CHUY’S HOLDINGS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

Unless otherwise indicated, or the context otherwise requires, references in this report to “Chuy’s”, “our company”, “the company”, “we”, “us” and “our” refer to Chuy’s Holdings, Inc. with its subsidiaries.

The following discussion summarizes the significant factors affecting the
consolidated operating results, financial condition, liquidity and cash flows of
our Company as of and for the periods presented below. The following discussion
and analysis should be read in conjunction with our Annual Report on Form 10-K
for the year ended December 26, 2021 (our "Annual Report") and the unaudited
condensed consolidated financial statements and the accompanying notes thereto
included herein.

Overview

We are a growing full-service restaurant concept offering a distinct menu of
authentic, freshly-prepared Mexican and Tex-Mex inspired food. We were founded
in Austin, Texas in 1982 and, as of March 27, 2022, we operated 96 restaurants
across 17 states.

We are committed to providing value to our customers through offering generous
portions of made-from-scratch, flavorful Mexican and Tex-Mex inspired dishes. We
also offer a full-service bar in all of our restaurants providing our customers
a wide variety of beverage offerings. We believe the Chuy's culture is one of
our most valuable assets, and we are committed to preserving and continually
investing in our culture and our customers' restaurant experience.

Our restaurants have a common décor, but we believe each location is unique in
format, offering an "unchained" look and feel, as expressed by our motto "If
you've seen one Chuy's, you've seen one Chuy's!" We believe our restaurants have
an upbeat, funky, eclectic, somewhat irreverent atmosphere while still
maintaining a family-friendly environment.

Performance indicators

We use the following performance indicators to assess our performance:

•Number of Restaurant Openings. Number of restaurant openings reflects the
number of restaurants opened during a particular fiscal period. For restaurant
openings, we incur pre-opening costs, which are defined below, before the
restaurant opens. Typically, new restaurants open with an initial start-up
period of higher than normalized sales volumes, which decrease to a steady level
approximately six to twelve months after opening. However, operating costs
during this initial six to twelve month period are also higher than normal,
resulting in restaurant operating margins that are generally lower during the
start-up period of operation and increase to a steady level approximately nine
to twelve months after opening.

•Comparable Restaurant Sales. We consider a restaurant to be comparable in the
first full quarter following the 18th month of operations. Changes in comparable
restaurant sales reflect changes in sales for the comparable group of
restaurants over a specified period of time. Changes in comparable sales reflect
changes in customer count trends as well as changes in average check. Our
comparable restaurant base consisted of 92 restaurants at March 27, 2022.

•Comparable Restaurant Sales as compared to 2019. Changes in comparable
restaurant sales reflect changes in sales for the comparable group of
restaurants over a specified period of time as compared to that time in fiscal
year 2019. The comparable group of restaurants include the restaurants that were
in the comparable base as of the end of fiscal year 2019. Our comparable
restaurant base consisted of 81 restaurants at March 27, 2022.

•Average Check. Average check is calculated by dividing revenue by total entrées
sold for a given time period. Average check reflects menu price increases as
well as changes in menu mix. Our management team uses this indicator to analyze
trends in customers' preferences, effectiveness of changes in menu and price
increases as well as per customer expenditures.

•Average Weekly Customers. Average weekly customers is measured by the number of
entrées sold per week. Our management team uses this metric to measure changes
in customer traffic.

•Average Unit Volume. Average unit volume consists of the average sales of our
comparable restaurants over a certain period of time. This measure is calculated
by dividing total comparable restaurant sales within a period of time by the
total number of comparable restaurants within the relevant period. This
indicator assists management in measuring changes in customer traffic, pricing
and development of our brand.

•Operating Margin. Operating margin represents income from operations as a
percentage of our revenue. By monitoring and controlling our operating margins,
we can gauge the overall profitability of our Company.

The following table presents the operating data for the periods indicated:

                                                          Thirteen Weeks 

Finished

                                                   March 27, 2022       March 28, 2021
Total open restaurants (at end of period)                    96            

93

Total comparable restaurants (at end of period)              92            

89

Average unit volumes (in thousands)               $       1,054        $   

950

Change in comparable restaurant sales(1)                   11.4  %         
    (3.2) %
Average check                                     $       17.71        $       17.15

(1) We consider a restaurant to be comparable to the first full quarter following the 18th month of operation. The change in same restaurant sales reflects the changes in the same restaurant group’s sales over a given period.

Our fiscal year

We operate on a 52- or 53-week fiscal year that ends on the last Sunday of the
calendar year. Each quarterly period has 13 weeks, except for a 53-week year
when the fourth quarter has 14 weeks. Our 2022 and 2021 fiscal years each
consists of 52 weeks.

Key financial definitions

Revenue. Revenue consists primarily of food and beverage sales and also includes sales of our t-shirts, sweatshirts and hats. Sales are presented net of discounts associated with each sale. Revenues in any given period are directly impacted by the number of weeks of operation in that period, the number of restaurants we operate and comparable restaurant sales growth.

Cost of sales. Cost of sales consists of food, beverage and merchandise related
costs. The components of cost of sales are variable in nature, change with sales
volume and are subject to increases or decreases based on fluctuations in
commodity costs.

Labor costs. Labor costs include restaurant management salaries, front and back of house hourly wages, restaurant manager bonus expenses, and payroll taxes.

Operating costs. Operating costs consist primarily of restaurant-related
operating expenses, such as supplies, utilities, repairs and maintenance, travel
cost, insurance, employee benefits, credit card fees, recruiting, delivery
service and security. These costs generally increase with sales volume but may
increase or decrease as a percentage of revenue.

Occupancy costs. Occupancy costs include rent charges, both fixed and variable,
as well as common area maintenance costs, property taxes, the amortization of
tenant allowances and the adjustment to straight-line rent. These costs are
generally fixed but a portion may vary with an increase in sales when the lease
contains percentage rent.

General and administrative expenses. General and administrative expenses include
costs associated with corporate and administrative functions that support our
operations, including senior and supervisory management and staff compensation
(including stock-based compensation) and benefits, travel, legal and
professional fees, information systems, corporate office rent and other related
corporate costs.

Marketing. Marketing costs include costs associated with our local restaurant
marketing programs, community service and sponsorship activities, our menus and
other promotional activities.

Restaurant pre-opening costs. Restaurant pre-opening costs consist of costs
incurred before opening a restaurant, including manager salaries, relocation
costs, supplies, recruiting expenses, initial new market public relations costs,
pre-opening activities, employee payroll and related training costs for new
employees. Restaurant pre-opening costs also include rent recorded during the
period between date of possession and the restaurant opening date.

Impairment, closed restaurant and other costs. Impairment costs include
impairment of long-lived assets associated with restaurants where the carrying
amount of the asset is not recoverable and exceeds the fair value of the asset.
Closed restaurant costs consist of any costs associated with the closure of a
restaurant such as lease termination costs, severance benefits, other
miscellaneous closing costs as well as costs to maintain these closed
restaurants through the lease termination date such as occupancy costs,
including rent payments less sublease income, if any, and insurance and utility
costs. Other costs consist of closed restaurant lease termination fees.

Depreciation. Amortization primarily includes amortization of capital assets, including equipment and leasehold improvements.

Interest charges. Interest expense consists primarily of interest on our outstanding debt, fees related to uncommitted credit facilities and the amortization of our debt issuance costs, less interest income, if any.

Operating results

Potential Fluctuations in Quarterly Results and Seasonality

Our quarterly operating results may fluctuate significantly as a result of a
variety of factors, including the timing of new restaurant openings and related
expenses, profitability of new restaurants, weather, increases or decreases in
comparable restaurant sales, general economic conditions, consumer confidence in
the economy, changes in consumer preferences, competitive factors, changes in
food costs, changes in labor costs and changes in gas prices. In the past, we
have experienced significant variability in restaurant pre-opening costs from
quarter to quarter primarily due to the timing of restaurant openings. We
typically incur restaurant pre-opening costs in the five months preceding a new
restaurant opening. In addition, our experience to date has been that labor and
direct operating costs associated with a newly opened restaurant during the
first several months of operation are often materially greater than what will be
expected after that time, both in aggregate dollars and as a percentage of
restaurant sales. Accordingly, the number and timing of new restaurant openings
in any quarter has had, and is expected to continue to have, a significant
impact on quarterly restaurant pre-opening costs, labor and direct operating
costs.

Our business is also subject to fluctuations due to seasonality and adverse
weather. The spring and summer months have traditionally had higher sales volume
than other periods of the year. Timing of holidays, severe winter weather,
hurricanes, thunderstorms and similar conditions may impact restaurant unit
volumes in some of the markets where we operate and may have a greater impact
should they occur during our higher volume months. As a result of these and
other factors, our financial results for any given quarter may not be indicative
of the results that may be achieved for a full fiscal year.

Thirteen weeks over March 27, 2022 Compared to Thirteen Weeks Ended March 28, 2021

The following table presents, for the periods indicated, the condensed consolidated statement of income (in thousands):

                                                                                          Thirteen Weeks Ended
                                                                       % of             March 28,              % of                                     %
                                           March 27, 2022            Revenue               2021              Revenue            $ Change             Change
Revenue                                  $       100,486                100.0  %       $  87,710                100.0  %       $ 12,776                  14.6  %
Costs and expenses:
Cost of sales                                     26,243                 26.1             20,447                 23.3             5,796                  28.3
Labor                                             29,825                 29.7             24,829                 28.3             4,996                  20.1
Operating                                         16,230                 16.2             13,471                 15.4             2,759                  20.5
Occupancy                                          7,652                  7.6              7,239                  8.3               413                   5.7
General and administrative                         6,654                  6.6              6,848                  7.8              (194)                 (2.8)
Marketing                                          1,413                  1.4                977                  1.1               436                  44.6
Restaurant pre-opening                               125                  0.1                677                  0.8              (552)                (81.5)

Impairment, closed restaurant and other
costs                                              1,279                  1.3              2,344                  2.7            (1,065)                (45.4)

Depreciation                                       4,982                  4.9              4,918                  5.5                64                   1.3
Total costs and expenses                          94,403                 93.9             81,750                 93.2            12,653                  15.5
Income from operations                             6,083                  6.1              5,960                  6.8               123                   2.1
Interest expense, net                                 28                  0.1                 23                    -                 5                  21.7
Income before income taxes                         6,055                  6.0              5,937                  6.8               118                   2.0
Income tax expense (benefit)                         537                  0.5               (717)                (0.8)            1,254                (174.9)
Net income                               $         5,518                  5.5  %       $   6,654                  7.6  %       $ (1,136)                (17.1) %


Revenue. Revenue increased $12.8 million, or 14.6%, to $100.5 million for the
thirteen weeks ended March 27, 2022 from $87.7 million for the comparable period
in 2021. The increase was primarily related to growth in customer traffic as the
Company continued to relax indoor dining capacity restrictions throughout its
restaurants, as well as $3.1 million of incremental revenue from an additional
46 operating weeks provided by new restaurants opened during and subsequent to
the first quarter of 2021. For the first quarter of 2022, off-premise sales were
approximately 28% of total revenue compared to approximately 32% in the same
period last year.

Comparable restaurant sales increased 11.4% for the thirteen weeks ended
March 27, 2022 compared to the same period last year primarily driven by a 7.8%
increase in average weekly customers and a 3.6% increase in average check.
Comparable restaurant sales decreased 1.7% as compared to the same period in
fiscal 2019. The comparable restaurant sales as compared to

2019 were negatively impacted by the Omicron variant outbreak during January and
the first half of February of 2022 as well as an approximately 120 basis point
decrease due to the severe winter weather across most of the Central United
States.

Cost of sales. Cost of sales as a percentage of revenue increased to 26.1% in the thirteen weeks ended March 27, 2022 compared to 23.3% in the comparable period in 2021, mainly due to commodity inflation of around 18% with a substantial increase in the prices of beef and chicken as well as fresh produce, cheese and groceries, such as oil and flour.

Labor costs. Labor costs as a percentage of revenue increased to 29.7% during
the thirteen weeks ended March 27, 2022 from 28.3% during the comparable period
in 2021 largely as a result of hourly labor rate inflation of approximately 13%
at comparable restaurants as well as an incremental improvement in our hourly
staffing levels as compared to last year.

Operating costs. Operating costs as a percentage of revenue increased to 16.2%
during the thirteen weeks ended March 27, 2022 from 15.4% during the same period
in 2021 mainly as a result of higher restaurant repair and maintenance costs,
increase in delivery service charges, cost pressures on to-go supplies and
utility costs as well as higher credit card fees due to an increase in dine-in
transactions that have a higher transaction fee.

Occupancy costs. Occupancy costs as a percentage of revenue decreased to 7.6%
during the thirteen weeks ended March 27, 2022 from 8.3% during the comparable
period in 2021 primarily as a result of sales leverage on fixed occupancy
expenses, partially offset by higher percentage rent.

General and administrative expenses. General and administrative
expenses decreased to $6.7 million for the thirteen weeks ended March 27,
2022 as compared to $6.8 million for the same period in 2021. The decrease was
primarily driven by lower performance-based bonuses, partially offset by an
increase in management salaries and stock based compensation. As a percentage of
revenues, general and administrative expenses decreased to 6.6% in the first
quarter of 2022 from 7.8% in the first quarter of 2021.

Restaurant pre-opening costs. Restaurant pre-opening costs decreased to $0.1
million for the thirteen weeks ended March 27, 2022 as compared to $0.7 million
for the same period in 2021 due to the timing of new store openings.

Marketing. Marketing expense as a percentage of revenue increased to 1.4% during
the thirteen weeks ended March 27, 2022 as compared to 1.1% for the same period
in 2021 as the Company reinstated its digital advertising campaigns across the
nation.

Impairment, closed restaurant and other costs. Impairment, closed restaurant and
other costs decreased to $1.3 million during the thirteen weeks ended March 27,
2022 from $2.3 million during the comparable period in 2021. During the first
quarter of 2022, we recorded $1.3 million of closed restaurant costs such as
rent expense, utility and insurance among other costs required to maintain the
remaining closed locations. During the same period last year, we recorded $1.6
million of closed restaurant costs, a $0.5 million loss on lease termination of
two operating leases, and a $0.3 million non-cash impairment charge related to
their long-lived assets.

Depreciation. Depreciation expense increased to $5.0 million during the thirteen
weeks ended March 27, 2022 from $4.9 million recorded during the comparable
period in 2021 primarily due to an increase in depreciation associated with our
new restaurants.

Income tax expense (benefit). We recorded an income tax expense of $0.5 million
in the first quarter of 2022 compared to an income tax benefit of $0.7 million
during the comparable period in 2021. The increase in income tax expense was
primarily driven by a $1.3 million discrete tax benefit recorded during the
first quarter of 2021 related to stock based compensation. As of March 27, 2022,
the Company had a $5.0 million deferred tax asset, which management believes
will be fully realized, therefore, no valuation allowance is required at this
time.

In August 2020, the IRS issued a Notice of Proposed Adjustment to the Company
asserting that the tenant allowances paid under our operating leases should be
recorded as taxable income for years 2016 and prior. The Company disagrees with
the IRS's position and believes that it is more likely than not that the
Company's position will ultimately be sustained upon further examination,
including the resolution of the IRS's appeal or litigation processes, if any. As
a result, no further tax accrual was made. The Company estimates if the IRS's
position was upheld, the Company's tax liability associated with the IRS's
position could range between $0.5 million and $2.5 million.

Net revenue. Due to the above, the net profit was $5.5 million during the thirteen weeks ended March 27, 2022 compared to $6.7 million during the comparable period in 2021.

Liquidity

Our principal sources of cash are cash and cash equivalents, net cash provided
by operating activities, which includes tenant improvement allowances from our
landlords, and borrowings, if any, under our $35.0 million revolving credit
facility as further discussed in Note 5, Long-Term Debt. Consistent with many
other restaurant and retail store operations, we typically use operating lease
arrangements for our restaurants. From time to time, we may also purchase the
underlying land for

development. We believe that our operating lease arrangements provide
appropriate leverage of our capital structure in a financially efficient manner.
We may also from time to time sell equity or engage in other capital markets
transactions.

Our main requirements for liquidity are to support our working capital,
restaurant expansion plans, ongoing maintenance of our existing restaurants,
investment in infrastructure, obligations under our operating leases, interest
payments on our debt, if any, and to repurchase shares of our common stock
subject to market conditions. Repurchases of the Company's outstanding common
stock will be made in accordance with applicable laws and may be made at
management's discretion from time to time in the open market, through privately
negotiated transactions or otherwise, including pursuant to Rule 10b5-1 trading
plans. There is no guarantee as to the exact number of shares to be repurchased
by the Company. The timing and extent of repurchases will depend upon several
factors, including market and business conditions, regulatory requirements and
other corporate considerations, and repurchases may be discontinued at any time.

The Company repurchased 718,112 shares for approximately $19.7 million during
the first quarter of 2022. As of March 27, 2022, the Company had repurchased a
total of 983,044 shares and had $21.9 million remaining under its $50.0 million
repurchase program.

Our liquidity may be adversely affected by a number of factors, including a decrease in customer traffic or average check per customer due to changes in economic conditions, as described in Item 1A. “Risk Factors” of our annual report.

From March 27, 2022the Company was in a solid financial position with
$89.7 million in cash and cash equivalents, no debt and $35.0 million availability under its revolving credit facility.

Cash flow for the thirteen weeks ended March 27, 2022 and March 28, 2021

The following table summarizes the statement of cash flows (in thousands):

Thirteen weeks over

                                                                      March 27, 2022           March 28, 2021
Net cash provided by operating activities                            $     6,851             $        12,315
Net cash used in investing activities                                     (2,613)                     (1,719)
Net cash used in financing activities                                    (21,146)                       (155)
Net (decrease) increase in cash and cash equivalents                     (16,908)                     10,441
Cash and cash equivalents at beginning of year                           106,621                      86,817
Cash and cash equivalents at end of period                           $    89,713             $        97,258


Operating Activities. Net cash provided by operating activities decreased $5.4
million to $6.9 million for the thirteen weeks ended March 27, 2022 from $12.3
million during the comparable period in 2021. Our business is almost exclusively
a cash business. Almost all of our receipts come in the form of cash and cash
equivalents and a large majority of our expenditures are paid within a 30 day
period. The decrease in net cash provided by operating activities was mainly
attributable to $3.3 million decrease in accrued and other liabilities driven by
higher bonus payments this year as compared to fiscal 2021 as well as a $1.0
million lease incentive receivable recorded during the first quarter of 2022.

Investing Activities. Net cash used in investing activities increased $0.9
million to $2.6 million for the thirteen weeks ended March 27, 2022 from $1.7
million during the comparable period in 2021, mainly driven by a timing of our
new restaurant construction as compared to the same period last year.

Financing Activities. Net cash used by financing activities increased $20.9
million to $21.1 million for the thirteen weeks ended March 27, 2022 from $0.2
million during the comparable period in 2021 primarily due to a $19.7 million
increase in the repurchases of shares of common stock.

As of March 27, 2022, we had no other financing transactions, arrangements or
other relationships with any unconsolidated affiliates or related parties.
Additionally, we had no financing arrangements involving synthetic leases or
trading activities involving commodity contracts.

Capital resources

Long-term and short-term capital needs

There have been no material changes in our long-term or short-term capital requirements from what was previously disclosed in our annual report filed with the SECOND.

Contractual Obligations

There have been no material changes to our contractual obligations from what was previously disclosed in our annual report filed with the SECOND.

Off-balance sheet arrangements

From March 27, 2022we are not involved in any variable interest entity transactions and otherwise have no off-balance sheet arrangements.

Significant Accounting Policies and Estimates

There have been no material changes in significant accounting policies and estimates from what was previously disclosed in our annual report filed with the
SECOND.

Recent accounting pronouncements

For more information on new accounting pronouncements, see Note 2, Recent Accounting Pronouncements in the Notes to our Unaudited Condensed Consolidated Financial Statements.

Caution Regarding Forward-Looking Statements

Certain statements in this quarterly report on Form 10-Q that are not historical
facts are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements reflect the current
views of our senior management with respect to future events and our financial
performance. These statements include forward-looking statements with respect to
our business and industry in general. Statements that include the words
"expect," "intend," "plan," "believe," "project," "forecast," "estimate," "may,"
"should," "anticipate" and similar statements of a future or forward looking
nature identify forward-looking statements for purposes of the federal
securities laws or otherwise. Forward-looking statements address matters that
involve risks and uncertainties. Accordingly, there are or will be important
factors that could cause our actual results to differ materially from those
indicated in these statements. We believe that these factors include, but are
not limited to, the following:

• the ultimate duration and severity of the COVID-19 pandemic and any new variants, and the effectiveness of measures taken, or measures that may be taken, by governmental authorities to contain the outbreak or address its impact;

•the impact of adverse economic factors, including inflation and the availability of credit, on our landlords and surrounding tenants;

•the success of our existing and new restaurants;

• our ability to identify suitable sites and to develop and expand our business;

• our ability to effectively manage our growth and the resulting changes in pre-opening costs;

•we operate most of our restaurants under long-term leases which we may not be able to renew and which we would be obligated to perform even if we closed our restaurants;

•changing economic conditions and consumer buying habits;

• damage to our reputation or lack of acceptance of our brand in existing or new markets;

•our expansion into markets that we do not know;

• economic and other trends and developments, including adverse weather conditions, in the local or regional areas in which our restaurants are located and more particularly in Texas where a large percentage of our restaurants are located;

•acts of violence or threats against our restaurants or the centers in which they are located;

•changes in food availability and costs;

• concerns about food safety and foodborne illness;

•increased competition in the restaurant industry and the segments in which we compete;

•the success of our marketing programs;

• the impact of new restaurant openings, including the effect on our existing restaurants when new restaurants open in the same markets and restaurant closures;

•the pressure on our infrastructure and resources caused by our growth;

•insufficiency of our insurance coverage and fluctuating insurance requirements and costs;

• the impact of security breaches of confidential customer information in connection with our electronic processing of credit and debit card transactions;

• inadequate protection of our intellectual property;

• failure of our computer system or breach of our network security;

•a major natural or man-made disaster;

•labour shortages and increases in our labor costs, including due to changes in government regulations;

•loss of key members of our management team;

•the impact of legislation and regulation regarding nutritional information and
new information or attitudes regarding diet and health or adverse opinions about
the health of consuming our menu offerings;

• the impact of federal, state and local laws and regulations, including with respect to liquor licensing and food service;

•the impact of litigation;

•the impact of impairments;

•the failure of our internal control over financial information;

• the impact of federal, state and local tax laws and the Internal Revenue Service’s disagreement with our tax position;

•the effect of changes in the accounting principles applicable to us;

•the impact of our indebtedness on our ability to invest in the ongoing needs of our business;

• our ability to obtain debt or other financing on favorable terms or not at all;

• volatility of our common stock price;

•the timing and amount of redemptions of our common stock;

• the impact of future sales of our common stock and any additional capital raised by us through the sale of our common stock or the granting of additional stock-based compensation;

• the impact of a rating of our shares by securities or industry analysts, the publication of negative research or reports, or the failure to publish reports on our activities;

•the effect of anti-takeover provisions in our charter documents and under
Delaware straight;

•the effect of our decision not to pay dividends for the foreseeable future;

•our ability to raise capital in the future; and

• other risks and uncertainties described from time to time in the Company’s annual report and other documents filed with the Security and Exchange Commission.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable based on our current knowledge of our business and
operations, we cannot guarantee future results, levels of activity, performance
or achievements. The foregoing factors should not be construed as exhaustive and
should be read together with other cautionary statements included in this report
and in our Annual Report. If one or more of these or other risks or
uncertainties materialize, or if our underlying assumptions prove to be
incorrect, actual results may differ materially from what we anticipate. Any
forward-looking statements you read in this report reflect our views as of the
date of this report with respect to future events and are subject to these and
other risks, uncertainties and assumptions relating to our operations, results
of operations, growth strategy and liquidity. You should not place undue
reliance on these forward-looking statements and you should carefully consider
all of the factors identified in this report that could cause actual results to
differ. We assume no obligation to update these forward-looking statements,
except as required by law.

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