Mediterranean chain Zoe's Kitchen (NYSE: ZOES) recently reported its 2017 business results, and while the year was a tough one for shareholders, it looks like the company could get back on track soon.
Key metrics are improving, and management's initiatives to revamp the dining experience look like they're finally paying off.
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The most important 2017 figure
Zoe's reported a 0.3% same-store sales increase in the fourth quarter. It wasn't enough to reverse the slide from the rest of the year, though, as full-year same-store sales ended down 2%.
Part of the blame could be laid on the hurricanes that battered the Southeast U.S., Zoe's home market. Back in the third quarter, management said its comps were down an extra 0.9% because of the storms and would have been positive otherwise.
Also to blame was the fast-casual industry itself -- a dining concept that lies somewhere between fast food and traditional table service. That concept has gained in popularity in recent years (think Chipotle and Panera Bread), and many chains have expanded to capitalize on the trend. However, the expansion seems to have been overdone, and foot traffic has turned negative at many locations.
Though its comps were down as well, Zoe's results could have been much worse. According to restaurant research group TDn2K, fast-casual has been one of the worst-performing segments of the industry over the last few years. Zoe's has been able to at least keep up with the average restaurant's comparables, including in the fourth quarter when the industry as a whole saw the figure turn positive for the first time since early 2016.
Thus, with same-store sales back on the rise and Zoe's beating many of its competitors in that area, a rebound may be in order. Recent changes to the restaurant itself may also be helping.
Menu innovation and consumer trends
As I recently wrote here, Zoe's management has been working to revamp the menu, and it also just opened a new concept store to improve the dining experience. Mediterranean and Middle Eastern-inspired cuisine are also trending positively, which could help Zoe's given the focus of its menu items.
Those internal company changes keep coming, too. A new menu item was just announced -- baked falafel -- as well as a trio of shareable meals aimed at dinner for the busy family and catered events. More food and drink options will be unveiled as the year progresses, including Moroccan-style sangria in the early spring.
As to the stores themselves, digital and delivery are still being emphasized. Since the company relaunched its website last summer, digital orders have grown 25%. Management thinks the new family meals will help, as they give diners another option for delivery and takeout at the end of a long day at work. A second concept store will also be opened later in the year, and results from it and the first one in North Carolina will dictate when and how many more will be built.
While 2017 was a forgettable year for investors in Zoe's Kitchen, things are beginning to look a little better. In many ways, the last 12 months were a period of transition for the chain as it made investments in new digital business, did its first menu refresh in nearly a decade, and began testing what could be the Zoe's restaurant format of the future. Those developments are just starting to yield results, and additional new changes look like they could build off of those early successes.
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Nicholas Rossolillo owns shares of Zoe's Kitchen. His clients have positions in the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Zoe's Kitchen. The Motley Fool has a disclosure policy.