Zoe’s Kitchen Inc., the fast-casual Mediterranean operator, has set its sights on development in the new market of Denver in 2016, executives said Thursday.
Kevin Miles, president and CEO of Plano, Texas-based Zoe’s, said in an earnings call Thursday that the 158-unit chain, which has locations in 17 states, has already signed three leases for restaurants next year in Denver.
“We're really excited about going into Denver,” Miles said. “It'll be our first market that we've got several leases signed in quickly.”
Miles said Zoe’s has about 75 percent of leases signed for its 2016 development. The chain’s most recent new market was Kansas City, Mo., earlier this year, and the company has said it want to develop on a hub-and-spoke system. Zoe’s has targeted 31 to 33 new units this year.
“We remain pleased with the performance of our newer units, including the early results of our 2015 class of restaurants, which bolsters our confidence in our hub-and-spoke strategy and a wide acceptance of our brand,” Miles said.
Analysts said they expect Zoe’s entry into Denver to increase competition for other brands. Stephen Anderson, an analyst with Maxim Group equity research, said in a note: “In light of recent weak results from Noodles & Company in established markets such as Denver, we believe that Zoe’s will take market share from [Noodles].”
James Besch, Zoe’s chief financial officer, said for the rest of the year, the company expected to incur an incremental $500,000 in general and administrative costs, as it no longer qualifies as an emerging growth company under the 2012 Jumpstart Our Business Startups, or JOBS, Act.
Some accounting and reporting changes are required under the Securities and Exchange Commission and the Sarbanes-Oxley Act, Besch said.
“While we have been ahead of schedule in preparing for many of these requirements, the performance of our stock as of July 13, 2015, has resulted in an acceleration of certain procedures that were not planned for at the beginning of the year,” Besch said.
Anderson of Maxim noted that “growing pains are coming in the way of increased SG&A costs as Zoe’s faces new reporting requirements, though we see opportunity for management to leverage these expenses in the longer term.”
Anderson said Zoe’s catering sales were strong in the June quarter, “and we expect higher-ticket dinner sales to become an increasingly important part of Zoe's overall mix as the company focuses menu innovation on this daypart.”
Miles said Thursday that the company is working on menu items for 2016, and the focus is around dinner and catering items.
“We have some pricing ability specifically around dinner, so we'll continue to look and focus on that as we drive this dinner daypart,” Miles said.
For the second quarter ended July 13, Zoe’s Kitchen reported that net income fell 89.3 percent, to $120,000, or one cent per share, compared with $1.1 million, or six cents per share, in the same period last year. Income for the period included $500,000 in “executive transition costs.” Revenue increased 30 percent, to $54.5 million, from $41.9 million.
Same-store sales rose 5.6 percent, which included a 1.3-percent increase in traffic, a 3.5-percent increase in product mix and a 0.8-percent increase in price, the company said, adding that 105 restaurants are in the 18-month-old same-store base.
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