Zoës Kitchen Announces First Quarter 2018 Results
Total revenue increased 12.7% to $102.1 million. Comparable restaurant sales decreased 2.3%.
Zoe's Kitchen, Inc. (NYSE:ZOES) yesterday reported financial results for the sixteen weeks ended April 16, 2018.
Results for the sixteen weeks ended April 16, 2018, as compared to the sixteen weeks ended April 17, 2017:
- Total revenue increased 12.7% to $102.1 million.
- Comparable restaurant sales decreased 2.3%.
- 11 new Company-owned restaurants opened.
- Income from operations decreased from $1.7 million to a loss from operations of $1.8 million.
- Restaurant contribution* decreased 8.2% to $16.5 million, or 16.2% of restaurant sales.
- Net loss of $3.6 million, or $0.19 per basic and diluted share, compared to net income of $19.0 thousand, or $0.00 per basic and diluted share.
- Adjusted net loss* of $2.6 million, or $0.13 per diluted share, compared to adjusted net income of $0.3 million, or $0.01 per diluted share.
- Adjusted EBITDA* decreased 30.9% to $5.6 million.
(*) Restaurant contribution, EBITDA, adjusted EBITDA, and adjusted net income (loss) are non-GAAP measures. For reconciliations of restaurant contribution to income (loss) from operations; EBITDA, adjusted EBITDA and adjusted net income (loss) to GAAP net income (loss); 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, “Our results in the first quarter were challenged as comparable restaurant sales declined 2.3%. Weather and calendar shifts aside, trends softened sequentially from the fourth quarter of 2017 primarily due to decelerating dine-in traffic. Early results in the second quarter have not shown significant improvement, necessitating a downward revision to our annual guidance.”
Miles continued, “While we are encouraged by results coming from investments in digital, delivery, and menu innovation, it is imperative that we take aggressive actions to re-focus our efforts on building sales and improving financial performance. To do so, we will slow our future new unit growth and conduct a thorough review of under-performing restaurants. Additionally, we are taking steps to reduce our G&A infrastructure and will re-allocate resources towards marketing and technology initiatives to drive sales."
Miles concluded, “We have a strong foundation of success at Zoës Kitchen, built on high-quality fresh food, inspired by the Mediterranean lifestyle and delivered with hospitality. We are fully committed to reversing our traffic trends and our team is laser focused on operational execution and sales driving initiatives. We believe the steps we are taking are right for the long-term health of the brand and to maximize shareholder value.”
First Quarter 2018 Financial Results
Total revenue, which includes restaurant sales from Company-owned restaurants and royalty fees, increased 12.7% to $102.1 million in the sixteen weeks ended April 16, 2018, from $90.6 million in the sixteen weeks ended April 17, 2017. Restaurant sales for the sixteen weeks ended April 16, 2018 were $102.0 million, an increase of 12.7% from $90.5 million in the sixteen weeks ended April 17, 2017.
Comparable restaurant sales decreased 2.3% during the sixteen weeks ended April 16, 2018, consisting of a 4.4% decrease in transactions and product mix offset by a 2.1% increase in price. The comparable restaurant base includes those restaurants open for eighteen full periods or longer and included 199 restaurants as of April 16, 2018.
Restaurant contribution decreased 8.2% to $16.5 million in the sixteen weeks ended April 16, 2018, from $18.0 million in the sixteen weeks ended April 17, 2017. As a percentage of restaurant sales, restaurant contribution margin decreased 3.7% to 16.2% 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 because of hourly wage rate inflation while store operating expense rates increased due to costs related to marketing.
Net loss for the sixteen weeks ended April 16, 2018 was $3.6 million, or $0.19 per diluted share, compared to net income of $19.0 thousand, or $0.00 per diluted share, for the sixteen weeks ended April 17, 2017. Adjusted net loss was $2.6 million, or $0.13 per diluted share, for the sixteen weeks ended April 16, 2018, compared to adjusted net income of $0.3 million, or $0.01 per diluted share, for the sixteen weeks ended April 17, 2017.
Development
The Company opened 11 new Company-owned restaurants during the sixteen weeks ended April 16, 2018. As of April 16, 2018, there were 251 Company-owned restaurants and three franchised restaurants. As of May 24, 2018, the Company has opened four additional restaurants, bringing the total restaurant count to 258.
FY 2018 Outlook
For the fiscal year ending December 31, 2018, the Company is revising its outlook as follows:
- Total revenue between $345 million and $352 million (revised from $358 million to $368 million).
- Comparable restaurant sales of negative 2.0% to negative 4.0% (revised from flat to 2.0%).
- Approximately 25 Company-owned restaurant openings (unchanged from previous guidance).
- Restaurant contribution margin between 16.0% and 17.0% (revised from 17.3% to 18.4%).
- General and administrative expenses between 10.8% and 11.0% of total revenue, inclusive of $3.7 million of non-cash equity based compensation expense (revised from 10.6% to 10.8%).
The Company is initiating certain strategic actions to improve operations and financial performance. The full financial impact of these actions has not yet been determined and is not currently included in the Company’s revised outlook. These actions will include slowing new unit growth, evaluating under-performing restaurants, reducing general and administrative expenses, and increasing marketing and technology investments. These actions will likely have a material impact to our financial statements in fiscal year 2018.
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 258 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.
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Zoe's Kitchen, Inc. and Subsidiaries |
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| Sixteen Weeks Ended | |||||||||
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April 16, |
April 17, |
||||||||
| Revenue: | |||||||||
| Restaurant sales | $ | 102,029 | $ | 90,504 | |||||
| Royalty fees | 45 | 57 | |||||||
| Total revenue | 102,074 | 90,561 | |||||||
| Operating expenses: | |||||||||
| Restaurant operating costs (excluding depreciation and amortization): | |||||||||
| Cost of sales | 29,736 | 26,496 | |||||||
| Labor | 32,512 | 26,952 | |||||||
| Store operating expenses | 23,257 | 19,049 | |||||||
| General and administrative expenses | 10,992 | 9,985 | |||||||
| Depreciation | 6,340 | 5,052 | |||||||
| Amortization | 358 | 489 | |||||||
| Pre-opening costs | 523 | 567 | |||||||
| Loss from disposal of equipment | 158 | 259 | |||||||
| Total operating expenses | 103,876 | 88,849 | |||||||
| Income (loss) from operations | (1,802 | ) | 1,712 | ||||||
| Other income and expenses: | |||||||||
| Interest expense, net | 1,623 | 1,368 | |||||||
| Other income | (27 | ) | (29 | ) | |||||
| Total other income and expenses | 1,596 | 1,339 | |||||||
| Income (loss) before provision for income taxes | (3,398 | ) | 373 | ||||||
| Provision for income taxes | 221 | 354 | |||||||
| Net income (loss) | $ | (3,619 | ) | $ | 19 | ||||
| Earnings (loss) per share: | |||||||||
| Basic | $ | (0.19 | ) | $ | 0.00 | ||||
| Diluted | $ | (0.19 | ) | $ | 0.00 | ||||
| Weighted average shares of common stock outstanding: | |||||||||
| Basic | 19,507,441 | 19,472,124 | |||||||
| Diluted | 19,507,441 | 19,528,915 | |||||||
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:
| Sixteen Weeks Ended | |||||||
|
April 16, |
April 17, |
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| Revenue: | |||||||
| Restaurant sales | 100.0 | % | 99.9 | % | |||
| Royalty fees | 0.0 | % | 0.1 | % | |||
| Total revenue | 100.0 | % | 100.0 | % | |||
| Operating expenses: | |||||||
| Restaurant operating costs (excluding depreciation and amortization) (1): | |||||||
| Cost of sales | 29.1 | % | 29.3 | % | |||
| Labor | 31.9 | % | 29.8 | % | |||
| Store operating expenses | 22.8 | % | 21.0 | % | |||
| General and administrative expenses | 10.8 | % | 11.0 | % | |||
| Depreciation | 6.2 | % | 5.6 | % | |||
| Amortization | 0.4 | % | 0.5 | % | |||
| Pre-opening costs | 0.5 | % | 0.6 | % | |||
| Loss from disposal of equipment | 0.2 | % | 0.3 | % | |||
| Total operating expenses | 101.8 | % | 98.1 | % | |||
| Income (loss) from operations | (1.8 | ) % | 1.9 | % | |||
| Other income and expenses: | |||||||
| Interest expense, net | 1.6 | % | 1.5 | % | |||
| Other income | (0.0 | )% | (0.0 | )% | |||
| Total other income and expenses | 1.6 | % | 1.5 | % | |||
| Income (loss) before provision for income taxes | (3.3 | ) % | 0.4 | % | |||
| Provision for income taxes | 0.2 | % | 0.4 | % | |||
| Net income (loss) | (3.5 | ) % | 0.0 | % | |||
| (1) As a percentage of restaurant sales. | |||||||
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Zoe's Kitchen, Inc. and Subsidiaries |
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| As of | |||||||
| April 16, 2018 |
December 25, 2017 |
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| Selected Balance Sheet Data: | |||||||
| Cash and cash equivalents | $ | 3,703 | $ | 2,276 | |||
| Total assets | 243,219 | 240,522 | |||||
| Total debt (1) | 47,634 | 45,758 | |||||
| Total liabilities | 114,609 | 109,443 | |||||
| Total stockholders' equity | 128,610 | 131,079 | |||||
(1) Includes $31.1 million and $33.2 million of deemed landlord financing as of April 16, 2018 and December 25, 2017, respectively.
| Quarter Ended | ||||||||||||||||
| April 16, 2018 |
December 25, 2017 |
October 2, 2017 |
July 10, 2017 |
April 17, 2017 |
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| Selected Operating Data: | ||||||||||||||||
| Company-owned restaurants at end of period | 251 | 240 | 235 | 224 | 211 | |||||||||||
| Franchise-owned restaurants at end of period | 3 | 3 | 3 | 3 | 3 | |||||||||||
| Company-owned: | ||||||||||||||||
| Comparable restaurant sales | (2.3 | )% | 0.3 | % | (0.5 | )% | (3.8 | )% | (3.3 | )% | ||||||
| Units in the comparable base | 199 | 186 | 178 | 169 | 161 | |||||||||||
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Zoe's Kitchen, Inc. and Subsidiaries |
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| Sixteen Weeks Ended | |||||||||
| April 16, 2018 |
April 17, 2017 |
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| Restaurant Contribution: | |||||||||
| Income (loss) from operations | $ | (1,802 | ) | $ | 1,712 | ||||
| Less: | |||||||||
| Royalty fees | 45 | 57 | |||||||
| Add: | |||||||||
| General and administrative expenses | 10,992 | 9,985 | |||||||
| Depreciation and amortization | 6,698 | 5,541 | |||||||
| Pre-opening costs(1) | 523 | 567 | |||||||
| Loss from disposal of equipment | 158 | 259 | |||||||
| Restaurant Contribution | $ | 16,524 | $ | 18,007 | |||||
| Total revenue | $ | 102,074 | $ | 90,561 | |||||
| Less: Royalty fees | 45 | 57 | |||||||
| Restaurant sales | $ | 102,029 | $ | 90,504 | |||||
| Restaurant contribution margin | 16.2 | % | 19.9 | % | |||||
(1) Represent expenses directly associated with the opening of new restaurants that are incurred prior to opening, including pre-opening rent.
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Zoe's Kitchen, Inc. and Subsidiaries |
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| Sixteen Weeks Ended | ||||||||
| April 16, 2018 |
April 17, 2017 |
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| Adjusted EBITDA: | ||||||||
| Net income (loss), as reported | $ | (3,619 | ) | $ | 19 | |||
| Depreciation and amortization | 6,698 | 5,541 | ||||||
| Interest expense, net | 1,623 | 1,368 | ||||||
| Provision for income taxes | 221 | 354 | ||||||
| EBITDA | 4,923 | 7,282 | ||||||
| Pre-opening costs(1) | 523 | 567 | ||||||
| Loss from disposal of equipment | 158 | 259 | ||||||
| Adjusted EBITDA | $ | 5,604 | $ | 8,108 | ||||
(1) Represents expenses directly associated with the opening of new restaurants that are incurred prior to opening, including pre-opening rent.
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Zoe's Kitchen, Inc. and Subsidiaries |
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| Sixteen Weeks Ended | ||||||||
| April 16, 2018 |
April 17, 2017 |
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| Adjusted net income: | ||||||||
| Net income (loss), as reported | $ | (3,619 | ) | $ | 19 | |||
| Provision for income taxes(1) | 221 | 354 | ||||||
| Pre-tax Adjusted net income (loss) | (3,398 | ) | 373 | |||||
| Estimated tax provision (benefit)(1) | (816 | ) | 90 | |||||
| Adjusted net income (loss) | $ | (2,582 | ) | $ | 283 | |||
| Adjusted earnings per share: | ||||||||
| Basic | $ | (0.13 | ) | $ | 0.01 | |||
| Diluted | $ | (0.13 | ) | $ | 0.01 | |||
| Weighted average shares of common stock outstanding: | ||||||||
| Basic | 19,507,441 | 19,472,124 | ||||||
| Diluted | 19,507,441 | 19,528,915 | ||||||
(1) For comparability, the provision for income taxes is added back to arrive at pre-tax adjusted net income; then, an estimated 24% tax rate is applied to arrive at adjusted net income. The estimated tax provision for the sixteen weeks ended April 17, 2017 has been restated to reflect an estimated 24% tax rate. The estimated tax rate was reduced from 38% to 24% due to the 2017 Tax Cuts and Job Acts. The adjusted net income amount previously disclosed for the sixteen weeks ended April 17, 2017 was $231 thousand.
