Chuy's Is No Chipotle or Qdoba

Chuy's Restaurant in Springfield, Va
Kate Patterson for The Washington Post via Getty ImagesChuy's has a distinctly funky vibe including the Elvis booth shown at one of the chain's restaurants in Springfield, Va.

Another burrito roller stepped up to post quarterly results this week. Chuy's (CHUY), a chain of 61 full-service restaurants specializing in Tex-Mex dishes, reported fresh financials Monday.

It was a mixed report. Sales were strong, climbing 22 percent from the prior year's quarter to $61.8 million, fueled primarily by the chain's brisk expansion. There are 13 more Chuy's around than there were a year ago. Sales were decent at existing restaurants, with comparable-restaurant sales up 3.8 percent during the quarter. However, Chuy's did warn of lower sales volume at some of its newer restaurants.

%VIRTUAL-WSSCourseInline-449%Chuy's runs a festive concept where bar patrons can treat themselves to a nacho bar out of the back of a makeshift car trunk during happy hour. Guests are invited to bring in framed prints of their dogs to populate the walls of new restaurants. The restaurants also have shrines to Elvis Presley.

Sticking to the Presley theme, Chuy's top line may have been "love me tender," but its bottom-line results were "nothing but a hound dog."

Profitability declined despite the healthy sales spurt. Chuy's blames several factors including higher labor costs and higher food costs for gnawing away at its margins. Pesky prices for beef, chicken, and dairy -- three major components in Tex-Mex staples -- and a general reluctance to pass the increases entirely on to its customers resulted in a quarterly profit of 14 cents a share. Chuy's had checked in with a profit of 15 cents a share a year earlier.

The good news is that analysts were actually holding out for net income of just 13 cents a share. It's the first time in more than a year that Chuy's has beaten Wall Street's profit target. However, you're not going to find too many people celebrating a decline in profitability on the merits of relative expectations.

Fast Casual Wins Again

Investors can contrast Chuy's performance to that of Chipotle Mexican Grill (CMG) and Jack in the Box's (JACK) Qdoba. Chuy's shareholders won't like what they see.

The market may be cool with Chuy's checking in with a 3.8 percent uptick in comps, but that's a pittance compared to what the leading burrito rollers in fast casual are up to these days. Chipotle and Qdoba came through with a surge in comps of 16.1 percent and 14 percent, respectively.

Chipotle credits the spike largely to a price hike that it rolled out in May of last year. Qdoba points to a simplified pricing strategy whereby folks pay a single price for entrees based on the proteins, with everything else, including guacamole and queso, available at no additional cost.

The difference between Chuy's and the other two burrito rollers is even more pronounced on the bottom line. Chipotle's net income soared 52 percent in its latest quarter. Earnings per share at Jack in the Box -- which include Qdoba and the much larger namesake burger chain -- rose 27 percent.

Tex-Mex Flex

Chuy's is still early in its growth cycle. With just 61 locations across the country, it's a lot smaller than Qdoba with 647 eateries and Chipotle with 1,783 locations.

It also might not be fair to lump it in with the fast-casual players. Full-service restaurants have been growing a lot slower than fast-casual concepts in recent years as diners crave quicker experiences and lower price points without having to tip.

In terms of investing, all three chains trade at pretty lofty multiples. Chuy's trades at more than 30 times the midpoint of its new guidance for 2015. That's rich, but Jack in the Box and Chipotle trade at slightly higher markups. Investors will want to look at this dining niche. Consumers are clearly connecting with the burrito joints. However, given the hefty markups, they may want to wait until the stocks correct before taking a bite.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.​