Austin-based Chuy’s adapts as it weathers virus storm

Like many restaurants that have reopened amid the pandemic, Chuy’s on Barton Springs Road looks different than it did five months ago.

Inside, tables are spaced and separated with plastic dividers separating booths. A portion of the parking lot behind the restaurant has been converted to outdoor seating.

Curbside and delivery services have been fine-tuned and a steady stream of customers arrives to pick up to-go orders, parking in spots reserved for curbside.

When the coronavirus began forcing restaurant closures in March, Chuy’s pivoted its operations as revenue plunged.

The Austin-based Tex-Mex chain furloughed 80% of its hourly workers, about 40% of store management and 40% of corporate and administrative staff, and made temporary salary cuts for those remaining, according to the company.

Chuy’s streamlined its menus, added family meal kits and beverage options, and enhanced its contact-free curbside services. It teamed with national partner DoorDash for delivery. Now, combined with the reopening of most of its dining rooms, sales are rebounding, the company says.

Average weekly sales per restaurant rose from $38,800 in April with no indoor dining to $70,500 in June with 92 dining rooms open, the company said in its second quarter earnings report released earlier this month.

Curbside and delivery sales remain more than double what they were pre-coronavirus and accounted for 35% to 40% of all revenue in June and July, the company said.

Thanks to that performance, Chuy’s executives said that by the end of June the company had rehired a majority of its furloughed employees and restored salaries.

“Our entire team has done an exceptional job during the second quarter as they successfully transformed our business, and subsequently reopened our dining rooms,” Steve Hislop, Chuy’s CEO, said during Chuy’s second quarter earnings call.

Hislop told analysts that despite the challenges, Chuy’s is well positioned to move forward.

“Our business operations are more efficient and our balance sheet is strong,” Hislop said. “While there continues to be a level of uncertainty surrounding COVID-19 in the near future, we believe our team is very resilient and will remain nimble to adapt to any challenges in the market condition.”

One of the challenges facing Chuy’s is that in most states restaurant capacity is limited to 50%, Hislop said.

“When we are at 50% capacity, I don't know that we can really do inside much more than that, maybe 50% or 60% because of the six-foot distancing,” he said. “There are a few things that we can do with the place — the glass on booths, and things like that. However, we don't have that many booths. So that doesn't help expand our dining room that much either.”

That’s why Chuy’s is focusing on adding extra seating outside and promoting its to-go offerings, he said.

“At six-foot distancing we can really expand our patio and get a little extra (seating),” he said. “In the past, our patio business was 7.9% of sales. Right now it’s 10% to 13% of sales, so that has increased substantially. So, there are things — and the biggest thing is just really promoting and driving the heck out of to-go — we're seeing some good profitability in to-go.”

In June, Chuy’s generated higher free cash flow year-over-year with lower sales, Hislop said.

“While we expect that our restaurant operating costs will increase when the dining room capacity restrictions are further loosened, we are confident that we can build upon our recent operational efficiency to positively impact our business over the long run,” he said.

Founded in 1982 by Mike Young and John Zapp with the restaurant on Barton Springs Road, Chuy’s now has more than 100 restaurants in 19 states.