What: Shares of Zoe's Kitchen (ZOES) soared 29% in June, according to data from S&P Capital IQ. The Mediterranean-inspired restaurant chain has been a star performer since its IPO in April 2014, with its stock surging more than 60% from its closing price on its first day of trading.
So what: Zoe's June share price gains kicked into high gear after the company reported a surprise first-quarter profit. Revenue jumped 36% to $63 million, fueled by 12 new store openings and an impressive 7.7% increase in comparable-restaurant sales. Analysts expected only $61.5 million in revenue.
The fast-casual chain also demonstrated an ability to rein in costs. Restaurant contribution margin increased 140 basis points to 21.7% as new pricing agreements for feta cheese, olive oil, and produce helped to lower food costs.
All told, Zoe's delivered adjusted earnings of $0.04 per share, up from a loss of $0.02 in the year-ago quarter and ahead of Wall Street's expectations for a loss of $0.01.
Now what: Wage growth, low gas prices, and rising consumer confidence all bode well for the restaurant industry in the near term.
And within this competitive arena, Zoe's concept of serving "fresh, wholesome, Mediterranean-inspired dishes delivered with Southern Hospitality" appears to be resonating well with restaurant-goers, as evidenced by strong comps growth and traffic gains. I expect this to continue as Zoe's traditional cooking techniques (e.g., grilling rather than microwaving or deep frying) and fresh, naturally flavored ingredients fit well within the trend toward healthier eating.
Management seems to think so as well, and recently raised its sales guidance for 2015. Revenues are now projected to range from $218 million to $223 million, up from previous estimates of $215 million to $220 million.
Looking further ahead, as we Fools like to do, management remains confident that Zoe's Kitchen can ultimately surpass 1,600 locations in the U.S. With currently only 149 restaurants in 16 states, this regional-to-national growth story remains in its early innings.
