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Sales Rise 15% at Zoe's Kitchen Inc.

By Joe Tenebruso - Feb 26, 2018 at 7:17AM

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The Mediterranean-inspired restaurant chain plans to open new restaurants at a healthy, albeit moderated, pace in 2018.

Zoe's Kitchen (ZOES) delivered its fourth-quarter results on Feb. 22. New restaurant openings and slightly positive comparable-store sales helped to drive the fast-casual restaurant group's revenue higher, although its profits remain under pressure from rising costs.

Zoe's Kitchen results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Revenue

$71.382 million

$61.983 million

15%

Net income

($2.859 million)

($0.501 million)

N/A

Earnings per share

($0.15)

($0.03)

N/A

Data source: Zoe's Kitchen Q4 2017 earnings press release.

What happened with Zoe's Kitchen this quarter?

Zoe's opened five new company-owned restaurants in the fourth quarter and a total of 39 stores in fiscal 2017. That, combined with a 0.3% increase in comparable restaurant sales, drove a 15.2% year-over-year rise in total revenue, to $71.4 million. For the full year, revenue rose 13.8%, to $314.1 million.

Zoe's Kitchen's new store format, seen from the exterior.

New store openings are boosting Zoe's Kitchen's revenue. Image source: Zoe's Kitchen.

Zoe's Kitchen, however, continues to struggle with declining traffic. Its comp growth was driven entirely by price increases; a 1.9% price boost offset a 1.6% decrease in transactions and product mix.

This tepid comp growth, together with higher labor costs, led to a 60-basis-point decrease in restaurant contribution margin, to 16%. In turn, restaurant contribution increased only 10.5%, to $11.4 million.

All told, EBITDA -- adjusted to exclude preopening costs, equipment disposals, and other nonrecurring items -- fell 3.8% to $2.9 million. And adjusted net loss per share came in at $0.12, compared with $0.07 in the prior-year period.

Looking forward

Zoe's Kitchen issued a financial forecast for fiscal 2018, including:

  • 25 company-owned restaurant openings.
  • Comp growth of flat to up 2%.
  • Total revenue of $358 million to $368 million, representing year-over-year growth of 14% to 17%.
  • Restaurant contribution margin of 17.3% to 18.4%.

CEO Kevin Miles also highlighted some of Zoe's new growth initiatives, as well as the company's moderated expansion plan and renewed focus on cost control:

Looking ahead to 2018, we are focused on several growth drivers that include new menu items and beverage innovation that will extend our leadership position in the Mediterranean category as well as drive growth in our dinner day part; investing in our digital platform and marketing to build deeper guest relationships and offer more convenience; and expanding our reach through off-premise catering and delivery channels. We believe these initiatives, along with reducing our development to 25 new locations and leveraging our expense management efficiencies, are the right steps to drive long-term shareholder value.

If these initiatives can improve Zoe's Kitchen's sales growth and profitability, they could go a long way toward helping its stock price recover in the quarters ahead.

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