Zoe's Kitchen Inc Tempers Investor Expectations

Image source: Zoe's Kitchen.

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Zoe's Kitchen (NYSE: ZOES) reported second-quarter results on Aug. 22. The Mediterranean-inspired restaurant chain delivered revenue and profit growth of more than 20%, but a recent downturn in comparable restaurant sales led management to lower its guidance for the year ahead.

Zoe's Kitchen results: The raw numbers

Q2 2016

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Q2 2015

Growth (YOY)


$66.273 million

$54.474 million


Adjusted Net Income

$1.218 million

$0.955 million


Adjusted EPS




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    Data source: Zoe's Kitchen Q2 2016 earnings press release

    What happened this quarter?

    Total revenue jumped 22% year-over-year to $66.3 million, as Zoe's Kitchen opened nine new company-owned restaurants during the second quarter and a total of 35 in the last 12 months.

    Comparable restaurant sales growth of 4% -- consisting of a 0.9% increase in transactions and product mix combined with a 3.1% price increase -- further helped to boost revenue. However, this was below Zoe's full-year guidance

    Restaurant contribution (defined as restaurant sales less restaurant operating costs) rose23.7%to$14.3 million. As a percentage of restaurant sales, restaurant contribution margin improved 40 basis points to 21.7% as lower commodity prices more than offset higher labor costs.

    EBITDA (earnings before interest, taxes, depreciation, and amortization) -- adjusted to exclude preopening costs, losses related to equipment disposals, and executive transition costs -- increased 20.1% to $7.1 million. And adjusted net income rose 28% to $1.2 million, or $0.06 per share.

    "We're pleased to have delivered strong second quarter financial results that included a 22% increase in total revenue and our 26th consecutive quarter of positive comparable restaurant sales growth," said CEO Kevin Miles in a press release. "Furthermore, our topline results and operational execution enabled us to deliver strong profit growth with a 20% increase in adjusted EBITDA."

    Looking forward

    Management also noted, however, that a deceleration in sales trends toward the end of the quarter prompted a reduction in the company's guidance for fiscal year 2016, including:

    • Total revenue of $277 million to $280 million, down from a prior forecast of $277 million to $281 million
    • Comparable restaurant sales growth of 4% to 5%, down from 4.5% to 6%
    • Restaurant contribution margin between 20.5% and 20.8%, versus 20.5% and 21%

    "Based on the end of our second quarter and the initial read of the third quarter, our outlook for the balance of the year calls for more caution on our top line, and we expect full-year revenue to be toward the middle to lower end of our full-year revenue guidance range," said Miles during a conference call with analysts.

    Yet Miles highlighted the company's successful new store openings and reiterated Zoe's Kitchen's long-term restaurant expansion goal.

    "With 25 new locations opened year-to-date, we are on track to open 35 to 36 restaurants in 2016," added Miles. "We believe the consistency of our results reflects the success of our long-term strategic focus, and we remain confident in our potential to operate over 1,600 units in the U.S."

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