What happened

Shares of the fast food chain Zoe's Kitchen Inc. (NYSE:ZOES) are tanking nearly 14% Friday following the Thursday evening release of the company's fourth-quarter and full-year earnings. They left the a bad taste for the market, even though the 2017 outlook is largely positive.

So what

For the fourth quarter, Zoe's reported sales of $62 million, which is up around 18% year over year. The company reported a Q4 loss of $0.03 per share, compared with a positive earnings per share of of $0.13 in the prior year period. For the full year, sales rose 22% to $276 million, and earnings jumped to $0.09 per share, up 50% from $0.06 per share in 2015. Adjusted earnings per share was $0.08 per share, compared with $0.10 in 2015.

A platter of Zoe's Kitchen Mediterranean food.

Image source: Zoe's Kitchen official Facebook page.

The fourth-quarter revenue gain was helped by new restaurant openings, and partly by a small price increase at its restaurants that helped same restaurant sales increase nearly 1% year over year. Still, the revenue increase was less than expected, and there are a few disappointing points in the growth. Same store restaurant transactions still decreased 2.4%, and comparable restaurant growth is far lower than the nearly 8% reported in Q4 2015 or 4% for the full year. 

Now what

For the year ahead, Zoe's Kitchen expects another 38 to 40 new restaurants -- the company has 204 total including three franchised locations -- which should help the company reach its expected sales of $325 million to $327 million for about an 18% increase over 2016. Management expects comparable store sales to increase 1% to 2% for the year.

Zoe's faces some challenges in the coming year and beyond, including higher wage and labor costs, continued store opening expenses, and general weakness in the restaurant sector. Still, the company is opening new locations at a healthy clip and, with a relatively small base, could have plenty of room to grow well beyond its current valuation. Additionally, the company is making strategic investments in in-store technology, and its small expected uptick in 2017 in same store sales compared to Q4 would show that Zoe's is stable even without an expansion of new restaurants. Finally, the company has barely scratched the surface of a potential franchise model option, something that could unlock plenty of value down the road.