Chuy's Holdings, Inc.

Good day, everyone, and welcome to the Chewy's Holding Third Quarter 2021 Earnings Conference Call. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode, and the lines will be open for your questions following the presentation. On today's call, we have Steve Hislop, President and Chief Executive Officer, and John Howey, Vice President and Chief Financial Officer of Chewy Holdings Incorporated. And now at this time, I'd like to turn the conference over to Mr. Howey. Please go ahead, sir.

Thank you, Operator, and good afternoon. By now, everyone should have access to our third quarter of 2021 earnings release. If not, it can be found on our website at www.chewies.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 a guarantee 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 condition. With that out of the way, I'd like to turn the call over to Steve.

Thank you, John. Good afternoon, everyone, and thank you for joining us on our third quarter earnings call today. I hope everyone is staying safe and healthy. We are pleased to report a solid top-line growth of over 24% during the third quarter, despite the emergence of the COVID-19 Delta variant in our core markets. Moreover, our continued focus on cost management and operating efficiencies allowed us to grow our restaurant-level operating margin to over 23%, an increase of approximately 180 basis points compared to last year, and 880 basis points compared to 2019 despite industry-wide staffing challenges and inflationary pressures. As I noted, our third quarter performance was negatively impacted by two major macro challenges. During the quarter, our business was negatively impacted by the emergence of the Delta variant, particularly in August, including stricter locally mandated capacity restrictions in many markets in which we operate. This temporarily halted the sales recovery momentum that we had seen during 2021, with comparable restaurant sales declining to 2.4% compared to 2019. However, we are encouraged that as the cases came down in September and with the restrictions being lifted once again, our sales trend significantly improved late in the quarter and have continued into October. In fact, our October comparable sales increased 0.8 compared to 2019, exceeding the pre-COVID sales volume for the first time since the pandemic began. Our second challenge is Our second challenge is one that has impacted not just our company but the entire restaurant industry, labor availability. While all of our restaurants operated at 100% capacity during the third quarter, we were only able to reach between 80% to 85% staffing levels system-wide. In some cases, we've been forced to limit the number of tables we can make available in order to ensure a quality guest experience. To combat this near-term challenge, we are focusing our efforts in recruiting and training our employees to ensure that our restaurants are properly staffed and stay ahead of the curve. This included our $1.6 million manager retention bonus program paid out in the second and third quarters of 2021. With that, let me quickly summarize the work we've done related to our three key pillars that have been the backbone of our operations throughout the pandemic and continue to resonate well with our guests. Safety is now more important than ever, both for our guests and our team members. While our guests are craving for a high-quality, made-from-scratch food and drink at a tremendous value, they need to be able to do so in a safe and comfortable environment to improve upon the peace of mind we continue to work on minimizing touch points between our team members and guests. During the third quarter, we continue our push for contactless payment by rolling out pay-at-the-table and QR code payment methods to more restaurants. We also expanded our pay-by-text solutions to more stores where they plan to roll out all of these solutions system-wide by the end of the year. Our second pillar is convenience. We believe that allowing our guests to enjoy our unique offerings whenever and wherever they want is equally important given the environment we live in. Our solid 26% off-premise mix during the third quarter and 27% during the second quarter clearly demonstrate this. If you recall, our mix was approximately 12 to 14 percent prior to the pandemic, and given how well our food travels, we believe we can continue to maintain a low to mid-20s off-premise mix going forward. Lastly, our guests continue to appreciate the value we are offering in our menu, and we are excited to bring back some menu items in the first quarter of 2022, including the highly requested Baja Shrimp Taco and some of our more popular combo plates. In terms of development, we successfully opened one new restaurant in Brentwood, Tennessee during the third quarter, which completed our development plan for 2021. In total, we opened four new restaurants during the year, bringing our total restaurant count to 96. As we look ahead, we are planning to open between six to eight new restaurants in 2022. We are excited with the upcoming development pipeline as we plan to utilize a smaller prototype that will further improve operating efficiency and better serve our off-premise guests. With that, I will now turn the call over to our CFO, John Howey, to discuss our third quarter results in greater detail.