Zoe’s Kitchen Inc. (ZOES, Financial) is scheduled to report its first quarter results for fiscal 2015 on 4th June 2015. The company, which went public in April 2014, competes with Darden Restaurants Inc. (DRI, Financial) and Ignite Restaurants Group Inc. (IRG, Financial) among others in the chain-restaurants segment.
Zoe’s Kitchen saw a whopping 39.5% year-over-year growth in revenues to $40 million in the fourth quarter of fiscal 2014. The company also posted adjusted loss of 3 cents a share compared to the loss of 6 cents a share during the prior-year quarter on the back of strong revenue growth, beating the consensus estimate of a loss of 4 cents a share. Further, comparable-store sales for the quarter grew 7.8% compared to 5.9% growth in the year-ago quarter. Following the results, Zoe’s Kitchen projected restaurant sales of $215 to $220 million for fiscal 2015, with comparable-store sales growth in the 4% to 6% range. The company also said it would open 31 to 33 company owned restaurants during the new fiscal. Zoe’s Kitchen shares are currently down 9% since the company’s last earnings report.
Cost-saving strategies likely to ease margin pressure
With a strong focus on offering Mediterranean-inspired cuisine, Zoe’s Kitchen has been able to set itself apart in the high-competition fast-casual restaurants space. The company has seen impressive sales growth over the past years, with comparable-store sales growing steadily and earnings surpassing the consensus estimate in three out of the last four quarters. The company saw improved traffic in the fourth quarter, which, along with an enhanced product mix, boosted comparable-store sales. Experts opine that the trend is likely to continue into Q1 2015, given the efforts put in by the company to add to its menu while also promoting and marketing the new items well.
However, the inflation in food costs in the U.S. and the consequent pressure on the company’s Q1 margins remains a concern. While the enduring slowdown in global agricultural supply is affecting food prices negatively, the trend is compounded in the U.S. owing to several macroeconomic factors including an overall demand imbalance, sluggish consumer spending and the drought in California. However, Zoe’s Kitchen has taken a number of positive steps to curb the impact. The company’s cost-saving strategies includes improvements in supply chain, waste reduction and reduction in labour costs during the quarter. Consequently, experts are looking at estimate-beating results by Zoe’s Kitchen for the first quarter.
Final thoughts
Zoe’s Kitchen posted better-than-expected results for the fourth quarter of fiscal 2014 on the back of improved traffic and product mix. Experts foresee the trend continuing into Q1 2015 owing to the company’s focus on adding new offerings to its menu to attract customers. Although the enduring inflation in food costs remains an area of concern, Zoe’s Kitchen’s cost-saving initiatives are likely to help offset the negative impact on its margins. The company’s stock has been trading in the $30 to $35 a share range in the last three months. Although the market is bearish regarding the company’s prospects, experts are looking at a 50% jump in quarterly EPS to a loss of 1 cent a share and nearly 33% growth in revenues on a year-over-year basis for the first quarter. The Zoe’s Kitchen stock currently carries a price estimate of $31.53 a share and a "buy" guidance.
