Zoe's Kitchen, Inc. (ZOES)

Symbol Overview

ZOEShttp://www.nasdaq.com/symbol/zoesConsumer Services2014Restaurants

Latest Zoe's Kitchen, Inc. (ZOES) company news

Wired News - YUM! Brands' Pizza Hut Commits to Raise Chicken without Antibiotics by 2022

Stock Monitor: Zoe's Kitchen Post Earnings Reporting

LONDON, UK / ACCESSWIRE / June 21, 2018 / If you want access to our free research report on YUM! Brands, Inc. (YUM), all you need to do is sign up now by clicking the following link www.active-investors.com/registration-sg/?symbol=YUM as the Company's latest news hit the wire. On June 19, 2018, the Company announced that it will only serve chicken raised free of antibiotics, which is important to human medicine, by 2022. This commitment includes all chicken, including the Company's WingStreet wings. Register today and get access to over 1,000 Free Research Reports by joining our site below:

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Pizza Hut becomes the first national pizza Company to commit to an antibiotic policy for chicken wings.

Announcement Demonstrates Pizza Hut's Commitment to Serve Food that Customers Can Feel Good about Eating

Marianne Radley, Chief Brand Officer of Pizza Hut, stated that the Company is dedicated to listening to its customers and to serving better food. The announcement to no longer serve chicken raised with antibiotics by 2022 demonstrates Pizza Hut's commitment to serve food that not only tastes great, but that customers can feel good about eating. Radley added that the Company will continue to push itself to ensure that it is delivering the quality food and quality experience customers expect and deserve.

Pizza Hut has Already Eliminated Partially Hydrogenated Oils and MSG

Pizza Hut has already eliminated partially hydrogenated oils, also known as artificial trans fats, and MSG. The pizza Company does not use any fillers in any of its meat toppings. Its Italian sausage is all natural and sourced from US farmers, and its meatballs are free of any artificial colors, flavors, or preservatives. Pizza Hut also does not add any sugar or oil to its pizza marinara sauce, and its cheese is made from 100% whole milk mozzarella.

Pizza Hut's Commitment to Healthier Food

In addition to the removal of antibiotics from its chicken, Pizza Hut had announced the commitment to eliminate BHA/BHT from all meats by the end of June 2016, and the use of artificial preservatives from cheese by March 2017. In 2015, Pizza Hut became the first national pizza restaurant to remove artificial flavors and colors from its core pizzas. The chain has partnered with some of the same family farms in Kansas to grow the wheat for its dough since the late 1950s and still harvests tomatoes from some of the same fields in California's Central Valley that its founders did more than 50 years ago. Also, most of its cheese is made by the same family-run cheese Company that it is using for decades.

About Pizza Hut

Pizza Hut, which is a subsidiary of Yum! Brands, delivers more pizza, pasta, and wings than any other restaurant in the world. Pizza Hut operates more than 16,000 restaurants in 100 countries, serving innovative pizzas, traditional favorites like the signature Pan Pizza, and much more.

About YUM! Brands, Inc.

Founded in 1997 and headquartered in Louisville, Kentucky, Yum! Brands develops, operates, and franchises quick service restaurants worldwide. The Company has over 43,500 restaurants in more than 135 countries and territories, and more than 1.5 million associates worldwide. The Company's brands, KFC, Pizza Hut, and Taco Bell, are the global leaders of the chicken, pizza, and Mexican-style food categories.

Stock Performance Snapshot

June 20, 2018 - At Wednesday's closing bell, YUM! Brands' stock marginally fell 0.19%, ending the trading session at $80.86.

Volume traded for the day: 1.97 million shares.

Stock performance in the past twelve-month period - up 9.40%

After yesterday's close, YUM! Brands' market cap was at $26.27 billion.

Price to Earnings (P/E) ratio was at 14.57.

The stock has a dividend yield of 1.78%.

The stock is part of the Services sector, categorized under the Restaurants industry. This sector was up 0.6% at the end of the session.

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Downtown restaurant closes, leaving high-profile vacancy

Downtown restaurant closes, leaving high-profile vacancy

Zoë's Kitchen closed its downtown Louisville location earlier this week, leaving an open restaurant space in the bottom of one of downtown's largest towers. The Plano, Texas-based chain, which serves Mediterranean food, has had a store at the corner of West Jefferson and South Fifth streets for the last eight years. All of the Louisville stores are owned by franchisee Trey Hornsby, who referred Business First's questions to Zoë's corporate office.

Should You Buy Zoe’s Kitchen Stock at Its All-Time Lows?

Shares of Zoe's Kitchen (NYSE: ZOES) plunged 40% to an all-time low on May 25 after the Mediterranean-inspired restaurant chain missed first quarter expectations and slashed its full-year guidance. Zoe's revenue rose 13% annually to $102.1 million, but that missed estimates by $3.2 million.

However, most of that growth was driven by new restaurant openings, since its comparable restaurant sales slid 2.3% -- compared to expectations of 0.5% growth. Zoe's blamed the drop on a slight calendar shift, adverse weather conditions, lower dine-in traffic, and a decline in its average single person check.

View photos
Zoe's Kitchen dishes.

Image source: Zoe's Kitchen.

Opening new restaurants amid declining sales at existing ones is a costly strategy. That's why Zoe's posted an adjusted net loss of $2.6 million, or $0.13 per share -- which missed estimates by $0.13 and compared poorly to its net profit of $0.3 million, or a penny per share, in the prior year quarter. Its adjusted EBITDA also tumbled 31% to $5.6 million.

Zoe's slashed its prior sales guidance for fiscal 2018 from $358-$368 million to $345-$352 million, which implies 11% growth at the midpoint but misses the consensus forecast for 14.9% growth. It also cut its comps forecast from "flat to 2%" to negative 2% to 4% -- indicating that it will continue propping up its sales with new restaurant openings.

This means that Zoe's losses will likely widen, unless it reverses its comps declines and ensures that its new locations don't slip into the same slump. If Zoe's can accomplish that, the stock might be a bargain at 0.5 times this year's sales. But if it can't, the stock could end up in a terminal decline.

What the bears say...

Zoe's initially carved out a comfortable niche in the fast casual market with its Mediterranean-inspired salads, pitas, and sandwiches. That's why its stock surged 65% on its first trading day in 2014.

However, the fast casual market became increasingly crowded with rival chains like Panera Bread and Chipotle, and Zoe's got squeezed between traditional dine-in restaurants like Darden's Olive Garden and evolving fast food players like Wendy's (NASDAQ: WEN) and McDonald's (NYSE: MCD).

Improved apps and delivery services from its rivals exacerbated the pain, and Zoe's sales growth decelerated as its profitability barely improved. Meanwhile, it kept opening new stores in hopes that the newer locations would fare better than the old ones.

Zoe's opened 39 new company-owned restaurants in 2017, then added another 11 locations during the first quarter, bringing its total company-owned count to 251. It only has three franchised locations. Zoe's opened another four company-owned locations in the second quarter (as of May 24), and plans to open 25 new company-owned restaurants throughout 2018.

View photos
Chicken kabobs from Zoe's Kitchen.

Image source: Zoe's Kitchen.

This strategy seems utterly unsustainable -- Zoe's losses are widening, its comps are negative, and its restaurant contribution margin dropped 3.7% annually to 16.2% last quarter on rising labor and store operating expenses. For the full year, it expects a restaurant contribution margin of 16%-17%, compared to its prior forecast of 17.3%-18.4%.

What the bulls say...

During the conference call, Zoe's CEO Kevin Miles stated that the company will reduce its total restaurant openings for 2018 and 2019 to "approximately" 35 new locations. This indicates that while its 25 new store openings for 2018 might already be locked into construction contracts, it will likely only open ten new locations in 2019.

Miles declared that Zoe's would "thoroughly evaluate our existing fleet of restaurants" and possibly close "a handful of older restaurants approaching the end of their lease term." This indicates that Zoe's could finally shutter the weaker locations that are throttling its comps growth.

Miles also stated that Zoe's would expand its franchising strategy beyond its single franchisee, which could significantly boost its margins as it passes the overhead costs onto other franchisees. McDonald's, for example, plans to have 90% of its locations franchised by the end of 2018. 95% of all Wendy's locations were franchised last year.

Don't catch this falling knife

Zoe's might eventually rebound if it reins in its store openings, closes weaker locations, and pivots toward a higher-margin franchising model. But for now, Zoe's is stuck in a negative cycle of using new store openings to generate sales growth while neglecting its existing stores. This strategy could lead to wider losses -- so investors should steer clear of this battered stock.

More From The Motley Fool

Leo Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Zoe's Kitchen. The Motley Fool has a disclosure policy.

New Strong Sell Stocks for May 31st

McCormick (MKC) is likely to gain from the Reckitt Benckiser buyout, CCI program, strong flavor market and product innovation, although headwind from higher raw material cost persists.

Here are 5 stocks added to the Zacks Rank #5 (Strong Sell) List today:

Zoe's Kitchen, Inc. ZOES is an operator of a chain of fast-casual restaurants. The Zacks Consensus Estimate for its current year earnings has been revised more than 100% downward over the last 30 days.

Southwest Airlines Co. LUV is a passenger airline operator that provides scheduled air transportation services. The Zacks Consensus Estimate for its current year earnings has been revised 2% downward over the last 30 days.

Validus Holdings, Ltd. VR is a provider of reinsurance coverage and insurance coverage services. The Zacks Consensus Estimate for its current year earnings has been revised 2.4% downward over the last 30 days.

Stepan Company SCL is a seller of specialty and intermediate chemicals to other manufacturers. The Zacks Consensus Estimate for its current year earnings has been revised 2% downward over the last 30 days.

PetIQ, Inc. PETQ is a developer of pet medications, and health and wellness products. The Zacks Consensus Estimate for its current year earnings has been revised 1.3% downward over the last 30 days.

View the entire Zacks Rank #5 List.


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Investors Sour on Zoe's Kitchen

To say Zoe's Kitchen (NYSE: ZOES) had a poor quarter would be an understatement. Although total revenue increased 13%, the $102.1 million figure was approximately $3.2 million lower than analyst estimates. The company also missed on the bottom line reporting an adjusted loss of $0.13 per share versus break-even analyst expectations. Unfortunately, investors are used to underperformance from Zoe's Kitchen, as this was the seventh consecutive quarter of the company falling short on the top line.

Powering the top-line miss was a decline in the company's comparable sales, which decreased by 2.3% from the prior year. The number was worse than advertised: Zoe's reported a 4.4% decrease in foot traffic, which was offset by price increases. To make matters worse, management announced lower guidance for full-year revenue and slowed its plan for store expansion and build-out. In response, shares sold off as much as 40%.

A person looking at two computer screens covered in various charts grabbing their hair in frustration.

Image source: Getty Images.

Falling comps and increasing costs

More than anything else, investors were spooked by management's guidance update. Earlier forecasts that estimated the company's 2018 revenue would be $363 million at the midpoint were slashed to $348.5 million. Comparable-restaurant sales forecasts were also decreased: The company now expects a 3% decline versus a 1% increase.

Zoe's reported a 13% revenue increase, but the company still reported an operating loss this year versus a profit last year. Margins decreased this quarter as labor and store operating expenses increased more than revenue, growing 21% and 22%, respectively. Increasing labor costs are being blamed across the restaurant industry for narrowing margins, and this is likely to continue. Management expects to close 5 to 10 underperforming stores, which could be accretive to margins in future quarters while helping the company preserve cash.

Although expenses assigned to the cost of sales grew slightly less than revenue at 12.2%, management notes lower commodity costs of beef and poultry were the drivers for the slower growth. Unfortunately, commodity costs are essentially uncontrollable for most restaurants, and this could soon reverse.

Zoe's can't deliver on its key value proposition

From my viewpoint, perhaps the most discouraging matter is Zoe's inability to deliver on its value proposition, which is healthy, fresh fast-casual dining. Although numerous studies show a Mediterranean-inspired diet is healthier than the traditional Western-based diets most fast-food restaurants specialize in, Zoe's appears unable to take advantage of this despite offering keto, gluten-free, and vegetarian-friendly offerings.

As the company appears unable to deliver on its marketing strategy, the company may want to seek a partnership -- perhaps resurgent Weight Watchers International -- to reverse sluggish comps. Zoe's has a few positives in the offing. Its digital business is showing signs of life with comps up 26% in the first quarter, showing that the new app and ZK rewards program are contributing in a positive way. Although a small part of the revenue mix, delivery sales increased 155% during the quarter. However, until the company can show positive comparable sales growth, it's likely to continue to underperform the greater market. Increasing labor costs will continue to weigh on margins, so it's imperative that management focuses on increasing traffic.

More From The Motley Fool

Jamal Carnette, CFA owns shares of Zoe's Kitchen. The Motley Fool owns shares of and recommends Zoe's Kitchen. The Motley Fool has a disclosure policy.

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