ZoŽs Kitchen Results

Zoës Kitchen Announces Second Quarter 2017 Results

Zoës Kitchen

Zoe's Kitchen, Inc. (NYSE: ZOES) today reported financial results for the twelve and twenty-eight weeks July 10, 2017.

Highlights for the twelve weeks ended July 10, 2017, as compared to the twelve weeks ended July 11, 2016:

  • Total revenue increased 12.1% to $74.3 million.
  • Comparable restaurant sales decreased 3.8%.
  • 13 new Company-owned restaurants opened.
  • Income from operations decreased 60.9% to $1.1 million.
  • Restaurant contribution* decreased 1.6% to $14.1 million, or 19.0% of restaurant sales.
  • Net income was $0.6 million, or $0.03 per basic and diluted share, compared to net income of $1.2 million, or $0.06 per basic and diluted share.
  • Adjusted EBITDA* decreased 1.2% to $7.1 million.
  • Adjusted net income* was $0.1 million, or $0.00 per diluted share, compared to adjusted net income of $1.2 million, or $0.06 per diluted share.

Highlights for the twenty-eight weeks ended July 10, 2017, as compared to the twenty-eight weeks ended July 11, 2016:

  • Total revenue increased 12.4% to $164.9 million.
  • Comparable restaurant sales decreased 3.6%.
  • 23 new Company-owned restaurants opened.
  • Income from operations decreased 50.2% to $2.8 million.
  • Restaurant contribution* increased 0.3% to $32.1 million, or 19.5% of restaurant sales.
  • Net income was $0.6 million, or $0.03 per basic and diluted share, compared to net income of $2.6 million, or $0.13 per basic and diluted share.
  • Adjusted EBITDA* decreased 2.0% to $15.2 million.
  • Adjusted net income* was $0.3 million, or $0.02 per diluted share, compared to adjusted net income of $2.3 million, or $0.12 per diluted share.

(*) Restaurant contribution, EBITDA, adjusted EBITDA, and adjusted net income are non-GAAP measures. For reconciliations of restaurant contribution to income from operations; EBITDA, adjusted EBITDA and adjusted net income to GAAP net income; and why the Company considers these non-GAAP measures useful, see the reconciliation of non-GAAP measures accompanying this release.

Kevin Miles, President and Chief Executive Officer of Zoës Kitchen, commented, “Results in the second quarter remained challenged, however, based on improved quarter-to-date trends, we believe we are still on track to meet our full year guidance. In the first half of this year, we made meaningful progress on multiple strategic initiatives. We are excited with the launch and early results of all of our new menu items, featuring better for you ingredients and bold new flavor profiles, which are designed to extend our leadership position in the Mediterranean restaurant segment. In early August, we launched our re-platformed website and by the end of Q3, we expect to launch our new mobile app and loyalty programs. These tools, along with the infrastructure initiatives completed earlier this year, set the stage for us to drive results in the back half of this year and provide the platform for future growth."

Mr. Miles added, “Our development plan for 2017 remains on track for 38-40 new restaurants. In 2018, we expect to moderate new unit growth with a plan to open 25-30 new restaurants. While new units continue to open at or above expectations, we want to focus on building brand awareness and sales in our current markets. Our differentiated brand has proven to resonate with guests, and we are confident with our long runway for growth."

Second Quarter 2017 Financial Results

Total revenue, which includes restaurant sales from Company-owned restaurants and royalty fees, increased 12.1% to $74.3 million in the twelve weeks ended July 10, 2017, from $66.3 million in the twelve weeks ended July 11, 2016. Restaurant sales for the twelve weeks ended July 10, 2017 were $74.3 million, an increase of 12.1% from $66.2 million in the twelve weeks ended July 11, 2016.

Comparable restaurant sales decreased 3.8% during the twelve weeks ended July 10, 2017, consisting of a 5.0% decrease in transactions and product mix offset by a 1.2% increase in price. The comparable restaurant base includes those restaurants open for eighteen full periods or longer and included 169 restaurants as of July 10, 2017.

Restaurant contribution decreased 1.6% to $14.1 million in the twelve weeks ended July 10, 2017, from $14.3 million in the twelve weeks ended July 11, 2016. As a percentage of restaurant sales, restaurant contribution margin decreased 2.6% to 19.0% as increases in labor and store operating expense rates were partially offset by lower cost of goods rates.

The increase in labor and store operating expense rates was driven by the dilutive effect on margins from our newest restaurants, which, on average, initially operate at less than system-wide average sales volumes and incur some inefficiencies for a short period of time. In addition, labor rates increased from hourly wage rate inflation while store operating expense rates increased due to investments in store technology and marketing.

Net income for the twelve weeks ended July 10, 2017 was $0.6 million, or $0.03 per diluted share, compared to net income of $1.2 million, or $0.06 per diluted share, for the twelve weeks ended July 11, 2016. Adjusted net income was $0.1 million, or $0.0 per diluted share, for the twelve weeks ended July 10, 2017, compared to adjusted net income of $1.2 million, or $0.06 per diluted share, for the twelve weeks ended July 11, 2016.

2017 Fiscal Year Financial Results

Total revenue, which includes restaurant sales from Company-owned restaurants and royalty fees, increased 12.4% to $164.9 million in the twenty-eight weeks ended July 10, 2017, from $146.7 million in the twenty-eight weeks ended July 11, 2016. Restaurant sales for the twenty-eight weeks ended July 10, 2017 were $164.8 million, an increase of 12.4% from $146.6 million in the twenty-eight weeks ended July 11, 2016.

Comparable restaurant sales decreased 3.6% during the twenty-eight weeks ended July 10, 2017, consisting of a 4.8% decrease in transactions and product mix offset by a 1.2% increase in price. The comparable restaurant base includes those restaurants open for eighteen full periods or longer and included 169 restaurants as of July 10, 2017.

Restaurant contribution increased 0.3% to $32.1 million in the twenty-eight weeks ended July 10, 2017, from $32.0 million in the twenty-eight weeks ended July 11, 2016. As a percentage of restaurant sales, restaurant contribution margin decreased 2.4% basis points to 19.5% as increases in labor and store operating expense rates were partially offset by lower cost of goods rates.

The increase in labor and store operating expense rates was driven by the dilutive effect on margins from our newest restaurants, which, on average, initially operate at less than system-wide average sales volumes and incur some inefficiencies for a short period of time. In addition, labor rates increased from hourly wage rate inflation while store operating expense rates increased due to investments in store technology and marketing.

Net income for the twenty-eight weeks ended July 10, 2017 was $0.6 million, or $0.03 per diluted share, compared to net income of $2.6 million, or $0.13 per diluted share, for the twenty-eight weeks ended July 11, 2016. Adjusted net income was $0.3 million, or $0.02 per diluted share, for the twenty-eight weeks ended July 10, 2017, compared to adjusted net income of $2.3 million, or $0.12 per diluted share, for the twenty-eight weeks ended July 11, 2016.

Development

The Company opened 13 new Company-owned restaurants during the twelve weeks ended July 10, 2017. As of July 10, 2017, there were 224 Company-owned restaurants and three franchised restaurants. As of August 17, 2017, the Company has opened five additional restaurants, bringing the total restaurant count to 232.

FY 2017 Outlook

For the fiscal year ending December 25, 2017, the Company is confirming its outlook:

  • Total revenue between $314.0 million and $322.0 million (unchanged from previous guidance).
  • Comparable restaurant sales of flat to negative 3.0% (unchanged from previous guidance).
  • 38 to 40 Company-owned restaurant openings (unchanged from previous guidance).
  • Restaurant contribution margin between 18.3% and 19.0% (unchanged from previous guidance).
  • 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 (unchanged from previous guidance).

About Zoës Kitchen

Founded in 1995, Zoës Kitchen is a fast-casual restaurant group serving a distinct menu of fresh, wholesome, made-from-scratch, Mediterranean-inspired dishes delivered with warm hospitality. With no microwaves, or fryers, grilling is the predominate method of cooking along with an abundance of fresh fruits and vegetables, fresh herbs, olive oil and lean proteins. With 232 locations in 20 states across the United States, Zoës Kitchen delivers goodness to its guests by sharing simple, tasty and fresh Mediterranean meals that inspire guests to lead a balanced lifestyle and feel their best from the inside out. 

   
Zoe's Kitchen, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
 
Twelve Weeks Ended Twenty-eight Weeks Ended
July 10,

2017

  July 11,

2016

July 10,

2017

  July 11,

2016

Revenue:
Restaurant sales $ 74,261 $ 66,222 $ 164,765 $ 146,570
Royalty fees 44   51   101   114  
Total revenue 74,305   66,273   164,866   146,684  
Operating expenses:
Restaurant operating costs (excluding depreciation and amortization):
Cost of sales 21,791 19,995 48,287 43,984
Labor 22,113 18,810 49,065 42,109
Store operating expenses 16,242 13,075 35,291 28,448
General and administrative expenses 7,124 7,270 17,109 16,715
Depreciation 4,161 3,292 9,213 7,284
Amortization 350 373 839 873
Pre-opening costs 679 552 1,246 1,292
Loss from disposal of equipment 748   100   1,007   337  
Total operating expenses 73,208   63,467   162,057   141,042  
Income from operations 1,097 2,806 2,809 5,642
Other income and expenses:
Interest expense, net 1,018 861 2,386 1,983
Other income (20 ) (20 ) (49 ) (47 )
Total other income and expenses 998   841   2,337   1,936  
Income before provision for income taxes 99 1,965 472 3,706
Provision (benefit) for income taxes (480 ) 764   (126 ) 1,109  
Net income $ 579   $ 1,201   $ 598   $ 2,597  
 
Earnings per share:
Basic $ 0.03 $ 0.06 $ 0.03 $ 0.13
Diluted $ 0.03 $ 0.06 $ 0.03 $ 0.13
Weighted average shares of common stock outstanding:
Basic 19,488,851 19,436,315 19,479,293 19,413,132
Diluted 19,493,514 19,631,272 19,513,743 19,595,542
 
 

Zoe's Kitchen, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

Margin Analysis

 

The following table sets forth the percentage relationship to total revenue, except where otherwise indicated, for certain items included in the Company's condensed consolidated statements of operations for the period indicated. The percentages set forth below may not reconcile due to rounding of amounts stated:

                             
Twelve Weeks Ended Twenty-eight Weeks Ended
July 10,

2017

  July 11,

2016

July 10,

2017

  July 11,

2016

Revenue:
Restaurant sales 99.9

 %

99.9

 %

99.9

 %

99.9

 %

Royalty fees 0.1

 %

0.1

 %

0.1

 %

0.1

 %

Total revenue 100.0

 %

100.0

 %

100.0

 %

100.0

 %

Operating expenses:
Restaurant operating costs (excluding depreciation and amortization) (1):
Cost of sales 29.3

 %

30.2

 %

29.3

 %

30.0

 %

Labor 29.8

 %

28.4

 %

29.8

 %

28.7

 %

Store operating expenses 21.9

 %

19.7

 %

21.4

 %

19.4

 %

General and administrative expenses 9.6

 %

11.0

 %

10.4

 %

11.4

 %

Depreciation 5.6

 %

5.0

 %

5.6

 %

5.0

 %

Amortization 0.5

 %

0.6

 %

0.5

 %

0.6

 %

Pre-opening costs 0.9

 %

0.8

 %

0.8

 %

0.9

 %

Loss from disposal of equipment 1.0

 %

0.2

 %

0.6

 %

0.2

 %

Total operating expenses 98.5

 %

95.8

 %

98.3

 %

96.2

 %

Income from operations 1.5

 %

4.2

 %

1.7

 %

3.8

 %

Other income and expenses:
Interest expense, net 1.4

 %

1.3

 %

1.4

 %

1.4

 %

Other income (0.0

)%

(0.0 )% (0.0 )% (0.0 )%
Total other income and expenses 1.3

 %

1.3

 %

1.4

 %

1.3

 %

Income before provision for income taxes 0.1

 %

3.0

 %

0.3

 %

2.5

 %

Provision (benefit) for income taxes (0.6 )% 1.2

 %

(0.1

)%

0.8

 %

Net income 0.8

 %

1.8

 %

0.4

 %

1.8

 %

 
(1) As a percentage of restaurant sales.
           
Zoe's Kitchen, Inc. and Subsidiaries
Unaudited Condensed Consolidated Selected Balance Sheet Data and Selected Operating Data
(in thousands, except restaurant count data)
 
As of
July 10,

2017

  December 26,

2016

 
Selected Balance Sheet Data:
Cash and cash equivalents $ 4,549 $ 5,493
Total assets 238,886 215,219
Total debt (1) 42,446 29,913
Total liabilities 106,626 85,253
Total stockholders' equity 132,260 129,966
 
(1) Includes $32.4 million and $29.8 million of deemed landlord financing as of July 10, 2017 and December 26, 2016, respectively.
 
 
 
  Quarter Ended
July 10,

2017

  April 17,

2017

    December 26,

2016

October 3,

2016

July 11,

2016

Selected Operating Data:                
Company-owned restaurants at end of period 224 211 201 194 183
Franchise-owned restaurants at end of period 3 3 3 3 3
Company-owned:
Comparable restaurant sales (3.8

)%

(3.3 )% 0.7 % 2.4 % 4.0 %
Units in the comparable base 169 161 150 143 134
 
       
Zoe's Kitchen, Inc. and Subsidiaries

Unaudited Reconciliation of Income from Operations to Restaurant Contribution (non-GAAP presentation)

(in thousands)
 
Twelve Weeks Ended Twenty-eight Weeks Ended
July 10,

2017

  July 11,

2016

July 10,

2017

  July 11,

2016

 
Restaurant Contribution:
Income from operations $ 1,097 $ 2,806 $ 2,809 $ 5,642
Less:
Royalty fees 44 51 101 114
Add:
General and administrative expenses 7,124 7,270 17,109 16,715
Depreciation and amortization 4,511 3,665 10,052 8,157
Pre-opening costs(1) 679 552 1,246 1,292
Loss from disposal of equipment 748   100   1,007   337  
Restaurant Contribution $ 14,115   $ 14,342   $ 32,122   $ 32,029  
 
Total revenue $ 74,305 $ 66,273 $ 164,866 $ 146,684
Less: Royalty fees 44   51   101   114  
Restaurant sales $ 74,261   $ 66,222   $ 164,765   $ 146,570  
 
Restaurant contribution margin 19.0 % 21.7 % 19.5 % 21.9 %
       
Zoe's Kitchen, Inc. and Subsidiaries
Unaudited Reconciliation of Net Income to Adjusted EBITDA (non-GAAP presentation)
(in thousands)
 
Twelve Weeks Ended Twenty-eight Weeks Ended
July 10,

2017

  July 11,

2016

July 10,

2017

  July 11,

2016

 
Adjusted EBITDA:
Net income, as reported $   579 $   1,201 $ 598 $   2,597
Depreciation and amortization 4,511 3,665 10,052 8,157
Interest expense, net 1,018 861 2,386 1,983
Provision (benefit) for income taxes (480 ) 764   (126 ) 1,109
EBITDA 5,628 6,491 12,910 13,846
Pre-opening costs(1) 679 552 1,246 1,292
Loss from disposal of equipment 748   100   1,007   337
Adjusted EBITDA $   7,055   $   7,143   $ 15,163   $   15,475
       
Zoe's Kitchen, Inc. and Subsidiaries
Unaudited Reconciliation of Net Income to Adjusted Net Income (non-GAAP presentation)
(in thousands, except share and per share data)
 
Twelve Weeks Ended Twenty-eight Weeks Ended
July 10,

2017

  July 11,

2016

July 10,

2017

  July 11,

2016

 
Adjusted net income:
Net income, as reported $ 579 $ 1,201 $ 598 $ 2,597
Provision (benefit) for income taxes (1) (480 ) 764   (126 ) 1,109
Pre-tax Adjusted net income 99 1,965 472 3,706
Estimated tax provision (1) 38   747   179   1,408
Adjusted net income $ 61   $ 1,218   $ 293   $ 2,298
 
Adjusted net income per share:
Basic $ 0.00 $ 0.06 $ 0.02 $ 0.12
Diluted $ 0.00 $ 0.06 $ 0.02 $ 0.12
Weighted average shares of common stock outstanding:
Basic 19,488,851 19,436,315 19,479,293 19,413,132
Diluted 19,493,514 19,631,272 19,513,743 19,595,542



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