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Why Zoe's Kitchen, Inc. Stock Has Plunged 51.7% So Far in 2017

By Steve Symington - Jul 9, 2017 at 9:29PM

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The Mediterranean-style restaurant chain has had a rough start to the year. Here's what investors need to know.

What happened

Shares of Zoe's Kitchen Inc. (ZOES) have fallen 51.7% so far in 2017, according to data provided by S&P Global Market Intelligence, as the fast-casual restaurant chain delivered a pair of disappointing quarterly earnings reports.

So what

Before this year, Zoe's had been enduring an increasingly difficult restaurant-industry environment better than most of its competitors. But cracks in Zoe's armor began to show with its fourth-quarter 2016 report in February, when shares fell 14% after the company detailed a troubling combination of higher costs and decelerating growth in comparable-restaurant sales growth.

Zoe's kitchen catering food

IMAGE SOURCE: ZOE'S KITCHEN INC.

But things went from bad to worse in May, when shares plunged another 22.9% on Zoe's first-quarter 2017 report. To be fair, Zoe's results looked OK at first glance, especially considering revenue grew 12.6% to $90.6 million. But that growth was entirely driven by new locations, as comparable-restaurant sales fell 3.3% and broke a 28-quarter streak of positive comps. 

Now what

That's not to say all hope is lost for the Mediterranean-themed chain. Its early efforts to drive both traffic and transaction sizes higher included the company's largest new menu rollout in eight years late last month, as well as back-of-the-house simplification initiatives to both improve Zoe's guest experience and increase throughput.  

Time will tell whether Zoe's is taking the right steps to return comps to positive territory, and we can take solace knowing this is still a relatively small business in its early stages of nationwide expansion. It's also worth noting investors can pick up the stock now for significantly below Zoe's $15-per-share IPO price. 

But for now, until Zoe's can stem its downward momentum and prove to investors its efforts are yielding fruit, the stock will almost certainly remain under pressure.

Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Zoe's Kitchen. The Motley Fool has a disclosure policy.

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