But this morning’s purchase news overrode prior sentiment: the acquisition price of $12.75 is 33% higher than yesterday's closing price, and the stock’s price has jumped accordingly today. Still, the stock is a long way from where it was when it first debuted back in April of 2014.
Founded in Birmingham, Alabama, ZOES is a fast-casual restaurant concept that serves Mediterranean-inspired food. Its menu features Mediterranean cuisine complemented with several Southern staples Baked falafel pita wraps; Moroccan chicken piadinas with Harissa sauce; chicken, steak, and salmon kabobs; and chicken roll-ups (tortillas stuffed with feta cheese, caramelized onions, sundried tomatoes, and spinach) feature as appetizing examples of menu selections. Side items available to accompany these include braised rosemary white beans, rice pilaf, marinated slaw, pasta salad, roasted vegetables, or seasonal fruit.
When ZOES went public, it had 111 restaurants across 15 states, with a strong presence in the south – notably in Texas (29 locations), Alabama (14), and Georgia (13). Since then, though, has expanded pretty rapidly and now has 261 locations over 20 states. Its growth potential is what really had investors excited prior to its IPO. In fact, in its IPO prospectus, the company said that it had the potential to operate over 1,600 restaurants over the long-term.
The growth potential certainly caught many investors' attention. In the week prior to its IPO, ZOES raised the expected price range to $13-$15 from $11-$13. On April 11, 2014, it ultimately priced at $12 and then opened for trading with a whopping 71% gain to $25.65. From there, the stock gradually cruised all the way up to the $40 level by July of 2015.
However, that marked the high-point for ZOES. Since then, the stock has been mired in a steady down-trend. Shares sank below $10 this past spring. Slumping growth, in particular on a comparable restaurant sales basis, and inconsistent results relative to consensus expectations have pressured the stock. For instance, taking a look at the past three quarters, comparable restaurant sales declined by 2.3% last quarter, were up a modest 0.3% in Q4, and were down 0.5% in Q3. As its comparable sales slid, ZOES also began to ratchet back its expansion plans.
ZOES was certainly struggling, so the buy-out might be welcome news to investors. That said, a $12.75 purchase price would still leave a vast majority of investors underwater. And privately held Cava Group, which itself owns 66 Mediterranean inspired restaurants, would be paying less than 1x FY19 revenue for ZOES, so some investors may view the price tag as a bit light.
In any event, the short history of ZOES as a public company offers yet another example of how challenging the restaurant business can be. What started out as such a bright, beaming story faded over time, culminating in an acquisition price that is 15% lower than its IPO price.