Chuy's Holdings, Inc.

Good day, everyone, and welcome to the Chewy's Holdings, Inc. First Quarter 2022 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 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's Holdings. At this time, I would 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 first quarter 2022 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 that 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, I would like to turn the call over to Steve.

Thank you, John. Good afternoon, everyone, and thank you for joining us on our first quarter earnings call today. Overall, we were pleased with our results for the first quarter of 2022. While we faced external challenges in the form of Omicron variant of COVID and severe winter weather, we're pleased with the sales rebound we saw toward the end of the quarter, which has extended into the second quarter to date. This rebound includes positive comparable sales in March and April compared to both last year and 2019. Despite these challenges, as well as the ongoing inflationary environment, Our continued focus on cost management and operating efficiencies resulted in store-level margin improvement of 360 basis points compared to 2019. This is in line with our stated expectation of 300 to 350 basis point margin improvements in 2022 compared to 2019. While we are pleased with the improvement in our store-level margins from pre-pandemic levels, inflation continues to be a pressure point, which John will talk about in more detail. As many of you know, we pride ourselves in providing fresh, made-from-scratch food and drinks at an incredible value to our customers, which we believe exceeds most of our peers. As a result, we have historically been very strategic with our price increases. In fact, we've only taken an average between two and two-and-a-half of price increases in the last 10 years, which we believe has armed us with a substantial pricing power as we navigate the current inflationary environment. For us to maintain the balance between retaining our restaurant-level margin improvement and maintaining a strong value proposition for our guests, we plan on taking another price increase of about 3% to 3.5% during the third quarter, which we believe will still be below most of our peers. Turning to restaurant operations, our team continues to be fully engaged in executing against our key pillars of safety, convenience, and value. provide our guests with the unique Chewy's experience they have come to expect. However, our work is far from done. As we navigate the current inflationary environment, we will remain focused on certain key aspects of our business, including staffing, menu development, off-premise, and our marketing efforts. As I said in the past, our people are our most valuable asset, and that's one of the reasons why we put such a high emphasis in our staffing efforts to hire and retain the best hourly team members and managers. To that end, we believe the initiatives we've put in place from paying our retention bonuses for our managers to providing referral bonuses to our team members for bringing new people in they would enjoy working with, we have continued to have us maintain our staffing levels despite the current tough labor environment. In terms of off-premise, we pleased with our 28% mix during the first quarter. On a dollar basis, our off-premise sales have remained consistent since we reopened our dining rooms in 2020. We believe we can maintain a low to mid-20% off-premise mix in 2022 and beyond. Another aspect of our off-premise is catering. As we mentioned on our last call, we are resuming our catering expansion to new markets and are on track to have catering available system-wide by the end of the year. We are also ramping up our marketing initiatives during the quarter, with a heavy emphasis on digital media to not only introduce and highlight new menu items, but also to utilize it as a recruiting tool. Our digital efforts will include the use of TikTok, organic influencer programs on Instagram, YouTube video advertising, and promotional advertising partnerships with DoorDash. We are also excited to launch our new website later this year, which is designed to reach a broader audience group and allow us to better connect with both new and returning guests. Finally, we now plan to open between four to six new restaurants in 2022. a decrease from previous guidance of five to eight restaurants driven by the supply chain disruptions and construction labor shortages. As a reminder, the majority of our development is in the back half of the year, and because of these disruptions, we believe some of these restaurants may move into 2023. With that, I will now turn the call over to our CFO, John Howey, to discuss our first quarter results in greater detail.