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Zoe's Kitchen (ZOES) Lags Q2 Earnings Estimates, Stock Down

Zacks Equity Research

Zoe’s Kitchen, Inc. ZOES reported break-even results in the second quarter of fiscal 2017, lagging the Zacks Consensus Estimate of 2 cents. Moreover, earnings deteriorated considerably from the year-ago figure of 6 cents owing to lower restaurant contribution margin.

Revenues of $74.3 million lagged the consensus mark of $75 million by nearly 1% but improved 12.1% year over year backed by new restaurant openings.  Zoe’s Kitchen still expects to open 38 to 40 company-owned restaurants this year

Notably, the company’s shares have declined over 4% in afterhours trading on Aug 17, mirroring investors’ concerns surrounding the weak results and sluggish comps.

Behind the Headline Numbers

Comparable restaurant sales decreased 3.8%, given a 5% decrease in transactions and product mix, partially offset by a 1.2% price hike. The challenging restaurant environment continued to affect comps.

Consequently, the figure compared unfavorably with the prior-quarter’s comps decline of 3.3% and the year-ago quarter’s growth of 4%.

Restaurant contribution margin went down 260 basis points (bps) year over year to 19% as increased labor and operating expenses eroded the improvement in cost of goods.

Zoe's Kitchen, Inc. Price, Consensus and EPS Surprise


Zoe's Kitchen, Inc. Price, Consensus and EPS Surprise | Zoe's Kitchen, Inc. Quote

2017 Fiscal Outlook Reaffirmed

For fiscal 2017, the company expects total revenue in the band of $314 million to $322 million, same as the previous guided range.

Also, it continues to project comp sales of flat to negative 3%.

Furthermore, the company predicts restaurant contribution margin in the range of 18.3% to 19% (same as earlier guidance).

Despite weak fiscal second quarter results, the company expects to meet its full-year guidance on the improved quarter-to-date trend. The company is particularly positive on recent menu innovation, re-platformed website and scheduled launch of its mobile app and loyalty programs by the end of fiscal third quarter. It thus expects these strategic measures along with the infrastructure initiatives completed earlier this year to drive results in the second half of fiscal 2017.

We note that Zoe’s Kitchen currently has a Zacks Rank #4 (Sell).

Peer Releases

Chipotle Mexican Grill, Inc.’s CMG second-quarter 2017 adjusted earnings of $2.32 per share outpaced the Zacks Consensus Estimate of $2.16 by 7.4%. The figure also improved significantly from the prior-year quarter earnings of 87 cents, given a substantial rise in revenues.

Darden Restaurants, Inc.’s DRI fourth-quarter fiscal 2017 adjusted earnings of $1.18 per share outpaced the Zacks Consensus Estimate of $1.15 by 2.6%. Further, the bottom line rose 7.3% year over year on the back of higher revenues and lower share count.

Restaurant Brands International, Inc.’s QSR second-quarter 2017 adjusted earnings of 51 cents per share beat the Zacks Consensus Estimate of 45 cents by 13.3%. The figure also improved from the prior-year quarter’s 41 cents on revenue growth.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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