Casual restaurant chain Zoe's Kitchen Inc ZOES reported first-quarter results Thursday that made it clear the growth story "is broken for now," according to Maxim Group.
The Analyst
Maxim Group's Stephen Anderson downgraded Zoe's Kitchen from Buy to Hold with a price target slashed from $20 to $12.
The Thesis
Zoe's reported multiple concerning metrics that fell short of Anderson's expectations, the analyst said in the downgrade note:
- A "much larger" than expected loss of 13 cents per share versus expectations of a 1 cent per share loss.
- Revenue of $102.1 million versus expectations of $105.1 million.
- Comps of negative 2.3 percent versus expectations of positive 1.3 percent.
- Restaurant-level EBITDA margins of 16.2 percent against expectations of 19.4 percent.
The restaurant chain attributed the weakness to discounting woes and strong competition in the off-premise segment, Anderson said. Management's tone during the conference call was not one of "cautious optimism," but rather "growing concern" about the loss of the lunch business, the analyst said.
Zoe's concerning earnings report, especially comps and margin misses, signals that Zoe's' customer base "may be more conscious of value than thought previously," the analyst said. The upside case for Zoe's' stock is "limited" at current levels, he said.
Price Action
Shares of Zoe's Kitchen were plunging 36.14 percent to $9.24 at the time of publication Friday, below the stock's 52-week low of $10.77.
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