Zoe's Kitchen aims to grow dinner daypart

Zoe’s Kitchen Inc. will expand its chain's dinner offerings and work to increase the daypart mix to a 50-50 split between lunch and dinner, executives of the fast-casual operator told analysts last week.

Zoës Kitchen’s current daypart mix, excluding catering, is about 60 percent lunch and 40 percent dinner, leaders of the newly public Plano, Texas-based company said in a call with analysts after its first-quarter earnings report.

“Our goal is to make this business 50 percent lunch, 50 percent dinner,” said Jason Morgan, Zoe’s chief financial officer.

“We are going to get there by creating some additional new menu items in the coming years that are dinner-focused and allow us to draw more customers into the building at dinner,” Morgan said. “We also will focus on takeaway meals and meal replacement for people to take home, which will drive that dinner business as well.”

Kevin Miles, president of Zoe’s, added that research and development of the chain’s offerings needs to keep that dinner goal in mind.

The Mediterranean-focused menu now features a variety of wraps and kabobs, as well as salads and hummus dishes.

“You’ll see the majority of our menu focus [is] around dinner. We believe that’s a great opportunity. The execution of family meals will be an opportunity for us as well,” Miles said. “The predominant part of our menu development will be around dinner and that family meal execution.”

Women make about 70 percent of family dining decisions, Miles noted, and women and their families represent more than 70 percent of Zoës’ customer visits.

“Zoës is uniquely positioned to own a significant share of those decisions,” Miles said.

Additionally, catering makes up about 17 percent of Zoe’s sales, he said.

“Our food travels well and, as a result, we believe our strong catering offerings are a significant competitive differentiator and generates consumer trials of our brand,” he said.

The company plans to increase frequency through programs focused on flexible dining options, including to-go, call-in, online, and items from the units’ grab-and-go coolers.

Most of the dinner-focused menu changes will take place in 2015, Miles said.

Jefferies LLC analyst Andy Barish said in a note that “while menu innovation will be relatively limited this year, we’d expect continued sales growth via catering, marketing (especially mobile and social) and an increased focus on the dinner daypart (takeaway/meal replacement).”

Barish said Zoe’s 5.7-percent same-store sales increase for the April 21-ended first quarter was higher than the consensus 4.3 percent increase, and the company had “better-than-expected new unit openings and productivity.”

In its first 16-week report, the company said it opened 13 new Zoës Kitchen restaurants and acquired two franchised units. The company had 109 company-owned locations and six franchised units as of April 21, and it has opened five additional restaurants since then.

Nicole Miller Regan, an analyst with Piper Jaffray & Co., noted that Zoe’s first-quarter adjusted earnings, which excluded expenses related to the company’s initial public offering on April 11, were one cent better than expected, coming in at a loss of two cents per share when Piper Jaffray had estimated a loss of three cents per share.

“We expect 30 new company units to be opened during the year,” Regan said.

On June 5, Zoe’s Kitchen reported a 47.4-percent increase in revenue for the first quarter. Because of IPO costs and other charges, the company recorded a net loss for the quarter, of $10 million, or 76 cents per share, compared with a loss of $1.4 million, or 11 cents per share, in the comparable period a year ago.

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