• Revenue: $122.8 million, a decrease of 4.0% compared to last year.
• Same-Store Sales: Decreased 3.3% system-wide; 3.4% at company-owned restaurants and 2.9% at franchise restaurants.
• Company Comp Traffic: Declined 5.8%.
• Restaurant Level Contribution Margin: 12.8%, down from 16.4% in the third quarter of 2023.
• Cost of Goods Sold (COGS): 25.5% of sales, a 40 basis point increase from last year.
• Labor Costs: 32.0% of sales, up 70 basis points from the prior year.
• Net Loss: $6.8 million or a loss of $0.15 per diluted share.
• Adjusted EBITDA: $4.9 million, compared to $10.9 million in the third quarter of 2023.
• Store Openings and Closures: 3 new company-owned restaurants opened, 5 closed; 1 franchise restaurant opened, 1 closed.
• Debt Balance: $89.9 million with over $30 million of incremental liquidity available.
• Capital Expenditures: Projected $29 million to $31 million for 2024.

• Warning! GuruFocus has detected 5 Warning Signs with NDLS.

Release Date: November 06, 2024

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

Positive Points

• Noodles & Co (NASDAQ:NDLS) has seen positive early results from their menu innovation work, with new dishes like Crispy Chicken Bacon Alfredo becoming popular.
• The company has made significant improvements in staffing, training, and execution, leading to better guest satisfaction scores.
• Digital sales account for 55% of total sales, with loyalty members contributing 26% and spending twice as much as non-loyalty members.
• Catering sales have grown significantly, with system-wide sales up 27% year-over-year, indicating potential for further growth.
• Noodles & Co (NASDAQ:NDLS) has reduced capital expenditures and implemented cost-saving measures, positioning them for positive free cash flow in 2025.

Negative Points

• Total revenue decreased by 4.0% compared to last year, with system-wide comp restaurant sales down 3.3%.
• There was a significant decline in third-party delivery sales, impacting overall sales performance.
• Restaurant level contribution margin decreased to 12.8% from 16.4% in the previous year, primarily due to sales deleverage.
• Labor costs increased to 32.0% of sales, driven by sales deleverage and hourly wage inflation.
• The company is undergoing a comprehensive portfolio review, leading to the closure of several underperforming restaurants.

Q & A Highlights

Q: Can you explain the trajectory of sales throughout the quarter and the factors affecting it? A: Andrew Madsen, CEO: At the end of July, we experienced a sudden drop in third-party delivery channel sales, which is significant for us. This, combined with wrapping on more aggressive promotional support from the prior year, impacted our sales. We pivoted to a new promotional strategy with new dishes and increased advertising, which improved Q4 sales and traffic trends. We are also working on regaining profitable traffic growth in the third-party delivery channel.

Q: What caused the sudden drop in delivery sales, and how are you addressing it? A: Andrew Madsen, CEO: We believe the issue was with our existing menu markup, which affected our visibility on the third-party platform's algorithm. We are testing alternative menu markups to improve our position and regain traffic.

Q: Can you elaborate on the guidance range for the fourth quarter and the factors influencing it? A: Michael Hynes, CFO: Effective pricing in Q4 will be just over 1%. The guidance range accounts for variability seen throughout the year, with room for upside as third-party delivery improves and momentum builds with new dishes. However, we also recognize potential downside variability.

Q: Regarding free cash flow generation, do you expect to be positive for the entire year of 2025? A: Andrew Madsen, CEO: With much lower capital expenditures expected to be under $15 million in 2025, we anticipate being free cash flow positive for the full year and carrying that forward.

Q: How did the promotional activities impact your sales and traffic trends? A: Andrew Madsen, CEO: The introduction of new dishes and increased advertising support, along with promotions like BOGO and kids eat free, have materially improved sales and traffic trends in Q4. These efforts have shown positive results even after the promotions ended.

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