ZOES Zoes Kitchen, Inc.

Zoe's Kitchen, Inc. ("Zoës Kitchen" or the "Company") (NYSE:ZOES) today reported financial results for the twelve and fifty-two weeks ended December 25, 2017.

Highlights for the twelve weeks ended December 25, 2017, as compared to the twelve weeks ended December 26, 2016:

• Total revenue increased 15.2% to $71.4 million.
• Comparable restaurant sales increased 0.3%.
• Five new Company-owned restaurants opened.
• Loss from operations increased 123.6% to $2.8 million
• Restaurant contribution* increased 10.5% to $11.4 million.
• Net loss was $2.9 million, or $0.15 per basic and diluted share, compared to net loss of $0.5 million, or $0.03 per basic and diluted share. Net loss for the twelve weeks ended December 25, 2017 included a $1.1 million benefit for income taxes inclusive of a $2.2 million benefit related to tax reform. Net loss for the twelve weeks ended December 26, 2016 included a $1.7 million benefit for income taxes.
• Adjusted net loss* was $2.4 million, or $0.12 per diluted share, compared to adjusted net loss of $1.4 million or $0.07 per diluted share.
• Adjusted EBITDA* decreased 3.8% to $2.9 million.

Highlights for the fifty-two weeks ended December 25, 2017, as compared to the fifty-two weeks ended December 26, 2016:

• Total revenue increased 13.8% to $314.1 million.
• Comparable restaurant sales decreased 2.0%.
• 39 new Company-owned restaurants opened.
• Income from operations decreased 80.9% to $1.2 million
• Restaurant contribution* increased 5.3% to $58.1 million.
• Net loss was $2.0 million, or $0.10 per basic diluted share, compared to net income of $1.8 million, or $0.09 per basic and diluted share. Net loss for the fifty-two weeks ended December 25, 2017 included a $1.3 million benefit for income taxes inclusive of a $2.2 million benefit related to tax reform.
• Adjusted net loss* was $1.9 million, or $0.10 per diluted share, compared to adjusted net income of $1.7 million or $0.08 per diluted share.
• Adjusted EBITDA* decreased 0.4% to $25.0 million.

(*) Restaurant contribution, EBITDA, adjusted EBITDA, and adjusted net income (loss) are non-GAAP measures. For reconciliations of restaurant contribution to income (loss) from operations; EBITDA, adjusted EBITDA and adjusted net income to GAAP net income (loss); and why the Company considers these non-GAAP measures useful, see the reconciliation of non-GAAP measures accompanying this release.

Kevin Miles, President and Chief Executive Officer of Zoës Kitchen, commented, “I continue to be very pleased with our team’s focus and discipline toward executing our initiatives, which resulted in improved operations and guest experience throughout the year, including our fourth quarter. Seeing the positive impact of these initiatives on our business, I am confident that our strategy is on firm footing and that we are continuing to build a strong brand for long-term success.”

Miles continued, “Looking ahead to 2018, we are focused on several growth drivers that include new menu items and beverage innovation that will extend our leadership position in the Mediterranean category as well as drive growth in our dinner day part; investing in our digital platform and marketing to build deeper guest relationships and offer more convenience; and expanding our reach through off-premise catering and delivery channels. We believe these initiatives, along with reducing our development to 25 new locations and leveraging our expense management efficiencies, are the right steps to drive long-term shareholder value.”

Impact of Tax Reform

In December 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the company, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017. The 2017 Tax Act also provides for the acceleration of depreciation for certain assets placed into service after September 27, 2017 as well as prospective changes beginning in 2018, including additional limitations on executive compensation and limitations on the deductibility of interest.

The company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the company’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 35 percent to 21 percent, resulting in a $2.2 million decrease in income tax expense for the year ended December 25, 2017 and a corresponding $2.2 million decrease in net deferred tax liabilities as of December 25, 2017.

Fourth Quarter 2017 Financial Results

Total revenue, which includes restaurant sales from Company-owned restaurants and royalty fees, increased 15.2% to $71.4 million in the twelve weeks ended December 25, 2017, from $62.0 million in the twelve weeks ended December 26, 2016. Restaurant sales for the twelve weeks ended December 25, 2017 were $71.3 million, an increase of 15.2% from the twelve weeks ended December 26, 2016.

Comparable restaurant sales increased 0.3% during the twelve weeks ended December 25, 2017, consisting of a 1.6% decrease in transactions and product mix combined with a 1.9% increase in price. The comparable restaurant base includes those restaurants open for 18 full periods or longer and included 186 restaurants as of December 25, 2017.

Restaurant contribution increased 10.5% to $11.4 million from $10.3 million in the twelve weeks ended December 25, 2017. As a percentage of restaurant sales, restaurant contribution margin decreased 60 basis points to 16.0% as increases in labor and store operating expense rates were partially offset by lower cost of goods rates.

The increase in labor and store operating expense rates was driven by the dilutive effect on margins from our newest restaurants, which, on average, initially operate at less than system-wide average sales volumes and incur some inefficiencies for a short period of time. In addition, labor rates increased from hourly wage rate inflation while store operating expense rates increased due to marketing costs.

Net loss for the twelve weeks ended December 25, 2017 was $2.9 million, or $0.15 per basic and diluted share, compared to net loss of $0.5 million, or $0.03 per basic and diluted share, for the twelve weeks ended December 26, 2016. Adjusted net loss was $2.4 million, or $0.12 per diluted share, for the twelve weeks ended December 25, 2017, compared to adjusted net loss of $1.4 million or $0.07 per diluted share, for the twelve weeks ended December 26, 2016.

2017 Fiscal Year to Date Financial Results

Total revenue increased 13.8% to $314.1 million in the fifty-two weeks ended December 25, 2017, from $276.0 million in the fifty-two weeks ended December 26, 2016. Restaurant sales for the fifty-two weeks ended December 25, 2017 were $313.9 million, an increase of 13.8% from $275.8 million in the fifty-two weeks ended December 26, 2016.

Comparable restaurant sales decreased 2.0% during the fifty-two weeks ended December 25, 2017, consisting of a 3.5% decrease in transactions and product mix combined with a 1.5% increase in price.

Restaurant contribution increased 5.3% to $58.1 million in the fifty-two weeks ended December 25, 2017, from $55.2 million in the fifty-two weeks ended December 26, 2016. As a percentage of restaurant sales, restaurant contribution margin decreased 150 basis points to 18.5% as increases in labor and store operating expense rates were partially offset by lower cost of goods rates.

The increase in labor and store operating expense rates was driven by the dilutive effect on margins from our newest restaurants, which, on average, initially operate at less than system-wide average sales volumes and incur some inefficiencies for a short period of time. In addition, labor rates increased from hourly wage rate inflation while store operating expense rates increased due to investments in store technology and marketing costs.

Net loss for the fifty-two weeks ended December 25, 2017 was $2.0 million, or $0.10 per basic and diluted share, compared to a net income of $1.8 million, or $0.09 per basic and diluted share, for the fifty-two weeks ended December 26, 2016. Adjusted net loss was $1.9 million, or $0.10 per diluted share, for the fifty-two weeks ended December 25, 2017, compared to adjusted net income of $1.7 million, or $0.08 per diluted share, for the fifty-two weeks ended December 26, 2016.

Development

The Company opened five new Company-owned restaurants during the twelve weeks ended December 25, 2017. As of December 25, 2017, there were 240 Company-owned restaurants and three franchised restaurants. As of February 22, 2018, the Company has opened six additional restaurants, bringing the total restaurant count to 249.

FY 2018 Outlook

The fiscal year ending December 31, 2018 includes a fifty-third week for the time frame of December 25, 2018 through December 31, 2018. The extra week will be included in our fourth quarter results. For the fifty-three weeks ending December 31, 2018, the Company currently expects the following:

• Total revenue between $358 million and $368 million (includes $4.5 million for the fifty-third week)
• Comparable restaurant sales growth of flat to 2.0% on a comparable fifty-two week basis
• 25 Company-owned restaurant openings
• Restaurant contribution margin between 17.3% and 18.4% (includes a negative 20 bps impact due to the fifty-third week)
• General and administrative expenses between 10.6% and 10.8% of total revenue, inclusive of $3.7 million of non-cash equity based compensation expense.

Earnings Conference Call

As previously announced, the Company will host a conference call to discuss its fourth quarter 2017 financial results today at 4:30 PM Eastern Time. Hosting the conference call will be Kevin Miles, President and Chief Executive Officer, and Sunil Doshi, Chief Financial Officer.

The conference call can be accessed live over the phone by dialing 877-407-3982 or for international callers by dialing 201-493-6780. A replay will be available afterwards and can be accessed by dialing 844-512-2921 or for international callers by dialing 412-317-6671; the passcode is 13676421. The replay will be available until Thursday, March 1, 2018.

The conference call will also be webcast live from the Company’s corporate website at www.zoeskitchen.com under the Investor Relations section. An archive of the webcast will also be available through the corporate website shortly after the conference call has concluded.

Definitions

The following definitions apply to these terms as used throughout this release:

Comparable restaurant sales represent the change in period-over-period sales comparisons for the comparable Company-owned restaurant base. A restaurant becomes comparable in its 18th full fiscal period of operation. The Company presents comparable restaurant sales on a fiscal calendar basis. As a result, our comparable restaurant sales calculation may not correspond exactly to the related calendar periods.

Restaurant contribution, a non-GAAP measure, is defined as restaurant sales less restaurant operating costs, which are cost of sales, labor, and store operating expenses. Restaurant contribution margin is restaurant contribution as a percentage of restaurant sales.

EBITDA, a non-GAAP measure, is defined as net income (loss) before interest, income taxes and depreciation and amortization.

Adjusted EBITDA, a non-GAAP measure, is defined as EBITDA plus loss from disposal of equipment, pre-opening costs, and casualty loss.

Adjusted net income (loss), a non-GAAP measure, is defined as net income (loss) plus the provision (benefit) for income taxes and casualty loss; less an estimated tax rate of 38%. Beginning in fiscal year 2018 we will use an estimated tax rate of 24% due to the impact of the Tax Cuts and Jobs Act.

Our first fiscal quarter consists of sixteen weeks and each of our second, third and fourth fiscal quarters consists of twelve weeks, except for a fifty-three week year when the fourth quarter has thirteen weeks. Fiscal year 2018 is a fifty-three week year.

About Zoës Kitchen

Founded in 1995, Zoës Kitchen is a fast-casual restaurant group serving a distinct menu of fresh, wholesome, made-from-scratch, Mediterranean-inspired dishes delivered with warm hospitality. With no microwaves, or fryers, grilling is the predominate method of cooking along with an abundance of fresh fruits and vegetables, fresh herbs, olive oil and lean proteins. With 249 locations in 20 states across the United States, Zoës Kitchen delivers goodness to its guests by sharing simple, tasty and fresh Mediterranean meals that inspire guests to lead a balanced lifestyle and feel their best from the inside out. For more information, please visit www.zoeskitchen.com, Facebook, Instagram, Twitter or follow #LiveMed.

Forward-Looking Statements

This press release contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this press release are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "outlook," "potential," "project," "projection," "plan," "intend," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. They appear in a number of places throughout this press release and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected.

While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this press release in the context of the risks and uncertainties disclosed in our SEC filings. These filings are available online at www.sec.gov, www.zoeskitchen.com or upon request from Zoës Kitchen.

We caution you that the important factors referenced in our SEC filings may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the way we expect. The forward-looking statements included in this press release are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

Non-GAAP Financial Measures

To supplement its consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses the following non-GAAP financial measures: restaurant contribution, EBITDA, adjusted EBITDA, and adjusted net income (loss) (collectively, the "non-GAAP financial measures"). The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that they provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. The non-GAAP measures used by the Company in this press release may be different from the methods used by other companies.

  Zoe's Kitchen, Inc. and Subsidiaries Unaudited Consolidated Statements of Operations (in thousands, except share and per share data)     Twelve Weeks Ended   Fifty-two Weeks Ended

December 25,2017

 

December 26, 2016

December 25,2017

 

December 26, 2016

Revenue: Restaurant sales $ 71,349 $ 61,941 $ 313,923 $ 275,756 Royalty fees 33   42   178   207   Total revenue 71,382   61,983   314,101   275,963   Operating expenses: Restaurant operating costs (excluding depreciation and amortization): Cost of sales 20,514 18,738 91,791 83,502 Labor 23,173 19,517 95,634 81,129 Store operating expenses 16,278 13,387 68,386 55,921 General and administrative expenses 8,521 7,330 33,353 30,358 Depreciation 4,696 3,680 18,404 14,453 Amortization 312 366 1,479 1,606 Pre-opening costs 435 308 2,264 2,214 Casualty loss 82 — 215 — Loss (gain) from disposal of equipment 211   (73 ) 1,350   355   Total operating expenses 74,222   63,253   312,876   269,538   Income (loss) from operations (2,840 ) (1,270 ) 1,225 6,425 Other income and expenses: Interest expense, net 1,157 949 4,636 3,848 Other income (20 ) (20 ) (90 ) (87 ) Total other income and expenses 1,137   929   4,546   3,761   Income (loss) before provision for income taxes (3,977 ) (2,199 ) (3,321 ) 2,664 Provision (benefit) for income taxes (1,118 ) (1,698 ) (1,330 ) 861   Net income (loss) $ (2,859 ) $ (501 ) $ (1,991 ) $ 1,803     Earnings per share: Basic $ (0.15 ) $ (0.03 ) $ (0.10 ) $ 0.09 Diluted $ (0.15 ) $ (0.03 ) $ (0.10 ) $ 0.09 Weighted average shares of common stock outstanding: Basic 19,490,383 19,460,467 19,484,111 19,434,622 Diluted 19,490,383 19,460,467 19,484,111 19,586,447     Zoe's Kitchen, Inc. and Subsidiaries Unaudited Consolidated Statements of Operations Margin Analysis  

The following table sets forth the percentage relationship to total revenue, except where otherwise indicated, for certain items included in the Company's consolidated statements of operations for the period indicated. Percentages may not add due to rounding:

    Twelve Weeks Ended   Fifty-two Weeks Ended

December 25, 2017

 

December 26,2016

December 25, 2017

 

December 26, 2016

Revenue: Restaurant sales 100.0 % 99.9 % 99.9 % 99.9 % Royalty fees 0.0 % 0.1 % 0.1 % 0.1 % Total revenue 100.0 % 100.0 % 100.0 % 100.0 % Operating expenses: Restaurant operating costs (excluding depreciation and amortization)(1): Cost of sales 28.8 % 30.3 % 29.2 % 30.3 % Labor 32.5 % 31.5 % 30.5 % 29.4 % Store operating expenses 22.8 % 21.6 % 21.8 % 20.3 % General and administrative expenses 11.9 % 11.8 % 10.6 % 11.0 % Depreciation 6.6 % 5.9 % 5.9 % 5.2 % Amortization 0.4 % 0.6 % 0.5 % 0.6 % Pre-opening costs 0.6 % 0.5 % 0.7 % 0.8 % Casualty loss 0.1 % — 0.1 % — Loss (gain) from disposal of equipment 0.3 % (0.1 )% 0.4 % 0.1 % Total operating expenses 104.0 % 102.0 % 99.6 % 97.7 % Income (loss) from operations (4.0 )% (2.0 )% 0.4 % 2.3 % Other income and expenses: Interest expense, net 1.6 % 1.5 % 1.5 % 1.4 % Other income (0.0 )% (0.0 )% (0.0 )% (0.0 )% Total other income and expenses 1.6 % 1.5 % 1.4 % 1.4 % Income (loss) before provision for income taxes (5.6 )% (3.5 )% (1.1 )% 1.0 % Provision (benefit) for income taxes (1.6 )% (2.7 )% (0.4 )% 0.3 % Net income (loss) (4.0 )% (0.8 )% (0.6 )% 0.7 %   (1) As a percentage of restaurant sales.     Zoe's Kitchen, Inc. and Subsidiaries Unaudited Consolidated Selected Balance Sheet Data and Selected Operating Data (in thousands, except restaurant count data)     As of

December 25, 2017

 

December 26, 2016

Balance Sheet Data: Cash and cash equivalents $ 2,276 $ 5,493 Total assets 240,522 215,219 Total debt (1) 45,758 29,913 Total liabilities 109,443 85,253 Total stockholders' equity 131,079 129,966  

(1) Includes $33.2 million and $29.8 million of deemed landlord financing as of December 25, 2017 and December 26, 2016, respectively.

    Quarter Ended

December 25, 2017

 

October 2, 2017

 

July 10, 2017

 

April 17, 2017

 

December 26, 2016

Selected Operating Data: Company-owned restaurants at end of period 240 235 224 211 201 Franchise-owned restaurants at end of period 3 3 3 3 3 Company-owned: Comparable restaurant sales growth 0.3 % (0.5 )% (3.8 )% (3.3 )% 0.7 % Units in the comparable base 186 178 169 161 150     Zoe's Kitchen, Inc. and Subsidiaries

Unaudited Reconciliation of Income from Operations to Restaurant Contribution (non-GAAP presentation)

(in thousands)     Twelve Weeks Ended Fifty-two Weeks Ended

December 25, 2017

 

December 26, 2016

December 25, 2017

 

December 26, 2016

  Restaurant Contribution: Income (loss) from operations $ (2,840 ) $ (1,270 ) $ 1,225 $ 6,425 Less: Royalty fees 33 42 178 207 Add: General and administrative expenses 8,521 7,330 33,353 30,358 Depreciation and amortization 5,008 4,046 19,883 16,059 Pre-opening costs(1) 435 308 2,264 2,214 Casualty loss(2) 82 — 215 — Loss (gain) from disposal of equipment 211   (73 ) 1,350   355   Restaurant Contribution $ 11,384   $ 10,299   $ 58,112   $ 55,204     Total revenue $ 71,382 $ 61,983 $ 314,101 $ 275,963 Less: Royalty fees 33   42   178   207   Restaurant sales $ 71,349   $ 61,941   $ 313,923   $ 275,756     Restaurant contribution margin 16.0 % 16.6 % 18.5 % 20.0 %   (1) Represent expenses directly associated with the opening of new restaurants that are incurred prior to opening, including pre-opening rent. (2) Represents expenses and write off of assets associated with stores in Texas and Florida affected by Hurricanes Harvey and Irma, respectively.     Zoe's Kitchen, Inc. and Subsidiaries Unaudited Reconciliation of Net Income (Loss) to Adjusted EBITDA (non-GAAP presentation) (in thousands)     Twelve Weeks Ended   Fifty-two Weeks Ended

December 25, 2017

 

December 26, 2016

December 25, 2017   December 26, 2016 Adjusted EBITDA: Net income (loss), as reported $ (2,859 ) $ (501 ) $ (1,991 ) $ 1,803 Depreciation and amortization 5,008 4,046 19,883 16,059 Interest expense, net 1,157 949 4,636 3,848 Provision (benefit) for income taxes (1,118 ) (1,698 ) (1,330 ) 861 EBITDA 2,188 2,796 21,198 22,571 Asset disposals(1) 211 (73 ) 1,350 355 Pre-opening costs (2) 435 308 2,264 2,214 Casualty loss (3) 82   —   215   — Adjusted EBITDA $ 2,916   $ 3,031   $ 25,027   $ 25,140   (1) Represents costs related to loss (gain) on disposal of equipment. (2) Represents expenses directly associated with the opening of new restaurants that are incurred prior to opening, including pre-opening rent. (3) Represents expenses and write off of assets associated with stores in Texas and Florida affected by Hurricanes Harvey and Irma, respectively.     Zoe's Kitchen, Inc. and Subsidiaries Unaudited Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) (non-GAAP presentation) (in thousands, except share and per share data)     Twelve Weeks Ended Fifty-two Weeks Ended December 25, 2017   December 26, 2016 December 25, 2017   December 26, 2016 Adjusted net income (loss): Net income (loss), as reported $ (2,859 ) $ (501 ) $ (1,991 ) $ 1,803 Casualty loss (1) 82 — 215 — Provision (benefit) for income taxes (2) (1,118 ) (1,698 ) (1,330 ) 861 Pre-tax Adjusted net income (loss) (3,895 ) (2,199 ) (3,106 ) 2,664 Estimated tax provision (benefit) (2) (1,480 ) (836 ) (1,180 ) 1,012 Adjusted net income (loss) $ (2,415 ) $ (1,363 ) $ (1,926 ) $ 1,652   Adjusted earnings per share: Basic $ (0.12 ) $ (0.07 ) $ (0.10 ) $ 0.09 Diluted $ (0.12 ) $ (0.07 ) $ (0.10 ) $ 0.08 Weighted average shares outstanding: Basic 19,490,383 19,460,467 19,484,111 19,434,622 Diluted 19,490,383 19,460,467 19,484,111 19,586,447   (1) Represents expenses and write off of assets associated with stores in Texas and Florida affected by Hurricanes Harvey and Irma, respectively. (2) For comparability, the provision for taxes is added back to arrive at pre-tax adjusted net loss; then an estimated 38% tax rate is applied to arrive at adjusted net income.

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For Zoe’s Kitchen, Inc.Investors:Fitzhugh Taylor, 214-436-8765 x284Fitzhugh.Taylor@icrinc.comorMedia:Casey Shillingcaseyshilling@zoeskitchen.com