Zoes Kitchen (ZOES) has fallen to an all time, post IPO low after reporting disappointing fourth quarter results and fiscal 2017 guidance last night.
Zoe's operating fast casual restaurants that serve fresh Mediterranean food, mostly in the South.
The company narrowly missed fourth quarter estimates on the top and bottom line and guided fiscal 2017 just below estimates.
What's the big issues here? Well, the most important metric for restaurants, or any retail company for that matter, is same store/comparable sales.
Fourth quarter same store sales growth fell to just 0.7% versus 7.7% growth last year and 2.4% growth in the third quarter. That is the slowest growth since the company went public in 2014.
Comps grew more than 6% in 2014 and 2015 but growth slowed to 4% last year. Zoe's guided for comps growth of just 1-2% this year. Wall Street was expecting closer to 3% growth.
There are two key components to a successful investment in a publicly traded restaurant. Same store sales growth and unit expansion. Chipotle (CMG) was the poster child.
Restaurant IPOs hit the market with lofty valuations as investors hope for the next Chipotle. Almost every restaurant that has gone public in recent years has inevitably disappointed investors with slowing sales growth, causing serious multiple compression.
Zoes plans to grow its store count by almost 20% this year. It has just 207 restaurants currently, almost entirely company-owned. Companies like Restaurant Brands (QSR), the owner of Burger King and Tim Hortons, are exclusively franchised. They carry less operational risk and higher margins.
ZOES now has a ~$380 million market cap and trades with an EV/EBITDA multiple of just over ~16x. The average multiple for the group is closer to 12.