Zoe's Kitchen Comps: Transitory Issue Or Structural Problem?
Baird’s David E. Tarantino believes the recent slowdown in the comps trajectory for Zoe's Kitchen Inc (NYSE: ZOES) is a transitory issue, driven by external causes, rather than being a structural problem related to internal brand fundamentals.
Tarantino maintained an Outperform rating on the company, while lowering the price target from $44 to $40.
“As such, with the stock likely to pull back sharply after year-to-date strength, we would view prospective levels as a good entry point for longer-term investors who can look past short-term headwinds,” the analyst mentioned.
Zoe’s Kitchen reported mixed Q2 results, with the pro forma EPS in line with the estimate and the consensus and the EBITDA of $6.5 million beating expectations, driven by favorable food costs mitigating the comps shortfall.
Revenue grew 21.7 percent during the quarter, on 24 percent growth in company units and comps of 4 percent, with comps meaningfully below the guidance and consensus.
“Comps decelerated as Q2 progressed, and commentary suggested the slower trend line exiting Q2 has continued thus far in Q3, causing ZOES to trim 2016 guidance for revenue, comps, and restaurant-level margin,” Tarantino noted.
The analyst explained that the slower comps were likely to be a cyclical issue rather than a structural one, saying that “slower comps likely are a function of external issues that ultimately could prove transitory, resulting in a temporary setback for ZOES within a bullish long-term growth trajectory.”
Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email firstname.lastname@example.org with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!
Latest Ratings for ZOES
|Aug 2016||Deutsche Bank||Maintains||Hold|
|Aug 2016||Telsey Advisory Group||Initiates Coverage on||Market Perform|
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.