What Happened?

Shares of casual restaurant chain Noodles & Company (NASDAQ:NDLS) fell 16.1% in the morning session after the company reported weak third-quarter earnings. Its revenue, EBITDA, and EPS missed expectations, and it lowered the full-year revenue guidance. Same store sales fell 3.3% year on year as a 5.8% decline in company-owned restaurant traffic more than offset price increases. 

Also, starting in late July, the company observed a "sudden drop" in third-party delivery sales attributed to changes in delivery platform algorithms and competitive discounting. Overall, the results reveal near-term growth challenges, and combined with competitive pressures, there are reasons to worry about both the growth and profitability strategies.

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What The Market Is Telling Us

Noodles’s shares are extremely volatile and have had 65 moves greater than 5% over the last year. But moves this big are rare even for Noodles and indicate this news significantly impacted the market’s perception of the business. 

The biggest move we wrote about over the last year was 6 months ago when the stock gained 22.1% on the news that the company reported first-quarter earnings results. Noodles beat analysts' EPS expectations. 

On the other hand, its revenue slightly missed expectations as its same-store sales fell 5.4% year on year. Reassuringly, management noted that sales and traffic trends improved throughout the quarter despite difficult weather and tough comps. It suggests the trends might improve with the company observing positive comparable sales and traffic growth in April. Overall, we think this was a mixed quarter.

Noodles is down 66.9% since the beginning of the year, and at $1.03 per share, it is trading 69.6% below its 52-week high of $3.39 from December 2023. Investors who bought $1,000 worth of Noodles’s shares 5 years ago would now be looking at an investment worth $184.78.

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