Zoe’s Kitchen sees strength in catering, family mealZoe’s Kitchen sees strength in catering, family meal

While Zoe’s Kitchen Inc. saw traffic slip slightly in the third quarter ended Oct. 5, the fast-casual Mediterranean operator is finding growth in catering and the family dinner meals it began promoting late last year, executives and analysts said.

“Catering continues to go drive the comp very well,” said Kevin Miles, Zoe’s president and CEO, after third-quarter earnings were released Thursday. “Dinner continues to grow, and it’s actually outpacing lunch slightly as well from a comp perspective.”

The Plano, Texas-based company reported that same-store sales increased 4.5 percent in the third quarter, with a 0.4-percent decrease in traffic offset by a 4.6-percent increase in product mix and a 0.3-percent increase in price.

Andy Barish, an analyst with Jefferies LLC, said the company’s “continued strong growth in catering” likely contributed to the higher mix and offset the slower traffic in the quarter.

Miles noted that the family meals usually include four to six customers. The average catering order is for 20 customers, he added.

Stephen Anderson, an analyst with Maxim Group equity research, said in a note that top-line Zoe’s growth would likely outpace the industry with the increases in larger-transaction catering and dinner sales.

“We expect higher-ticket dinner sales to become an increasingly important part of Zoe’s overall mix, as we expect the company to focus menu innovation on this daypart in 2016,” Anderson said.

The new menu items are in test now and will most likely make their debut in early first quarter 2016, Miles said, probably in mid-February.

“We do have several stores in test with those items,” he said in a conference call with analysts. “We have quite a few items that are in tests. We’ll see what comes out. But I’m not ready to give you exactly what those are today, but definitely we feel very confident on the items that we’re testing that you will see that rollout early Q1.”

Miles added that the new menu items would enhance Zoe’s entrées, starters and salads categories “to support both lunch and dinner dayparts, as well as catering.”

Zoe’s is also proceeding with its plans to expand into the new market of Denver, which it foreshadowed in its second-quarter earnings call, as well as penetration of existing markets, Miles said.

“Currently, we have four leases signed in Colorado and three leases in Kansas City for 2016,” Miles said.

Anderson noted that the company was raising its outlook for restaurant openings, which he targeted at 35 units in 2016 and 37 locations in 2017. The company currently has 165 restaurants systemwide.

Anderson said Zoe’s could increase its market share.

“We particularly view fast-casual peer Noodles & Company’s decision to close 3 percent of its units, mostly in the Mid-Atlantic states and Texas, as an opportunity for Zoe’s to gain market share,” Anderson said. Denver-based Noodles & Company said in early November that it would shutter 16 underperforming restaurants by year’s end.

Zoe’s closed one unit, in Columbia, S.C., in the third quarter after it was damaged by Hurricane Joaquin. Sunil Doshi, Zoe’s chief financial officer, said the company recorded a $400,000 casualty loss for the damaged location, which remains closed.

For the third quarter, Zoe's Kitchen reported a net loss of $2.3 million, or 12 cents a share, compared with a profit of $448,000, or 2 cents a share, in the same period last year. The net loss included a $3.1 million provision for income taxes, $300,000 for executive transition costs, and the $400,000 non-cash casualty loss related to Hurricane Joaquin. Revenue in the quarter increased 29.4 percent, to $56.4 million, from $43.6 million in the prior-year period.

Zoe’s Kitchen has restaurants in 17 states.

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