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Why Zoe's Kitchen (ZOES) Declined Despite Q2 Earnings Beat?

Zacks Equity Research
Updated

Shares of Zoe's Kitchen, Inc. ZOES dropped approximately 5% in the after hours trading session on Aug 27, despite posting better than expected fiscal second-quarter 2015 results as investors’ confidence was hurt by soft comps growth and the company’s increased general and administrative expenses outlook.

Second-Quarter Earnings Beat

Zoe's Kitchen’s adjusted earnings of 5 cents compared favorably with the Zacks Consensus Estimate as well as the year-ago quarter figure of 4 cents by 25%. The upside came on the back of improved revenues and margins.

 

Zoes Kitchen - Earnings Surprise | FindTheBest


Revenues of $54.5 million also beat the consensus mark by 2.8% while increasing 30% year over year. Comparable restaurant sales increased 5.6%, lower than 7.7% growth in first quarter and 7.5% rise in the year-ago period. Comps were supported by only 1.3% rise in traffic and 3.5% improvement in product mix, combined with a 0.8% price increase.

Restaurant contribution margin went up 10 basis points (bps) to 21.3% as the company witnessed lower commodity costs, partially offset by an increase in store operating expenses.

2015 Revenue and Comps Guidance Raised

Zoe's Kitchen increased its restaurant sales guidance and comps guidance for 2015. Restaurant sales are expected in the range of $220.0 million to $224.0 million, compared with the previous expectation of $218.0 million to $223.0 million. Meanwhile, the company also raised the lower end of the comps growth guidance to a range of 5% to 6% from 4% to 6%.

However, the company maintained the restaurant contribution margin guidance range of 20% to 20.5%.

Further, the company increased its adjusted general and administrative expenses guidance. general and administrative expenses are expected to range between $25.3 million to $25.5 million, up from the prior guidance of $24.7 million. Updated guidance includes costs related to additional regulatory requirements due to the company's new SEC reporting designation as a large accelerated filer as well as a termination agreement related to a store relocation.

Zoe's Kitchen has a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked restaurant stocks are BJ's Restaurants, Inc. BJRI, Ruby Tuesday, Inc. RT and Chuy's Holdings, Inc. CHUY. All these stocks sport a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
ZOES KITCHEN (ZOES): Free Stock Analysis Report
 
BJ'S RESTAURANT (BJRI): Free Stock Analysis Report
 
RUBY TUESDAY (RT): Free Stock Analysis Report
 
CHUYS HOLDINGS (CHUY): Free Stock Analysis Report
 
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Zacks Investment Research