Zoe's Kitchen, Inc. ZOES is set to report first-quarter 2015 results on Jun 4, after the market closes. Last quarter, it posted in-line results. Let’s see how things are shaping up for this announcement.
Factors to Consider
Zoe's Kitchen began trading in Apr 2014. This fast casual Mediterranean cuisine restaurant posted better-than-expected revenues in all the four quarters reported so far. Further, earnings surpassed estimates in three out of these last four quarters.
Comps improved in all the previous quarters backed by improved traffic and an increase in product mix. We expect the trend to continue in the to-be-reported quarter as well, given the company’s efforts to develop new menu items and marketing and promotional campaigns to promote these items.
Further, Zoe's Kitchen’s various cost savings initiatives, including savings in food costs through waste reduction, efficiency initiatives in supply chain and lowering labor costs, are likely to boost first-quarter earnings.
However, challenges persist in the restaurant industry. Like other food chains, increasing food costs remain a concern for Zoe’s Kitchen too. Food prices are expected to remain under pressure due to worldwide agricultural supply, further compounded by a drought in California and demand imbalance and other macroeconomic factors. These factors are likely to have an impact on the first-quarter results. Moreover, a soft consumer spending environment would affect traffic to some extent.
Earnings Whispers
Our proven model does not conclusively show that Zoe's Kitchen is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of a penny. Hence, the difference is 0.00%.
Zacks Rank: Zoe's Kitchen’s Zacks Rank #1 (Strong Buy) increases the predictive power of the ESP. However, we need a positive ESP to be confident of an earnings surprise.
Note that the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
Stocks to Consider
Some stocks in the restaurant industry that have both a positive Earnings ESP and a favorable Zacks Rank are:
Chuy's Holdings, Inc. CHUY, with an Earnings ESP of +4.00% and a Zacks Rank #2 (Buy).
Shake Shack Inc. SHAK, with an Earnings ESP of +33.33% and a Zacks Rank #2.
DineEquity, Inc. DIN, with an Earnings ESP of +1.36% and a Zacks Rank #3 (Hold).
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