10-Q: Noodles & Company Reports First Quarter 2024 Results with Revenue Decline

Noodles & Company experienced a decrease in revenue and comparable restaurant sales in the first quarter of 2024, alongside a net loss, despite some improvements in commodity costs.

Summary

• Noodles & Company's total revenue decreased by 3.7% to $121.4 million in the first quarter of 2024, compared to $126.1 million in the same period of 2023.
• The company reported a net loss of $6.14 million, or $0.14 per share, compared to a net loss of $3.115 million, or $0.07 per share, in the first quarter of 2023.
• System-wide comparable restaurant sales decreased by 5.4%, with a 5.7% decrease at company-owned restaurants and a 4.5% decrease at franchise-owned restaurants.
• The company opened two new company-owned restaurants and closed two company-owned and two franchise restaurants during the quarter.
• Cost of sales decreased by 4.3% due to lower commodity costs, particularly chicken, but was partially offset by a decrease in restaurant revenue.
• Labor costs decreased by 3.5% due to lower restaurant revenue, but remained flat as a percentage of restaurant revenue at 32.3%.
• The company's average unit volume (AUV) for company-owned restaurants decreased to $1.253 million from $1.343 million in the prior year.
• The company had $83.0 million of indebtedness and $3.0 million of letters of credit outstanding under its credit agreement as of April 2, 2024.
• Capital expenditures are estimated to be between $28.0 million and $32.0 million for fiscal year 2024.

Sentiment

Score: 3

Explanation: The document indicates a negative sentiment due to decreased revenue, increased net loss, and declining comparable sales. While there are some positive aspects like reduced costs, the overall tone is concerning from an investment perspective.

Positives

• Cost of sales decreased by 4.3% due to lower commodity costs, particularly chicken.
• Labor costs decreased by 3.5% due to lower restaurant revenue.
• General and administrative expenses decreased by 4.4% due to lower employee-related costs.
• Restaurant impairments, closure costs, and asset disposals decreased by $0.3 million due to a decrease in write-downs of lease-related assets.

Negatives

• Total revenue decreased by 3.7% year-over-year.
• Net loss increased to $6.14 million, or $0.14 per share.
• System-wide comparable restaurant sales declined by 5.4%.
• Average unit volume (AUV) for company-owned restaurants decreased to $1.253 million.
• Interest expense increased by $1.0 million due to higher interest rates.

Risks

• The company experienced a decline in restaurant traffic, which negatively impacted revenue.
• The company is facing a highly competitive environment for restaurant workers.
• The company is incurring third-party delivery fees due to significant usage of third-party delivery services.
• The company's debt bears interest at variable rates, exposing it to interest rate fluctuations.
• The company is subject to commodity price volatility, which can impact cost of sales.
• Inflationary pressures may continue to affect the company's results in the near future.
• The company's ability to sustain overall growth, including digital sales growth, is not guaranteed.
• The company's ability to open new restaurants on schedule and ensure their success is not guaranteed.
• The company's ability to achieve and maintain increases in comparable restaurant sales is not guaranteed.
• The company's marketing efforts and ability to introduce new products may not be successful.
• The company is subject to economic conditions, including inflation, recession, and elevated interest rates.
• The company is subject to supply chain challenges and the price and availability of commodities.
• The company's ability to adequately staff its restaurants is not guaranteed.
• The company is subject to changes in labor costs.
• The company is subject to conditions beyond its control, such as global conflicts, wars, terrorist activity, weather, natural disasters, disease outbreaks, epidemics, or pandemics.

Future Outlook

The company plans to open 10-12 new company-owned restaurants in 2024, a reduced number compared to recent years, and may reduce openings further in 2025. Capital expenditures are estimated to be approximately $28.0 million to $32.0 million for fiscal year 2024.

Management Comments

• The company believes the decline in restaurant traffic was partially due to consumer response to past price increases.
• The company has taken actions to address this response, including moderating price increases and other initiatives.
• The company is focused on improvements to its operating model and reducing the cost of new store development.

Industry Context

The restaurant industry is facing challenges such as rising labor costs, commodity price volatility, and changing consumer preferences. Noodles & Company's results reflect these broader industry trends, particularly the impact of inflation and reduced consumer traffic.

Comparison to Industry Standards

• Comparable restaurant sales declines are a common theme in the restaurant industry, with many companies reporting similar challenges in the current economic environment.
• Companies like Chipotle and Panera Bread have also faced traffic challenges, although their performance varies based on their specific strategies and market positioning.
• Noodles & Company's focus on cost management and operational improvements is consistent with industry best practices for navigating economic headwinds.
• The company's debt levels and capital expenditure plans are within the range of other similar-sized restaurant chains.

Stakeholder Impact

• Shareholders will be negatively impacted by the increased net loss and decreased revenue.
• Employees may be affected by potential cost-cutting measures and changes in operational strategies.
• Customers may experience changes in menu pricing and service as the company adjusts to market conditions.
• Suppliers may be impacted by changes in the company's purchasing patterns and supply chain management.
• Creditors will be monitoring the company's debt levels and financial performance.

Next Steps

• The company plans to open 10-12 new company-owned restaurants in 2024.
• The company will focus on improvements to its operating model and reducing the cost of new store development.
• The company will continue to monitor and manage commodity costs and labor expenses.
• The company will continue to evaluate the effectiveness of its marketing efforts and new product introductions.

Key Dates

Keywords

restaurant, revenue, comparable sales, net loss, EBITDA, franchise, commodity costs, labor costs, restaurant operations, debt, capital expenditures