Zoe's Kitchen (ZOES) Q3 Earnings: Disappointment In Store?

Zoe's Kitchen, Inc. (NYSE:ZOES) is slated to report third-quarter 2017 results on Nov 9, after market close.

Last quarter, the company’s earnings lagged the Zacks Consensus Estimate. In fact, its trailing four-quarter average negative surprise is 29.17%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Zoe's Kitchen, which specializes in Mediterranean cuisine, has also been facing the brunt of the challenging restaurant environment in the United States. Consumer’s change in preferences has substantially reduced traffic which has in turn affected comps. In fact, the company witnessed negative comps in the first two quarters of 2017.

Despite the negative comps, the top line grew year over year in the first half of 2017 on several unit openings. Total revenues increased 12.4% to $164.9 million in the first two quarters of 2017. The trend is likely to continue in the to-be-reported quarter buoyed by consistent unit expansion along with increased focus on catering and delivery services. In fact, the Zacks Consensus Estimate for third-quarter revenues is pegged at $78.6 million, reflecting 16.8% year-over-year growth.

Meanwhile, the company is banking on new menu offerings to boost comps in the third quarter. Per management, the company witnessed a slight improvement in quarter-to-date comps in August on encouraging guest response to the latest menu.

Additionally, to navigate the challenging restaurant environment, management has been investing heavily in technological innovation. In fact, the company recently launched a mobile app for iOS and Android operating systems that will enhance customer satisfaction. Management has also initiated an omnichannel loyalty program named ZK Rewards in the third quarter that is expected to drive traffic and thereby sales.

However, increasing labor costs along with higher store operating expenses and extensive investments in sales-boosting initiatives might mar the quarter’s profits. The consensus estimate for third-quarter earnings calls for break-even earnings, reflecting a 100% decline from the prior-year.

Our proven model does not conclusively show an earnings beat for Zoe's Kitchen this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as elaborated below.

Zacks ESP: Zoe's Kitchen has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Zoe's Kitchen has a Zacks Rank #4 (Sell). As it is we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Zoe's Kitchen, Inc. Price and EPS Surprise

Stocks to Consider

Here are a few other companies in the Retail-Wholesale sector, which, as per our model shows that they have the right combination of elements to post an earnings beat this quarter:

Noodles & Company (NASDAQ:NDLS) has an Earnings ESP of +66.67% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1Rankstocks here.

DineEquity, Inc (NYSE:DIN) has an Earnings ESP of +5.14% and a Zacks Rank #3.

Wal-Mart Stores, Inc. (NYSE:WMT) has an Earnings ESP +0.03 and a Zacks Rank #3.

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