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Zoe’s Kitchen: Menu, dinner daypart lifts 4Q sales

Zoe’s Kitchen: Menu, dinner daypart lifts 4Q sales

Fast-casual operator exceeds analysts’ expectations

Zoe’s Kitchen Inc. executives credited the promotion of new menu items and the dinner daypart for part of an increase in same-store sales during the fourth quarter.

“Our 7.8-percent comparable restaurant sales growth in the fourth quarter was our strongest quarter of the year,” Kevin Miles, Zoe’s president and CEO, told analysts in a post-earnings conference. “Equally exciting, it was driven by 3.9-percent acceleration in traffic, and it also marked our 20th consecutive quarter of positive comparable restaurant sales growth.”

The same-store sales increase included a 2.7-percent increase in menu mix and a 1.2-increase menu price increase.

The Plano, Texas-based fast-casual chain, which offers a Mediterranean-inspired menu, exceeded analysts’ expectations during the quarter ended Dec. 29.

“Zoe’s did not comment specifically on Q1 comps to date, but management’s tone about recent business momentum seemed decidedly positive. Ongoing comps strength likely is being fueled by rising brand awareness and internal drivers (including new hummus offerings),” noted David Tarantino, an analyst with Robert W. Baird & Co.

Zoe’s recently introduced Basil Pesto Hummus and roasted Red Pepper Hummus to its menu.

“These new items illustrate our desire to incorporate Mediterranean preparations and flavors, and allow our guests to experience the taste of the Mediterranean on every visit,” Miles said. “The approach continues to build emotional equity and drive incremental visits.”

Miles noted that Zoe’s, which will complete its first year as a public company in April, saw average unit volumes at its 94 units open a full year or more increase 2.1 percent, to about $1.5 million.

“This increase is particularly impressive given that 49 percent of those units were opened during 2012 or 2013, and have not yet reached their third year of full operations,” he said.

Zoe’s ended the year with 139 restaurants, and it plans to add 31 to 33 new company-owned restaurants his year, executives said.

“As of today, we’ve already opened seven new restaurants, and we expect to open two to four additional restaurants during the first quarter, including our first restaurant in Kansas City,” Miles said,

Restaurants in new markets that have been open a bit more than a year post average unit volumes of about $1.1 million, according to Jason C. Morgan, Zoe’s chief financial officer.

The company targets AUVs of $1.3 million or more in the third year, he said, “so we are doing very well with the existing markets and the new market of Philadelphia.”

The company has targeted expansion with about 75 percent of units in existing markets and 25 percent in new markets.

Zoe’s has said it aims to reach a 50-50 daypart mix between lunch and dinner, as an emphasis on dinner helps lift sales.

New government healthcare regulations

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Restaurants that report higher annual volumes, in the $1.5 million to $1.7 million range, have strong dinner and catering sales, Miles said.

“Usually our restaurants open up with the strong lunch, and then those other dayparts start to grow as the customers get to understand how to use the concepts,” he said, adding that to grow AUVs the company would “continue to focus on menu innovation around the dinner daypart.”

Zoe’s is also planning for new government healthcare regulations.

Morgan said Zoe’s expects “minimal” impact from the Affordable Care Act. On Jan. 1, the company began offering medical coverage to full-time hourly employees who work 30 more hours per week and have at least 12 months of service, he said.

“Over 300 employees were eligible for this plan based on service length and hours worked, and approximately 15 percent have signed up thus far,” he said. “While we expect the enrollment number to increase modestly throughout the year as additional employees are qualified each month when they achieved full-time status, we anticipate the total ACA cost to be immaterial in 2015.”

Morgan also said weather in the first quarter appeared to be having little impact on sales.

“We are having a really good quarter so far,” he said, noting that the company is about 10 weeks into the 16-week first quarter. He added that the company would not modify its early guidance of a 4-percent to 6-percent increase in sales for the full year.

“The weather thus far this quarter is pretty comparable to the weather last year in Q1,” Morgan told analysts. “It hit different weeks, but it’s very similar in terms of the impact.”

On Wednesday, Zoe’s reported that it narrowed its loss in the fourth quarter, which included one-time items related to its IPO, to $1.6 million, or eight cents a share, from $3.1 million, or 25 cents a share, the previous year. Revenue increased 39.5 percent, to $40 million, from $28.7 million the previous year.

Zoe’s has restaurants in 15 states.

Contact Ron Ruggless at [email protected].
Follow him on Twitter: @RonRuggless

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