Chuy’s Holdings: Restaurant IPO's Pricing Favors Investors

Based in Austin, TX, Chuy’s Holdings (CHUY) scheduled a $70 million IPO with a market capitalization of $180 million at a price range mid-point of $12, for Tuesday July 24, 2012.

CHUY is growing, full-service Mexican and Tex Mex chain of 32 restaurants based in Texas.

July 11, 2012 [S-1]

CONCLUSION
Recent IPOs have been priced to favor investors, perhaps as a backlash from the Facebook (FB) disaster. IPOdesktop recommends buying CHUY on the IPO.

UNDERWRITERS
Manager / Joint Managers: Jefferies; Baird
Co Managers: KeyBanc Capital Markets; Raymond James; Stephens

SUMMARY
CHUY is growing, full-service Mexican and Tex Mex chain of 32 restaurants based in Texas. From January 1, 2012 to the end of 2016, CHUY expects to open a total of 50 to 55 new restaurants.

IPO proceeds are allocated to repay debt and made a distribution to preferred stockholders. No IPO money is allocated for internal growth.

COMPARISON
Based on valuation metrics & annualizing March 2012 quarter results, CHUY at 25 time earnings and 1.22 times sales, compared with Texas Roadhouse (17 times earnings and one times sales) on the low side and BJ’s Restaurants (34 times earnings and 1.74 times sales) on the high side.

BUSINESS
As of March 25, 2012, CHY operated 32 Mexican and Tex Mex Chuy’s restaurants across Texas, Tennessee, Kentucky, Alabama, Indiana, Georgia and Oklahoma.

CHUY’s restaurants have a common décor, but CHUY’s believes each location is unique in format, offering an “unchained” look and feel, as expressed by CHUY’s motto “If you’ve seen one Chuy’s, you’ve seen one Chuy’s!”

CHUY’s believes its restaurants have an upbeat, funky, eclectic, somewhat irreverent atmosphere while still maintaining a family-friendly environment.

GROWTH
CHUY established a presence in Texas, the Southeast and the Midwest, with restaurants in multiple large markets in these regions. CHUY’s growth plan over the next five years focuses on developing additional locations in existing core markets, new core markets and in smaller markets surrounding each of those core markets

CHUY has opened five restaurants year-to-date in 2012, including the first restaurants in Oklahoma and Florida. CHUY plans to open an additional two to three restaurants by the end of the year. From January 1, 2012 to the end of 2016 CHUY expects to open a total of 50 to 55 new restaurants.

VENTURE CAPITAL
Pre-IPO Goode Partners LLC owns 98% of CHUY.

Goode Partners LLC acquired CHUY’s in 2006

COMPETITION
Main competitors include Texas Roadhouse, Cheddar’s Casual Cafe and BJ’s Restaurants.

CHUY also compete with other providers of Tex Mex and Mexican fare and adjacent segments, including casual and fast casual segments.

SEASONALITY
Restaurant sales are typically higher during the spring and summer months as well as in December.

EMPLOYEES
As of March 25, 2012, CHUY had 3,954 employees, including 38 corporate management and staff personnel, 276 restaurant level managers and 3,640 hourly employees. None of the employees are unionized or covered by a collective bargaining agreement.

USE OF PROCEEDS
CHUY expects to net $64 million from its IPO with proceeds allocated as follows:

$20.8 million to repay all outstanding loans and accrued and unpaid interest, servicing fees, commitment fees and letter of credit fees under our credit facility with Wells Fargo Capital Finance, Inc.;

$10.1 million to repay the outstanding principal, interest and expenses under our credit facility with HBK Investments L.P.;

$1.6 million to pay the expenses of lenders; and $20.0 million to pay a dividend of $19.0 million to stockholders and other special cash bonus payments to certain members of management.