Analysts See Cloudy Outlook For Chuy's

Chuy's Holdings Inc (NASDAQ: CHUY) faces continued pressure on profits from weak performance at newly-opened restaurant outlets as well as higher food costs, an analyst said Wednesday.

Shares of the fast-growing Mexican restaurant chain plunged 30 percent to a 52-week low Wednesday after the company missed third-quarter expectations and offered a disappointing outlook.

Wedbush's Nick Setyan said the company's lower forecast for this year casts doubt on a potential rebound for 2015. Setyan maintained a Hold rating on the company and cut his target 10 percent to $26.

About a third of the company's 59 restaurants have been open for less than a year, and thus don't figure in its third-quarter same-store sales gain of 3 percent.

Chief Executive Steven J. Hislop told analysts that about half of the outlets opened in 2013 are returning lower-than-expected profits, while costs grew on higher beef and dairy products.

Hislop is nonetheless "pleased with the continued strength of our top line" revenue which grew 19 percent in the recent quarter.

Keybank's David Carson downgraded Chuy's to Hold from Buy, citing inconsistent profits from new stores. " It is unclear what is the root cause of the issue, the plan to address it and how long it will persist," Carson said.

But Stifel's Paul Westra stuck with his Buy rating Wednesday, suggesting that the new stores are merely in the midst of a typical period of "maturation."

"We urge long-term buyers to largely overlook" the company's second-in-a-row quarterly earnings miss, Westra said.

Within 20 years, Westra expects the company will operate a chain of more than 300 Chuy's Mexican restaurants.

The company expects to open 11 restaurants in 2015 compared with 14 in the current year.

About 8 of the planned openings are set for markets that already include Chuy's restaurants in hopes that the locations will aid awareness of the new outlets and could result in improved performance.