Zoe’s Kitchen Q1 Earnings: Lower Guidance is Sinking Shares

Small cap Mediterranean restaurant stock Zoe’s Kitchen Inc (NYSE: ZOES) reported Q1 2017 earnings after the market closed yesterday withresults basically meeting Wall Street expectations, but shares are sinking more than 10% in premarket trading. Total revenue increased 12.6% to $90.6 million as comparable restaurant sales decreased 3.3% consisting of a 4.6% decrease in transactions and product mix offset by a 1.3% increase in price.Net income was$19.0 thousand versusnet income of$1.4 million. The CEO commented:

Our first quarter was largely in line with our expectations, reflecting the challenging traffic trends that prevailed across the industry, as well as the cycling of our 8.1% comp from 2016. With similar traffic trends continuing into the second quarter, we have revised our full year outlook. While we are dissatisfied with our comp result in the first quarter, we continued to grow share in our largest markets and are confident in the overall health of our brand.”

As we look to the balance of the year, we are on track to implement several major initiatives to build sales and traffic, and to reinforce our core strategies. Later this summer, we will introduce new entr茅es, sandwiches and appetizers that feature bold new flavor profiles, proteins, sauces and ingredients designed to extend our leadership in the Mediterranean space. We are also on track to better meet our guests demand for convenience with the planned re-launch of our web, loyalty and mobile platforms and to build upon our delivery and catering capabilities. We believe these initiatives will drive revenue and continue to grow our brand across all the markets we serve.”

For the fiscal year ending December25, 2017, Zoe’s Kitchen updated its outlook to the following:

Total revenue between $314.0 million and $322.0 million (previously $325.0 million and $327.0 million). Comparable restaurant sales of flat to negative 3.0% (previously 1.0% to 2.0%). 38 to 40 Company-owned restaurant openings (unchanged from previous guidance). Restaurant contribution margin between 18.3% and 19.0% (previously 19.0% and 19.3%). General and administrative expenses between 10.7% and 10.9% of total revenue, inclusive of $3.2 million of non-cash equity based compensation expense (previously 10.7% to 10.8%).

A technical chart for Zoe’s Kitchen shows shares falling below a support level in February and continuing to drift lower:

A long term performance chart shows Zoe’s Kitchen now below its IPO close price for retail investors while other hyped up restaurant IPOsthat debuted around the same time like Noodles & Co (NASDAQ: NDLS) and Potbelly Corp (NASDAQ: PBPB) fell off more quickly after their IPOs and have remained down:

Finally, here is a quick recap of small cap Zoe’s Kitchens recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page going into the current earnings report:

EPS Est. 0.06 0.04 -0.06 0.01
EPS Actual 0.06 0.04 -0.07 0.01
Difference N/A N/A -0.01 N/A
Surprise % N/A N/A -16.70% N/A
EPS TrendCurrent Qtr. (Jun 2017)Next Qtr. (Sep 2017)Current Year (2017)Next Year (2018)
Current Estimate 0.04 0.05 0.04 0.11
7 Days Ago 0.05 0.05 0.05 0.12
30 Days Ago 0.05 0.05 0.05 0.12
60 Days Ago 0.05 0.05 0.05 0.12
90 Days Ago 0.06 0.06 0.11 0.21