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Noodles & Co (NDLS) Q1 2024 Earnings Call Transcript Highlights: Navigating Challenges and ...

GuruFocus Research
·4-min read

  • Total Revenue: Decreased by 3.7% to $121.4 million.

  • Net Loss: $6.1 million, or a loss of $0.14 per diluted share.

  • Adjusted EBITDA: $5.5 million, down from $6.2 million in the previous year.

  • Same-Store Sales: System-wide comp restaurant sales decreased by 5.4%.

  • Company-Owned Restaurant Traffic: Declined by 7.3%.

  • Restaurant Contribution Margin: 13.1%, down from 13.7% year-over-year.

  • Labor Costs: 32.3% of sales, flat compared to the previous year.

  • Occupancy Costs: Increased to 9.9% of sales.

  • New Store Openings: Two new company-owned restaurants opened, two closed; one franchise restaurant opened, two closed.

  • Debt Balance: $83 million, slightly up by $800,000 from the previous quarter.

  • Cash and Cash Equivalents: $1.3 million at the end of the quarter.

Release Date: May 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Improvement in traffic and sales trends, particularly in April where traffic increased by 0.3% and same-store sales exceeded industry benchmarks.

  • Successful limited-time offers (LTOs) such as 'Steak Stroganoff' which performed well above expectations, indicating strong customer response to menu innovations.

  • Progress in strategic priorities including operations excellence, digital ecosystem leverage, and menu transformation aimed at increasing guest satisfaction and operational efficiency.

  • Strong cost management and favorable commodity costs contributed to restaurant contribution margin and adjusted EBITDA exceeding expectations for the quarter.

  • Enhanced focus on digital sales and marketing, including a successful test on connected TV which showed a 2.8% lift in incremental traffic and solid ROI.

Negative Points

  • Overall decrease in total revenue by 3.7% compared to the previous year, with a net loss of $6.1 million for the quarter.

  • Continued decline in company comp traffic by 7.3% during the first quarter, although this was an improvement from previous quarters.

  • Challenges with the Easter holiday shift, which negatively impacted first quarter comp sales by approximately 30 basis points.

  • Restaurant level contribution margin decreased to 13.1% from 13.7% in the first quarter of 2023, primarily due to sales deleverage.

  • Operational complexities and the need for further improvements in catering services to fully capitalize on potential sales contributions.

Q & A Highlights

Q: Can you discuss the LTO bridge and the sequence of offerings leading into 2025? A: Drew Madsen, CEO of Noodles & Co, confirmed that the Steak Stroganoff LTO will return, followed by the Baked Alfredo with Grilled Chicken. Two new dishes developed by TCE will be introduced in Q4. Additional sponsorships and promotions are planned to bridge any gaps between these offerings.

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Q: Are there common themes or standout successes from the menu development at Culinary Edge? A: Drew Madsen highlighted three focus areas in menu development: addressing menu gaps with 'Lightning Fresh' options, updating classic dishes ('Twisted Classics'), and introducing trendy yet approachable flavor profiles. The goal is to enhance 40% of the menu by early next year.

Q: What drove the notable improvement in April's performance compared to March? A: Drew Madsen attributed April's success to several factors including the return of the Steak Stroganoff LTO, improved operational excellence, and higher guest satisfaction, which positively impacted traffic and sales. Michael Hynes, CFO, added that digital sales also saw significant growth in April.

Q: Can you provide details on the financial impact and strategic rationale behind the refranchising of six restaurants in Oregon? A: Michael Hynes explained that the refranchising would initially create a small EBITDA headwind but is part of a broader strategy to improve unit economics. The new franchise partner has committed to opening 10 new restaurants by 2030, which is expected to be incrementally beneficial to EBITDA.

Q: What are the expectations for restaurant-level margins and the components influencing these margins? A: Michael Hynes maintained the guidance for restaurant-level contribution margins at 14-15%. Key factors include low to mid-single-digit commodity inflation, moderated labor inflation, and significant cost savings initiatives across the company.

Q: How does the current leverage ratio align with covenant requirements, and what are the plans for debt management? A: Michael Hynes confirmed compliance with all credit agreement covenants, including the leverage ratio. He highlighted plans to reduce capital expenditures in the latter half of the year, which should enable debt paydowns and help the company to be free cash flow positive heading into 2025.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.