Zoe's Kitchen, Inc. ZOES NYSE Buy Restaurants

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1 One Year Price Chart March 11, 2015 Zoe's Kitchen, Inc. ZOES NYSE Buy Restaurants Company Update Posts High Quality '+$0.01 Better' 4Q14 OpEPS; Issues 'In Line to Better' 2015 Guidance We reiterate our Buy rating and maintain our near-term $42/sh target price on our top pick ZOES, after ZOES held an upbeat 4Q14 conference call that included: (1) high-quality +$0.01 better 4Q14 OpEPS of -$0.03 (vs. consensus /our $0.04E), driven by strong comps and margins; and where management issued above-consensus full year 2015 comp guidance (see below). We maintain our 1Q15/2015 OpEPS estimates of $0.00E/$0.08E (vs. consensus $0.00E/$0.08E) and raise our 2016 OpEPS estimate to $0.15E (vs. prior $0.13E; consensus $0.13E). 4Q14 OpEPS of -$0.03 vs. our -$0.04E. ZOES +$0.01 better 4Q14 OpEPS of -$0.03 (vs. our -$0.04E) was driven by: (1) +$0.02 better store-level profits of $7.4mm (vs. our/consensus $6.7mmE/$7.1mmE) on (a) +80bps better 4Q14 comps of +7.8% (vs. our +7.0%E; consensus +5.7%E); and (b) +130bp higher store margins of 18.5% (vs. our 17.2%E; consensus 17.8%E); partially offset by (2) -$0.01 worse net G&A/D&A/other. Management Issues Full Year 2015 Guidance. Management issued in line-to-better full-year guidance, including: (1) largely in-line F2015 restaurant sales of $215mm to $220mm (vs. consensus prior $219.2mmE; our unchanged $220.0mmE), driven by: (a) above consensus F2015 company comps of 4.0% to 6.0% (vs. consensus prior +3.5%E; our now +5.5%E); (b) largely in-line restaurant contribution margins of 19.7% to 20.2% (vs. consensus 20.2%E; our now 20.4%E); (2) above consensus F2015 G&A of $24.7mm (vs. consensus prior $22.7mmE) from higher equity compensation and public company costs; and (4) largely in-line F2015 new store development of 31 to 33. Investment Thesis Unchanged. We view ZOES as one of the best-in-up-and-coming concepts in restaurant history because Zoes Kitchen s is: (1) In the Right Category" (Quick-Casual is the industry s fastest-growing, highest-returning segment); (2) With the Right Elements (that drive high sales mixes of dinner, dine-in, and female guests, which in turn deliver competitively-defensible ROICs); and (3) Within the Right Cuisine (Mediterranean has significant national appeal, capturing America s move toward LOHAS, Lifestyles of Health and Sustainability). In fact, we remain impressed with ZOES 139-unit early-stage same-store-sales momentum (2014 s +6.7%) and store-level profitability (2014 s $1.5mm AUVs/20% margins) that are even outpacing CMG s (2002 s ~$1.1mm/13%) and PNRA s (1999 s ~$1.2mm/18%) respective results. Changes Previous Current Rating Buy Target Price $42.00 FY15E EPS (Net) 0.08 FY16E EPS (Net) FY15E Rev (net) FY16E Rev (net) Price (03/11/15): $ Week Range: $38 $15 Market Cap.(mm): Shr.O/S-Diluted (mm): 19.3 Avg Daily Vol (3 Mo): 401,058 Dividend($ / %) $0.00 / 0.0% S&P Index 2, week range since shares began trading 4/11/14. EPS (Net) 2014A 2015E 2016E Q1 (0.02) 0.00 NE Q NE Q NE Q4 (0.03) (0.03) NE FY Dec 0.03A P/E NM NM NM Rev (net) 2014A 2015E 2016E Q NE Q NE Q NE Q NE FY Dec 171.7A Paul Westra, CFA Paul.Westra@stifel.com (214) Michael Olsen, CFA, CPA olsenm@stifel.com (214) Stifel Equity Trading Desk (800) Stifel does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. All relevant disclosures and certifications appear on pages 6-8 of this report.

2 Price target of $42/sh Unchanged. Assuming ZOES mature company-store ROEs are +14%, we arrive at a near-term RIPE-based Price Target of $42/sh. See Figure 1. ZOES growth-option trades at a -40% discount to its peer group (FRGI, LOCO, HABT). See Figure 2. Figure 1. ZOES 2016E RIPE Valuation Analysis ZOES 2016 RIPE Va lua tion Ana lysis Existing Syste m Future Syste m T oda y Cost of ZOES ZOES Future Va lua tion Income Sta te me nt Sta ts Owne d Fra nchise d + Owne d - Store s + T a rge t Re ve nue s $1.577 $0.083 $1.80 Costs a nd Expe nse s Cost of Sales $0.515 $0.000 $0.567 Labor $0.447 $0.000 $0.502 Other operating $0.289 $0.000 $0.324 Re sta ura nt-le ve l Profit $0.327 $0.083 $0.407 G&A Expense $0.177 $0.021 $0.126 EBIT DA $0.150 $0.062 $0.281 D&A $0.093 $0.000 $0.080 Ope ra ting Income $0.057 $0.062 $0.201 Interest/Other Expense $0.012 $0.000 $0.015 Pre -ta x Income $0.045 $0.062 $0.186 Provision for Income Taxes $0.02 $0.02 $0.07 Ne t Income $0.028 $0.039 $0.114 Ope ra ting EPS $0.001 $0.002 $0.006 RIPE Number of Stores Total Investment per Store $1.935 $0.000 $1.935 Total Equity Investment per Store $0.795 $0.000 $0.795 Store-Level Cash-on-Cash ROIC 41% Infinity 50% Return on Equity 4% Infinity 14% 2014 EPS Contribution $0.25 $0.01 $4.00 RIPE Valuation Target (@15X) $4 $0 + $60 + ($30) + $42 Replacement Cost Book Value $7 NM 4.0X Store-Level Cash Flow $12 NM Cost of Sales 32.7% 0.0% 31.5% Labor and Occupancy 28.3% 0.0% 27.9% Other operating 18.3% 0.0% 18.0% Re sta ura nt-le ve l Profit 20.7% 100.0% 22.6% G&A Expense 11.2% 25.0% 7.0% EBIT DA 9.5% 75.0% 15.6% D&A 5.9% 0.0% 4.4% Ope ra ting Income 3.6% 75.0% 11.2% Ne t Income 1.8% 46.5% 6.3% Sources: Stifel estimates, Company filings Page 2

3 Figure 2. ZOES 2016E Growth Option Comparison Ticker Store-Level Cash Flow (mm) Existing Operations (mm)* Market Cap (mm) Growth Option** FRGI $180 $720 $1,702 $982 HABT LOCO Average ~$700 ZOES $58 $233 $636 $400 * 4 X Store-Level Cash Flow ** Market Cap less Existing Operations Sources: Stifel estimates, Company reports, FactSet, Consensus Metrix used for FRGI (Not Rated) Sources: Stifel estimates, Company reports, FactSet, Consensus Metrix Page 3

4 Target Price Methodology/Risks Our RIPE-based valuation methodology that breaks up a company s valuation into two parts: (1) the existing business and (2) the future business (i.e., the growth option to build all future restaurants at their construction cost). So, for the existing 2016 business, we value ZOES s estimated 196 existing company stores at $12 per share, and for the growth option, we value the potential for future stores at $60 per share and then subtract the $30 per share cost of building the additional restaurants to arrive at a net growth option valuation of $30 per share. Risks to this method include: (1) inability of Zoës to grow units at the pace we anticipate; (2) persistent, challenging macro environment; (3) adverse cost inflation; (4) departure of key executives; (5) unfavorable marketing/lease obligation expense. Company Description Zoe's Kitchen, Inc. operates restaurants. The company operates its business through a single segment, fast casual restaurant serving a distinct menu of fresh, wholesome, Mediterranean-inspired dishes delivered with Southern hospitality. Zoe's Kitchen was founded by Zoë and Marcus Cassimus in 1995 and is headquartered in Plano, Texas. Page 4

5 Zoës Kitchen, Inc. Consolidated Income Statement FY December $ in millions FY2009 FY2010 FY2011 FY2012 1Q13 2Q13 3Q13 4Q13 FY2013 1Q14 2Q14 3Q14 4Q14 FY2014 1Q15E 2Q15E 3Q15E 4Q15E FY2015E FY2016E Revenue Company owned revenue $20.1 $31.5 $49.2 $79.0 $31.2 $27.0 $29.0 $28.5 $115.7 $46.1 $41.8 $43.4 $39.9 $171.3 $61.5 $52.0 $55.1 $51.1 $219.8 $281.1 Franchise royalties and fees $0.6 $0.8 $1.0 $0.8 $0.2 $0.2 $0.2 $0.1 $0.6 $0.1 $0.1 $0.1 $0.1 $0.5 $0.1 $0.1 $0.1 $0.1 $0.2 $0.2 Total revenue $20.8 $32.3 $50.2 $79.7 $31.4 $27.2 $29.1 $28.7 $116.4 $46.3 $41.9 $43.6 $40.0 $171.7 $61.6 $52.1 $55.2 $51.2 $220.0 $281.3 Costs and expenses: Cost of sales $6.6 $10.4 $15.8 $25.8 $10.3 $9.1 $9.6 $9.1 $38.1 $14.9 $14.2 $14.6 $13.0 $56.8 $20.0 $17.2 $18.3 $16.8 $72.3 $91.8 Labor $5.4 $8.6 $13.4 $21.6 $8.8 $7.5 $8.0 $8.5 $32.8 $13.1 $11.4 $11.9 $12.0 $48.3 $17.5 $14.4 $15.1 $15.3 $62.3 $79.6 Other restaurant operating costs $3.7 $6.0 $9.6 $14.6 $6.0 $4.9 $5.1 $5.8 $21.8 $8.7 $7.3 $8.3 $7.6 $31.9 $11.5 $9.1 $10.4 $9.5 $40.5 $51.5 Restaurant level profit $4.5 $6.5 $10.4 $16.9 $6.2 $5.7 $6.5 $5.3 $23.1 $9.4 $8.8 $8.6 $7.4 $34.2 $12.5 $11.3 $11.3 $9.5 $44.6 $58.2 General & administrative $4.5 $5.3 $6.4 $9.0 $3.7 $2.5 $2.9 $4.1 $13.2 $5.7 $4.3 $4.2 $4.8 $18.9 $7.5 $5.4 $5.6 $6.4 $24.9 $31.5 EBITDA $0.6 $2.0 $5.0 $8.7 $2.6 $3.2 $3.6 $1.2 $10.6 $3.8 $4.6 $4.6 $2.7 $15.8 $5.1 $6.0 $5.7 $3.2 $20.0 $26.9 Depreciation and amortization $1.6 $2.4 $3.4 $4.9 $2.0 $1.6 $1.7 $2.1 $7.5 $2.9 $2.4 $2.5 $2.7 $10.5 $3.8 $2.9 $3.1 $3.4 $13.2 $16.6 Pre-opening expense $0.6 $0.5 $0.8 $0.9 $0.3 $0.2 $0.8 $0.6 $1.9 $0.8 $0.4 $0.3 $0.5 $2.1 $0.9 $0.6 $0.6 $0.6 $2.7 $2.8 Asset disposal, closure and impairment $0.1 $0.3 ($0.0) $0.2 $0.1 $0.1 $0.0 $0.0 $0.2 $0.0 $0.0 $0.0 $0.1 $0.1 $0.0 $0.0 $0.0 $0.0 $0.1 $0.1 Operating profit ($1.5) ($0.9) $1.0 $2.8 $0.2 $1.3 $1.0 ($1.6) $1.0 $0.1 $1.8 $1.7 ($0.4) $3.3 $0.7 $2.7 $2.4 ($0.4) $5.3 $8.0 Interest expense $0.6 $0.7 $0.7 $1.3 $0.6 $0.5 $0.5 $0.5 $2.1 $0.8 $0.6 $0.6 $0.7 $2.7 $0.8 $0.6 $0.6 $0.6 $2.7 $3.0 Income before taxes ($2.1) ($1.6) $0.3 $1.5 ($0.4) $0.8 $0.6 ($2.1) ($1.1) ($0.7) $1.2 $1.1 ($1.1) $0.6 ($0.1) $2.0 $1.7 ($1.1) $2.6 $5.0 Income tax expense $0.5 $0.6 $0.1 $0.6 $0.2 $0.1 ($0.1) $0.5 $0.7 ($0.3) $0.46 $0.43 ($0.41) $0.2 ($0.0) $0.8 $0.6 ($0.4) $1.0 $1.9 Net income ($2.6) ($2.2) $0.2 $0.9 ($0.6) $0.7 $0.7 ($2.6) ($1.7) ($0.4) $0.7 $0.7 ($0.7) $0.4 ($0.1) $1.3 $1.1 ($0.7) $1.6 $3.0 OpEPS ($0.03) $0.04 $0.04 ($0.13) ($0.09) ($0.02) $0.04 $0.04 ($0.03) $0.03 $0.00 $0.06 $0.05 ($0.03) $0.08 $0.15 Adjusted EBITDA $0.8 $2.3 $5.0 $9.0 $2.6 $3.3 $3.7 $1.200 $10.8 $3.9 $4.7 $4.6 $2.8 $15.9 $5.1 $6.0 $5.8 $3.2 $20.0 $27.0 Diluted shares outstanding Company Owned Ending Units Franchise Ending Units Same Store Sales - System Wide -2.5% 11.9% 11.8% 13.4% 10.4% 5.5% 7.7% 3.8% 6.9% 5.7% 7.5% 5.9% 7.8% 6.7% 6.0% 5.5% 5.5% 5.3% 5.5% 3.5% Margin Analysis Company owned revenue 97.0% 97.5% 98.0% 99.1% 99.4% 99.4% 99.5% 99.5% 99.5% 99.7% 99.7% 99.7% 99.8% 99.7% 99.9% 99.9% 99.9% 99.9% 99.9% 99.9% Franchise royalties and fees 3.0% 2.5% 2.0% 0.9% 0.6% 0.6% 0.5% 0.5% 0.5% 0.3% 0.3% 0.3% 0.2% 0.3% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% Total revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales 32.7% 33.0% 32.0% 32.7% 33.0% 33.6% 33.0% 32.0% 32.9% 32.4% 34.1% 33.7% 32.7% 33.2% 32.6% 33.2% 33.2% 32.9% 32.9% 32.7% Labor 27.0% 27.3% 27.3% 27.3% 28.3% 27.9% 27.4% 29.7% 28.3% 28.4% 27.2% 27.3% 29.9% 28.2% 28.5% 27.6% 27.4% 29.9% 28.4% 28.3% Other restaurant operating costs 18.1% 19.0% 19.5% 18.5% 19.3% 18.1% 17.6% 20.2% 18.8% 19.0% 17.5% 19.1% 18.9% 18.6% 18.7% 17.4% 18.9% 18.6% 18.4% 18.3% Restaurant level profit 22.1% 20.7% 21.2% 21.5% 20.0% 21.1% 22.5% 18.5% 20.0% 20.3% 21.2% 19.8% 18.5% 20.0% 20.3% 21.8% 20.5% 18.6% 20.3% 20.7% General & administrative 21.5% 16.5% 12.7% 11.3% 11.7% 9.2% 9.9% 14.4% 11.3% 12.2% 10.3% 9.5% 11.9% 11.0% 12.1% 10.5% 10.2% 12.4% 11.3% 11.2% EBITDA 2.9% 6.2% 10.0% 11.0% 8.1% 11.8% 12.5% 4.1% 9.1% 8.3% 11.1% 10.6% 6.8% 9.2% 8.2% 11.4% 10.4% 6.2% 9.1% 9.6% Adjusted EBITDA % 3.6% 7.1% 10.0% 11.3% 8.4% 12.0% 12.6% 4.2% 9.2% 8.3% 11.2% 10.6% 6.9% 9.3% 8.3% 11.5% 10.4% 6.3% 9.1% 9.6% Depreciation and amortization 7.8% 7.3% 6.8% 6.1% 6.3% 6.0% 5.9% 7.4% 6.4% 6.2% 5.7% 5.8% 6.7% 6.1% 6.1% 5.6% 5.7% 6.6% 6.0% 5.9% Pre-opening expense 2.7% 1.7% 1.6% 1.2% 1.0% 0.6% 2.9% 2.1% 1.7% 1.8% 1.1% 0.8% 1.3% 1.2% 1.5% 1.2% 1.0% 1.1% 1.2% 1.0% Operating profit -7.3% -2.8% 2.0% 3.5% 0.7% 4.9% 3.6% -5.5% 0.9% 0.3% 4.4% 4.0% -1.1% 1.9% 1.1% 5.2% 4.3% -0.8% 2.4% 2.8% Interest expense 2.7% 2.2% 1.4% 1.6% 2.0% 1.8% 1.6% 1.8% 1.8% 1.8% 1.5% 1.4% 1.6% 1.6% 1.3% 1.2% 1.2% 1.3% 1.2% 1.1% Income tax rate 2.8% 2.3% 1.4% 1.6% 2.0% 1.8% 1.6% 1.8% 1.8% 38.0% 38.0% 38.0% 38.0% 1.6% 38.0% 38.0% 38.0% 38.0% 38.0% 39.0% Net income -12.6% -6.8% 0.3% 1.1% -1.8% 2.6% 2.3% -8.9% -1.5% -0.9% 1.8% 1.6% -1.7% 0.2% -0.1% 2.4% 1.9% -1.3% 0.7% 1.1% Year over Year Comparable Analysis Total revenue 55.6% 55.3% 58.9% 51.8% 50.3% 44.0% 38.4% 46.0% 47.4% 54.1% 49.5% 39.5% 47.6% 33.0% 24.3% 26.7% 27.9% 28.1% 27.9% Cost of sales 57.9% 51.4% 64.0% 55.1% 54.0% 45.3% 35.6% 47.3% 45.0% 57.0% 53.0% 42.8% 49.3% 34.1% 21.1% 24.9% 28.8% 27.3% 26.9% Labor 57.8% 56.3% 60.7% 56.8% 62.2% 49.0% 42.7% 52.1% 48.3% 50.7% 49.2% 41.1% 47.2% 33.8% 26.4% 27.4% 28.1% 29.1% 27.7% Other restaurant operating costs 63.6% 60.6% 52.3% 47.5% 52.7% 50.3% 46.7% 49.1% 45.2% 49.8% 63.0% 30.8% 46.6% 31.2% 23.9% 25.6% 26.0% 26.8% 27.2% Restaurant level profit 46.7% 59.5% 62.7% 44.1% 30.8% 32.7% 28.6% 36.3% 50.1% 55.3% 32.2% 39.6% 48.1% 33.3% 28.4% 31.1% 28.7% 30.5% 30.5% General & administrative 19.7% 19.5% 40.5% 52.6% 41.6% 31.0% 58.4% 46.9% 53.6% 73.5% 44.0% 15.4% 43.3% 32.1% 26.0% 35.3% 33.9% 31.8% 26.8% EBITDA 228.7% 151.5% 74.1% 33.3% 23.5% 34.0% -22.5% 20.9% 50.8% 45.1% 26.4% 130.9% 49.5% 31.9% 28.4% 24.8% 18.1% 26.4% 34.8% Adjusted EBITDA 202.9% 119.5% 79.0% 37.1% 26.1% 35.8% -32.0% 19.9% 47.1% 43.3% 26.3% 129.9% 48.1% 31.9% 27.8% 24.1% 16.7% 25.8% 34.6% Depreciation and amortization 45.6% 45.0% 42.2% 43.7% 58.1% 43.5% 68.8% 53.2% 46.5% 46.5% 45.5% 25.6% 40.3% 30.7% 22.0% 24.4% 25.9% 26.0% 25.8% Operating profit 40.0% NM 188.8% -54.5% -4.3% -18.3% NM -63.5% -38.8% 37.1% 67.5% 72.2% NM NM 46.7% 34.4% 1.7% 60.9% 50.9% Net income 16.6% 107.5% NM NM -22.7% 155.8% NM NM 22.1% 5.4% 4.2% 73.7% 120.4% 82.2% 68.9% 49.2% 1.3% NM 92.3% Earnings per share NM NM NM NM NM NM NM NM 30.8% 8.4% 13.2% 77.4% 133.6% 100.0% 50.0% 25.0% 0.0% 166.7% 90.8% Source: Company reports; Stifel estimates Page 5

6 Important Disclosures and Certifications I, Paul Westra, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or issuers; and I, Paul Westra, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Our European Policy for Managing Research Conflicts of Interest is available at Rating and Price Target History for: Zoe's Kitchen, Inc. (ZOES) as of /06/14 B:$ Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q Rating Key B - Buy H - Hold S - Sell I - Initiation D - Dropped UR - Under Review NR - No Rating NA - Not Applicable RS - Rating Suspended Created by BlueMatrix For a price chart with our ratings and any applicable target price changes for ZOES go to The rating and target price history for Zoe's Kitchen, Inc. and its securities prior to February 25, 2015, on the above price chart reflects the research analyst's views under a different rating system than currently utilized at Stifel. For a description of the investment rating system previously utilized go to. Zoe's Kitchen, Inc. is a client of Stifel or an affiliate or was a client of Stifel or an affiliate within the past 12 months. Zoe's Kitchen, Inc. is provided with investment banking services by Stifel or was provided with investment banking services by Stifel or an affiliate within the past 12 months. Stifel or an affiliate has received compensation for investment banking services from Zoe's Kitchen, Inc. in the past 12 months. Stifel or an affiliate expects to receive or intends to seek compensation for investment banking services from Zoe's Kitchen, Inc. in the next 3 months. Stifel or an affiliate managed or co-managed a public offering of securities for Zoe's Kitchen, Inc. in the past 12 months. Stifel or an affiliate is a market maker or liquidity provider in the securities of Zoe's Kitchen, Inc.. The equity research analyst(s) responsible for the preparation of this report receive(s) compensation based on various factors, including Stifel s overall revenue, which includes investment banking revenue. Our investment rating system is three tiered, defined as follows: BUY -We expect a total return of greater than 10% over the next 12 months with total return equal to the percentage price change plus dividend yield. HOLD -We expect a total return between -5% and 10% over the next 12 months with total return equal to the percentage price change plus dividend yield. SELL -We expect a total return below -5% over the next 12 months with total return equal to the percentage price change plus dividend yield. Page 6

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