Chuy’s revises development strategyChuy’s revises development strategy

Chuy’s Holdings Inc. is revising its development strategy this year to focus on more heavily populated markets, executives said Monday.

Austin, Texas-based Chuy’s, which has 61 casual-dining Mexican restaurants, added 11 restaurants last year, and plans to open 10 to 11 new units this year, Steve Hislop, Chuy’s president and CEO, told analysts Monday in a call discussing fourth-quarter earnings.

“Beginning in 2015, we will focus on getting to larger, denser markets more quickly as we grow our restaurant base,” Hislop said, rather than expanding in existing markets.

“While we have in recent years grown our restaurants in a sequential manner from our existing hubs,” he said, “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.”

Hislop said the company has added a new director of real estate and a second master broker to ferret out new sites in larger markets. The company plans to emulate an approach it took by jumping development in 2014 to the highly populated Washington, D.C., area, Hislop added, which he said has produced good results for the brand.

“In the coming years, we will also look to larger markets like Chicago and Miami, similar to the D.C. area," he said, adding that the population density and larger customer base usually indicate a propensity for Mexican food.

Chuy’s plans to open in Chicago in 2016, and Hislop mentioned Columbus, Ohio, as another target, as it is near the existing market of Cincinnati.

Developing bigger markets first will also give the company better leverage in landing quality real estate, Hislop said, as will the brand’s flexible footprint.

“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," he said, adding that the brand does well in ground-floor spaces in office and residential buildings.

While real estate is more expensive in Northern markets than the Southern states where the company has most of its restaurants, Hislop said Chuy’s so-called “hermit crab” approach of remodeling and fitting into existing structures gives the brand flexibility.

“We obviously have a couple of different prototypes that we do, ranging 6,500 to 7,500 square feet,” he said.

Jon Howie, Chuy’s chief financial officer, said during the call that the concept has increased prices, but plans to implement future hikes judiciously. Price increases would range between 2.5 percent and 3 percent for the year, he said, adding that commodity pressures this year are expected to ease.

For the fourth quarter ended Dec. 28, Chuy’s reported that net income slipped 5.9 percent, to $2.3 million, or 14 cents a share, from $2.5 million, or 15 cents per share, a year ago. Revenue rose 21.7 percent, to $61.8 million, from $50.8 million the prior year. Fourth-quarter same-store sales increased 3.8 percent.

Chuy’s has restaurants in 14 states.

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