Zoe’s Dishes out Tasty Treat

Comparable restaurant sales grew on the back of higher transactions and product mix

Founded in 1995, fast casual restaurant Zoe’s Kitchen Inc. (NYSE: ZOES) announced its Q1 FY16 results on Tuesday, May 31st, 2016. The financial results are for the 16 weeks ended April 18th, 2016, as compared to the 16 weeks ended April 20th, 2015. Zoe’s total revenue, which includes revenue from Company-owned restaurants and royalty fees, jumped 27.6% to $80.4 million in Q1 FY16 from $63.0 million in the comparable period last year. When considering restaurant sales alone, revenue shot up 27.6% to $80.3 million during Q1 FY16 from $62.9 million in the year-ago quarter.

Source: Company's Website
Source: Company’s Website

Zoe’s comparable restaurant sales grew at a healthy 8.1% during Q1 FY16 and include a 6% gain from transactions and product mix along with a 2.1% increase in price. The Company’s defines comparable sales, a key industry metric, as sales at locations open for at least 18 months. The comparable restaurant base included 126 restaurants as of April 18th, 2016.

Restaurant contributions rose 29.4% to $17.7 million in Q1 FY16 from $13.7 million in the year-ago quarter. Restaurant contribution margins, as a percentage of restaurant sales, increased 30 basis points to 22.0%, on account of lower commodity prices. This gain was partially offset by higher labor and store operating expenses.

The highlight of the quarter under review was Zoe’s net income, which more than doubled to $1.4 million, or $0.07 per diluted share, compared to $0.7 million, or $0.04 per diluted share, in the comparable quarter last year. The Company’s adjusted net income was $1.1 million, or $0.06 per diluted share, during Q1 FY16, compared to adjusted net income of $0.6 million, or $0.03 per diluted share, in the year-ago quarter. Zoe’s ended Q1 FY16 with $20.6 million in cash and $27.3 million in debt.

New restaurant openings

Zoe’s serves a diverse Mediterranean-style menu across 182 locations in 19 U.S. states. It counts restaurants such as Fiesta Restaurant Group Inc. (NASDAQ: FRGI), Denny’s Corp. (NASDAQ: DENN), and Nathan’s Famous Inc. (NASDAQ: NATH) as its competitors.

Source: Company's Website
Source: Company’s Website

Zoe’s opened 11 new Company-owned restaurants during Q1 FY16, taking total restaurant count to 182. The Company also reopened its restaurant in Columbia, South Carolina, during Q1 FY16.

FY16 guidance updated

The Plano, Texas-based restaurant chain is gung-ho about its Q1 FY16 results, prompting management to revise upwards its projections for the fiscal year ending December 26th, 2016. Zoe’s now projects total revenue of between $277 million and $281 million (earlier $275 million to $280 million), with comparable sales projected to improve 4.5% to 6% (earlier 4% to 5.5%). The Company plans to open 34 to 36 company-owned restaurants. Consequently, restaurant contribution margins are expected to come in between 20.5% and 21.0% (previously 20.3% and 20.8%). Lastly, general and administrative expenses are expected to range between 11.5% and 11.7% of total revenue (previously 11.6% and 11.8%). This is inclusive of $2.3 million of non-cash equity based compensation expenses.

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