Chuy's: Successful IPO Debut Despite Chipotle's Freefall

| About: Chuy's Holdings (CHUY)
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Shares of Chuy's Holdings (CHUY) had a successful public debut on Tuesday. Shares of the full-service restaurant offering Mexican food ended the week at $17.12, up 32% above the offering price of $13.00 per share.

The public offering

Chuy's sold 5.8 million shares for $13 a piece in its recent IPO. Chuy's, which currently operates 36 restaurants raised $75.8 million in gross proceeds in the process. Including the 15% overallotment, also known as the "greenshoe", Chuy's raised almost $80 million in net proceeds. Based on a $13 offering price, the firm is valued at $195 million. All the shares are offered by the company with none being offered by selling shareholders. In total, about 45% of its 15 million shares outstanding were being offered in the public offering. This includes the greenshoe over-allotment option. At Friday's closing price of $17.12, the firm is valued at $257 million. Major banks which brought the company public were Jefferies, Baird, KeyBanc Capital Markets and Raymond James.


Chuy's was founded in 1982. The company has generated annual revenues of $130.6 million for its annual year of 2011, up 38% on the year before. The company net earned $3.5 million that year, or $0.20 per share, up from $3.3 million the year before. Chuy's started 2012 on a good note. First quarter revenues rose 28% to $37.5 million, although net income fell to $0.4 million. The company hopes to expand its current restaurant count of 36 to 39 by year's end. Chuy's ended the first quarter with $82 million in debt. However, the net proceeds of the offering are sufficient to repay all of Chuy's outstanding debt.

The firm reported a comparable same store sales growth of 3.1% for the full year of 2011, a figure which dropped to 2.6% in the first quarter of 2012. The average check for the discount restaurant came in at $12.97 per customer. Based on a rough annual revenues estimate just north of $150 million for 2012, the firm is valued at 1.7 times annual revenues.

Investment Thesis

Chuy's public offering was a great success, with shares already trading at $17.12, far above the initial midpoint of its offering range of $12 per share. The success of the offering came as a small surprise given that its much larger competitor, Chipotle Mexican Grill (CMG), experienced a very rough week. Shares of Chipotle lost over 25% of their market value after warning for more difficult circumstances in the remainder of 2012. Although Chipotle is much more profitable than Chuy's, it trades at a significant premium to its smaller competitor. Chipotle trades at roughly 4 times its 2011s annual revenues compared to just 1.7 times for Chuy's. However, Chipotle is much more profitable, generating annual net margins of 9.5%, compared to a mere 2.2% for Chuy's.

Unless Chuy's guides for strong margin improvements in the quarters to come, I would not jump on the bandwagon and stay on the sidelines.

Disclosure: I am short CMG.