Zoe’s Kitchen (ZOES) Beats on Earnings and Revenues in Q1

Shares of Zoe's Kitchen, Inc. ZOES gained almost 2.5% in after-hours trading on May 31, backed by better-than-expected first-quarter 2016 results. Higher comps growth increased investors’ confidence in the stock.

Earnings and Revenue Discussion

Zoe's Kitchen’s adjusted earnings of 6 cents per share beat the Zacks Consensus Estimate of 4 cents. The upside came on the back of improved revenues and margins.

ZOES KITCHEN Price and EPS Surprise

Revenues of $80 million beat the consensus mark by 1.2% and jumped 27.6% year over year backed by an 8.1% increase in comps.

Behind the Headline Numbers

Comparable restaurant sales increased 8.1% driven by 6% improvement in product mix and 2.1% price increase. The quarter also witnessed 6% increase in transactions.

Restaurant contribution margin went up 30 basis points (bps) to 22% as commodity costs and repair and maintenance expenses declined year over year. The improvement was, however, partially offset by an increase in labor and store operating expenses.

2016 Revenue and Comps Guidance

Zoe's Kitchen issued guidance for restaurant sales and comps for 2016. Restaurant sales are expected in the range of $277 million to $281 million. Meanwhile, comps are likely to grow in the 4.5% to 6% range.

Also, the company predicts restaurant contribution margin in the range of 20.5% to 20.8%.

Further, the company projects adjusted general and administrative (G&A) expense margin between 11.5% and 11.7%.

Zoe's Kitchen has a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked restaurant stocks include Carrols Restaurant Group, Inc. TAST, Famous Dave's of America Inc. DAVE, and Restaurant Brands International Inc. QSR. All these stocks have Zacks Rank #1(Strong Buy).

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