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Why Zoe's Kitchen Inc Stock Popped Today

What happened

Shares of Zoe's Kitchen Inc (NYSE: ZOES) were surging today after the company reported third-quarter earnings. Though the results were essentially in line with analyst estimates, the stock jumped on what may have been a relief rally as shares had fallen by more than 50% this year before today. The stock also got an upgrade to buy from Jefferies. 

The stock was up 14.4% as of 11:30 a.m. EST.

Image source: Zoe's Kitchen.

So what

Zoe's said comparable sales fell 0.5% in the period, but they would have increased 0.4% without the effects of Hurricanes Harvey and Irma. Similarly, the fast-casual chain said revenue increased 15.7% to $77.9 million, but that would have been $79 million adjusting for the hurricanes. Analysts had expected revenue at $78.8 million. 

On the bottom line, adjusted profit fell from a $0.04 per share to breakeven, which matched expectations.

CEO Kevin Miles noted momentum from new menu introductions in the quarter and said the company was continuing to navigate a "challenging environment." He also said the company would reduce its new-store guidance for 2018 by 25 restaurants as the company works to return to consistent profitability.

Jefferies lifted its rating on the stock from a hold to a buy as its sees a strong 2018 with improvement in same-store sales and margins. 

Now what

Looking ahead, the company reduced its full-year guidance as it now calls for revenue of $314 million to $316 million, down from a prior range of $314 million to $320 million. It also sees comparable sales down 2% to 2.5%, compared to a previous range of flat to -3%, and lower restaurant-level operating margins.

Given that, the stock's jump is a bit of surprise, but the analyst upgrade likely helped. Considering the general headwinds in the restaurant industry, I'd be skeptical of Zoe's regaining its losses over the last two years.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zoe's Kitchen. The Motley Fool has a disclosure policy.