10-Q: Noodles & Company Reports Third Quarter 2024 Results Amidst Challenging Consumer Environment

Noodles & Company experienced a decline in system-wide comparable restaurant sales and total revenue in the third quarter of 2024, impacted by a challenging consumer environment and decreased third-party delivery channel usage.

Summary

• Noodles & Company's total revenue decreased by 4.0% to $122.8 million in the third quarter of 2024 compared to $127.9 million in the same period of 2023.
• System-wide comparable restaurant sales decreased by 3.3%, with a 3.4% decrease at company-owned restaurants and a 2.9% decrease at franchise-owned restaurants.
• The company reported a net loss of $6.755 million, or $0.15 per share, compared to a net income of $0.7 million, or $0.02 per share, in the third quarter of 2023.
• For the first three quarters of 2024, total revenue decreased by 2.0% to $371.5 million compared to $379.1 million in the same period of 2023.
• The net loss for the first three quarters of 2024 was $26.520 million, or $0.58 per share, compared to a net loss of $3.719 million, or $0.08 per share, in the same period of 2023.
• The company opened 10 new company-owned restaurants and 2 new franchise restaurants in the first three quarters of 2024, and sold 6 company-owned restaurants to a franchisee.
• Noodles & Company expects to close 10 to 15 company-owned restaurants in 2024.
• Capital expenditures are estimated to be between $29.0 million and $31.0 million for fiscal year 2024.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to declining sales, a net loss, and planned restaurant closures. While there are some positive aspects, such as reduced commodity inflation, the overall tone is concerning from an investment perspective.

Positives

• Commodity inflation was less than 2% in the third quarter of 2024, indicating an improvement in food costs.
• The company has been able to partially mitigate the impact of rising labor costs through a focus on maximizing labor efficiencies.
• The company opened 10 new company-owned restaurants and 2 new franchise restaurants in the first three quarters of 2024.
• The company entered into a six-year development plan with a franchisee that includes development of ten new locations throughout Oregon and Washington.

Negatives

• System-wide comparable restaurant sales decreased by 3.3% in the third quarter of 2024.
• The company experienced a net loss of $6.755 million in the third quarter of 2024.
• The company's sales deceleration in the third quarter was impacted by a decline in the third-party delivery channel.
• The company plans to close 10 to 15 company-owned restaurants in 2024.
• Interest expense increased by $0.9 million in the third quarter of 2024 due to higher average debt balances and higher interest rates.
• Restaurant impairments, closure costs and asset disposals increased by $0.1 million in the third quarter of 2024.

Risks

• The company is facing a challenging consumer environment with elevated levels of discounting.
• Restaurant industry sales remain volatile, impacting the company's sales trends.
• The company's sales have been impacted by a decline in the third-party delivery channel.
• The company is evaluating its portfolio of restaurants, which will likely result in more closures over the next twelve months.
• The company is exposed to market risk from changes in interest rates on outstanding debt.
• The company is subject to commodity price volatility, which can impact food costs.
• The company is subject to inflationary pressures, including food costs, labor costs, and energy costs.

Future Outlook

The company is focusing on revitalizing its menu options starting late in the third quarter and continuing in the fourth quarter of 2024 and into 2025 as the new menu is introduced nationally. The company expects to open two new company-owned restaurants in 2025 and close 10 to 15 company-owned restaurants in 2024. Capital expenditures are estimated to be between $29.0 million and $31.0 million for fiscal year 2024.

Management Comments

• Our sales have been impacted by the challenging consumer environment and we have responded with added promotional support late in the third quarter and extending into the fourth quarter of 2024.
• We are focusing on revitalizing our menu options starting late in the third quarter and continuing in the fourth quarter of 2024 and into 2025 as the new menu is introduced nationally.
• We continue to evaluate our portfolio of restaurants, which will likely result in more closures over the next twelve months.

Industry Context

The restaurant industry is experiencing a challenging consumer environment with elevated levels of discounting and volatile sales trends. Many companies in the restaurant industry have reported decreased same store sales in 2024, and Noodles & Company's sales trends have followed this pattern. The company is responding to these challenges by focusing on menu revitalization and promotional support.

Comparison to Industry Standards

• The decrease in comparable restaurant sales of 3.3% is worse than the industry average for the quarter, as many other restaurant chains have reported flat or slightly positive same-store sales.
• The company's net loss of $6.755 million is significantly worse than the performance of comparable companies, many of which have reported profits for the quarter.
• The company's restaurant contribution margin of 12.8% is below the industry average, which is typically in the range of 15-20% for fast-casual restaurants.
• The company's capital expenditure estimate of $29.0 million to $31.0 million is in line with other companies of similar size, but the company's plans to close 10-15 restaurants is a sign of underperformance compared to industry standards.
• The company's debt levels and interest rates are higher than many of its competitors, which is a concern given the current economic environment.

Management Changes

Stakeholder Impact

• Shareholders will be negatively impacted by the company's net loss and declining sales.
• Employees may be affected by restaurant closures and potential job losses.
• Customers may experience changes in menu options and restaurant locations.
• Suppliers may be impacted by changes in the company's purchasing patterns.
• Creditors may be concerned about the company's financial performance and debt levels.

Next Steps

• The company will focus on revitalizing its menu options.
• The company will continue to evaluate its portfolio of restaurants, which will likely result in more closures.
• The company will open two new company-owned restaurants in 2025.

Key Dates

Keywords

restaurant, sales, comparable restaurant sales, revenue, EBITDA, franchise, net loss, restaurant closures, capital expenditures, debt, interest rates