News

Zoe's Kitchen CEO blames hurricanes for Q3 sales decreases

November 13, 2017

Zoe's Kitchen last week reported mixed Q3 results with total revenue increasing 15.7 percent to $77.9 million but comparable restaurant sales decreasing  0.5 percent.

Those numbers included an estimated $1.1 million of negative revenue impact and a 0.9 percent of negative comparable sales impact related to Hurricanes Harvey and Irma, Kevin Miles, president and CEO, said in a company press release.

"While the momentum from our new menu introductions continued into the third quarter, our results also reflect the impact that hurricanes Harvey and Irma had on a significant portion of our store base," he said. "Despite the challenges that these disasters presented, I could not be more proud of the leadership exhibited by our teams. Their commitment to care for our guests, restaurants and fellow team members was inspiring."

Highlights for the 12 weeks ended Oct. 2, 2017, as compared to the 12 weeks ended Oct. 3, 2016:

• Total revenue increased 15.7 percent to $77.9 million inclusive of an estimated $1.1 million of negative revenue impact related to Hurricanes Harvey and Irma.
• Comparable restaurant sales decreased 0.5 percent inclusive of an estimated 0.9 percent of negative comparable sales impact related to Hurricanes Harvey and Irma.
• 11 company-owned restaurants opened.
•  Income from operations decreased 38.8 percent to $1.3 million.
• Restaurant contribution increased 13.4 percent to $14.6 million, or 18.8 percent of restaurant sales.
• Net income of $0.3 million, or $0.01 per basic and diluted share, compared to net loss of $0.3 million, or $0.02 per basic and diluted share.
• Adjusted EBITDA increased 4.7 percent to $6.9 million.
• Adjusted net income of $0.2 million, or $0.01 per diluted share, compared to adjusted net income of $0.7 million, or $0.04 per diluted share.

Highlights for the 40 weeks ended Oct. 2, 2017, as compared to the 40 weeks ended Oct. 3, 2016:

• Total revenue increased 13.4 percent to $242.7 million.
• Comparable restaurant sales decreased 2.6 percent.
• 34 company-owned restaurants opened.
• Income from operations decreased 47.2 percent to $4.1 million.
• Restaurant contribution* increased 4.1 percent to $46.7 million, or 19.3 percent of restaurant sales.
• Net income of $0.9 million, or $0.04 per basic and diluted share, compared to net income of $2.3 million, or $0.12 per basic and diluted share.
• Adjusted EBITDA was flat at $22.1 million.
• Adjusted net income of $0.5 million, or $0.03 per diluted share, compared to adjusted net income of $3.0 million or $0.16 per diluted share.

"With the hurricanes behind us, we remain focused on executing our initiatives as we continue to navigate a challenging environment," Miles said. "Looking beyond 2017, we have adjusted our 2018 new restaurant plans down to 25. We believe the reduced growth rate in 2018 will allow us to better manage our cash flows, focus on our sales-driving initiatives, and continue to explore new ways to strengthen our business over the long-term in order to increase shareholder value."

FY 2017 Outlook
For the fiscal year ending Dec. 25, 2017, the company is revising its outlook as follows:

• Total revenue between $314.0 million and $316.0 million (revised from $314 million to $322 million).
• Comparable restaurant sales of negative 2 percent to negative 2.5 percent (revised from flat to negative 3 percent).
• 38 to 40 company-owned restaurant openings (unchanged from previous guidance).
• Restaurant contribution margin between 18.3 percent and 18.5 percent (revised from 18.3 percent to 19 percent).
• General and administrative expenses between 10.7 percent and 10.8 percent of total revenue, inclusive of $3.2 million of non-cash equity-based compensation expense (revised from 10.7 percent to 10.9 percent).

Hurricanes hitting other brands hard
Zoe's isn't the only fast casual brand to report that the hurricanes dampened Q3 numbers. Fiesta Group, parent company of Pollo Tropical and Taco Cabana, last week blamed its Q3 sales decline on Hurricanes Harvey and Irma, which caused several locations to temporarily close and a few to stay closed.

"We estimate that the Hurricanes negatively impacted Adjusted EBITDA and income (loss) from operations by approximately $3 million to $4 million at Pollo Tropical and approximately $1 million to $1.5 million at Taco Cabana and negatively impacted comparable restaurant sales and transactions by approximately 5.5 percent to 6.5 percent at Pollo Tropical and approximately 2 percent to 3 percent at Taco Cabana for the third quarter of 2017," Fiesta President and Chief Executive Officer Richard Stockinger said in a company press release.

Fiesta's total revenues decreased 12.9 percent to $158.7 million, while comparable restaurant sales at Pollo Tropical decreased 10.9 percent, primarily driven by a decrease in comparable restaurant transactions of 13.1 percent, according to the release. Comparable restaurant sales at Taco Cabana decreased 12.6 percent, primarily driven by a decrease in comparable restaurant transactions of 14.3 percent including the negative impact from Hurricane Harvey and the continued suspension of advertising and promotional discounts.

"Prior to the arrival of two significant hurricanes in late August and early September, we were experiencing improved sales and transaction trends at Pollo Tropical with comparable restaurant sales rebounding from high single-digit declines to low single-digit declines," he said. "After the temporary closing of all our Pollo Tropical restaurants in Florida and Atlanta due to the storms, we are pleased that sales are beginning to approach pre-hurricane comparable levels."