Zoe's Kitchen, Inc. ZOES reported mixed third-quarter 2016 financial results, wherein earnings were in line with the Zacks Consensus Estimate but revenues lagged the same.
Consequently, the company’s shares declined nearly 5% in after-hours trading on Nov 14, following the release of these numbers.
Earnings and Revenue Discussion
Zoe's Kitchen’s adjusted earnings of 4 cents per share were in line with the Zacks Consensus Estimate. Notably, the figure decreased 20% from the prior-year quarter earnings of 5 cents, on the back of lower restaurant contribution margin.
Revenues of $67.3 million lagged the consensus mark of $68 million by over 1% but improved 19.4% year over year backed by a 2.4% comps increase.
Behind the Headline Numbers
Comparable restaurant sales increased 2.4% driven by a 2.9% price hike, partially offset by a 0.5% decrease in transactions and product mix. However, the figure compared unfavorably with the prior-quarter comps growth of 4%.
Restaurant contribution margin contracted 240 basis points (bps) to 19.1% due to increases in labor and store operating expenses. The increase in labor and store operating costs can be attributed to the dilutive effect on margins from the company’s new restaurants which, on an average, initially operate at less than system-wide average sales volumes.
Zoe's Kitchen slashed its guidance for restaurant sales and comps for full-year 2016. Restaurant sales are likely to be in the range of $276–$277 million as against the prior guidance of $277–$280 million. Also, the company trimmed the upper end of its comps outlook and now anticipates comps to grow in the range of 4–4.5%, (earlier 4–5%).
Further, the company predicts restaurant contribution margin in the range of 20.0%–20.3% (earlier 20.5%–20.8%).
The company projects adjusted general and administrative (G&A) expense margin of approximately 11.0%, lower than previous expectation of between 11.5% and 11.7%.
Additionally, 37 to 38 company-owned restaurant openings are expected in the year (previously 35 to 36).
ZOES KITCHEN Price, Consensus and EPS Surprise
ZOES KITCHEN Price, Consensus and EPS Surprise | ZOES KITCHEN Quote
Zacks Rank & Stocks to Consider
Zoe's Kitchen has a Zacks Rank #4 (Sell).
Better-ranked stocks in this sector include Domino’s Pizza, Inc. DPZ, Papa John's International Inc. PZZA, and The Wendy’s Company WEN.
Domino’s Pizza recently posted robust third-quarter 2016 results wherein both the top and bottom-line beat the respective estimate. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Papa John’s has a positive earnings surprise in each of the trailing four quarters, recording an average beat of 11.31% and carries a Zacks Rank #2 (Buy).
Wendy’s also has a positive earnings surprise in each of the trailing four quarters, with an average beat of 28.38% and carries a Zacks Rank #2.
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