Zoe's Kitchen Inc. to Slow Expansion

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Zoe's Kitchen (NYSE: ZOES) reported second-quarter results on Aug. 17.

Lower customer traffic continues to weigh on its sales and profits, prompting the Mediterranean-inspired restaurant chain to announce that it would be slowing the pace of its new store openings in 2018.

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Zoe's Kitchen results: The raw numbers

What happened with Zoe's Kitchen this quarter?

Total revenue grew 12.1% year over year to $74.3 million, driven by new restaurant openings. Comparable-restaurant sales, however, continued their downward trend, falling 3.8%. Zoe's suffered a 5% drop in transactions that was only partially offset by a 1.2% increase in price.

These lower comp sales -- combined with higher labor costs -- dented Zoe's restaurant contribution margin, which dropped 2.6 percentage points to 19%. In turn, restaurant contribution (defined as restaurant sales less restaurant operating costs) decreased 1.6% to $14.1 million.

All told, EBITDA -- adjusted to exclude preopening costs, equipment disposals, and other nonrecurring items -- decreased 2% to $15.2 million. And adjusted net income declined to $0.3 million, or $0.02 per share, compared to $2.3 million, or $0.12 per share, in the prior-year quarter.

Looking forward

Despite these lackluster results, CEO Kevin Miles painted a more optimistic picture for the second half of the year during Zoe's earnings call, saying:

These positive comp trends led Zoe's to reiterate its fiscal 2017 full-year outlook, including:

  • Total revenue of $314 million to $322 million
  • Comparable-restaurant sales growth of flat to down 3%
  • Restaurant contribution margin between 18.3% and 19%

Zoe's also said it remains on track to open 38 to 40 new company-owned restaurants this year. However, the company now plans to "moderate" its store count expansion to 25-30 restaurants in 2018.

"While new units continue to open at or above expectations, we want to focus on building brand awareness and sales in our current markets," Miles said in a press release. "Our differentiated brand has proven to resonate with guests, and we are confident with our long runway for growth."

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Joe Tenebruso 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.