This Restaurant Is Just Getting Going

Zoe's Kitchen is generating buzz, but this restaurant story is more than just stock market hype.

Jun 20, 2014 at 8:00AM

Mediterranean restaurant extraordinaire Zoe's Kitchen (NYSE:ZOES) had an excellent IPO in April and continues to perform well after the IPO -- it's up around 30%. Now that the company has turned in its first earnings report as a public company, investors want to know if this story is all hype or if there's something fresh about this chain.

The earnings report
Zoe's just reported its first-quarter 2014 results, and they were good. Here are the highlights:

  • Revenue up 47%
  • 12% unit growth (just this quarter!)
  • Adjusted EBITDA up 43%
The company did report a net loss, but attributed this to IPO costs.
Here's where Zoe's knocked the ball out of the park: comparable sales increased 5.7% this quarter. Remember that this covers the same period of time when fast-casual chains like Noodles & Company (NASDAQ:NDLS), Panera (NASDAQ:PNRA), and Potbelly (NASDAQ:PBPB) all reported disconcerting results. 
Noodles & Company down 1.6%
Panera up 0.1%*
Potbelly down 2.2%
Chipotle Mexican Grill up 13.4%
Zoe's Kitchen up 5.7%
*transactions down 2.8%
Management at Noodles, Panera, and Potbelly all cited the incredible winter weather as the culprit for their respective losses, but investors need to ask why some concepts -- like Zoe's and Chipotle Mexican Grill (NYSE:CMG) -- still managed to thrive in spite of the hard circumstances.
There may be a simple geographic explanation for Zoe's. G


The vast majority of Zoe's locations are located in the southern United States -- areas which were less effected by the extreme winter weather. Compare that to Chicago-centric Potbelly, and consider the larger exposure of Noodles and Panera in the Northern states, and that may explain why Zoe's sprinted forward while others limped along.
But Chipotle is a different story. With over 1,600 locations, the chain has plenty of exposure in regions that the extreme winter affected. Management explained that sales were obviously down on cold days, but they were above average on warmer days. In order to capitalize on this fluctuation, Chipotle's crew met the increased crowds with increased throughput -- a task many attempt, but few execute as well as Chipotle.
But while increased throughput certainly accounted for some of the comp-sales success, it doesn't completely explain the best Chipotle quarter in eight years. The real reason for its success is Chipotle's loyal customers. These customers are willing to brave the elements for Chipotle's "Food With Integrity." 
Chipotle resonates with its customers. Consider that last year over 100,000 people attended Cultivate Festivals -- Chipotle festivals that celebrate sustainability in food production. Chipotle's four-episode program "Farmed and Dangerous" was in the top five programs on Hulu as millions viewed it. Chipotle's mission and message resonates with a large population, and these folks are willing to trek through the snow if need be for a good burrito.

Does the concept resonate?
So does the comp-sales increase prove that Zoe's resonates with customers the same way that Chipotle resonates with its customers, or is the Mediterranean chain just geographically fortunate? There's compelling evidence that Zoe's indeed has a Chipotle-esque following.

Zoe's claims that 70% of customer visits are from "educated" and "affluent" women. By educated, it means women with college degrees. By affluent, it means women with six-figure household incomes. These women are busy, so they are looking for a quick yet healthy food choice. Considering that it prepares all food from scratch daily, and doesn't offer fatty fried foods, Zoe's wins the business of these women.

However, Zoe's may not be as healthy as it seems, as demonstrated by a comparison between Zoe's Chicken Salad Sandwich and McDonald's Big Mac.

SandwichCaloriesTotal FatCholesterolSodiumTotal Carbohydrates
Big Mac 590 34g 85mg 1070mg 47g
Chicken Salad Sandwich 700 47g 65mg 1000mg 41g

As you can see, there's not a whole lot here to be excited about health-wise. But sometimes it's less about reality and more about customer perception. The fact is that Zoe's is targeting women with food that is simple, tasty, and fresh, and 17 consecutive quarters of comp-sales growth suggest that Zoe's is succeeding in selling its desired image to consumers.

At the end of 2013, Zoe's had 102 locations. This year it plans on opening 30 new locations -- or 29% unit growth for the year. And this year's no fluke. If anything, this year is a slow year. Since 2008, the company has averaged 38% unit growth annually. And at just over 100 locations, it has a long long way to go before it reaches its 1,600-unit goal.

Final thoughts
To sum it up, Zoe's is a new concept resonating well with consumers, which is leading to market-beating comp sales and stellar unit growth. The chain looks well positioned to execute its long-term growth plans and cash in on these consumers who are buying into the Mediterranean zoe -- the Mediterranean life.

Warren Buffett's biggest fear is about to come true
Warren Buffett just called this emerging technology a "real threat" to his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. It won't be long before everyone on Wall Street wises up, that's why The Motley Fool is releasing this timely investor alert. Click here to learn more about what's keeping Buffett up at night and the one public company we're calling the "brains behind" the technology.

Jon Quast owns shares of Potbelly. The Motley Fool recommends Chipotle Mexican Grill, McDonald's, and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill and Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers