When it's a growth story, for heaven's sake, let it be a growth story. Stop it with the cadence, already.
That's' how I felt last night on the Zoe's Kitchen (ZOES) conference call, one of the most terrific high- growth, regional-to-national stories out there.
If you don't know Zoe's, it has a hammerlock on the fresh Mediterranean cuisine, which is regarded as uber-healthy by young moms trying to get their kids to eat the right thing.
It is often considered to be the next Chipotle (CMG) that's even better for you, and it is growing by leaps and bounds, with 11 new stores this quarter for a total of 174 in the chain, including the beginning of a build out in Kansas City and Denver to augment a strong Texas presence.
The call was a virtual clinic, with beats and raises all over the place but especially the forecast, where the comparable sales are expected to go to 4.5% to 6% from a range of 4% to 5% while expenses are predicted to decline as a percentage of total revenue.
At the same time, the chain intends to add a total of 34 to 36 restaurants over the year, giving it terrific sales growth to go with those strong comparable sales gains.
There's only one problem: Zoe's reported 8% comparable sales gains in the quarter just announced. So when you examine that number vs. the boosted prediction for the rest of the year, you can see that some are going to be disappointed. Basically, as much as Zoe's represents the next big thing in the restaurant world, when you see a downshift from 8% to 4.5% to 6% you can only think "uh oh, peak, slowdown".
In fact, it's worse. Although one analyst managed to congratulate the company for some terrific growth, especially given a very big store base in Texas, which was beset with bad weather and energy-induced layoffs, the rest of the time was spent trying to figure out what went wrong, not right, during the month and how come business slowed.
Yep, it was all about "the cadence" of the quarter and why it was uneven and the "spike" became the most important point on the call.
Now, I totally get that this has become the season of the spike. We all want to know how a given quarter went. It makes sense, because we don't' want to see a dramatic deceleration that would imply something bigger going on than just the weather or the calendar or some holiday shift.
But here's the thing: cadence is a relative issue even as these analysts are regarding it as absolute. When you are not putting up new stores, like, say, Home Depot (HD), if the cadence is decelerating, then I can see there can be some cause for concern. If the company isn't putting up new units, the only place the growth can come from is same store sales.
So I get that Home Depot's stock was slugged not once but twice, the first because its intra-quarter cadence did represent a slowdown, and the second because Lowe's (LOW) didn't have a concomitant decline. And while I would be a buyer here for the stock, I get why, after the run it has had, people would be nervous that something's up and that it is time to back Lowe's, not Home Depot.
I am particularly concerned about the cadence of the broad line department stores, because they seem moribund to begin with.
But Zoe's? It's in its infancy. There are going to be kinks. There will be moments when it has growth spurts. What's important is that you don't look at the slower aftermath of a spurt as a sign of weakness.
You will drive yourself crazy thinking like that.
The standards for retail have gotten a little unbearable, if you ask me. The strongest retailer out there is Ulta Salon (ULTA) because it raised sales, raised comp sales, raised online sales and raised earnings. It was a total love fest and the cadence intra-quarter was totally consistent. It's the new benchmark.
But we are now bordering on the absurd if we are going to ask every retailer and restaurant to live up to that standard. Now Zoe's is an expensive stock, barely profitable on a $36 basis. I get that it could run into some profit taking, given that it is up 31%.
That said, if this one gets totally clobbered I would use it as a buying opportunity, because there just aren't a lot of long-term growth stories in this business that have little competition and amazing management.
So let's see what happens, but do not abandon ship because of the new cadence scourge that has made retail investing near impossible to analyze with any long-term faith.