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 | |||||||||||||
Logos, product and company names mentioned are the property of their respective owners.