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Bear of the Day: Chuy's (CHUY)

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Chuy's Holdings, Inc. (CHUY - Free Report) is struggling in the challenging restaurant industry. This Zacks Rank #5 (Strong Sell) is expected to see an earnings decline this year.

Chuy's is a Texas-based Tex-Mex restaurant chain. It operates 86 full-service restaurants across 19 states where each location offers a unique "unchained" look and feel.

Comparable Restaurant Sales Drop in the Second Quarter

On Aug 3, Chuy's reported its second quarter results and met the Zacks Consensus Estimate of $0.31. It was the second quarter in a row it had met the estimate.

Revenue rose 7.5% to $94.5 million compared to the year ago period.

However, comparable sales fell 1% in the second quarter driven by a 2.4% decrease in the average weekly customers offset by a 1.4% increase in average check. The comparable restaurant base was 64 restaurants. The quarter was also negatively impacted by 30 basis points due to Easter falling in the second quarter of 2017 compared to the first quarter of 2016.

In response to the weak market conditions, Chuy's has lowered its development target to 12 new restaurants, which was the low end of its range of 12 to 14, for the year. It is also reviewing the 2018 pipeline and intends to be conservative heading into the new year.

For now, Chuy's expects to open 8 to 12 new restaurants in 2018.

Lowered Full Year Guidance

Full year earnings guidance was lowered to the range of $1.04 to $1.08 from $1.11 to $1.15 to reflect the market conditions.

As a result, analysts also cut their estimates, with the Zacks Consensus Estimate falling to $1.04 from $1.09 just 60 days before. This is an earnings decline of 3.7% as the company made $1.08 in 2016.

Comparable restaurant sales growth was also revised down to (1.5%) to 0.5% from 0.5% to 1.5%. Additionally, this was adjusted in August, before the hurricanes hit, so it's possible that further revisions downward are still to come.

Shares Near 2-Year Lows

Shares have taken a beating, falling to 2 year lows in 2017.



They're also down 34.8% year-to-date.

But that doesn't make Chuy's a cheap stock. Investors were really betting on the growth story because even with the shares in decline, they are still trading with a forward P/E of 19.5.

If you must buy a restaurant stock right now, you might consider Domino's (DPZ - Free Report) . It has the highest comparables in the industry and is a Zacks Rank #2 (Buy) stock.

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