Noodles & Company Q1 2023 Earnings Call
Speaker 1: Good afternoon and welcome to today's Noodles & Companies first quarter 2023 earnings conference call. All participants are now in a listen-only mode. After the presenters remarks, there will be a question and answer session.
Speaker 1: As a reminder, this call is being recorded.
Speaker 1: I would now like to introduce Noodles and Company's Chief Financial Officer, Kar Lukacs. Please go ahead. Good afternoon and welcome.
Speaker 2: Thank you and good afternoon, everyone. Welcome to our first quarter 2023 earnings call. Here with me this afternoon is Dave Beninghausen, 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.
Speaker 2: for the future financial performance of the company. Any such items, including details relating to our future performance, should be considered forward-looking statements within the meaning of the Private Security's Litigation Reform Act.
Speaker 2: Such statements are only projections, and actual events or results could differ materially from those projections due to a number of risks and uncertainties.
Speaker 2: The Safe Harbor Statement in its afternoon's news release and the cautionary statement in the company's annual report on Form 10K for its 2022 fiscal year and subsequent filings with the SEC are considered a part of this conference call, including the portions of each that set forth the risk and uncertainties related to the company's forward-looking statements.
Speaker 2: I refer you to the documents the company files from time to time with the Security and Exchange Commission, specifically the company's annual report on Form 10K for its 2022 fiscal year and subsequent filings we have made. These documents contain and identify important factors that could cause actual results to different materially.
Speaker 2: from those contained in our projections for forward looking statements.
Speaker 2: During the call, we will discuss non-GAT 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 GAT. Our reconciliation of these measures to the most directly comparable GAT measures is available in our force quarter.
Speaker 2: 2023 earnings release and our supplemental information. To the extensive company provides guidance, it does so only on a non-GAP basis and does not provide reconciliation of such forward-looking non- GAAP measures to GAP. Specifically, forecasted adjusted EBITDA, adjusted EPS, and contribution margin are forward-looking non- GAAP measures .
Speaker 2: Quantitative reconciling information for these measures is unavailable without unreasonable efforts. The corresponding GAT measures, including net income, earnings per share, and income or loss from operations, are not accessible on a forward looking basis. Its such information is likely to be significant to an investor.
Speaker 2: Now, I would like to turn it over to Dave Benninghausen, our chief executive officer.
Speaker 3: Thanks, Carl and Good afternoon, everyone. During the first quarter, news and company delivered strong results with comparable restaurant sales of 6.9% and a 400 basis point improvement in restaurant level margin versus prior year.
Speaker 3: culminating in a just a bit of $7 million.
Speaker 3: A $4.8 million increase and more than triple our results from Q1 of 2022.
Speaker 3: Our results in the first quarter are a testament to the continued strength and restaurant level execution and our ability to take advantage of a more normalized and favorable expense environment than we previously anticipated.
Speaker 3: I'd like to start today's call by discussing our initiatives to improve restaurant of other margins.
Speaker 3: These initiatives were instrumental in driving the 400 basis point improvement we saw in the first quarter.
Speaker 3: Last year at this time we were seeing unprecedented inflation in the cost of many of our core products.
Speaker 3: particularly our high quality all white meat boneless chicken breast.
Speaker 3: Combined with continued pressure and late inflation, we encountered the most challenging expense environment that we have seen in decades.
Speaker 3: During 2022, the company had definitely reacted to these pressures through several cost-saving and productivity initiatives.
Speaker 3: We work with our vendor partners to optimize the production of certain items, maintaining the same quality ingredients while improving efficiencies.
Speaker 3: We carefully monitored our primary commodities.
Speaker 3: and during the fourth quarter entered into a fixed contract on chicken for the full year 2023 at very favorable rates compared to 2022.
Speaker 3: We tested a simplified menu, removing approximately 10% of our menu items, which yielded strong guests an operational metrics and was expanded nationwide during the first quarter. We began the rollout of digital menu boards nationwide, which affords us the opportunity to reduce trip testing costs and gives us more flexibility for executing real-time marketing and pricing strategy.
Speaker 3: And we engaged with the third party to help us identify opportunities to streamline operations and existing restaurants while further reducing our footprint needs for future new restaurant builds.
Speaker 3: These initiatives remain with great success and will allow us to continue to have a more favorable long-term margin profile.
Speaker 3: As we exit here against cost savings initiatives, the company additionally capitalized our value proposition by strategically increasing our menu pricing across our system.
Speaker 3: including an additional 5% money price that was implemented in February of this year.
Speaker 3: The effects of all of these initiatives can be seen in our first quarter margin expansion.
Speaker 3: Additionally, what's exciting is that we continue to see favorability in our expense profile, particularly in commodities, which we now anticipate in 2023 will have low single-digit deflation relative to 2022. During the first quarter, our cost of goods sold decreased to 25.2%.
Speaker 3: with an even lower COGS percentage during the last half of the quarter.
Speaker 3: While our long-term margin profile continues to improve, I do want to share some thoughts on our current trends and how we anticipate 2023 of progress.
Speaker 3: As you have heard from multiple companies throughout the industry, there's been a meaningful amount of noise in recent traffic trends as we have laughed at the benefit of Omicron from 2022, as well as faced our most challenging comparison to the year.
Speaker 3: which for news and company was primarily during the March through May time frames.
Speaker 3: Similar to others, we have seen choppy nests and sales of lanes, which for us has particularly manifested itself in the delivery channel. The delivery channel, which represented over 30% of our sales in Q1,
Speaker 3: Had in past quarters been relatively stable. However, beginnings are in the last half of Q1, while diet and fails continue to improve, we have seen a meaningful decline in our delivery sales.
Speaker 3: Although we believe the trend to reduce delivery sales is consistent with others in the industry, seeing the shift from delivery to on-premise ordering.
Speaker 3: We additionally believe that we are seeing resistance to our prior price increases presenting themselves in our overall traffic trends.
Speaker 3: In particular, we are seeing a reduction in conversion rates during the checkout process on our digital channels, as well as a reduction in frequency from lower and middle income cohorts.
Speaker 3: While we feel our pricing strategy over the last 12 months was an appropriate approach to protect and ultimately expand margins, we had not anticipated the expense environment to improve as quickly as it did.
Speaker 3: Combined with the current consumer sentiment, we ultimately have seen some consumer pushback on price, particularly with this most recent 5% price increase in mid February .
Speaker 3: Coupled with the most challenging traffic comparisons of the year, we do believe that Q2 will be below our prior expectations.
Speaker 3: that we realize in the first quarter to be offset by our early second quarter results.
Speaker 3: Fortunately, given the more favorable expense environment, we have been able to quickly pivot the business to provide value for our guests.
Speaker 3: including this past Monday implementing the return of the previously successful seven-for-seven-dollar menu as well as the introduction of our ten-dollar Mac and cheese meal.
Speaker 3: which gives guests the opportunity to enjoy our top-selling mac and cheese, famous homemade rice crispies, and a drink at an affordable price.
Speaker 3: These offerings are also on some of our most favorable margin items.
Speaker 3: And when combined with other value-focused promotions, gives us the opportunities to provide value while still maintaining strong profitability. We have already seen a nice response to our value offerings with sales stabilizing and traffic declines improving. We continue to respect to complete the full year with significant margin expansion.
Speaker 3: but performance will be bolstered by continued strides on rewards program.
Speaker 3: which grew 14% first prior year to 4.7 million members at the end of 2001.
Speaker 3: Encouragingly, we continue to see strength in the engagement and frequency of our award members.
Speaker 3: with frequency up 3% relative to last year.
Speaker 3: pre-stability to better engage our guests and become more effective with our marketing communications. Additionally, our team continues to be incredibly engaged and people metrics continue to improve meetings with these verses last year.
Speaker 3: We are fully sat with both your date, annualized hourly and GM turnover roughly 30 points below 2022.
Speaker 3: This is led to continued improvement in operational metrics from cook times to net promoter stores. The improvement in people metrics is critical as we continue to increase our median growth rate.
Speaker 3: During the second quarter, we anticipate opening six to seven new company restaurants.
Speaker 3: Assuming no material changes in the development environment, we continue to expect for a full year 2023 approximately 7.5% gross new units.
Speaker 3: Offset by roughly five closures of units approaching and we send, including two during the second quarter.
Speaker 3: Finally, I would like to end by sharing a few awards our team has recently achieved.
Speaker 3: Over the past few months, we've been honored to be named by Newsweek magazine as one of America's greatest workplaces both for women and for diversity. And we'll recognize for the 30th year in a row as a best employer for diversity by Forbes.
Speaker 3: I'd like to express our gratitude to our teams as these awards recognize our strength in becoming an employer of choice and an improving but still challenging labor environment.
Speaker 2: Now I'd like to turn it over to Carl to walk through our Q1 results. Thank you Dave, good afternoon everyone. I will provide details in the quarter and some forward-looking views. During the first quarter, total revenue increased 12% to 126.1 million compared to last year.
Speaker 2: driven by strong comparable restaurant sales growth and revenue generated from units opened since 2022. Average unit volumes were 1.34 million during the first quarter, representing a 7.5% increase from the first quarter last year.
Speaker 2: System wide comparable restaurant sales during the 1st quarter increased 6.4%. Including 6.9% at company owned restaurants. And 4.1% at franchise locations.
Speaker 2: We benefited from positive traffic growth during the first several weeks in the first quarter. Similar to the positive traffic growth we saw during the fourth quarter of 2022.
Speaker 2: However, as Dave mentioned, comparisons became more challenging throughout the first quarter, resulting in sequential traffic declines that continued into April .
Speaker 2: These declines have since stabilized, and we are encouraged by our recently launched traffic driving marketing initiatives, which feature our most craveable menu offerings. At attractive entry price points.
Speaker 2: Pricing during the first quarter was just above 10%, driven by a 5% pricing increase taken across the core menu in mid-February. At its height, we were carrying 13% of price during the back half of Q1 and the early portion of Q2.
Since then, we have laughed our primary pricing activity from last year and expect to run a meaningful lower price to the remainder of the year.
Additionally, our marketing promotions will include selective pricing reductions across our core menu to maintain several entry point entrees at $7.
This pricing reduction is supporting the relaunch of our $7 for $7 marketing campaign, which was extremely affected last fall in driving value perception and traffic.
Turning to the P&L. For the first quarter, restaurant level contribution margin was 13.7%, a 400 basis point increase compared to last year.
This improvement was predominantly a result of a 280 basis point improvement in our cost of goods sold to 25.2% of sales.
driven by the expected benefit from our contracted food vendors, namely chicken, in addition to improvements in the commodity market for our formula-based food ingredients.
Looking ahead, we expect both our full-year food contracts and the favorable commodity environment we saw during the first quarter to support ongoing margin benefits into 2Q.
As we launch a higher level of trapping driving marketing spend during the second quarter, we expect discounts to offset the better-than-expected costs of controlled environment in the second quarter.
Importantly, while these initiatives are expected to negatively impact costs of good sold, we expect they will be accreted to restaurant margin dollars.
We will continue to monitor the impact of these marketing initiatives on our margin, but anticipate our cost of goods sold percentage in the high 25% area for the full year.
We continue to expect cost of food deflation for the year in the low single digits, inclusive of our favorable contracted rates for chicken.
Labor costs for the first quarter were 32.3% of sales, which were essentially flat till last year.
high single digit wage inflation for the second quarter with continued moderation from our Q1 level.
Other operating costs for the quarter were 19.5% of sales compared to 19.9% last year were reflecting strong sales leverage throughout our restaurant expenses.
Occupancy expense for the quarter was 9.3% of sales compared to 10.1% last year driven by sales leverage.
We anticipate continued leverage in both of these expenses through 2023 to further support margin expansion.
G&A for the first quarter was in line with our expectations at $13.6 million compared to $11.8 million in 2022. G&A includes non-cash stock-based compensation of approximately $1.4 million during the first quarter compared to approximately $1.2 million last year.
It is important to note that GNA includes a bonus accrual that assumes a year-end payout at target, all contingent upon the results for the remainder of 2023, compared to a lower bonus accrual in last year's first quarter. Gap net loss for the first quarter was 3.1 million, or a 7 cent loss per diluted share.
Compared to a net loss of 6.4 million last year or a 14 cent loss per diluted share. Now I'm gaped eluded earnings per share was a loss of 5 cents compared to a loss of 13 cents last year.
Please refer to our earnings release for reconciliation of non-GAT measures. Turning to the full year, I would like to provide an update to the 2023 guidance we shared on our previous call. As Dave mentioned, we have reiterated our full year guidance as we believe to strengthen Q1, the promotions we have in place, and our underlying margin momentum will offset the challenges we have seen early in the second quarter.
For the full year 2023, we continue to expect a just to deba-duh of approximately 45 to 50 million, a 35 to 50 percent increase versus prior year, and adjusted EPS of 10 cents to 20 cents.
versus a modest adjustment loss in 2022.
We additionally continue to anticipate full-year restaurant contribution margins between 16 and 17 percent compared to 13.9 percent during the prior year. As a reminder, absolute first quarter restaurant level margin is historically below full-year results due to seasonality and consequently and not indicative of full-year expectations.
For further details on our 2023 expectations, please refer to the supplemental information in our first quarter earnings release.
Turning to the balance sheet. At quarter end, we had cash and cash equivalents of 2.1 million and a total debt balance of approximately 52.8 million.
We maintain nearly 70 million of incremental liquidity available for future borrowings under our amended credit facility.
For the full year, we continue to expect 53 to 58 million of capital expenditures of which we spend approximately 10 million during the first quarter.
We anticipate a majority of our capital investment will support new unit growth, in addition to continued innovation of our website, mobile app, and digital capabilities.
Our capital plan also includes the investment of full digital menu board rollouts and an upgraded network capability in all of our company locations by year end.
With that, I would like to turn the call back over to Dave for final remarks.
Thanks, Carl. We're proud that the first quarter of 2023 continued the momentum that we saw on the fourth quarter of 2022, as we make progress toward a significant improvement in our baseline proper way, lets begin with this 4th? for a minute now. Now lets begin with this 4th? for a minute now.
While navigating the current economic environment and the related consumer sentiment can be challenging, we believe our improving margin profile, which in turn gives us the ability to be more aggressive with targeted promotions.
The expansion of our rewards consumer base, new restaurant growth, and the simplification of our menu should all combine to support meaningful earnings growth in this year and beyond.
While thoroughly we were already seeing a positive response to our marketing strategy and let Ford is sharing with you progress over upcoming quarters.
Thank you for your time today and with that please open the lines for Q&A.
time today and with that please open the lines for Q&A. Operator, are you there?
Thank you. All right. So we will now conduct our question and answer session.
All right, and our first question comes from the line of Joshua Long of Defense Incorporated. Your line is now open. Great. Thanks for taking my question, guys. Here's how we can revisit your guest mix. By cool word, however you want to talk about it there. It feels like you've got some strong trends among your more loyal rewards. Guests where you have more connections, more visibility.
You talked about maybe some softness there on the pricing side with maybe your lower or more mid-tier guess. So you remind us of what the overall profile of the new customer looks like. And then, secondarily, as you start to work some of these more value-oriented price points into the business, how do you communicate that and maybe get some of those?
guests that you lost along the way back into the store and re-engage.
Certainly, Josh, we certainly skew a bit more towards higher income cohorts. And again, that's an area that we are not seeing as much price resistance. Where the price resistance we're seeing isn't that percentage of our gas that tend to be a bit lower in middle income, particularly that delivery gas. That's where we're particularly seeing the price resistance.
When it comes to the 7 for 7 deal, which we're extremely excited about as well as the mac and cheese meal deal You're going to see a very integrated marketing campaign Certainly, we'll be touching our rewards guests, which we've been very successful with Additionally, you'll see a little bit more enhanced media, a bit more social presence.
inside restaurants and actually utilizing some efforts inside the restaurant to actually share a friend, do bounce back type opportunities to continue to spread the word. And we're very encouraged with what we're seeing so far in terms of returning that lapsed guest back into the noodles, into the noodles family.
Very helpful. I appreciate that context. On the simplified menu test that found interesting and exciting, can you talk to us about what you learned? And maybe this is the first initial phase of it, but other opportunities to do another round, just any sort of early learnings and how you're...
sort of integrating or digesting what you've seen thus far on that side? Yeah, absolutely. What we feel is ultimately the brand's menu itself today, Josh, is very well positioned to meet the needs of today's consumer. Clearly we feel that there's opportunity from a value perspective. And what you'll also see is we're leaning into the customer.
What we're seeing is we've been able to identify through all of our data from the Rewards membership program as well as other third party sources that there were certain items that were potentially a little bit more difficult to execute from the operational side as well as had clear substitutes from the existing menu. As an example, one of the dishes that we removed was our orange chicken.
And even as we reduced the night upon that category of the Asian category, our mixed and Asian category remained the exact same. We were able to move all of those people into our Japanese pan noodles, our Korean beef, or our Pad Thai. We found all of that through testing and importantly...
From the operational side, we saw significant cook time improvements. We saw better 90-day retention rates as people were able to be trained easier. From a new restaurant perspective, significantly easier to train new guests as well. We're seeing better operational metrics from our most recent few openings. So there were great learnings in terms of
just how we can improve the efficiency and effectiveness inside our restaurants, give a better guest experience, and at the same time, I'd not have the concern that we could potentially lose guests, because we are seeing them shift to items that we know they'll come, they'll love and they'll come back time and time again for. So, continually there is still opportunity in there. We like what we're seeing thus far from the changes we've made, and it's something we'll continue to evaluate.
We're all annual guidance for the year being reiterated.
Sure, so we'll start with, we did reiterate our full year guidance, particularly the contribution margin of 16 to 17%. And we are happy with our new traffic driving marketing initiatives thus far, and that's factored into the guidance. In terms of the cadence throughout the year and what we were indicating for second quarter, this will be the most.
challenging quarter for us. As with the rest of the industry, you've seen a shift from average check driving comp and margin to traffic being the driver again and that's what's underlying all of the marketing and traffic driving initiatives that we have in place.
Thank you. One moment please.
Our next question comes from the line-up Andrew Barish of Jeopardy. Please go ahead.
Hey, thanks. Hey, guys. Are you willing to share what April comps wound up being or at least some guide or range? Yeah, ultimately, Andy, we don't believe that what we've seen thus far in the quarter is very indicative of the number of people that are in the quarter.
So, we're already seeing some nice momentum from the marketing, the marketing activities that we've been doing, but ultimately feel like the court to date numbers aren't really indicative of what we would expect for the full quarter.
Gotcha.
And then just a clarification, did you say, I mean, there have been some items on the 7 for 7 that have moved up and you're actually taking some menu price reductions on some things? Never heard of anybody doing that, I don't think.
Yeah, you know, actually so in August of last year, Andy, we introduced a 7 for 7 menu, which has 7 of our most popular dishes, including our mac and cheese, our Japanese pan noodle, our pesto, kind of a top-e, and at that time those were actually not, they were not, it's not a price change, those were already items that on the whole...
necessarily the consumer sentiment being a little bit softer than you know we've potentially expected for the industry as well as the overall expense environment being as favorable as it was. So those were items that had temporarily kind of shifted above $7. We're returning them back to $7. It might not be permanent Andy but this hits about 50%.
that famous Rice Krispie treat and the drink, we feel we're gonna be at a very attractive price point for what the guest is looking for today. Understood, thank you. And then finally, just understand the dynamics in delivery.
as well as in lower delivery fees and other operating events.
of it is people are shifting to more profitable channels for us. We're pleased with the overall delivery program. We think it is additive, absolutely, to the business. When you look at the declines, Andy, we're looking year over year. So from a year over year perspective, so it kind of removes App
You are prepped, seasonally typically a Q1 in a winter would have higher delivery seasonality, but this is purely looking year over year. We've been seeing that shift. Again, we think part of it has to do with price, but additionally there is a larger macro trend around people just shifting towards more on-premise occasions, which again for us are more profitable.
Lower inflation than anticipated. So these tailwinds on the expense environment are affording us the ability to take these traffic driving marketing initiatives.
anticipated. So these tailwinds on the expense environment are affording us the ability to take these traffic driving marketing initiatives. I understand. Thank you, guys.
Thank you. One moment please. Our next question comes from the line of Todd Brooks of the Benchmark Company. Your line is now open.
Hey, thanks for taking my questions. Follow up to Josh's question to begin with.
Can you buck it? High income, maybe 100 plus households versus.
how are you define mid-tier versus low so we get a sense of that customer mix? Yeah I'll tell you that how we look at those particular cohorts Todd is a little bit dependent on the market. So when you look at Noodles & Co., which tends to be a more suburban concept, not coastal, we look at ourselves relative to the market median and from that perspective we skew more towards higher income.
than most of our past casual brethren. That said, it is the restaurant space with broad appeal. And so you'd still do see a meaningful number that does exist in that lower and middle income tiers. That's right. And Todd, just to put some context on the numbers, about 55% of our guests are over 100K annual household income, and the remaining 44% are under.
So that's how we look at it in terms of our distribution.
Okay, great. Thanks, Carl. And then the second follow-up there, you talked about really returning to some pricing value messaging.
especially to the rewards database. But then I think you also said that the rewards frequency, it's only down a few percent. So I guess how do we broaden the messaging around value at noodles out beyond just marketing to the rewards customer? Maybe that customer that never got over the rewards hurdle of its leaked app from a frequency standpoint. How do we get them back in the risk?
Yeah, I think that's one thing that's incredibly exciting, Todd, is we do have just a much more dialed in program in terms of getting very effective media out there. We do expect marketing spend to increase modestly from Q1 to Q2, probably about from 1.5% to 2%. That includes a heavy up.
particularly focus on new and last guests. We're able to target those guests specifically and while traditionally we might have 70% of our media spend and when you think of media, you think of web, you think of social, you think of connected TV, traditionally is about 70% of our spend that went towards people that were existing guests and that obviously has been very successful.
So you only had about 30% that was targeting towards newer gas, look alike gas from our most loyal, so look alike that would be new as well as last. We have now shifted that towards 70% of our spend, is going towards that environment.
Additionally, as you look at that, the messaging itself is very much around value. It's very much around the 70% for 7%. It's around the $10 Mac and cheese meal. So you will see more media spend. And you'll just see in general the brand become a bit more visible and we'll be able to do it in just a much more efficient way as well. So it's not as if we have to make a tremendous investment in terms of our real marketing spend.
Can you talk to what the negative mix impact with the...
the rollbacks and focus on promotion relative to what the raw price increase is in Q2. Thanks.
Sure, for the 1st quarter, we were just over 10%. In price, it peaked at the end of the 1st quarter at around 13%. And we're carrying that through April . However, we're rolling off some significant pricing actions last year at this time, which are rolling off in May.
So you'll see a reduction in price beginning in May of this year to about mid single digits. And that's where we would expect this to continue throughout the rest of the year with no further pricing actions. As a reminder last year the last pricing action we took was in May of 22. So we're not going to roll off anything else beyond that action last year. And then in terms of the marketing initiatives.
pricing reduction as we learn the guest purchasing these specific items. So it's too early to tell what that pricing reduction may be, but it could be a percent or two.
Okay, great. Thanks, guys. Thank you. All right, our next question comes from the line of Jake Bartlett of Truist Securities. Your line is now open. Great. Thanks for taking the questions. You know, Mike, it sounds like you're not giving.
We didn't change our sales as we lapped. The price increases from prior year. But ultimately, it feels a little too early for us to be giving kind of clear expectations of what we'd expect Q2 comp to be, because it's very early on in terms of those promotions. Okay, and you know, throughout earning season, for the, you know, for the, you know, for the, you know.
a bunch of companies and what restaurants have reported. And we haven't heard commentary that the consumer, even on the lower end, there's some commentary of some check management. But what you're describing seems much more intense than what really I've heard from any of the other companies I cover. So my question is whether your markets are different. I know you're in a lot of smaller markets.
Maybe it's regionally, but do you think there's anything about your consumer and where your stores are located that make you more sensitive to the macro environment? It feels like what you're describing is a sensitivity to the macro environment that I'm not hearing from others. Yeah, I wouldn't say it's significantly different from others. And I believe there are several folks that have showed that there is a little bit of
channel, we didn't see a change in overall menu mix. So as you look at menu mix, when you see a decline in delivery, that also ultimately results from a decline in check. And that's what we're seeing at the moment, is that that delivery channel is the one that we're starting to see more resistance. Now, I would layer into that. And that's what we're seeing at the moment.
that from a geographic perspective, while I don't necessarily think it's value, what we are seeing is that there are some changes in terms of how work from home has evolved for that group versus others. We tend to be a bit more smaller town-oriented. We tend to be a bit more suburban-oriented. We are seeing from a pure year-over-year perspective.
There is less work from home in those environments, which again, we think is impacting some of the delivery aspect. Our most positive restaurants are certainly urban, which is not a large part of our percentage. But we see this kind of temporary shift of the lapping of Omicron. Those restaurants particularly are doing extremely strong.
Then you're just not seeing the delivery sales that you had typically seen from some of those smaller more suburban areas, which I believe are coming back to a more normal work from home environment. Okay, great. Then the last question is on your development. In the past you've talked about how many signed leases do you have.
It's encouraging to hear the six to seven you expect in the second quarter. I see nine is coming soon on the website, so that's encouraging. But any other metrics you can share that just give you the visibility, the confidence that you're going to hit your target from 23.
Yeah, absolutely. So, as you mentioned, we have 2 types that are actually opening this Friday. We have additional 6 that are under construction and then you look at the vast majority of the rest of the restaurants. The leases are signed and the environment remains fluid from a landlord delivery perspective in particular of what we control. We're well ahead of where we need to be. We have a pipeline that can support kind of continue.
of some noodles and company. While there remains an uncertain macro environment, we're excited to initial response that we're seeing from our targeted value messaging activities. And we continue to expect that ultimately everything is going to culminate into a four year 2023 that's going to be a year of meaningful margin in the even expansion. We really look forward to it.
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