Is Small Cap Restaurant Stock Zoe's Kitchen (ZOES) Really That Tasty? NDLS, PBPB, BLMN

At the end of last week, small cap restaurant stock Zoe's Kitchen Inc (NYSE: ZOES) had its IPO with some pundits saying its potentially the next Chipotle Mexican Grill, Inc (NYSE: CMG), meaning its worth taking a closer look at the stock along with Noodles & Co (NASDAQ: NDLS), Potbelly Corp (NASDAQ: PBPB) and Bloomin' Brands Inc (NASDAQ: BLMN) which are all restaurant stocks that also had relatively recent IPOs.

What is Zoe's Kitchen Inc?

Founded in 1995 in Birmingham, Alabama by Zoë and Marcus Cassimus, small cap Zoe's Kitchen is a fast casual restaurant concept serving a distinct menu of fresh, wholesome, Mediterranean-inspired dishes (e.g. Greek salads and pita pizzas) delivered with Southern Hospitality. With more than 110 locations in 15 states across the US, Zoës Kitchen aims to deliver "goodness to its customers by providing simple, tasty and fresh Mediterranean meals, inspired by family recipes, and made from scratch daily."

As for potential small cap restaurant IPO benchmarks, Noodles & Co was founded in 1995 as a fast-casual restaurant chain that serves classic noodle and pasta dishes from around the world with 380 locations system-wide in 29 states and the District of Columbia at the end of 2013; Potbelly Corp started in 1977 as a small antique store on Lincoln Avenue in Chicago and now owns and operates over 300 shops in the US and the District of Columbia plus its franchisees operate over 20 shops domestically and in the Middle East; and Bloomin' Brands Inc who brands include Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill, Fleming's Prime Steakhouse & Wine Bar and Roy's – making it one of world's largest casual dining companies with more than 1,500 restaurants throughout 48 states, Puerto Rico, Guam and 21 countries.

What You Need to Know or Be Warned About Zoe's Kitchen Inc

Last Friday, Zoe's Kitchen offered 5.8 million shares at $15 a share, the high end of its expected $13 to $15 range, to bring in around $87.5 million (which will help to pay debt) with shares closing at $24.72. The company is backed by private equity firm Brentwood Associates, which owned about 71% before the IPO with this percentage dropping to about 46% afterwards.

According to the prospectus (all of ZOES' SEC filings can be found here), company-owned restaurants have generated 16 consecutive fiscal quarters of positive comparable restaurant sales growth due primarily to increases in customer traffic while for 2013, the company had a balanced mix of approximately 60% lunch sales and 40% dinner sales (excluding catering) with the catering business representing approximately 17% of revenue, in each case. The prospectus then noted some tasty tidbits such as:

We believe our combination of menu offerings, ambience and location is designed to appeal to educated and affluent women, who along with their families, represent approximately 70% of our customer visits. Our female customers generally lead active lifestyles, have an average annual household income of over $100,000 and a majority of them are college educated. We believe this demographic represents a highly-desirable customer base with strong influence on a family's mealtime decision-making and are strong brand advocates.

Plus:

Additionally, we believe our attractive demographic mix, high repeat visit rate and our ability to draw an average of approximately 2,500 customers to each of our restaurants per week makes us a desirable tenant to landlords and developers of lifestyle centers seeking to drive traffic to complementary retail businesses.

However and while Zoe's Kitchen has reported revenues of $116,385M (2013), $79,724M (2012) and $50,177M (2011) for the past three years, the company has also experienced net losses of $3.7M (2013), $0.3M (2012) and $0.03M (2011). In 2013, the company opened 27 restaurants and planned to open 28 to 30 restaurants for this year and more for each of the next several years. The prospectus also pointed out that:

Typically, our new restaurants have stabilized sales after approximately 12 to 24 weeks of operation, at which time the restaurant's sales typically begin to grow on a consistent basis.

Share Performance: Zoe's Kitchen Inc vs. NDLS, PBPB, BLMN & CMG

On Monday, small cap Zoe's Kitchen rose 0.40% to $25.20 (ZOES has a 3 day or so trading range of $23.73 to $27.74 a share) for a market cap of $463.55 million. Here is a look at the long term performance of recent restaurant IPOs Noodles & Co, Potbelly Corp and Bloomin' Brands plus Chipotle Mexican Grill:

As you can see from the above charts, its been a more mixed performance over the past year but Chipotle Mexican Grill has been a relatively steady performer.

Finally, here is a look at the latest technical charts for Noodles & Co, Potbelly Corp,Bloomin' Brands and Chipotle Mexican Grill:

The Bottom Line. Given the mixed performance of recent small cap restaurant IPOs, investors who have not actually eaten at Zoe's Kitchen might want to be more cautious. Nevertheless, there are some tasty things to like about the stock.