Credit Suisse Reiterates Underperform On Zoe's Kitchen Following ICR Conference

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  • Zoe's Kitchen Inc ZOES shares are down 22 percent in the last three months.
  • Credit Suisse’s Jason West maintained an Underperform rating for the company, with a price target of $27.
  • While 4Q results are unlikely to disappoint, the slowing SSS momentum is a concern area, West stated.

Management reiterated its 2015 guidance, with SSS at the high-end of its full-year range of 5.5-6.0 percent. This suggests that the company’s 4Q SSS would be modestly higher than the Credit Suisse estimate of 4.3 percent, “which was predicated on slowing sequential momentum continuing into the quarter,” analyst Jason West said.

Zoe's Kitchen plans to introduce three new products to the menu in February, which are targeted at expanding its dinner day-part, which lags lunch and is considered by management as a potential contributor to future SSS growth.

For 2016, Zoe's Kitchen continues to target 25 percent of openings in new markets, with 75 percent in existing markets. “New market restaurants for ZOES typically opening at a materially lower AUV/margin than openings in existing markets which may act as a drag on 2016/17 performance,” West wrote.

In the report Credit Suisse noted, “Our overall thesis on ZOES remains unchanged following the conference.” While 4Q results are unlikely to disappoint, West expressed concern over “the apparent slowing momentum in SSS trends as the company cycles the cumulative impact of years of above-industry growth.”

He added that the decelerating SSS has been a result of declining traffic into stores, which turned negative in 3Q15.

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Posted In: Analyst ColorShort IdeasReiterationAnalyst RatingsTrading IdeasCredit SuisseJason West
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