Zoe's Kitchen Needs More Than a New CMO

Image source: Zoe's Kitchen.

There's a new executive tasked with getting the word out when it comes to Zoe's Kitchen (ZOES). The fast-casual chain specializing in Mediterranean cuisine announced on Monday afternoon that Casey Shilling has been tapped to serve as its new chief marketing officer. Shilling comes from The Container Store (TCS -3.54%), another consumer-facing concept that is presently out of favor on Wall Street.  

Shilling spent most of her nearly two decades at The Container Store as an executive marketer, and while the home goods retailer has struggled during the latter stage of her tenure as vice president of marketing and public relations, the concept's woes are clearly well beyond her domain.

The Container Store faltered shortly after its 2013 IPO. The once-fast-growing chain best known for its soft goods and elfa closet organizers failed to keep pace with online competitors and growing real-world rivals. It seemed to be turning things around with three quarters of marginally positive comps to close out fiscal 2015, but that regressed to a 1.4% slide in its most recent quarter. In short, The Container Store has been a disaster for investors. The stock has shed more than two-thirds of its value since going public at $18 nearly three years ago.

More than change on the menu 

Shilling is walking into a slightly better situation at Zoe's Kitchen. Comps remain positive at the eatery, and heady expansion is resulting in double-digit top-line growth. The unique fast casual saw revenue climb 22% in its latest quarter, backed by new openings and a 4% ascent in comparable-restaurant sales. Zoe's Kitchen is also trading well ahead of the $15 price it went public at two years ago, a far cry from The Container Store's status as a busted IPO.

However, the market didn't warm up to its latest results. Earnings met Wall Street's profit target of $0.06 a share, but this was the first time in its brief tenure as a public company that it merely met expectations. Zoe's Kitchen also tweaked its guidance lower, calling for slightly slower top-line growth and comps for the entire year. 

The market's reaction has been brutal. The stock has surrendered 42% of its value since announcing its results in late August. Investors had bid up Zoe's Kitchen following its IPO, euphoric at the prospects of finding a new darling in fast casual. Given its unique concept, strong streak of stellar results, and small base of what is now still just 183 locations, it was easy to see why the stock was bid up. Now that the chain has proven modest with more pedestrian growth with analysts catching up to its prospects, it's understandable that the valuation has been dramatically adjusted.

Shilling is walking into a situation with a stock that is presently broken, but it's only a matter of Mr. Market's valuation adjustment. It's an easier fix than The Container Store, where the battered stock is at the mercy of a turnaround that may or may not happen. Zoe's Kitchen needs more than just a CMO. It needs to justify its valuation, and ideally for investors, the valuation that it used to command. Zoe's Kitchen can get there by getting back where it used to be, raising its guidance and blowing through analyst forecasts again.