Zoe's Kitchen, Inc. ZOES reported fourth-quarter and full-year 2014 results, wherein adjusted loss of 3 cents per share was narrower than the Zacks Consensus Estimate of a loss of 4 cents. Further, adjusted loss was better than the prior year loss of 6 cents driven by a year-over-year increase in top line.
Revenues grew 39.5% year over year to $40 million, primarily due to higher restaurant sales. Meanwhile, revenues were in line with the Zacks Consensus Estimate, as lower-than-expected royalty fees offset the positive impact of higher restaurant sales.
Share price of Zoe's Kitchen increased 6.2% in the aftermarket hours on Mar 11. in our view, investors’ confidence was boosted by the solid comps growth. Moreover, the overall optimism surrounding the fast-casual sector also led to the increase in share price.
Behind the Headline Numbers
Comps grew 7.8% year over year, primarily driven by 3.9% rise in transactions and 2.7% improvement in product mix, combined with 1.2% price increase. Comps growth was much better than the prior-quarter growth of 5.9% and prior-year quarter growth of 3.8%.
Total operating expenses were $40.8 million, up 34.9% year over year due to higher cost of sales, increase in labor costs as well as store operating expenses.
General and administrative expenses, as a percentage of revenues, decreased 180 basis points (bps) to 12.6%. Labor cost declined 10 bps year over year to 27.3%.
As a percentage of restaurant sales, restaurant contribution margin decreased 40 bps to 18.5% mainly due to commodity inflation driven by beef and poultry, partly offset by lower store level operating expenses.
2014 results
For 2014, adjusted earnings were 2 cents, versus an adjusted loss of 2 cents in 2013.
Total revenue for 2014 increased 47.6% year over year to $171.7 million.
Store Update
Zoe's Kitchen opened six restaurants during the quarter. As of Mar 11, 2015, the company has opened seven restaurants, bringing the total company-owned restaurant count to 136 and the total franchise restaurant count to three.
Guidance for 2015
In 2015, the company expects restaurant sales between $215 million and $220 million and comps growth within 4% to 6%.
Royalty and franchise fees are expected to be approximately $0.2 million. Restaurant contribution margin is expected to range within 19.7% to 20.2%. General and administrative expenses are expected to be $24.7 million. The company expects to open 31 to 33 company-owned units in 2015.
Our Take
Zoe's Kitchen has focused on Mediterranean-inspired dishes and sales growth has been truly impressive over the past several years. Comps have grown steadily and the company has been able to differentiate itself in a heavily competitive fast-casual restaurant sector. However, we remain concerned about the food cost inflation in the U.S., which might put the margins under pressure.
Zoe's Kitchen currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the restaurant industry include BJ's Restaurants, Inc. BJRI, Dave & Buster's Entertainment, Inc. PLAY and Ignite Restaurant Group, Inc. IRG. All these stocks sport a Zacks Rank #1 (Strong Buy). Zoe's Kitchen currently carries a Zacks Rank #3 (Hold).
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