obviously, is how we're looking at it. But it does seem that there's a lot of great schools in the Southeast, obviously in Texas, that we like to own by because there are bigger schools.

And more importantly, it's a demographic area that has enough people in it. That's just by coincidence.

We don't really run out towards them. Having said that, though, you have little spots like College Station in Waco, where you have Texas A&M and Baylor, we do well.

But more importantly, it's because of the size of the market and the age groups.

Okay, okay. And, Jon, are new stores averaging labor costs at the same level as new stores that opened last year.

So meaning, that is the -- or is the increase really just driven by a greater mix of non-comparable stores entering the consolidated zone.

It's actually a greater mix because if you were to look at the new stores compared to the new stores last year, the labor has actually come down a little bit. And so, it's a little oddity that labor's gone up when you have the new labor going down and the new stores, as well as the comp stores.

So we're -- that's an initiative we're working on to continue to ramp down the new stores, and we're being successful in that. But the composition of the labor mix, if you will, is what's causing that to be up this year.

Okay. And then the last question, just related to marketing.

Have you guys started using social media at all with openings?

Chris, we do. We do it, and I need to be honest with you, we're just crawling though.

It's a really kind of a big initiative from my small little company starting next year. But as we're doing new store openings, we do start-up in every market that we go to, a Facebook page.

And honestly, it's actually developed by a lot of Texas exes that are actually in the markets that we're going to, so it's still very organic. But yes, we're using the Facebook just to get our defining differences out to the market.

Also, to setup of what we call our first Red Fish Rally, where we actually invite them to come before we actually start -- when we start punching in and banging in some nails. But we're using that for an awareness issue, but you're going to see that through 2013 and beyond become a much bigger issue with us as we use that medium.

And also, we will develop some e-mail and some possibly, loyalty programs that will come down the road because of what we do there. But we're just walking into that right now.

It's going to be more of a branding initiative for 2013.

Have you guys -- are you all putting that formalized program in place internally? Or you'd be contracted with someone outside to help you with that?

Well, right now, we'll probably do a little bit outside and we'll -- for the first year I see us really controlling that internally, so we can learn as much as we can by doing it hands-on.

I wonder if you could talk a little more about the new unit openings. You mentioned those are performing as expected.

I just wondered if you had any more color on some of the more recent stores that you opened and then the acceptance in some of these somewhat newer markets?

Again, we're pleased. As we go into new markets -- Will, as we go into new markets -- Will, I'm sorry, we expect our new stores to be, like we said, our expectation was always four in a quarter and grow, and that's what we're seeing in all the markets we're going to.

We've mentioned in the quarter that we opened in Lubbock. We're very pleased with that.

That has beaten the expectation. Knoxville was a little surprising for me to be straight up and honest with you.

We kind of exceeded that. So -- and overall, we're really, really excited of the acceptance in not only our heritage markets, but as we move out and are still trying to develop more heritage markets like Nashville, Tennessee now.

But we're pleased with all our openings outside of our existing Texas market.

Great. And then just a broader question, if I could.

Just given the inherent value you guys have on your menu, curious if you've been experiencing business as usual, as most of your peers have been seeing some notable softness here over past month or 2? Or if you've noticed customers migrating to maybe lower price items, et cetera?

No, no. What I mean by no is first of all, we haven't seen anything.

We've seen a nice consistent run from the second to the third quarter and it's continuing into the fourth quarter. And again, if you look at our menu with only 3 items over $10, we're very compressed in our menu.

So there's really not a lot of buying down in our menu or getting away from drinks. No, we're seeing value and we're seeing pretty much the same type of product mix as we move forward.

So again, I like our momentum. I think it's consistent.

It's predictable. And that's what we've been able to see throughout the whole year.

That's great. And lastly for me, wondering if you could comment on inflation and pricing expectations, as we look into 4Q and then 2013?

Well, as you well know, and what we've said previously, is we target a 1.5% price increase, and that's what we've been averaging over the last several years, and that's what we intend to take this year, unless things progress otherwise. But that's our intention.

As far as inflation, we're seeing -- continue to see some inflation in the fourth quarter, and it's still early, too early to see any kind of transparency into 2013. But we were, I guess, projecting inflation in commodities in the 4% to 6%.

We're seeing that a little lower from what we're seeing from our suppliers. We're probably seeing it more in the 2% to 4% range right now, if we were to get that today.

And again, remember, Will, one thing that we really talked about a lot was how linear our food baskets are compared to categories. And because of that, we feel comfortable with that 1.5% price increase on an annual basis.

Just a couple of sort of updates, if you have at the tip of your tongue, from an ops perspective. Kind of number of managers in training, and then some of the technology sort of back office systems, roll out, just if you can give us an update on those important areas?

Sure, we're sitting around 40 people in the pipeline, which is really good for us because that means we run our stores with about 6 to 7 managers. So we're out and we really, really want, and our concept for that timing grade to really understand where all the bones are buried, meaning that you really understand the culture and what really made this concept successful with Mike and Jon, who are our original founders, started in 1982.

So it's very, very important for us. And I think that's such a strong and a great question to realize that this concept is as good as its people and who we can attract.

So that's cool. Thanks for the question on that, but we're really excited to keep that with the time and grade.

We're not having any issues out there finding managers to join us.

We do take some time and teach them to do it are way, which means have the binoculars on the right way, which means, it's very top line driven on what we do.

The second question is through this year, we have instituted our back office system. I'm really excited about where it's at.

We've dealt with the back office, and also all the labor we've put in there that's probably fully functional as of the beginning of the fourth quarter. So we're very excited what we did.

That project took us 1 year to get in, with quite a busy year of not only doing that, but also going public also. So I really commend my staff here, specifically Sharon and Susan, who works with us here in the home office, that really, really worked hard in getting that through.

And we should start seeing the usefulness and the benefits of really saving time, not so much saving money per se initially, but saving our time and getting our managers to be where they're supposed to be, which is out of an office and working with their people that are Chuy's to our guests.

Then just one final, if you've got it off the top of your head, on the real estate for next year, how many do you think are hermit crabs versus sort of ground-up type of sites?

I don't say right now, I'd like to give you a better number on this. I'd like to see it, but what I'm seeing is right now, it's close to 50/50 prototypes -- I mean, or 60/40 more prototypes.

Again, as we go to our markets, what we want to do in specifically our new markets, is get an A site and an A area. So site is always going to win.

And so it's important for us to get the, what we'd call a billboard site, specifically in our new markets. So site always wins and if that's a piece of land, that's what we go with.

So I'd say, for this upcoming year, it's going to probably be between a 50/50, 60/40 prototype to conversion. And again, Andy, I just want to also mention that if you look at the economics of those, because of the TI we've been able to get on prototypes, your cash-on-cash return is pretty much the same.

Well, again, I want to thank everybody. Thank you for joining us.

Jon and I appreciate your interest in Chuy's. We will always be available to answer any questions.

So with that, thanks again, and have a good evening.