Market Overview

Zoës Kitchen Announces First Quarter 2018 Results

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Zoe's Kitchen, Inc. ("Zoës Kitchen" or the "Company") (NYSE:ZOES) today
reported financial results for the sixteen weeks ended April 16, 2018.

Results for the sixteen weeks ended April 16, 2018, as
compared to the sixteen weeks ended April 17, 2017:

  • Total revenue increased 12.7% to $102.1 million.
  • Comparable restaurant sales decreased 2.3%.
  • 11 new Company-owned restaurants opened.
  • Income from operations decreased from $1.7 million to a loss from
    operations of $1.8 million.
  • Restaurant contribution* decreased 8.2% to $16.5 million, or 16.2% of
    restaurant sales.
  • Net loss of $3.6 million, or $0.19 per basic and diluted share,
    compared to net income of $19.0 thousand, or $0.00 per basic and
    diluted share.
  • Adjusted net loss* of $2.6 million, or $0.13 per diluted share,
    compared to adjusted net income of $0.3 million, or $0.01 per diluted
    share.
  • Adjusted EBITDA* decreased 30.9% to $5.6 million.

(*) Restaurant contribution, EBITDA, adjusted EBITDA, and adjusted
net income (loss) are non-GAAP measures. For reconciliations of
restaurant contribution to income (loss) from operations; EBITDA,
adjusted EBITDA and adjusted net income (loss) to GAAP net income
(loss); and why the Company considers these non-GAAP measures useful,
see the reconciliation of non-GAAP measures accompanying this release.

Kevin Miles, President and Chief Executive Officer of Zoës Kitchen,
commented, "Our results in the first quarter were challenged as
comparable restaurant sales declined 2.3%. Weather and calendar shifts
aside, trends softened sequentially from the fourth quarter of 2017
primarily due to decelerating dine-in traffic. Early results in the
second quarter have not shown significant improvement, necessitating a
downward revision to our annual guidance."

Miles continued, "While we are encouraged by results coming from
investments in digital, delivery, and menu innovation, it is imperative
that we take aggressive actions to re-focus our efforts on building
sales and improving financial performance. To do so, we will slow our
future new unit growth and conduct a thorough review of under-performing
restaurants. Additionally, we are taking steps to reduce our G&A
infrastructure and will re-allocate resources towards marketing and
technology initiatives to drive sales."

Miles concluded, "We have a strong foundation of success at Zoës
Kitchen, built on high-quality fresh food, inspired by the Mediterranean
lifestyle and delivered with hospitality. We are fully committed to
reversing our traffic trends and our team is laser focused on
operational execution and sales driving initiatives. We believe the
steps we are taking are right for the long-term health of the brand and
to maximize shareholder value."

First Quarter 2018 Financial Results

Total revenue, which includes restaurant sales from Company-owned
restaurants and royalty fees, increased 12.7% to $102.1 million in
the sixteen weeks ended April 16, 2018, from $90.6 million in
the sixteen weeks ended April 17, 2017. Restaurant sales for the sixteen
weeks ended April 16, 2018 were $102.0 million, an increase of
12.7% from $90.5 million in the sixteen weeks ended April 17, 2017.

Comparable restaurant sales decreased 2.3% during the sixteen weeks
ended April 16, 2018, consisting of a 4.4% decrease in transactions and
product mix offset by a 2.1% increase in price. The comparable
restaurant base includes those restaurants open for eighteen full
periods or longer and included 199 restaurants as of April 16, 2018.

Restaurant contribution decreased 8.2% to $16.5 million in the sixteen
weeks ended April 16, 2018, from $18.0 million in the sixteen weeks
ended April 17, 2017. As a percentage of restaurant sales, restaurant
contribution margin decreased 3.7% to 16.2% as increases in labor and
store operating expense rates were partially offset by lower cost of
goods rates.

The increase in labor and store operating expense rates was driven by
the dilutive effect on margins from our newest restaurants, which, on
average, initially operate at less than system-wide average sales
volumes and incur some inefficiencies for a short period of time. In
addition, labor rates increased because of hourly wage rate inflation
while store operating expense rates increased due to costs related to
marketing.

Net loss for the sixteen weeks ended April 16, 2018 was $3.6 million, or
$0.19 per diluted share, compared to net income of $19.0 thousand, or
$0.00 per diluted share, for the sixteen weeks ended April 17, 2017.
Adjusted net loss was $2.6 million, or $0.13 per diluted share, for
the sixteen weeks ended April 16, 2018, compared to adjusted net income
of $0.3 million, or $0.01 per diluted share, for the sixteen weeks
ended April 17, 2017.

Development

The Company opened 11 new Company-owned restaurants during the sixteen
weeks ended April 16, 2018. As of April 16, 2018, there were 251
Company-owned restaurants and three franchised restaurants. As of
May 24, 2018, the Company has opened four additional restaurants,
bringing the total restaurant count to 258.

FY 2018 Outlook

For the fiscal year ending December 31, 2018, the Company is revising
its outlook as follows:

  • Total revenue between $345 million and $352 million (revised from
    $358 million to $368 million
    ).
  • Comparable restaurant sales of negative 2.0% to negative 4.0% (revised
    from flat to 2.0%)
    .
  • Approximately 25 Company-owned restaurant openings (unchanged from
    previous guidance
    ).
  • Restaurant contribution margin between 16.0% and 17.0% (revised
    from 17.3% to 18.4%
    ).
  • General and administrative expenses between 10.8% and 11.0% of total
    revenue, inclusive of $3.7 million of non-cash equity based
    compensation expense (revised from 10.6% to 10.8%).

The Company is initiating certain strategic actions to improve
operations and financial performance. The full financial impact of these
actions has not yet been determined and is not currently included in the
Company's revised outlook. These actions will include slowing new unit
growth, evaluating under-performing restaurants, reducing general and
administrative expenses, and increasing marketing and technology
investments. These actions will likely have a material impact to our
financial statements in fiscal year 2018.

Earnings Conference Call

As previously announced, the Company will host a conference call to
discuss its first quarter 2018 financial results today at 4:30 PM
Eastern Time. Hosting the conference call will be Kevin Miles, President
and Chief Executive Officer, and Sunil Doshi, Chief Financial Officer.

The conference call can be accessed live over the phone by dialing
877-407-3982 or for international callers by dialing 201-493-6780. A
replay will be available afterwards and can be accessed by dialing
844-512-2921 or for international callers by dialing 412-317-6671; the
passcode is 13679725. The replay will be available until Thursday, May
31, 2018.

The conference call will also be webcast live from the Company's
corporate website at www.zoeskitchen.com
under the investor relations section. An archive of the webcast will
also be available through the corporate website shortly after the
conference call has concluded.

Definitions

The following definitions apply to these terms as used throughout this
release:

Comparable restaurant sales represent the change in
period-over-period sales comparisons for the comparable Company-owned
restaurant base. A restaurant becomes comparable in its 18th full fiscal
period of operation. The Company presents comparable restaurant sales on
a fiscal calendar basis. As a result, our comparable restaurant sales
calculation may not correspond exactly to the related calendar periods.

Restaurant contribution, a non-GAAP measure, is defined as
restaurant sales less restaurant operating costs, which are cost of
sales, labor, and store operating expenses. Restaurant contribution
margin is restaurant contribution as a percentage of restaurant sales.

EBITDA, a non-GAAP measure, is defined as net income (loss)
before interest, income taxes and depreciation and amortization.

Adjusted EBITDA, a non-GAAP measure, is defined as EBITDA plus
loss from disposal of equipment and pre-opening costs.

Adjusted net income (loss), a non-GAAP measure, is defined as net
income (loss) plus the provision for income taxes; less an estimated tax
rate of 24%.

Our first fiscal quarter consists of sixteen weeks and each of our
second, third and fourth fiscal quarters consists of twelve weeks,
except for a fifty-three week year when the fourth quarter has thirteen
weeks.

About Zoës Kitchen

Founded in 1995, Zoës Kitchen is a fast-casual restaurant group serving
a distinct menu of fresh, wholesome, made-from-scratch,
Mediterranean-inspired dishes delivered with warm hospitality. With no
microwaves, or fryers, grilling is the predominate method of cooking
along with an abundance of fresh fruits and vegetables, fresh herbs,
olive oil and lean proteins. With 258 locations in 20 states across the
United States, Zoës Kitchen delivers goodness to its guests by sharing
simple, tasty and fresh Mediterranean meals that inspire guests to lead
a balanced lifestyle and feel their best from the inside out. For more
information, please visit www.zoeskitchen.com,
Facebook, Instagram, Twitter or follow #LiveMed.

Forward-Looking Statements

This press release contains forward-looking statements that are subject
to risks and uncertainties. All statements other than statements of
historical fact included in this press release are forward-looking
statements. Forward-looking statements discuss our current expectations
and projections relating to our financial condition, results of
operations, plans, objectives, future performance and business. You can
identify forward-looking statements by the fact that they do not relate
strictly to historical or current facts. These statements may include
words such as "aim," "anticipate," "believe," "estimate," "expect,"
"forecast," "outlook," "potential," "project," "projection," "plan,"
"intend," "seek," "may," "could," "would," "will," "should," "can," "can
have," "likely," the negatives thereof and other words and terms of
similar meaning in connection with any discussion of the timing or
nature of future operating or financial performance or other events.
They appear in a number of places throughout this press release and
include statements regarding our intentions, beliefs or current
expectations concerning, among other things, our results of operations,
financial condition, liquidity, prospects, growth, strategies and the
industry in which we operate. All forward-looking statements are subject
to risks and uncertainties that may cause actual results to differ
materially from those that we expected.

While we believe that our assumptions are reasonable, we caution that it
is very difficult to predict the impact of known factors, and it is
impossible for us to anticipate all factors that could affect our actual
results. All forward-looking statements are expressly qualified in their
entirety by these cautionary statements. You should evaluate all
forward-looking statements made in this press release in the context of
the risks and uncertainties disclosed in our SEC filings. These filings
are available online at www.sec.gov,
www.zoeskitchen.com
or upon request from Zoës Kitchen.

We caution you that the important factors referenced in our SEC filings
may not contain all of the factors that are important to you. In
addition, we cannot assure you that we will realize the results or
developments we expect or anticipate or, even if substantially realized,
that they will result in the consequences we anticipate or affect us or
our operations in the way we expect. The forward-looking statements
included in this press release are made only as of the date hereof. We
undertake no obligation to publicly update or revise any forward-looking
statement as a result of new information, future events or otherwise,
except as otherwise required by law. If we do update one or more
forward-looking statements, no inference should be made that we will
make additional updates with respect to those or other forward-looking
statements. We qualify all of our forward-looking statements by these
cautionary statements.

Non-GAAP Financial Measures

To supplement its unaudited condensed consolidated financial statements,
which are prepared and presented in accordance with GAAP, the Company
uses the following non-GAAP financial measures: restaurant contribution,
EBITDA, adjusted EBITDA, and adjusted net income (loss) (collectively,
the "non-GAAP financial measures"). The presentation of this financial
information is not intended to be considered in isolation or as a
substitute for, or superior to, the financial information prepared and
presented in accordance with GAAP. The Company uses these non-GAAP
financial measures for financial and operational decision making and as
a means to evaluate period-to-period comparisons. The Company believes
that they provide useful information about operating results, enhance
the overall understanding of past financial performance and future
prospects, and allow for greater transparency with respect to key
metrics used by management in its financial and operational decision
making. The non-GAAP measures used by the Company in this press release
may be different from the methods used by other companies.

 

Zoe's Kitchen, Inc. and Subsidiaries
Unaudited
Condensed Consolidated Statements of Operations

(in
thousands, except share and per share data)

 
    Sixteen Weeks Ended

April 16,
2018

 

April 17,
2017

Revenue:
Restaurant sales $ 102,029 $ 90,504
Royalty fees 45   57  
Total revenue 102,074   90,561  
Operating expenses:
Restaurant operating costs (excluding depreciation and amortization):
Cost of sales 29,736 26,496
Labor 32,512 26,952
Store operating expenses 23,257 19,049
General and administrative expenses 10,992 9,985
Depreciation 6,340 5,052
Amortization 358 489
Pre-opening costs
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