Q4 2020 Noodles & Co Earnings Call
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Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time your lines of all that can be placed on hold and thank you for your patience.
Once again, ladies and gentlemen. This is the operator today's conference is scheduled to begin momentarily until at that time your lifestyle and can be placed on hold and thank you for your patience.
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Okay.
Good afternoon, and welcome to today's noodles, and company's fourth quarter, 'twenty and 'twenty earnings Conference call. All participants are now in a listen only mode. After the presenters remarks, there will be a question and answer session. As a reminder of this call is being recorded.
I would now like to introduce noodles and company's Chief Financial Officer, Carl Lukacs, you may begin.
Thank you and good afternoon, everyone welcome to our fourth quarter 2020 earnings call here with me. This afternoon is Dave <unk>, our Chief Executive Officer, I'd like to start by going over a few regulatory matters during our opening remarks and in response to your questions. We may make forward looking statements regarding future events.
For the future financial performance of the company and as such items, including details related to our future performance should be considered forward looking statements within the meaning of the private Securities Litigation Reform Act.
Such statements are only projections and actual events or results could materially differ materially from those projections due to a number of risks and uncertainties.
Safe Harbor statement and this afternoons news release and the cautionary statements and the company's annual report on form 10-K for 2019 fiscal year and subsequent filings with the SEC are considered a part of this conference call, including the portion of that would be at set forth the risks and uncertainties related to the company forward looking statements.
And I referred you to the documents the company files from time to time with the Securities and Exchange Commission specifically at the company's annual report on form 10-K for 2019 fiscal year and subsequent filings we have made these.
These documents contain and identify important factors and could cause actual results to differ materially from those contained in our projections or forward looking statements.
During the call we will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance.
These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
A reconciliation of these measures to the most directly comparable GAAP measures is available and our fourth quarter 2020 earnings release, and our supplemental information now I would like to turn it over and to date bending housing our chief Executive Officer.
Thanks, Karl and good afternoon, everyone and before we begin I'd like to welcome Carl who joined US as CFO to the noodles family Karl has already proven to be of key addition to our strong leadership team as we continue to advance our strategic roadmap and accelerated growth objectives.
Turning to the business 2020, what do you feel like on like any other.
And I will be forever grateful for our team members and partners for their unwavering commitment to nourish and inspire of the team member guest and community, we serve which has allowed the branch and navigate the COVID-19 pandemic and position ourselves to thrive and years to come.
During the Covid pandemic, our team has Brigitte of a challenge, placing paramount importance on the safety of our guests and you tell of team members, while proving the resiliency of the brain.
Our average unit volumes continue to recover well after the initial on sort of the pandemic, even with many of our restaurants unable to open their dining rooms until just recently.
I want and mentioned that while we will continue to report on 2021 comparable restaurant sales for 2020, we will also be providing a comparison of average unit volumes relative to 2019, beginning with our Q1 earnings call. We believe this provides a more informative view and July performance of Covid Abates, and we made progress towards our accelerated growth.
Yes.
All of our comparable restaurants sales relative to 2020 remained modestly negative thus far and 2021 and I'm happy to report that both of our comparable restaurant sales growth and our average unit volume growth, thus far of improved relative to Q4.
Our new restaurants opened during the past two years continue to be our best performing class and history with both of average unit volume and restaurant level margins above company average and performance supporting our objective for normalized cash on cash returns of at least 30%.
Our economic model remains strong as we've been able to mitigate much of the other pressures from the Covid pandemic with essentially no cash burn.
Capitalize on our balance sheet strength. This year, we did continue to modestly invest and high return projects, including the new restaurant openings and our digital platform for me.
<unk> net debt in line with prior year.
Our GAAP metrics continued to improve across all channels of our business with our sustained focus on relevant culinary innovation consistency and speed served by some of the friendliest most talented teams and the country.
Finally, and most importantly, our people oriented strategy, including the introduction of several industry, leading benefits to support our team at.
As a result of and the service leadership culture that supports each other as well as our cash.
Resulting and turnover in terms of your metrics well ahead of industry benchmarks.
And I'm convinced that this strength will serve as a touchstone for allowing the branch lease tremendous growth potential.
While we will look back at 2020 and recognize how challenging was for those and the restaurant industry and beyond both professionally and personally.
And I also believe and you'll remember 2020 as of year end, which for noodles and company, we cemented our brand with our team members and cash and created a springboard for our future success.
Noodles and company is uniquely positioned to win in today's environment.
And the variety of inherent in our menu has been and will continue to be a meaningful strength of the brand as well for favorites from kids to adults healthy to indulgent and flavors, both familiar and Neil.
Aside from the great variety of our menu. Unlike many of our competitors, our food travels extremely well and given our relatively low price point and strong and speed of service and you'll just particularly well suited to take advantage of the increased need for convenience for today's consumer debt.
The strength of supported by our digital capabilities, which we continue to enhance to make it easier for guests to access and engage with the brand.
While we still face and external environment that poses some near term uncertainty.
And there I'd like to focus my remarks on our vision to achieve the following accelerated growth objectives.
Annual system wide unit growth of at least 7% annually beginning in 2022 and.
Quickly, reaching at least 10% annually on a path to at least 1500 units nationwide.
Average unit volumes of $1 $450000 for 2024.
To meet these objectives, we remain focused on three main strategies for <unk>.
First is the continued differentiation of our concepts to appeal to a broad range of lifestyle convenience and dietary needs.
Activating our brands, particularly through our digital assets and marketing strategy and.
And third accelerating unit growth to take advantage of and operating model. We feel is ideally situated for a post COVID-19 world.
I'd like to start with our ongoing success and executing a disciplined strategy of culinary innovation that is on trend resonates with guests and builds brand love and loyalty.
And we've discussed on the past our 2018 introduction of Zucchini noodles allows the brand to meet the needs of guests desire and lower carb alternatives and we believe meaningful upside still exists for our zucchini and a platform.
Building off of the success of of achieving noodle introduction a few weeks ago, we became the first national fast casual chain to introduce cauliflower gnocchi to our menu.
Our cauliflower gnocchi is gluten free and contains only half of the carbs of our traditional pasta.
All while providing the full taste and texture of traditional mielke.
We've been very pleased with the early results and feedback from its launch at the close R&D of reinforces the concepts ability to meet the varied dietary preferences of our guests and give them more reasons to visit noodles and company.
We're also excited by the results from our current test of total loans and ravioli and select markets.
These test dishes off of a fresh take on some of our guest favorites, such as our three cheese toward alone and with specialty ingredients of Carmelites, Bunions and a blend of Ricardo mozzarella and parmesan cheeses.
For years of stuffed pasta has been the most request of items from our guests and we.
We're incredibly encouraged by our test initial results.
From a volume perspective, so far they've surpassed results from every culinary test, we've launched and 17 years that ive been looking at as a company.
We plan to use the next few months to optimize these dishes, our operating procedures and our marketing mix and anticipate launching the best performing items for the test later this summer.
As we continue to further differentiate the brand for today's environment I'd like to discuss our second strategy to drive average unit volumes for May and $450000 just focused on activating the brand, particularly through our digital capabilities and improved marketing effectiveness.
During the Covid pandemic, we've learned we've leaned heavily into our digital strength, which are particularly relevant for our core demographic with skews younger and tends to be more digitally savvy.
During the fourth quarter digital sales grew 128% versus prior year and accounted for 62% of our total sales.
Even as dining room restrictions have recently loosened and many of our markets with over 90% of our restaurants, now offering and restaurant dining.
Digital sales continued to contribute roughly 65% of our total sales year to date.
During the quarter, our dining rooms were only partially opened for diamond served for over the past few weeks. We've now reopened nearly 90% of our dining rooms and have begun seeing early signs of outperformance and our restaurants with higher dine and mix.
More specifically.
Our restaurants, which currently have an above average mix of sales coming from time and are performing between 4% and 6% better and comparable restaurant sales year to day versus those with the lower than average size of index.
And this gives us further confidence that a meaningful portion of dining gas are gonna be incrementals and sales and importantly that much of the digital sales growth, we've seen will prove to be long standing.
During the last several months, we've continued to elevate our digital properties, including the launch of group ordering as well as Ed and convenience for our guests by further reducing friction and our curbside experience.
As we strengthen our digital assets, we're reaping the benefits of increased David and guest and insights from our rewards program, which has grown to $3 6 million members.
Although we still believe were and the early and ease of utilizing the data to create more personalized targeted engagement with our guests.
Already seen and 18% improvement and the cost per acquisition for our marketing spend as well as significant improvement and our email open rates and overall social media engagement.
We are excited at the opportunity to further harvest these insights and auto.
Lines of our marketing spend on a path to a million and $450000 of UBS.
Next I'd like to touch on our delivery strategy, which drove 35% of our sales and the fourth quarter of 2020.
We continue to see great upside and opportunity and the delivery occasion, particularly as it relates to introducing the brand to new guests and markets, where we may not have as much brand awareness.
Last quarter. If you remember we spoke about the success, we're seeing and northern California, and Arizona as it relates to the third for Liberty program.
Results in those markets continued to be strong, but the benefit of delivery holds even when looking at the system as a whole.
During the fourth quarter.
Any restaurants that have delivery sales mix of greater than 30% performed at 418% better and comparable restaurant sales and those below 30%.
And us further confidence and the accretive nature of delivery.
Well their injuries and delivery sales of course that comes with that increased pressure to the P&L for delivery fees.
The fourth quarter delivery costs was five 7% of sales and increase of 370 basis points versus prior year.
Also at these pressures and instituted an additional 5% price Permian to third party delivery orders in early December and Additionally, we've adjusted our labor model to account for the reduction and orders coming and restaurants.
As a reminder, we don't currently incorporate price premium for delivery orders made directly through our own digital properties and we'll continue to optimize to meet guest orders into our own channels, which bring with it improved guest engagement as well as lower cost.
The ability of use technology to activate the brand and increase awareness and our newer trade areas and are less saturated markets gives us even more confidence and our third strategy.
As to accelerate unit growth.
Earlier I noted our vision to ultimately operate at least 1500 restaurants domestically.
Courted by at least 7% system wide unit growth for 2022 thereafter quickly, reaching an annual growth rate of at least 10%.
Our new restaurants continue to be our best performing class and the history of the company and.
And during the fourth quarter, despite the ongoing impact of the Covid pandemic as.
And as we mentioned these nine restaurants average annualized volumes meaningfully above the company of cashless and support the target, although at least 30% cash on cash return.
As we discussed on the past many of these restaurants and food. Our order ahead drive thru pickup window, which is instrumental and the increased need for speed and convenience from today's consumer.
Our new restaurants also operate on the lower square footage footprint with a more efficient seating layout, which is perfectly suited for today's environment.
The success of our new restaurants, coupled with the resiliency of that the brand evidenced in 2020, it gives us great confidence and our ability to accelerate growth not just and company markets, but also within our franchise community as well.
We recently announced our initiative to franchise select new markets, and the south and southwest and while we're in the early stages of rebuilding our new franchisee pipeline. We encouraged by the initial response is our branch of positioning improved new unit economic model and digital strength are attractive for prospective franchisees.
Our franchising initiative. Additionally will be supported by our upcoming test of Ghost kitchens.
We anticipate opening two company owned ghost kitchens during the second quarter of 2041.
One will be located on the dense residential area of Chicago, giving us low cost and quick access to of trade area of freight brand awareness.
Meanwhile, our second location will be and San Jose.
Which affords us the opportunity to introduce the brand to a newer market again, and the low cost and efficient manner.
It will potentially also be and particularly attractive for new franchisees.
And the current environment, while it's difficult to rely we anticipate exactly how the recent disruption what was timing and availability of real estate as well as franchise signings, we do feel well positioned to take advantage of additional opportunities as they arise.
We are again extremely excited at the unit growth opportunity ahead of us.
For each of our three strategies continued.
Continued differentiation of our unique brand strength.
Activating the brand through our digital and marketing channels and.
And accelerating unit growth.
Importance of our team cannot be overstated.
During the past few years and through the pandemic, we've continuously invested in building our people and culture as a competitive strength.
Our management turnover has improved from 41% to 27% and the last two years alone.
While our total team member turnover has improved 31 percentage points and is now meaningfully below industry average.
We have built a dedicated robust pipeline of future leaders with great tenure and knowledge of the newest brand who will be instrumental and helping us achieve our targeted goals for 2024.
With the rollout of vaccines and the progress of the country is making and reducing the impact of the virus and cautiously optimistic that the environment will normalize at some point this year, while we certainly recognize that we're not completely through the pandemic I've never been prouder of our team nor more excited of what the future will bring.
With that I'd like to turn it over to Karl to walk through our financials.
Thank you David and good afternoon, everyone.
As Dave mentioned above we are pleased with our fourth quarter performance in light of challenging market conditions related to a resurgence of COVID-19 volatility during the quarter total revenue decreased five 9% to $107 2 million of which half of the decline was related to temporary COVID-19 related.
Restaurant closure days for health and safety as.
As we begin to lapse closure related activity. These temporary impacts are expected to abate.
Our average unit volume, which normalized for closures or 1.15 million during the quarter and represent at two 6% year over year decline from prior year and as Dave mentioned, we have been encouraged thus far in January and February with our trends relative to fourth quarter of 'twenty and 'twenty.
From a comparable restaurant sales perspective, we saw a four 7% decrease system wide during the fourth quarter, including of four 2% decrease for company owned restaurants and of seven 9% decrease for franchise restaurants.
In January we saw sequential improvement and posted a 1% comparable restaurant decline relative to 2020, which represents a positive two year stacked comp of two 4%.
We currently anticipate that our first quarter comp will be and the positive mid to high single digits as we begin to lap the initial impact of the Covid pandemic.
On a restaurant contribution basis, our restaurant level margins were 13, 6% in the fourth quarter compared to 17, 2% last year.
Sales deleverage represented more than half or 210 basis points of the decline for.
For the remainder of the margin variance efficiencies made to our labor model throughout the year did not fully offset the increase we saw and delivery fees, which increased 370 basis points versus prior year as David touched on delivery remains an important channel for us, which drives brand awareness and overall sales and profit.
Ability, but we will continue to optimize the margin impacts of delivery to our labor model and price optimization, and we didn't and fourth quarter.
Reviewing these margin drivers and a bit more detail for.
For the fourth quarter, our cost of goods sold was 25, 2%. This represents only a modest increase from last year. Despite of many meaningful increase and our off premise and packaging costs as we continue to drive and strict management of commodity price inflation and optimize our promotional activity around discounts.
We also installed some increase and weight during the fourth quarter given temporary closures. So as the closures days improved into the new year, we expect to show some modest improvement and cost of goods sold.
Our fourth quarter Labor was 32, 1% of sales of 50 basis point improvement from last year, despite offset and both wage inflation and sales deleverage.
This improvement was primarily driven by the labor model efficiencies realized through our kitchen of the future initiative, which was initiated in 2018 and had been targeting of long term reduction of 10 hours of labor per restaurant per day.
We are pleased with the overall results of this initiative and thus far in the past two years have achieved approximately seven hours of labor savings per restaurant per day from our system, including five hours that were realized during 2020.
In 2020, we executed several staffing initiatives, including reducing the front of house team.
Optimizing our food Prep assembly and dynamically modifying schedules based on a real time sales forecasts for the quarter. This five hour and labor reduction represented at 200 basis point improvement to our overall labor as a percentage of sales.
As we looked at future labor efficiencies, we continue to research and test new kitchen of women.
This year, we plan to rollout steamers and all of our restaurants, which we began testing last year. Our test have performed very well not only and the reduction of Cook times and the improvement of overall labor hours, but guest feedback has also been positive on overall taste of food.
Next week, we will begin the phased national rollout at steamer things for restaurants, and expect to complete the rollout for our entire restaurant base by the end of the year.
Based on tests, we estimate that an additional two hours of labor will be reduced as a result of the steamer rollout, which will ultimately result, and an additional 80 to 100 basis point benefit to our labor expense on a run rate basis upon completion.
Other operating costs for the quarter were 18, 4% of 400 basis point increase from last year, due primarily to higher delivery fees and the quarter at.
As Dave mentioned to help improve the economics on its premium access point, we implemented an additional 5% pricing premium to our menu solely through the third party channel, which brings the total third party pricing premium to 15%.
While the benefit of fourth quarter with minimal assuming delivery sales hold as a percentage of sales. We expect this action will have an ongoing 60 to 70 basis point benefit to our overall restaurant level margin.
G&A for the quarter was $11 5 million of 4% increase over last year.
This increase is related to continued marketing investment within our digital channel, which was critical for our business and what with nearly a fully off premise business model during the quarter.
These digital investments include a frictionless curbside pickup enhancement on our noodles app and the ongoing investment and our loyalty program to drive guest engagement for 2021, we anticipate a modest increase to G&A dollars relative to 2020 as efficiencies gained through our organizational review during the Covid pandemic.
And our offset by our investment to support our unit growth strategy as well as a more normalized incentive compensation.
Our adjusted net loss, which excludes the impact of impairment divestitures and closure costs was $1 6 million or for <unk> loss per diluted share.
Compared to an adjusted net income of 3 million or seven <unk> earnings per diluted share.
The uncertainty of Covid continues to make it difficult to provide our typical full year 2000, and 'twenty. One guidance. However, we are optimistic heading into the year of dates on our brand fundamentals and an early read on year to date performance.
As I mentioned previously we anticipate the first quarter same store sales and the positive mid to high single digits. Additionally, we continue to anticipate 10 to 15, new restaurant openings system wide in 2021, including eight to 11, New company restaurants.
We expect full year capital expenditure to be 20% to $24 million.
Finally, I would like to note that we have completed a thorough review of our unit portfolio as it relates to expected long term consumer trends. We are very confident that outside of a small number of exception of real estate portfolio at overall well positioned although we do anticipate roughly five closures during the first quarter.
These sites are primarily ones that are Trojan, Dr Leath and for our heavily reliant on office, our government generators, and we feel will be hampered in the long term.
Turning to the balance sheet, we feel very good about our current liquidity position at year end, we had cash and cash equivalents of $7 8 million and of net debt balance of approximately 36 million of.
Our current debt levels are in line with our balance sheet last year prior to the pandemic and reflect and nearly zero cash burn during.
During 2020, our capital investment spend was approximately $12 million, which as David pointed out with primarily on new restaurant openings and our digital platform.
We anticipate that we will produce positive free cash flow during 2021, and our ability to maintain strong liquidity through the pandemic has positioned us to maintain the flexibility to meet our growth objectives in the years to come.
Before I turn it back over to Dave for final remarks, I wanted to express my gratitude for the noodles family for welcoming me into the business this year.
This is a fantastic team with tremendous passion for our guests and I'm energized and our strategic plan, David presented and committed to working alongside with him and the entire noodles team to achieve our accelerated growth objectives with that I'll turn it back over to David.
Thanks, Carl and I know.
And my earlier remarks, while 2020 was a challenging year throughout the industry for so many of US personally and professionally we do feel the resiliency of the brand and the progress made on culinary marketing and operational initiatives have positioned noodles and company to be of clear winner and the post COVID-19 environment.
There will likely be some volatility ahead over the next few months.
However, we are more confident than ever and our ability to meaningfully accelerate unit growth both through company and franchise locations as well as execute a strategy that resulted in meaningful expansion and both of our average unit volumes and restaurant level margin.
Before we open the call to questions I would like to reiterate my thanks to our teams throughout the country.
Continue to be humbled at the opportunity to work with them and look forward to taking the next step of our journey together.
With that John could you. Please open the lines for Q&A.
Certainly at this time I would like to remind everyone. If you would like to ask a question. Please press Star then the number one on your telephone keypad.
And again, that's far and wanted to ask a question, we'll pause for a moment to compile the Q&A roster.
First question is coming from the line of Andrews.
Vik from BMO.
Hey, guys, it's actually on Dan on for Andrew today.
Thanks for taking the questions.
You put it and you put out that release last week talking about your growth plans and the southern and southwestern markets and some of the growth will be coming from from company operated locations and some is coming from franchisees I know at the same is true obviously for 2021 as yet or at least today.
So I guess my question is just how are you thinking about franchise growth at a lever for the business longer term.
Where do you see that franchisee makes settling over time as you get closer to that at all 2500 unit goal and maybe near term.
What is the franchisee demand looked like right now in terms of the desire to open new locations expand footprints what have you.
Yes, sure Theres lots of impact of our Gan, but.
Would talk to and we are extremely excited about the franchise opportunity we have got be.
<unk> brand and a great place people and of Great place, the economics and a great place that we feel accelerated growth. There. So many markets, where we do not have noodles and company yet that we think it will just be a larger and larger part of our future realistically and in the short term, we do expect debt most of the growth will come from the company.
Side as we develop that franchise pipeline, it's probably a bit too early to say what that ultimate mix will shake out at but we do feel that youll see us moving of interaction of our franchise will be a larger part of the organization.
And then the question about the existing franchisees they have done extremely well very proud of how they've navigated. The COVID-19 pandemic. So you will also see some growth that comes from our existing franchisees as they continue to build out their avs.
Got it no I appreciate that color.
And then just maybe shifting gears a little bit.
And you guys have obviously laid out a pretty robust growth plan here, which is which is exciting and I.
The commentary you gave on on G&A for this year, but just kind of and thinking about that line longer term is there any additional color you can add on and maybe just.
The pacing of that in terms of supporting the business through through this acceleration and growth.
Maybe just some more color on what some of the specific areas you might look at in terms of adding investment that might impact that line and just as we're thinking about kind of like of longer term progression of out of the next few years.
How should how we should think about that moving forward.
I think we feel very comfortable bandwidth.
Current structure of the organization we are at.
And filled out the final elements of the leadership team with barrels hiring as well as John Ramsay, our head of franchise sales who came on.
Came on board late last year as well as two real estate directors that are already having of some great success and building out of the company pipeline.
So again, given the volatility and what you are seeing throughout the environment, It's probably at the jewelry to say what does that ultimate cadence look like from a G&A growth perspective, but we certainly feel at the structure as it sits today is well situated to have nice leverage on that line items consistently year over year. After the after the pandemic subsides.
Got it.
So for me I appreciate you taking the questions.
Next question is coming from the line of Joshua long from Piper Sandler.
Great. Thanks for taking the question.
Excited to hear about the unit growth.
In fiscal 'twenty, one and and into 'twenty, two and beyond to a certain extent a nice continuation of building from conversations we've been having over the prior quarters, but just curious if you could talk about the real estate pipeline, how that set up now and I know Karl mentioned that you've done a thorough review and feel good with where that set up but just as you guys transition back into <unk>.
With mode. If you can talk about some of the pushes and pulls there and the.
The team that's in place and how youre going to be able to execute that going forward.
Yes, we have always thought that theres three triggers Josh that has to be in place for you to accelerate unit growth for.
First of certainly the concept and the brand itself and how well it resonates with guests, which we build the resiliency of the brand.
Really has been proven and evidenced through the Covid pandemic.
The second is the people structure and when.
And we look back in the past of times, we're on it.
If there was a successor of failure and when you looked at the postmortem on where you could've done and vendor, it's often on the people front and our people metrics or some of the best and the industry right. Now so we of the pipeline that is excited and ready to go and.
And the growth perspective third and most important is the economic model itself as we've said the most recent class of restaurants, and including a couple of bit of opening on the franchise side are the best performing and the history of the company. So we feel like we have all three of those levers really and place the pipeline for two.
<unk> thousand 21, and beyond is coming together very well and we will be primarily infill of existing markets and <unk>.
Well as some growth and some of the really hot on churn and developing markets.
And we have been shining through the pandemic.
As the Arizona market and.
So it would be relatively low risk primarily until from the company perspective.
We will have and new market that opens on the franchise side here in South Carolina, and a few months and we're excited to bring that new partner on board as well, but ultimately we feel the pipeline is in great shape pragmatically.
Pragmatically, given how COVID-19 impacted some of the development timelines and there will be a bit of a back loaded nature to the pipeline and 2021, but overall availability of real estate looks good and the concept itself is just really well positioned so we're feeling very excited about the pipeline ahead.
Great. Thank you for that and then thinking about some of the longer term targets that you offered specifically that one for a $5 million.
And excited to hear about that and so I'm curious what you can share I imagine there's still a lot to be yeah debuted and worked through there, but if you think about kind of the composition of your sales now are maybe and historical period, and then looking forward to that and achieving and then moving past at 1.4 of $5 million target what does the either the noodles.
<unk> experienced the structure of the kind of of the composition of that revenue base look like and just how we should be thinking about that go.
Going forward.
Sure I mean, we talked about 65% of our sales year to date is currently coming from digital and.
And as a reminder, we already had a very strong off premise very strong digital program, even entering the pandemic.
What we're seeing and as we talked about on the call is that for those trade areas of those markets where people are starting to.
Returned to habits I mean, we're not we're not naive and we know that that nothing will necessarily normalize there will be differences and the new environment and it will be we believe heavily off premise heavily digital we feel we're really well positioned and those restaurants that are situated and areas, where youre starting to see more normality and.
Theyre performing meaningfully at both the balance of the company. So we are seeing that that digital growth.
Looks like it's going to be meaningfully long standing and talking about those newer markets.
At our gain and brand awareness and new senior and acceleration and their performance and the typical trajectory.
And ultimately expected for those markets has really been accelerated through the pandemic. So as things do become more normal we expect we will benefit from the brand awareness that has been gained through the.
The last 12 months and those digital sales, we think of that a significant part of that will be longstanding.
And not to mentioned we are very excited about the culinary innovation I think this is probably our best year of culinary innovation and we've got on tap that we have.
And in the long time sort of agenda, cauliflower, gnocchi and the toward Aloni and we're seeing at a nice results.
And both of those and so we think all of the levers in terms of the menu itself and the culinary innovation continued marketing effectiveness and progress, we're making along all of those for once and then just continued operational execution.
Anybody that's been in the restaurant space for a long time will tell you. The most correlated thing with why for restaurant performs better than another.
It's going to be tenured manager and.
And we are very excited with what we're seeing there. So the makeup overall would be probably more digital heavy.
And probably a bit more and some of and the new items for introducing but feel very well positioned.
Great. Thank you.
Next up is Andy Barish from Jefferies.
Hey, guys a couple of them.
Following up on excuse me on Josh there.
The CAGR to get from current at UBS to one for five is about 6% annually.
We know the unit growth is going to ramp up but.
Is that primarily at same store sales and a little bit of.
Higher new unit average volumes or how should we kind of think about that.
That progression from from today to for the end of 'twenty for you.
And I think mathematically Andy and it will be more from the comparable restaurant sales growth and <unk> growth of our existing fleet.
New restaurants are performing extremely well so they will be we certainly believe accretive to that overall average unit volume, but until you start reaching that 10% type of annual unit growth, which we will get to and reasonably short order, but until you get to those levels and the new restaurants, just mathematically don't have as much impact as of.
Comparable restaurant sales aspect of all but I think that the performance of what we're seeing.
For the resiliency of 2020 and into this year and some of that performance I alluded to with Josh gives us pretty good confidence that we're positioned in a post COVID-19 world fast and significant acceleration.
On the AAV may AAV for the existing fleet.
Okay and for the new stores, just I know, it's early and the ramp but.
The recent success historically.
New stores opened at a.
Barely noticeable discount.
The average.
Do you expect that to narrow or actually actually flip and potentially see some see some classes that are at or above the system average.
We expect that it'll continue to be above the system average like we're seeing and this most recent class and.
One of the main reasons outside of that is the order had drive through window and it has been such a hit with our guests such of easy execution.
<unk> for our teams at Gibbs.
It gives our guests just a new way to access the brand you combine that with the fact that I think we've gotten sharper and better with our overall real estate selection process.
And just the brand itself is sitting on his sitting on so many better cylinders from people operational execution.
Marketing perspective.
I think all all of the other levers moving to see and place to expect that we will have strong performance from <unk> and restaurants are there.
Okay and then.
Just kind of tracking again on the on the longer term margin outlook.
And that's sort of north of 100, 100 bps a year of restaurant level of improvement you list a couple of items.
And the release supply chain.
<unk> and back of the house equipment.
Obviously sales leverage is going to help a lot but is there.
A logic in terms of order of magnitude and that.
Listing of some of the other <unk>.
Margin improvement opportunities are how should we kind of think about those three big buckets.
Yes, one Carl to give a bit of texture on this one as well, but I'll start off by saying I think we feel the progress we've made on our prime cost and when you look at our cost of goods sold as well as a lot of the efficiencies and gain and labor, which we still think there's room to go there.
And really gives us a lot of confidence and as we build those of <unk>, having a very fair and percentage of that go down to the bottom line. So I think the leverage that.
We're going to be able to achieve we feel very confident and but for some of the more detail I think Carl can probably add a little bit of texture.
The sales leverage is going to be a big driver there, but when you look at the other buckets like labor and cost of goods sold to labor, we referred to the 200 bps of labor efficiencies and we got from the five hour labor of reduction that was of a hidden and the margin. So one sales leverage becomes a factor here, that's kind of really eliminate and continue to drive the labor.
Efficiencies and as we mentioned there is more to come so we have another two hours that we're bringing out of the system. This year, which should be around 80 to 100 additional basis points.
For labor is going to be a material driver on that on that roadmap as well from the cost of goods sold perspective, and really there is consolidation among vendors as we think about some of our major products within sources with which and proteins. So this consolidation will help drive efficiency on pricing.
<unk> on redundancy within our system and we think it's going to offset continued costs and this is going to in turn helped also impact any inflationary pressures that we can see on cost of goods sold or on labor.
Thanks, I appreciate the color.
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Next up is Todd Brooks from CL, King and associates.
Hey, good afternoon guys.
Couple of questions for you one.
And thanks for the for the long term kind of framework for what you think of company has kind of become.
If I remember correctly.
Clearly big spread and performance within the noodles store base could you maybe comment on is there is there a percentage of the existing base, that's already north of those 145 million and fees and and if so is the margin structure already there above the 20% goal for that subset of stores.
<unk>.
The answer to both of those again and that.
Theres a significant percentage of restaurants that are above the million for 50 and at the.
The margin structure, certainly north of 20% one thing we've disclosed in the past is that.
Top 10% of restaurants pre Covid average amount of millions of 670000 and average unit volume. So we know that there is significant opportunity for just a capacity perspective and brand acceptance perspective to reach those targets I think one aspect part of the last 12 months, it's been particularly exciting is to your point.
Historically, there has been a bit of dispersion.
Within our overall portfolio from a volume perspective, the largest factor and what is driving driven a larger volume and market versus one that's not has been and brand awareness and.
And what the benefit we're seeing through the Covid pandemic and I'll use Phoenix together as an example is that is a market that was typically at a pre COVID-19 environment on the way up and is gaining acceptance of it was getting improved average unit volume, but we're still reasonably below the company now.
Now at its one of the two or three large highest volume markets for us on an average unit volume perspective. So what this COVID-19 pandemic has done and certainly again recognize that it's been painful and tough for the industry, but it has really accelerated debt major.
And you'd say one of the benefits of noodles long term is our differentiation. It also makes it difficult to really gain awareness and in new markets, that's been proven to be able to.
To be accelerated versus the pre COVID-19 world. So I think it's exciting denial of do we have a good amount of our restaurants are already above those targets, particularly and a more normal environments, but additionally, and we're seeing the dispersion between between restaurants from the brand awareness perspective really narrow.
That's great and very helpful. Thanks, David and then just.
And one of a block and tackling type question when you look at the.
The corporate unit growth for this year do you have a sense I know it can change with with Covid and such but with the five closures and Q1 do you have a rough idea of how the new openings or kind of flow cadence wise through fiscal 'twenty one.
Certainly we have a couple that are already under construction are at pretty far along in construction and that will open up here in Q2 and effect of more in Q3 and within the balance of the company restaurants will be in that fourth quarter of the year.
That's great. Thanks, Karl take care guys.
We don't have any questions at this time I will turn it back to the noodles management.
Thanks, John and just wondering again appreciate everybody's time for joining us today and very excited to lay out of accelerated growth objectives.
Very proud of our team in terms of how we're positioning ourselves to succeed and the post COVID-19 environment.
We look forward to sharing our progress and.
And of quarters and years to come we're very excited with where we're at so thank you again.
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