10-Q: Noodles & Company Reports Wider Q3 Loss Amid Strategic Review

Noodles & Company reported a wider net loss of $9.2 million in the third quarter of 2025 and announced an ongoing strategic review to maximize shareholder value, including potential sale or refinancing.

Summary

• Noodles & Company reported a net loss of $9.15 million for the third quarter of 2025, a 35.5% increase from a net loss of $6.76 million in the third quarter of 2024.
• Year-to-date net loss for the first three quarters of 2025 was $35.76 million, compared to $26.52 million for the same period in 2024, representing a 34.8% increase in loss.
• Total revenue decreased by 0.5% to $122.1 million in Q3 2025, primarily due to $5.0 million from permanent restaurant closures, partially offset by $3.9 million in company comparable restaurant sales growth.
• System-wide comparable restaurant sales increased by 4.0% in Q3 2025 (4.0% at company-owned, 4.3% at franchise-owned) and 3.3% year-to-date 2025.
• Restaurant impairments, closure costs, and asset disposals significantly increased to $5.68 million in Q3 2025 from $2.20 million in Q3 2024, and to $20.63 million year-to-date 2025 from $15.49 million year-to-date 2024.
• The company closed 15 restaurants in Q3 2025 and 24 restaurants year-to-date 2025, with an anticipation of closing an additional 6 to 8 restaurants in 2025.
• A strategic review was initiated on September 3, 2025, to explore ways to maximize stockholder value, including refinancing, refranchising, or sale of all or part of the business.
• Cash and cash equivalents increased to $4.69 million as of September 30, 2025, from $1.15 million at December 31, 2024.
• Long-term debt, net, increased to $108.16 million as of September 30, 2025, from $100.74 million at December 31, 2024.
• The company was in compliance with all debt covenants as of September 30, 2025, but covenants become more stringent starting Q4 2025.

Sentiment

Score: 3

Explanation: The company reported a significantly wider net loss and increased restaurant impairments, indicating ongoing operational challenges. While comparable sales showed some improvement, the initiation of a strategic review, including potential sale or refinancing, suggests a distressed financial position and high uncertainty regarding future value creation for current shareholders. The increasing debt and tightening covenant requirements further contribute to a negative outlook.

Positives

• System-wide comparable restaurant sales increased by 4.0% in the third quarter of 2025, with company-owned restaurants up 4.0% and franchise-owned up 4.3%.
• Average Unit Volumes (AUVs) for company-owned restaurants increased by 5.4% to $1,341k in Q3 2025 compared to $1,272k in Q3 2024.
• Labor costs as a percentage of restaurant revenue decreased to 31.4% in Q3 2025 from 32.0% in Q3 2024, primarily due to sales leverage.
• General and administrative expense decreased by $0.6 million, or 4.8%, in Q3 2025, and by $2.0 million, or 5.1%, year-to-date 2025.
• Cash and cash equivalents significantly increased to $4.69 million as of September 30, 2025, from $1.15 million at December 31, 2024.
• Net cash used in investing activities decreased by $12.9 million to $10.1 million year-to-date 2025, primarily due to decreased investment in new restaurants and technology.

Negatives

• Net loss widened by 35.5% to $9.15 million in Q3 2025 and by 34.8% to $35.76 million year-to-date 2025.
• Loss from operations increased by 31.6% to $6.32 million in Q3 2025 and by 34.6% to $27.48 million year-to-date 2025.
• Restaurant impairments, closure costs, and asset disposals increased by 158.0% to $5.68 million in Q3 2025 and by 33.2% to $20.63 million year-to-date 2025.
• The company closed 24 company-owned restaurants year-to-date 2025 and anticipates closing an additional 6 to 8 restaurants in 2025.
• Net cash provided by operating activities decreased to $8.36 million year-to-date 2025 from $17.55 million in the same period of 2024.
• Interest expense, net, increased by 35.8% to $2.83 million in Q3 2025 and by 35.8% to $8.23 million year-to-date 2025, primarily due to higher average debt balances.
• Total stockholders deficit significantly widened to $(38.90) million as of September 30, 2025, from $(5.58) million at December 31, 2024.
• EBITDA turned negative year-to-date 2025 at $(6.65) million, down from $1.57 million in the prior year, and decreased by 88.3% in Q3 2025 to $0.29 million.
• Adjusted EBITDA decreased by 23.9% to $14.92 million year-to-date 2025.

Risks

• The ongoing strategic review may not result in additional stockholder value, could be time-consuming and disruptive, and may incur substantial expenses or increase litigation exposure.
• There is no assurance that any suitable transaction will be identified or successfully implemented from the strategic review.
• Indebtedness and credit facility contain financial covenants and restrictions that may limit financial and operational flexibility, with covenants becoming more stringent starting Q4 2025.
• Failure to comply with debt covenants could lead to acceleration of obligations, and there is no assurance of continued compliance.
• Securing access to credit on reasonable terms after the A&R Credit Agreement matures in 2027 may be difficult or impossible.
• Future issuances of equity or convertible debt securities could result in significant dilution for existing stockholders.
• Commodity price volatility, influenced by weather, market conditions, and trade tariffs, could increase food costs and restaurant operating costs.
• Inflation, particularly in food, labor, energy, and construction costs, is anticipated to continue affecting results.
• Increased third-party delivery fees due to higher usage of delivery services are impacting other restaurant operating costs.

Future Outlook

The company anticipates closing an additional six to eight restaurants in 2025 as part of its portfolio optimization. Capital expenditures are estimated to be $12.0 million to $13.0 million for fiscal year 2025, with $2.0 million to $3.0 million remaining for the rest of the year, primarily for reinvestment in existing restaurants and technology. The annual effective tax rate for 2025 is estimated to be between (1.0%) and (0%). The strategic review initiated on September 3, 2025, is ongoing, exploring options like refinancing, refranchising, or sale of the business.

Management Comments

• Near-term sales growth remains constrained by macroeconomic uncertainty and current consumer sentiment.
• Comparable restaurant sales have been positive since the introduction of our new menu, and have accelerated in the third quarter and further into the fourth quarter, aided by the introduction of Delicious Duos in late July and Chili Garlic Ramen in October.
• We continue to monitor commodity inflation and will work with suppliers to identify ongoing supply chain efficiencies, including adding additional suppliers as necessary.
• We have been able to partially mitigate the impact of rising base labor costs through a continued focus on maximizing efficiencies of labor hour usage per restaurant, and wage inflation has stabilized to less than 3%.
• We continue to analyze our restaurant portfolio and expect to close certain restaurants that are either generating low or negative cash flows, at or are approaching the expiration of their leases or in trade areas that are not as well positioned for current consumer trends.
• We believe that we will have sufficient sources of cash to meet our liquidity needs and capital resource requirements for at least the next twelve months, through currently available cash and cash equivalents, availability under our revolving credit facility and cash flows from operations.
• We were in compliance with all of our debt covenants as of September 30, 2025, and expect to continue to be in compliance for the next twelve months.

Industry Context

The company's performance reflects broader industry trends such as rising labor costs, which it has partially mitigated through efficiency, and increased reliance on third-party delivery services, leading to higher associated fees. Macroeconomic uncertainty and consumer sentiment are noted as constraints on near-term sales growth, a common challenge across the restaurant sector. The strategic review indicates a response to competitive pressures and the need for financial restructuring or a change in ownership in a challenging market.

Legal Proceedings

• The company is not currently a party to any material legal proceedings, but is subject to proceedings, lawsuits, and claims in the normal course of business.

Stakeholder Impact

• Shareholders face significant uncertainty and potential volatility in stock price due to the ongoing strategic review, which could lead to dilution if new equity is issued or unfavorable terms if debt financing is secured.
• Employees may experience uncertainty regarding job security and retention, particularly in light of the strategic review and ongoing restaurant closures.
• Creditors are impacted by the company's increased indebtedness and the tightening financial covenants, which could lead to accelerated obligations if not met.
• Customers may experience changes in restaurant availability due to ongoing closures and potential shifts in menu or service as the company navigates its strategic options.
• Suppliers may face altered business relationships or payment terms depending on the outcome of the strategic review and any potential restructuring or sale of the business.

Next Steps

• Continue the strategic review process to explore options for maximizing stockholder value, including potential refinancing, refranchising, or sale of the business.
• Anticipate closing an additional 6 to 8 restaurants in 2025 as part of ongoing portfolio optimization.
• Monitor forthcoming administrative guidance and regulatory developments related to the One Big Beautiful Bill Act (H.R.1) for its impact on financial statements.
• Evaluate the impact of adopting ASU No. 2024-03 on consolidated financial statements and disclosures, effective for fiscal years beginning after December 15, 2026.

Key Dates

Recommendation

The company's financial performance is deteriorating, evidenced by a significantly wider net loss, increased restaurant impairments, and negative EBITDA year-to-date. The initiation of a strategic review, including potential refinancing or sale, signals significant financial distress and uncertainty about the company's standalone viability. While comparable sales show some positive momentum, this is overshadowed by substantial losses and a shrinking restaurant footprint. The increasing debt load and tightening covenant requirements pose material risks, suggesting a high probability of further downside for equity holders. An investor should consider exiting their position given the current trajectory and strategic uncertainty.

Keywords

Noodles & Company, NDLS, Q3 2025, 10-Q, restaurant industry, fast-casual, financial results, strategic review, net loss, debt covenants, restaurant closures, comparable sales, impairments, liquidity, corporate governance