Zoës Kitchen to slow unit growth in 2018Zoës Kitchen to slow unit growth in 2018

Zoës Kitchen Inc. will be slowing unit growth in 2018 in a challenging sales environment, the company said Thursday.

The Dallas-based Mediterranean fast-casual brand said it would moderate its expansion plans in 2018 after opening what it expects to be 38 to 40 restaurants this year, said Kevin Miles, Zoës CEO, in a second-quarter earnings call.

“With respect to our future development, we have always taken a prudent and disciplined approach to real estate planning, that contemplates the lead times involved and our best view of the macro environment,” Miles said.

“So while our new units are performing in line with the model expectation, we expect to moderate our growth next year, opening 25 to 30 new restaurants in 2018, as we balance our new store growth plans and continue to focus on building brand awareness and traffic within our existing footprint,” he said.

Analysts said the 2018 slowdown was unexpected.

“The company surprisingly announced a step down to 25-30 new opens in '18 [an increase of 10 percent to 13 percent], down from 19 percent at midpoint this year,” said Andy Barish, an analyst with Jeffries LLC, in a note. “Although slower, it could help margins in '18.”

For the second quarter ended July 10, Zoës Kitchen’s income fell 51.8 percent to $579,000, or three cents a share, from $1.2 million, or six cents a share, in the same period last year. Revenues increased 12.1 percent, to $74.3 million, from $66.3 million in the prior-year quarter.

Same-store sales declined 3.8 percent among the 169 restaurants in the comparative base, the company said. That included a 5 percent decline in transactions and product mix offset by a 1.2 percent increase in price.

Sunil Doshi, Zoë’s chief financial officer, said traffic was becoming more stable in the third quarter and showing “a little bit of improvement as well.”

While the restaurant sales environment continues to be challenging, Miles said, Zoës Kitchen remains focused on menu innovation, improved technology and the expansion of delivery.

In late June, the company had its largest menu rollout in eight years, Miles said, and customers have responded favorably.

The company also introduced a new website in earlier in August and will launch a new app later in the year, he said, adding that the goal is to improve digital transactions, which are now about 7 percent of the sales mix.

Delivery was being offered at about 100 restaurants, Miles said, with a reliance on four third-party vendors.

“Delivery penetration rates have ranged from the low single digits to the high teens,” he said. “We see a variety of factors influencing the overall penetration rate, ranging from operational capabilities of third party services to customer adoption rates.”

The company is also testing lunch and dinner delivery at two restaurants that relies on in-house labor, Miles said.

As of July 10, Zoës had 224 company-owned restaurants and three franchised restaurants. With openings to date in the third quarter, the total was 232.

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