Dive Brief:
- Darden Restaurants and Chuy’s Holdings, a 101-unit full-service Tex-Mex chain, have entered into a definitive agreement in which Darden will acquire all outstanding shares of Chuy’s for $37.50 per share, the companies said in a Wednesday press release.
- The all-cash transaction will be worth an enterprise value of about $605 million and is expected to close during Darden’s fiscal second quarter, which concludes in late November.
- This is the second transaction Darden has made since the pandemic. In 2023, it bought Ruth’s Hospitality group for $715 million. Darden also owns well-known brands like Olive Garden, LongHorn Steakhouse, Yard House and Bahama Breeze.
Dive Insight:
Chuy’s has relatively strong financials, with more than $450 million in revenue over the 12 months ending on March 31, 2024, and an average restaurant volume of $4.5 million, according to the press release.
The company ended the quarter with 18.8% restaurant level operating margins, which Chuy’s CEO Hislop said “remains among the best in our industry,” during the chain’s May earnings call.
“Chuy's is a differentiated brand within the full-service dining industry with strong performance and growth potential," said Darden President and CEO Rick Cardenas. "Based on our criteria for adding a brand to the Darden portfolio, we believe Chuy's is an excellent fit.”
That portfolio includes numerous well-known chains but, at least until now, no Mexican establishments. Darden’s acquisition, coupled with its pickup of Ruth’s Hospitality Group last year, underscore the company’s appetite for growth despite the challenges operators have faced with declining traffic and high borrowing costs.
Chuy’s has, however, had some financial challenges recently. The chain’s same-store sales declined 4.3% on a calendar year basis compared to the year-ago quarter, according to its Q1 2024 earnings release. Comp sales declines were driven by a 6.9% decrease in average weekly customers that was partially offset by a 2.6% increase in average checks, CFO Jon Howie said in May.
Despite these declines, the chain is increasing its off-premise mix, which rose to 29% of revenue compared to 27% a year ago. Delivery grew by 130 basis points year-over-year, reaching 12% of the chain’s sales mix, CEO Steve Hislop said during the call.
Catering, its newest off-premise channel, made up 3.5% of sales and is expected to make up 4% to 6% of sales long-term, he said.
Chuy’s is also adding to its menu with Chuy’s Knockouts, which are seasonal limited time offerings. At the end of April, Chuy’s added dishes like Green Chili Barbecue Ribs and Fat Daddy Flautas to its seasonal menu, Hislop said. These items, if popular, can make it onto the permanent menu. Burrito Bowls were once a seasonal item, but became a guest favorite and were added to the core menu to help drive traffic growth, he said.
Prior to the announcement, Chuy’s and Darden’s board of directors unanimously approved the merger agreement and recommended stockholders approve the merger as well. The agreement also includes a 30-day “go-shop” period during which Chuy’s can solicit alternative proposals from interested parties, according to the press release.
“Darden expects to continue to maintain a strong balance sheet and have sufficient capital to achieve its stated capital allocation priorities of maintaining existing restaurants, growing new restaurants and returning capital to shareholders through dividends and strategic share repurchases,” the press release said.
