Q4 2023 Noodles & Co Earnings Call
Okay.
Operator: Good day, and thank you for standing by. Welcome to the Noodles & Co. 4th Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Speaker Change: Good day and thank you for standing by welcome to the noodles <unk> Company fourth quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your remote control. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star 1 one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Hynes, Chief Financial Officer. Please go ahead.
Speaker Change: I didn't hear an automated message if I didn't hear your hand, just raised to withdraw your question. Please press star. One again. Please be advised today's conference is being recorded I would now like to hand, the conference over to your Speaker today, Mike Hines Chief Financial Officer. Please go ahead.
Michael Hynes: Thank you and good afternoon, everyone. Welcome to our fourth quarter 2023 earnings call. Here with me this afternoon is Drew Madsen, our Chief Executive Officer. I'd like to start by going over a few regulatory matters. During our remarks, we may make forward-looking statements regarding future events or the future financial performance of the company. Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
Michael Hynes: Thank you and good afternoon, everyone welcome to our fourth quarter 2023 earnings call here with me. This afternoon is drew Madsen, our chief Executive Officer, I'd like to start by going over a few regulatory matters.
Michael Hynes: During our remarks, we may make forward looking statements regarding future events or the future financial performance of the company.
Michael Hynes: Such items should be considered forward looking statements within the meaning of the private.
Michael Hynes: Securities Litigation Reform Act such.
Michael Hynes: Such statements are only projections, and actual events or results could differ materially from those projections due to a number of risks and uncertainties, including those referred to in this afternoon's news release and the cautionary statement in the company's annual report on Form 10-K and subsequent filings with the SEC. 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 gap measures is available in our fourth quarter 2023 earnings release. To the extent that the company provides guidance, it does so only on a non-GAAP basis and does not provide reconciliations of forward-looking non-GAAP measures. Quantitative reconciling information for these measures is unavailable without unreasonable effort.
Michael Hynes: Such statements are only projections and actual events or results could differ materially from those projections due to a number of risks and uncertainties, including those referred to in this afternoon's news release and the cautionary statement in the company's annual report on Form 10-K, and subsequent filings with the S E T.
Michael Hynes: During the call we will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance.
Michael Hynes: These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
Michael Hynes: A reconciliation of these measures to the domestic directly comparable GAAP measures is available in our fourth quarter 2023 earnings release.
Michael Hynes: To the extent that the company provides guidance. It does so only on a non-GAAP basis and does not provide reconciliations afford looking at non-GAAP measures.
Quantitative reconciliations information for these measures.
Michael Hynes: Unavailable without unreasonable efforts.
Drew Madsen: With that, I would like to turn the call over to Drew Madsen, our Chief Executive Officer. Thanks, Mike, and good afternoon, everyone. Over the past four months as interim CEO, I've gotten a chance to work closely with our team and begin the process of reigniting this one-of-a-kind brand to drive sustainable top-line growth, improve profitability, and ultimately create long-term shareholder value. As you've likely already seen, the company announced today that I've decided to stay on full-time, and the board has appointed me as permanent CEO. While I initially only agreed to be the interim CEO and help with the transition.
Michael Hynes: With that I would like to turn the call over to drew Madsen, our Chief Executive Officer.
Drew Madsen: Thanks, Mike and good afternoon, everyone.
Drew Madsen: Over the past four months as interim CEO I've gotten a chance to work closely with our team and begin the process of reigniting. This one of a kind brand to drive sustainable topline growth.
Proved profitability and ultimately create long term shareholder value.
Speaker Change: As you've likely already seen the company announced today that I've decided to stay on full time and the board has appointed me as permanent CEO.
Speaker Change: While I initially only agreed to be the interim CEO and help with the transition.
Drew Madsen: Once I got under the hood of noodles, I became increasingly excited about the opportunity to lead this company through a new stage of growth. I'm thrilled that the board concluded that I was the best person to become Noodles' permanent CEO, and I'm honored to assume this role and will be all in on leading Noodles with the expectation of being here for a minimum of three years. I wanted to remain CEO because I believe that Noodles is a differentiated brand with substantial opportunity ahead of us, and I believe I have the ability to align the organization behind the strategic priorities necessary to achieve it. Before we discuss our priorities for the year, let's start with Noodles' unique positioning within the restaurant industry, which we will leverage going forward.
Speaker Change: Once I got under the Hood of noodles I became increasingly excited about the opportunity to lead this company through a new stage of growth.
Speaker Change: I am thrilled that the board concluded that I was the best person to become noodles permanent CEO and I'm honored to assume this role and will be all in on leading noodles with the expectation of being here a minimum of three years.
Speaker Change: I wanted to remain CEO, because I believe that noodles as a differentiated brand with substantial opportunity ahead of us.
I believe I have the ability to align the organization behind the strategic priorities necessary to achieve it.
Speaker Change: Before we discuss our priorities for the year lets start with noodles unique positioning within the restaurant industry.
Speaker Change: We will leverage going forward.
Drew Madsen: First, we compete in very attractive segments. Fast Casual has outperformed both QSR and Casual Dining in traffic for the last few years because it offers a more compelling combination of quality, price, and convenience. Pasta & Noodles as a menu segment is affordable, broadly appealing, and very durable, and the emotional need our customers have for comfort and comfort food is timeless.
Speaker Change: First we compete in very attractive segments fast casual has outperformed both <unk> and casual dining on traffic for the last few years because it offers a more compelling combination of quality price and convenience.
Speaker Change: Pasta and noodles as a menu segment as affordable broadly appealing and very durable.
Speaker Change: And the emotional need our customers have for comfort and comfort food is timeless.
Drew Madsen: Second, we have a meaningful point of difference compared to others competing in these segments. No one else offers a scaled perspective on all things noodles with a variety of flavors from around the world like we do. And third, our brand is aligned with current consumer preferences. They want fresh food. Our restaurants don't have freezers.
Speaker Change: Second we have a meaningful point of difference compared to others competing in these segments.
No one else offers a scale perspective on all things noodles with a variety of flavors from around the world like we do.
Speaker Change: And third our brand is aligned with current consumer preferences. They want fresh food, our restaurants don't have freezers, we prepare a dozen fresh vegetables daily and as I said, we don't hold our vegetables proteins are noodles and hot steam tables, we cook your meal as you order.
Drew Madsen: We prepare a dozen fresh vegetables daily. And, as I said, we don't hold our vegetables, proteins, or noodles in hot steam tables. We cook your meal as you order. Today's increasingly diverse customer also wants more interesting flavor profiles, more spicy, smoky, and tangy flavors from regions all over the world. Our menu is full of globally inspired noodle bowls and dishes, from classic dishes like Wisconsin mac and cheese to penne rossa to more elevated but still approachable dishes like Japanese pan noodles and spicy Korean beef noodles.
Speaker Change: Today's increasingly diverse customer also wants more interesting flavor profiles more spicy smoky and tiny flavors from regions all over the world.
Speaker Change: Our menu is full of globally inspired noodle bowls and dishes from classic dishes, like Wisconsin, Mac and cheese to Penny Rosa and more elevated but still approachable dishes like Japanese pan noodles, and spicy Korean beef noodles.
Drew Madsen: And third, today's consumer wants more convenience when they choose to eat out. Guests can access noodles by ordering through our mobile app, website, or third-party delivery services, and can choose to receive their food via in-restaurant quick pickup or delivery to their home or office. Approximately 54% of sales originate digitally, creating a strong platform for us to build upon. And lastly, our food travels very well, which makes noodles a great choice for off-premise occasions. Despite these competitive advantages, our business has not performed well recently. To capture the opportunity available to us, I believe we need to take better advantage of the platform we have. We need to do some things we haven't done for a long time, and we need to raise our standards across the entire business. Accordingly, I have focused our organization on the following five priorities.
Speaker Change: And third today's consumer wants more convenience when they choose to eat out.
Speaker Change: Guests can access noodles by ordering through our mobile App website or third party delivery services.
Speaker Change: And can choose to receive their food via in restaurant quick pickup or delivery to their home or office approximately 54% of sales originate digitally creating a strong platform for us to build upon.
Speaker Change: And lastly, our food travels very well, which makes noodles a great choice for off premise occasions.
Despite these competitive advantages our business has not performed well recently.
Speaker Change: To capture the opportunity available to us I believe we need to take better advantage of the platform we have we.
Speaker Change: We need to do some things we haven't done for a long time.
Speaker Change: And we need to raise our standards across the entire business.
Speaker Change: Accordingly, I focused our organization on the following five priorities.
Drew Madsen: First, we need to strengthen our culture of operational excellence. Operations is the foundation of our business, and it starts with people. The general manager position is the most critical role in our business, and we are proud to share that general manager retention is the best it has been in almost 10 years, and it is better than the industry average.
Speaker Change: First we need to strengthen our culture of operational excellence opt.
Speaker Change: Operations is the foundation of our business and it starts with people the.
Speaker Change: The general manager position is the most critical role in our business and we are proud to share. The general manager retention is the best it has been in almost 10 years.
Speaker Change: And is better than industry average.
Drew Madsen: And we're delighted that virtually all of our restaurants are fully staffed. But there are other areas that require increased focus and higher standards, most critically, in the dimensions of our guest experience that correlate most directly with traffic growth. Specifically, we are focused on three key areas. First, order accuracy and taste of food.
Speaker Change: And we're delighted that virtually all of our restaurants are fully staffed.
Speaker Change: But there are other areas that require increased focus and higher standards. Most critically in the dimensions of our guest experience that correlate most directly with traffic growth.
Speaker Change: Specifically, we are focused on three key areas first.
Speaker Change: Order accuracy and taste of food.
Drew Madsen: Second, the dinner day part, where we've seen more traffic loss than during lunch. And third, our lowest quartile restaurants, where we have the most opportunity to make meaningful improvements in the near term. To monitor progress and drive change, we have instituted schedule changes for managers and hourly team members to allocate our best workers to our highest volume time period, bi-weekly training sessions, and multi-unit supervisor restaurant visits focused on reinforcing the critical behaviors highlighted in our training sessions. Our second 2024 priority is to increase desire for our brand through a multi-phase menu transformation guided by our new Contemporary Comfort Kitchen culinary identity. While Noodles has consistently introduced new limited-time offering menus in recent years, it has been a long time since we updated our core menu.
Speaker Change: Second the dinner day, part, where we've seen more traffic loss than during lunch.
Speaker Change: And third our lowest quartile restaurants, where we have the most opportunity to make meaningful improvement in the near term.
Speaker Change: To monitor progress and drive change, we have instituted schedule changes for managers and hourly team members to allocate our best workers to our highest volume time periods.
Speaker Change: Biweekly training sessions.
Speaker Change: And multi unit supervisor restaurant visits focused on reinforcing their critical behaviors highlighted in our training sessions.
Speaker Change: Our second 2024 priority is to increase desire for our brand through a multi phase menu transformation guided by our new contemporary comfort kitchen culinary identity.
Speaker Change: While noodles is consistently introduced new limited time offer menus in recent years. It has been a long time since we updated our core menu.
Drew Madsen: As a result, our menu looks dated compared to newer fast-casual competitors. While we still offer familiar and comforting dishes that many of our existing guests love, we are not currently a compelling alternative for lapsed guests or for new guests. We are in the process of changing that as we use the Contemporary Comfort Kitchen Framework to transform our menu. Let's break this framework down into its parts. It means we're going back to our roots as the ultimate curators of contemporary comfort.
Speaker Change: As a result, our menu look David compared to newer fast casual competitors.
Speaker Change: While we still offer familiar and comforting dishes that many of our existing guests love we.
Speaker Change: We are not currently a compelling alternative for lapsed guests or for new guests.
Speaker Change: We are in the process of changing that as we use the contemporary comfort kitchen framework to transform our menu.
Speaker Change: So let's break this framework down to its parks.
Speaker Change: Contemporary means we are going back to our roots as the ultimate curators of contemporary comfort.
Drew Madsen: We need to do more than offer Italian dishes besides Asian dishes. We need to offer dishes that are creatively fused, dishes with classic profiles, bold flavors, and signature twists that make them our own.
Speaker Change: We need to do more than offer Italian dishes living besides Asian dishes, we need to offer dishes that are creatively fused.
Speaker Change: <unk> with classic profiles, bold flavors and signature twist that make them our own.
Drew Madsen: We also need to offer dishes that interpret modern trends in approachable ways that resonate with our guests. A reimagined LTO program that better leverages trending flavor profiles and seasonality will also be part of our menu transformation work. Comfort food means food that is creamy, cheesy, craveable, and satisfying, but increasingly, it also means food that's wholesome, homemade, nostalgic, and nourishing.
Speaker Change: We also need to offer dishes that interpret modern trends and approachable ways that resonate with our guests.
Speaker Change: And a re imagined <unk> program that better leverages trending flavor profiles and seasonality.
Speaker Change: We'll also be part of our menu transformation work.
Speaker Change: Comfort means food that is creamy cheesy craveable and satisfying but increasingly it also means food, that's wholesome homemade nostalgic and nourishing.
Drew Madsen: Going forward, our menu will embrace both definitions of comfort and also feature ingredient-forward menu descriptors that conjure craveability. Kitchen means we will continue to make each dish to order and cook where it counts, blanching pasta, prepping fresh vegetables daily, finishing in our custom sauté station, garnishing with fresh herbs, and designing recipes that bring more texture, color, and garnish to every plate.
Speaker Change: Going forward, our main menu will embrace both definitions of comfort and also feature ingredient forward menu descriptor that.
Speaker Change: Conjure crave ability.
Speaker Change: Kitchen means we will continue to make each dish to order and cookware accounts planting pasta prepping fresh vegetables daily, finishing in our custom sate station garnishing with fresh herbs and designing recipes that bring more texture color and garnish.
Speaker Change: Every play.
Drew Madsen: We are working with The Culinary Edge, one of the preeminent food innovators and culinary consultants to the restaurant industry, to help bring this menu transformation to life. It is a very ambitious program that involves new concepts, recipes, prices, and a new layout across our menu. I believe the opportunity is significant, and we all want these improvements in our restaurants as soon as possible. That said, given the magnitude of change, we also want to avoid any major surprises. Accordingly, our plan is to evaluate each of these changes individually.
Speaker Change: We are working with the culinary edge one of the preeminent food innovators and culinary consultants to the restaurant industry to help bring this menu transformation to life.
Speaker Change: It is a very ambitious program that involves new concepts recipes prices and a new layout across our menu.
Speaker Change: I believe the opportunity is significant and we all want these improvements in our restaurants as soon as possible.
Speaker Change: That said given the magnitude of change we also want to avoid any major surprises.
Speaker Change: Accordingly, our plan is to evaluate each of these changes independently.
Drew Madsen: We will then bring them together for an in-market test in at least 25 restaurants. And finally, we will gradually introduce improvements that are exciting for our guests and that our operators can execute consistently. So where are we in this process?
Speaker Change: We will then bring them together for an in market test in at least 25 restaurants.
Speaker Change: And finally, we will gradually introduce improvements that are exciting for our guests and that our operators can execute consistently.
Speaker Change: So where are we in this process.
Drew Madsen: The new dish concept work is complete, and we are preparing to test the first phase of new menu recipes later this month. Our goal is to start an in-market test of the first phase of changes early this summer, with a phased rollout anticipated to begin later in 2024 and into early 2025. Our new menu architecture will be amplified by utilizing our digital menu board. Our third 2024 priority is to broaden our guest base by increasing active membership and frequency in our loyalty program, leverage guest data to grow our digital business, and extend our reach by expanding our digital marketing touchpoints. Noodles has one of the industry's top-performing digital ecosystems, consistently generating over 50% of sales through digital channels each year.
Speaker Change: The new dish concept work is complete and we are preparing to test the first phase of new menu recipes later this month.
Speaker Change: Our goal is to start and end market test of the first phase of changes early this summer with a phased rollout anticipated to begin later in 2024 and into early 2025.
Speaker Change: Our new menu architecture will be amplified by utilizing our digital menu boards.
Speaker Change: Our third 2024 priority is to broaden our guest base by increasing active membership in frequency in our loyalty program <unk>.
Speaker Change: Leverage guest data to grow our digital business and.
Speaker Change: And extend our reach by expanding our digital marketing touch points.
Speaker Change: Noodles has one of the industry's top performing digital ecosystems.
Speaker Change: Insistently generating over 50% of sales through digital channels each year.
Drew Madsen: This is driven by our more than 5 million loyalty members who spend more than double that of non-loyalty members on average. Our loyalty members represent approximately 25% of our total transactions and more than 90% of all app orders. A key area of focus for our loyalty program is to win back lapsed loyalty members by leveraging personalized data in our new customer data platform to provide a more relevant message to each lapsed member at the right time. Our digital app provides a convenient way for guests to order their favorite noodles dishes with over 1.7 million active app users.
Speaker Change: This is driven by our more than 5 million loyalty members, who spend more than double that of non loyalty members on average.
Our loyalty members represent approximately 25% of our total transactions and more than 90% of all App orders.
Speaker Change: A key area of focus for our loyalty program is the win back lapsed loyalty members by leveraging personalized data and our new customer data platform to provide a more relevant message to each lapsed member at the right time.
Speaker Change: Our digital App provides a convenient way for guests to order their favorite noodle dishes with over $1 7 million active app users.
Drew Madsen: Over the past year, we've better leveraged this strong platform as we have achieved a 200 basis point lift in conversion rates by reducing friction in the ordering process. A focus on growing the number of app users and further increasing conversion utilizing our new tools will support traffic growth going forward. We are also further optimizing our digital media buys to more efficiently reach our target guests. We are currently in the process of testing multiple spending levels across media channels that, if successful, would be implemented in the second half of the year. We'll also continue to invest in third-party marketplaces to reach a new guest and expedite their return visit. Lastly, we successfully implemented digital menu boards across all company-owned units in 2023.
Speaker Change: Over the past year, we better leverage the strong platform as we have achieved a 200 basis point lift in conversion rates.
Speaker Change: By reducing friction in the ordering process.
Speaker Change: Our focus on growing the number of App users and further increasing conversion utilizing our new tools will support traffic growth going forward.
Speaker Change: We are also further optimizing our digital media buys to more efficiently reach our target guests.
Speaker Change: Currently in the process of testing multiple spending levels across media channels that if successful.
Speaker Change: Would be implemented in the second half of the year.
Speaker Change: We will also continue to invest in third party marketplaces to reach a new guests.
Speaker Change: And expedite their return visit.
Speaker Change: Lastly, we successfully implemented digital menu boards across all company owned units during 2023.
Drew Madsen: As we've discussed before, these boards will allow us to better trial proposed menu changes by allowing quicker test iterations and more precise conclusions of the impacts we would expect to see across the system, and also greatly assist in changing the menu architecture at our restaurants. We're testing a variety of ways to drive check without hurting value perception, and plan to feature signature dishes that showcase our culinary expertise and Strengthen Brand Relevance. Our fourth priority is to develop a long-term strategy to grow our catering business. And to help spearhead that effort, we recently hired a new director of catering who was most recently with Panera.
Speaker Change: As we've discussed before these boards will allow us to better trial proposed menu changes by allowing quicker test iterations and more precise conclusions of the impacts we would expect to see across the system.
And also greatly assist in changing the menu architecture at our restaurants.
Speaker Change: We are testing a variety of ways to drive check without hurting value perception and.
Speaker Change: And plan to feature signature dishes that showcase our culinary expertise.
Speaker Change: And strengthen brand relevance.
Speaker Change: Our fourth priority is to develop a long term strategy to grow our catering business and.
Speaker Change: And to help spearhead that effort, we recently hired a new director of catering.
Speaker Change: Who was most recently with <unk>.
Drew Madsen: Our fifth and final 2024 priority is to increase our financial strength. For 2024, we plan to strategically slow short-term new unit growth to approximately 10 to 12 new company restaurants relative to the 18 new company restaurants in 2023. In addition, we're focused on driving increased efficiencies across the business, which we believe will have a material positive impact on our future financial results. Additionally, successful execution of these priorities will position us for stronger new unit growth in the future, including new franchise locations and opportunities to re-franchise company locations. I'm very excited about the future of the noodles brand and believe these priorities I discussed today will improve our operations foundation.
Speaker Change: Our fifth and final 2024 priority is to increase our financial strength.
Speaker Change: For 2024, we plan to strategically slow short term new unit growth to approximately 10 to 12, New company restaurants relative to the 18, New company restaurants in 2023.
Speaker Change: In addition, we're focused on driving increased efficiencies across the business.
Speaker Change: Which we believe will have a material positive impact on our future financial results.
Speaker Change: Successful execution of these priorities will position us for stronger new unit growth in the future, including new franchise locations.
Speaker Change: And opportunities to re franchise and company locations.
Speaker Change: Yes.
Speaker Change: I am very excited about the future of the noodles brand and believe these priorities I discussed today will improve our operations Foundation.
Drew Madsen: Strengthen the relevance of and desire for our brand, support long-term traffic growth, and lead to sustainable top-line momentum and profitability growth. I will now turn it over to Mike to discuss our results and expectations in more detail. Thank you, Drew.
Strengthen the relevance of and desire for our brand.
Speaker Change: Support long term traffic growth.
Speaker Change: And lead to sustainable top line momentum and profitability growth.
Speaker Change: I will now turn it over to Mike to discuss our results and expectations in more detail.
Michael Hynes: In the fourth quarter, our total revenue decreased 8.9% to $124.3 million compared to last year. As a reminder, we had a 53rd week in the fourth quarter of 2022. We estimate that the 53rd week will increase revenue by approximately $9.1 million in 2022. Considering the impact of the 53rd week in 22, fourth quarter total revenue decreased by approximately 2.4% compared to last year. Assisted and wide restaurant sales during the fourth quarter decreased 4.2 percent, including a decrease of 4.3 percent at company-owned restaurants and a decrease of 3.6 percent at franchise restaurants. Company comp traffic during the fourth quarter declined 9%.
Michael Hynes: Thank you drew.
Michael Hynes: In the fourth quarter, our total revenue decreased eight 9% to $124 3 million compared to last year. As a reminder, we had a 50 <unk> week in the fourth quarter of 2022, we.
We estimate that the 50 <unk> week increased revenue by approximately $9 $1 million in 2022.
Michael Hynes: Absent the impact of the 50 <unk> week in 'twenty two.
Michael Hynes: Fourth quarter total revenue decreased by approximately two 4% compared to last year.
Michael Hynes: System wide comp restaurant sales during the fourth quarter decreased four 2%, including a decrease of four 3% at company owned restaurants, and a decrease of three 6% at franchise restaurants.
Michael Hynes: Company comp traffic during the fourth quarter declined 9% pricing.
Michael Hynes: Pricing during the fourth quarter contributed 3.8%. Company average unit volumes in the fourth quarter were $1.31 million. Turning to the P&L for the fourth quarter, the restaurant level contribution margin was 14.7%. Our restaurant contribution margin continued to benefit from a significant year-over-year improvement in our cost-of-goods sold line offset by de-leverage in labor, occupancy, and other operating costs. Cogs in the fourth quarter was 25.4% of sales, a 150 basis point improvement from last year. This improvement was primarily due to pricing and the continued year-over-year favorability in commodities, which led to food deflation of 1.2% during the quarter. Labor costs for the fourth quarter were 32% of sales, compared to 31.2% in the prior year. Labor productivity initiatives in the fourth quarter contributed 40 basis points to restaurant contribution margin when compared to 2022, which was offset by the combination of wage inflation and sales fee leverage. However, wage inflation continued to moderate in the fourth quarter, with year-over-year hourly rate growth of 3.9% for the full quarter.
Michael Hynes: Pricing during the fourth quarter contributed three 8%.
Michael Hynes: Company average unit volumes in the fourth quarter or $1 three $1 million.
Michael Hynes: Turning to the P&L for the fourth quarter restaurant level contribution margin was 14, 7%.
Michael Hynes: Our restaurant contribution margin continued to benefit from significant year over year improvement in our cost of goods sold line offset by deleverage in labor occupancy and other operating costs.
Michael Hynes: Cards in the fourth quarter was 25, 4% of sales a 150 basis point improvement from last year.
Michael Hynes: This improvement was primarily due to pricing and the continued year over year favorability in commodity.
Michael Hynes: Which led to food deflation of one 2% during the quarter.
Michael Hynes: Labor costs for the fourth quarter were 32% of sales compared to 31, 2% in the prior year labor.
Michael Hynes: Labor productivity initiatives in the fourth quarter contributed 40 basis points to restaurant contribution margin when compared to 2022, which was offset by the combination of wage inflation and sales deleverage wage.
Wage inflation continued to moderate in the fourth quarter with year over year hourly rate growth of three 9% for the full quarter.
Michael Hynes: Due to deleverage, occupancy costs increased 60 basis points over the prior year to 9.5%, and other restaurant operating costs increased by 50 basis points in the 4th quarter to 18.4%. G&A for the fourth quarter was $13.9 million compared to $13.7 million in 2022. G&A in the fourth quarter of 2023 was negatively impacted by $1.4 million of severance costs. G&A also included non-cash stock-based compensation of approximately $765,000 during the fourth quarter, compared to $976,000 in 2022. We expect full-year 2024 GNA of $52-55 million, inclusive of approximately $6 million of stock-based compensation. Net loss for the fourth quarter was $6.1 million, or a loss of $0.14 per deleted share, compared to net income of $975,000 and earnings per diluted share of $0.02 last year.
Michael Hynes: Due to deleverage of occupancy costs increased 60 basis points over prior year to nine 5%.
Michael Hynes: And other restaurant operating costs increased by 50 basis points in the fourth quarter to 18, 4%.
Michael Hynes: G&A for the fourth quarter was $13 9 million compared to $13 7 million in 2020 to G&A.
Michael Hynes: G&A in the fourth quarter of 2023 was negatively impacted by $1 4 million of severance costs.
Michael Hynes: G&A included noncash stock based compensation of approximately $765000 during the fourth quarter compared to 976000 2022.
We expect full year 2020 for G&A, a $52 million to $55 million inclusive of approximately 6 million of stock based compensation.
Michael Hynes: Net loss for the fourth quarter was $6 1 million.
Michael Hynes: Or a loss of <unk> 14 per diluted share.
Michael Hynes: Compared to net income of 975000 and earnings per diluted share of <unk> <unk> last year.
Michael Hynes: During the fourth quarter, we changed our methodology for calculating adjusted EBITDA and adjusted net income. Please refer to our earnings release issued this afternoon for a reconciliation of our non-GAAP measures, including a recasting of non-GAAP measures and prior periods to conform to the new methodology. The change in methodology resulted in a reduction to adjusted EBITDA of $849,000 in the fourth quarter of 2023 and $3.3 million in fiscal year 2023 compared to the previous methodology. Additionally, fiscal year 2022 adjusted EBITDA was reduced by $3.4 million compared to the previous methodology.
Michael Hynes: During the fourth quarter, we changed our methodology for calculating adjusted EBITDA and adjusted net income. Please refer to our earnings release issued this afternoon for a reconciliation of our non-GAAP measures, including a recasting of non-GAAP measures in prior periods.
Michael Hynes: Conform to the new methodology.
Michael Hynes: The change in methodology resulted in a reduction to adjusted EBITDA of 849000.
Michael Hynes: In the fourth quarter of 2023, and $3 3 million in fiscal year 2023 compared to the previous methodology.
Michael Hynes: While fiscal year 2022, adjusted EBITDA was reduced by $3 4 million.
<unk> to the previous methodology.
Michael Hynes: Under the new methodology, adjusted EBITDA for the fourth quarter was $7.5 million compared to adjusted EBITDA of $9.1 million in the fourth quarter of 2022. In the fourth quarter, we opened five new company-owned restaurants, close to restaurants, at least until expiration. One franchise restaurant closed in the fourth quarter of 2023. Turning to the balance sheet, at quarter end, we had cash and cash equivalents of $3 million, and a total debt balance of $82.2 million.
Michael Hynes: Under the new methodology adjusted EBITDA for the fourth quarter was $7 5 million compared to adjusted EBITDA of $9 1 million in the fourth quarter of 2022.
Michael Hynes: And fourth quarter, we opened five new company owned restaurants and closed two restaurants at lease exploration.
Michael Hynes: One franchise restaurant closed in the fourth quarter of 2023.
Michael Hynes: Turning to the balance sheet at quarter end, we had cash and cash equivalents of $3 million.
Michael Hynes: And a total debt balance of $82 $2 million we.
Michael Hynes: We currently have over $30 million of incremental liquidity available for future borrowings under our amended credit facility. Before we close, I would like to provide some additional color driving our expectations for 2024. We expect full-year comp sales to be flat to positive 3%.
Michael Hynes: We have over $30 million of incremental liquidity available for future borrowings under our amended credit facility.
Speaker Change: Before we close I would like to provide some additional color driving our expectations for 2024.
Speaker Change: We expect full year comp sales to be flat to positive 3%.
Michael Hynes: The first quarter of 2024 is expected to have negative mid-single-digit comp sales driven by the impact of severe weather in January and more difficult prior year comparisons, prior to our price increase, in February of 2023. We expect a full-year 2024 restaurant contribution margin of 14-15%, which reflects low- to mid-single-digit commodity and wage inflation. Turning to development, we expect 10 to 12 new company-owned restaurant openings and up to three new franchise openings in fiscal year 2024. And we estimate overall 2024 capital expenditures between $28 and $32 million, which is more than $20 million lower than fiscal year 2023 capital expenditures. For further information regarding our 2024 expectations, please see the business outlook section of our press release. With that, I would like to turn the call back over to Drew for final remarks. Thanks, Mike.
Speaker Change: The first quarter in 2024 is expected to have a negative mid single digit comp sales driven by the impact of severe weather in January and more difficult prior year comparisons previous to our price increase in February of 2023.
Speaker Change: We expect full year 2024 restaurant contribution margin of 14% to 15%, which reflects low to mid single digit commodity and wage inflation.
Speaker Change: Turning to development, we expect 10 to 12, New company owned restaurant openings and up to three new franchise openings in fiscal year 2024.
Speaker Change: And we estimate overall 2020 for capital expenditures between 28% and $32 million, which is more than $20 million lower than fiscal year 2023 capital expenditures.
Speaker Change: For further information regarding our 2024 expectations. Please see the business outlook section of our press release.
With that I would like to turn the call back over to drew for final remarks.
Drew Madsen: I'm excited to lead this brand forward and help capture the very significant opportunity ahead of us. I believe that we have aligned the organization around strategic priorities that will position us to drive sustainable growth and create shareholder value over the long term as we execute on these initiatives. Thank you for your time today.
Drew Madsen: Thanks, Mike I am excited to lead this brand forward and help capture the very significant opportunity ahead of us.
Drew Madsen: I believe that we have aligned the organization around strategic priorities that will position us to drive sustainable growth and create shareholder value over the long term as we execute on these initiatives.
Operator: Operator, please open the lines for Q&A. Thank you. As a reminder, to ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
Speaker Change: Thank you for your time today operator, please open the lines for Q&A.
Speaker Change: Thank you as a reminder to ask a question at this time. Please press star one on your telephone and wait for your name to be announced.
Speaker Change: Your question. Please press star one again, one moment, while we compile our Q&A roster.
Operator: One moment while we compile our Q&A, and our first question is going to come from the line of Todd from Benchmark Company. Your line is open, please go ahead. Hey, thanks.
And our first question is going to come from the line of Todd Brooks with the benchmark Company. Your line is open. Please go ahead.
Todd Morrison Brooks: And thanks for taking my questions. And Drew, I'm glad to hear that you're going to be around for at least the next few years. Thank you.
Todd Morrison Brooks: Hey, Thanks, Thanks for taking my questions and drew glad to hear that youre going to be around for at least the next few years that's exciting.
Drew Madsen: Two quick questions if I may. One, looking against the lens of where you're at... looking to take the brand with the overall kind of five priorities here. You talked about focusing on that bottom quartile of restaurants. You gave us some guidance on gross new unit growth. But if you look at the existing fleet of stores, do we need to contemplate any closures in the near term that would net against that number? And as we start to think about fiscal 25, is the fiscal 24 opening level more of a function of leases that we're already committed to versus the desire to open that many stores, and as we get to 25, do we still want to digest the changes before realizing them? driving more Unipress and then Sure.
Todd Morrison Brooks: Thank you two quick questions two quick questions. If I may one looking against the lens of where you are.
Todd Morrison Brooks: Looking to take the brand with the overall kind of five priorities here you talked about a focus on that bottom quartile of restaurants, you gave us some guidance on.
Todd Morrison Brooks: Gross new unit growth, but if you look at the existing fleet of stores do we need to contemplate any closures in the near term that would net against that number and as we start to think about fiscal 'twenty. Five is the fiscal 'twenty four opening level more of a function of leases that were already.
Todd Morrison Brooks: Committed to versus.
Todd Morrison Brooks: The desire to open that many stores and as we get to 25% are we still want to digest the changes before really.
Todd Morrison Brooks: Driving more unit growth and then I have a follow up.
Drew Madsen: Well, on the first question about our current footprint, we think the overall footprint is solid, but like any big system, there's always going to be 1-2% closures a year. For us, 5-6 units a year, and that's about what we've been doing. That's, you know, roughly what I would expect going forward. We are doing a portfolio review, but we don't anticipate anything significant there. Regarding this year's openings declining from 18 to 10 to 12, that's really a function of us saying, "let's focus on the opportunities for new year growth where we have the highest confidence that we'll be able to achieve the sort of cash on cash return that we want to hit." And that tends to be, in 2024, in markets where we've got good levels of awareness and where the rents and labor costs are reasonable. And we've already had solid success, so Colorado and the Midwest, in particular. And was there a third part?
Speaker Change: Sure well on the first question of our current footprint.
Speaker Change: We think the overall footprint is solid but like any big system, there's always going to be 1% to 2% closures a year for us five years to six units a year.
Speaker Change: And that's about what we've been doing that's roughly what I would expect going forward, we are doing a portfolio review, but but.
Speaker Change: Yeah, we don't anticipate anything significant there.
Speaker Change: Regarding this year's openings declining from 18% to 10% to 12.
Speaker Change: That's really a function of us, saying, let's focus on the opportunities for new unit growth, where we have the highest confidence that we'll be able to assure achieved.
Speaker Change: The sort of cash on cash returns that we want to we want to hit and that tends to be.
Speaker Change: In 2024 in markets, where we've got.
Speaker Change: Good levels of awareness.
Speaker Change: And where the rents and labor costs are reasonable and we've already had solid solid success, so Colorado and the Midwest in particular.
Speaker Change: And was there a third hey, great.
Drew Madsen: No, I had a separate follow-up, though, and then I'll jump back in queue. If I listen to the commentary about the plan... We did have an issue early last year where pricing went a little bit too far and alienated some consumers that you've been working to win back. Within the concept of the repositioning of the brand from a culinary standpoint, how do you think about value? And are you far enough along in your pricing work to be able to share anything with us to have kind of accessible value still at one end of the menu, but maybe find a way to barbell it, or just would love to hear how you're playing to attack that? Yeah, first, let me address that in two ways: pricing strategy year in and year out and then the menu transformation. So I think you're right.
Speaker Change: No I did I did have a separate follow up and then I'll jump back in queue.
Speaker Change: If I listen to the commentary about the plans.
Speaker Change: We did have an issue early last year, where pricing went a little bit too far and alienated some consumers that you've been working to win back.
Within the concept of the repositioning of the brand from a culinary standpoint.
Speaker Change: How do you think about value and are you far enough along in your pricing work to be able to share anything with us to have.
Accessible value still at one end of the menu, but maybe find a way to barbell, Ed or just would love to hear how you are planning to attack that going forward. Thanks.
Speaker Change: Yes.
Speaker Change: First let me address that in two ways pricing strategy year in year out and then the menu transformation. So I think youre right.
Drew Madsen: We went a little too far in our pricing last February, and going forward, I've developed, and implemented a pricing process that really is just focused on three things. Making sure that we are clear about protecting our unit economics by pricing to cover inflation, but also being clear that we're protecting our competitive position in the market by not taking any more pricing than we need to. And third, for whatever level of pricing we need to take, let's be disciplined about it and take it in the areas on the menu items that are most inelastic, you know, where we're going to have the least impact on traffic. And if we use that consistently, I think we'll avoid the overstep that happened in February. Regarding the new menu transformation, we're really not intending to reposition it in any significant way up or down as it relates to check. We're going to still maintain roughly the same barbell that we've got now with really good price point accessibility. On the bottom of the price barbell with things like buttered noodles and mac and cheese.
Speaker Change: We went a little too far in our pricing last February and going.
Speaker Change: Going forward.
Speaker Change: Developed I've implemented.
Speaker Change: Pricing process that really is just focused on three things, making sure that we are clear about protecting.
Speaker Change: Our unit economics by pricing to cover inflation, but also being clear that we are protecting our competitive position in the market by not taking any more pricing than we need to <unk>.
Speaker Change: Third for whatever level of pricing, we need to take let's be disciplined about it and take it in the areas and in the on the prices around the menu items that are most in elastic where we're going to have the least impact to traffic.
Speaker Change: Sure.
Speaker Change: And if we use that consistently I think we will.
Speaker Change: Avoid the overstep that happened in February.
Speaker Change: And the new menu transformation, we're really not intending to reposition it in any significant way up or down is it meaningfully.
Speaker Change: Immediately as it relates to check we're going to still maintain roughly the same barbell that we've got now with really good price point accessibility.
Speaker Change: On the bottom of the price barbell with things like buttered noodles.
Drew Madsen: But we do think there's an opportunity to add some more signature dishes at the top. Not necessarily more expensive than we've got today, but certainly not meaningfully more expensive.
Speaker Change: Mac and cheese, but we do think theres an opportunity to add some more signature dishes at the top.
Speaker Change: Not necessarily more expensive than we've got today is certainly not meaningfully more expensive.
Todd Morrison Brooks: But more contemporary, more on trend. Things that are going to appeal to the guests that we've lost to newer brands, newer competitors. That's great. Thanks, Drew.
Speaker Change: But more contemporary more on trend things that are going to appeal.
Speaker Change: To the guests that we've lost to Newark.
Speaker Change: Newer brands newer competitors.
Speaker Change: That's great. Thanks drew.
Operator: We'll see you in a moment as we move on to our next question. And our next question is going to come from the line of Jake Bartlett with True Securities. Your line is open. Please go ahead. Great, thanks for taking the question. I hope you can hear me okay.
Speaker Change: Thank you and one moment as we move on to our next question.
Speaker Change: And our next question is going to come from the line of Jake Bartlett with Turo Securities. Your line is open. Please go ahead.
Jake Rowland Bartlett: Great. Thanks for taking the question and hope you can hear me, Okay I'm in an airport.
Jake Rowland Bartlett: I'm at an airport, but through, you know, I'm also just congratulating you, and I'm really happy you're taking this role on a longer term. And, you know, obviously, I think you have such great experience to bring to bear here. So, very exciting from my perspective. You know, my question was first on just about guidance. I know there's a lot of moving pieces here and difficult to really judge, you know, how your initiatives are going to, you know, have an impact near term, but you gave guidance of flat to 3% positive. You were negative to start the first quarter, so it does imply some pretty serious improvement throughout the remainder of the year. So, one question: what gives you confidence in that?
Jake Rowland Bartlett: But through.
Im also just congratulations and I'm really happy Youre, taking this role longer term.
Jake Rowland Bartlett: Obviously, I think you have such great experience to bring to bear here, so very exciting from my perspective.
Speaker Change: My question was first on just on the guidance I know I know, there's a lot of moving pieces here and difficult.
Speaker Change: To really judge.
Speaker Change: Now your initiatives are going to have an impact near term, but you gave guidance of flat to 3% positive you're negative to start that first quarter. So it does imply some pretty serious improvement throughout the remainder of the year. So so one what gives you confidence on that it sounds to me like some of the menu initiatives is really does Nick tests, but clearly.
Drew Madsen: It sounds to me like some of the menu initiatives is really goes into test, but fairly small test, and then, you know, it's kind of more of a back end, you know, end of the year sort of, you know, impact at best. So, what gives you the confidence on the improvement? Maybe you're already seeing it potentially in the kind of more recent trends, but your commentary there would be helpful. Hey, Jake, I'll start with the first part, which is just kind of the baseline expectation around timing. So starting Q1, Q1 is our toughest comp of the year. It was going to be our toughest because just, The pricing we took in February of last year, we didn't really start to see the negative impact of that last year until March and then April, May. So.
Speaker Change: Small test and then it's.
Speaker Change: Kind of more of a back end of the year sort of impact.
Speaker Change: Beth So what gives you the confidence on the improvement that maybe you're already seeing it potentially in the kind of more recent trends, but your commentary there would be helpful.
Speaker Change: Hey, Jake I'll start with the first part, which is just kind of a baseline expectation around timing.
Jake Rowland Bartlett: So starting Q1 Q1 is our toughest comp of the year.
Jake Rowland Bartlett: It was going to be our toughest because.
Just the pricing we took in February of last year.
Jake Rowland Bartlett: We didn't really start to see the negative impact of that last year until March and then April may so.
Michael Hynes: Q1, absent in any weather or anything else was going to be our toughest comp, and then we saw the impact this year of January weather, which is going to hurt us by about 120 basis points in Q1. So that's to start, and then in Q2, we're expecting that, again, as we lap last year's pricing, that we see some positive traction, and we start to see positive comp sales that really, for the most part, offset the negative. Comp in Q1 and then we get to the initiatives, so the initiatives, absent the initiatives, we would be, the assumption would be relatively flat in Q3, Q4. And I'll let Drew speak to what we're expecting from the initiatives in the back half of the year. Yeah.
Jake Rowland Bartlett: Q1.
Jake Rowland Bartlett: Absent any weather or anything else was going to be our toughest comp and then we saw the.
Jake Rowland Bartlett: The impact this year or January weather, which is going to hurt us by about 120 basis points in Q1.
Jake Rowland Bartlett: So that's to start and then in Q2, we're expecting that again as we lap last year's pricing that we see some positive traction and we start to see positive comp sales that really.
Jake Rowland Bartlett: For the most part offset the negatives.
Jake Rowland Bartlett: Comp in Q1.
Jake Rowland Bartlett: And then we get to the initiatives the initiatives absent the initiatives we would be.
Jake Rowland Bartlett: The assumption would be relatively flat in Q3, Q4, and I'll, let drew speak to what we're expecting from the initiatives in the back half of the year. So just straight with the initiatives I think it would be helpful too.
Drew Madsen: So, to start with on the initiatives, I think it would be helpful to provide maybe a way of viewing the business and how we're approaching it strategically and operationally, which is different. We focused a lot on AUV in the past, and that is certainly a relevant measure, but our fundamental opportunity is to drive traffic. And we have tried to align every priority, all of our priorities, with an improved line of sight towards traffic growth going forward. It's not immediate, but it is much more calibrated to driving traffic growth. Let me give you an example.
Jake Rowland Bartlett: Provides maybe.
How we view the business and how we're approaching it strategically.
Drew Madsen: Operationally, which is different we focused a lot on AEP in the past and that is certainly a relevant measured but our fundamental opportunity is to drive traffic.
Drew Madsen: We have tried to align every priority all of our priorities.
Drew Madsen: With an improved line of sight towards traffic growth going forward, it's not immediate.
But it is much more calibrated to driving traffic growth and let me give you. An example in operations. There is obviously a lot of things we can measure and things that we can improve staffing is always going to be important training side is going to be important food safety will always be important but in the past I would say, we've looked at making incremental improvements.
Drew Madsen: In operations, there are obviously a lot of things we can measure and things that we can improve. Staffing is always going to be important. Training is always going to be important.
Drew Madsen: Food safety will always be important, but in the past, I would say we've looked at making incremental improvements across a wide variety of important metrics. And what we're doing this year is trying to make a penetrating improvement on the handful of items that make the most difference to traffic. So we actually... We actually took all of our royalty data and calibrated that against traffic to find out what moved the needle the most on traffic. And it's food taste and accuracy for us. And then we set measures of what success looked like on those two things that were more than the improvement we typically planned on. And they were levels of improvement that we think guests will notice and guests will react to when their experience is better. But our frequency is only about once a quarter, you know; one and a half times a quarter.
Drew Madsen: <unk>.
Drew Madsen: Across a wide variety of important metrics and what we're doing this year.
Is trying to make penetrating improvement on the handful of items that make the most difference to traffic. So we.
Drew Madsen: Actually.
Drew Madsen: We actually took all of our loyalty data.
Drew Madsen: Yes.
Drew Madsen: And calibrated that against traffic to find out what moved the needle the most.
Drew Madsen: Traffic in its food taste and accuracy for us and then we set measures.
Drew Madsen: What success looks like on those two things.
Drew Madsen: That were more than the improvement we typically plan.
Drew Madsen: Levels and recruitment that we think guests will notice I guess, we'll react to and their experience and better.
Drew Madsen: But our frequency is only about once a quarter.
Drew Madsen: So, it's going to take a few visits for guests to really enjoy noodles and ultimately change their behavior and come more often. So, it's not an immediate thing there. But it is a much more disciplined focus on traffic. Same thing with our digital ecosystem, which we think is one of the best in fast casual.
Drew Madsen: A quarter, so it's going to take a few visits of guests.
Drew Madsen: Really enjoying noodles.
Drew Madsen: Ultimately changing their behavior coming more often so it's not an immediate thing there.
But it is.
Drew Madsen: A much more disciplined focus on traffic same thing on our digital ecosystem, which we think is.
Drew Madsen: One of the best in fast casual, but it can be better and we are more focused on measuring things that drive traffic by getting more people into the top of the funnel improvement our conversion.
Drew Madsen: But it can be better, and we are more focused on measuring things that drive traffic by getting more people to the top of the funnel, improving our conversion all the way through. And then being more personalized and more efficient in how we market to our loyalty base because we've now got a platform, a customer data platform that gives us the information to do that. But again, it won't happen overnight. But we're aligning everyone and measuring everything against driving traffic.
Drew Madsen: All the way through.
Drew Madsen: And then being more.
Drew Madsen: Personalized and more efficient.
Drew Madsen: We market to our.
Drew Madsen: Our.
Drew Madsen: Loyalty base, because we've now got a platform a customer data platform that gives us the information to do that so again, it won't happen overnight, but we're aligning to everyone at measuring everything against driving traffic.
Jake Rowland Bartlett: Great. So, you know, and I had maybe been overly focused on the changes to the menu, but would you say that the opportunity here is as big or bigger on the operational side, or how would you kind of frame what's the biggest opportunity here for noodles, whether it's operations or the menu? Yeah, I would say in the near term, the bigger opportunity is improving the guest experience day-to-day, unit-to-unit across the country, particularly in the bottom quartile, where we've got the biggest opportunity to make fast improvement. But getting into 2025 and beyond, I would say the bigger opportunity is changing how people think about our menu. And going from somewhat expected to more contemporary comfort, if you will, with dishes that are still broadly appealing, but not that you can get everywhere. And I think that's going to be a bigger driver starting in early 2025 and beyond. Great, and then, you know, and last question. Sorry, just one last comment on that.
Drew Madsen: Great.
Drew Madsen: I had maybe been overly focused on the changes to the menu, but would you say that the opportunity here is.
Drew Madsen: As big or bigger on the operational side or how would you kind of frame what's the what's the biggest opportunity in your renewables, whether it's operations or the milk to help you run on plan.
Speaker Change: Yes, I would say in the near term.
Speaker Change: The bigger opportunity is improving the guest experience day to day units units across the country, most particularly in the bottom quartile, where we've got the biggest the.
Speaker Change: The biggest opportunity to make fast improvement, but getting into 2025 and beyond I would say the bigger opportunity is changing how people think about our menu from going from somewhat expected too.
Speaker Change: More contemporary comfort if you will with the additions that are still broadly appealing, but not that you can get everywhere and I think that's going to be a bigger driver.
Speaker Change: Starting in 2012, and early 2025 and <unk>.
And beyond.
Speaker Change: Great and then.
Speaker Change: Last question.
Speaker Change: Yes.
Speaker Change: Sorry, just wondering one last comment on that.
Drew Madsen: This is a really big menu change we're focused on. And I mentioned some of it in my opening comments, but we're looking at menu architecture. By that, I mean a menu layout that will be easier for our guests to navigate.
Speaker Change: This is a really big menu change, we're focused on and I've mentioned some of it.
Speaker Change: Opening comments, but we're looking at menu architecture.
Speaker Change: By that I mean, the menu way out there will be easier for our guests to navigate we're looking at meaningful improvements to existing dish recipes, we're looking at adding new dishes that address need states that we arent real competitive in.
Drew Madsen: We're looking at meaningful improvements to existing dish recipes. We're looking at adding new dishes that address meat states that we aren't real competitive in at the moment. We're looking at some name changes. And it's probably going to touch, you know, roughly half the menu.
Speaker Change: At the moment, we're looking at some name changes.
Speaker Change: And it's probably going to touch roughly half the menu and.
Drew Madsen: I come from the school of measure twice, cut once, and we want to make sure that we get it right before we expand it broadly, and that's why we're talking about the end of 2024 and early 2025. But I think it'll be a big deal, it'll have a big impact when it's in. Great, that makes a lot of sense to me.
Speaker Change: I come from the school a measure twice cut once and we want to make sure that.
Speaker Change: We get it right before we expand it broadly and that's why we're talking about end of 2020 for early 2025, but I think it will be a big will have a big impact when it's in.
Speaker Change: Great.
Jake Rowland Bartlett: My last question is on development and building on Todd's question, but, you know, you're lowering the guidance a little bit for the fourth quarter, at least we're having a slower slowdown in 24. It seems to me like that would kind of be the beginning of a continued slowdown and meaning you're probably not, is it right to assume you're not signing new leases for what would be opening in 25 and 26? I'm just trying to get a realistic sense as to when, you know, all goes right. Is this a deceleration and then a reacceleration that really takes a number of years to kind of get back to a situation where you're actually at a point where you can reaccelerate growth? It's just that the right way to set expectations at a certain level.
Speaker Change: That makes a lot of sense to me.
Speaker Change: My last question is on development and building on Todd's question, but.
Speaker Change: You're lowering the guidance a little bit for the fourth quarter leased we're having a slower slowdown in 'twenty four.
Speaker Change: It seems to me like that would kind of be at the beginning of a continued slowdown in meaning youre, probably not is it right to assume youre not signing new leases for what would be opening in 25% in 2006, I'm just trying to get a realistic sensitive to win all goes right.
Speaker Change: Is this a deceleration and then Reacceleration thats really takes a number more many years to kind of get back to a situation where you're actually at a point, where you can reaccelerate growth. It's just that the right way that what kind of level set expectations.
Jake Rowland Bartlett: Sure. Yeah, well, when we think about the new unit growth opportunity, you know, over many years, we think it's significant, given the, you know, the need state we're addressing, the price point that we offer, the breadth of appeal of pasta and noodles, the fact that we're not in big states like Texas and Florida. I mean, we think the growth over time is meaningful, but our traffic has dropped a fair amount in the last, And until we get traffic up, and get our margin up, and also develop a somewhat lower cost prototype, you know, we're in the million one, million two investment range, and we really ought to be more in the million, in the million dollar range.
Speaker Change: Sure, Yes, so when we think about the new unit growth opportunity over many years, we think it's significant given the.
Speaker Change: The need state, we're addressing the price point that we offered their breadth of appeal of positive noodles.
Speaker Change: The fact that we're not in big States like Texas, and Florida, We think.
Speaker Change: We think the growth over time is meaningful but our traffic has dropped a fair amount in the last year.
Speaker Change: 18 months.
Speaker Change: And Thats had a corresponding impact on our unit economics and until we get traffic up.
Speaker Change: And get our margin up.
And also develop a somewhat lower cost prototyping over in the $1 two.
Speaker Change: <unk> range, we really ought to be lower than the $1 billion.
Speaker Change: In the million dollar range those two things together, we're really why isn't the bullseye for where we could go with confidence that open new units. So youre right its not a 'twenty four or 'twenty five.
Jake Rowland Bartlett: Those two things together will really widen the bullseye for where we can go with confidence and open new units. So you're right, it's not a 24 or 25 thing; we're not going to go to zero unit openings, but we're not going to reaccelerate until we've got confidence in our top line, in our margin, and in the investment thesis for a new unit prototype. Great, I appreciate it. I'll jump back in the queue. Thank you, and one moment while we move on to our next question. And our next question is going to come from the line of Andrew Barish with Jeffries. Your line is open. Please go ahead.
Speaker Change: I'd say, we're not going to go to zero of unit openings, but we're not going to reaccelerate until we've got confidence in our topline and our margin and then the investment thesis for for New unit prototype.
Speaker Change: Great I appreciate it I'll jump back in the queue.
Speaker Change: Thank you and one moment, while we move on to our next question.
Speaker Change: And our next question is going to come from the line of Andrew Barish with Jefferies. Your line is open. Please go ahead.
Andrew Marc Barish: Hey Drew, good to get to hear from you again. A question on, you know, sort of the breadth of the menu under the new Contemporary Comfort Kitchen. Do you anticipate kind of moving beyond the core, you know, pasta and noodles? Is that something that's currently contemplated or maybe down the road if you could give us just a little more context on the work that's gone on with this new focus? Sure, and it'll be good to talk with you again, Andy.
Andrew Marc Barish: Hey, Greg good too good to hear from you again.
Andrew Marc Barish: Question on <unk>.
Andrew Marc Barish: Sort of the breadth of the menu under the new contemporary comfort kitchen.
Andrew Marc Barish: Do you anticipate kind of moving beyond the core.
Andrew Marc Barish: Past noodles is that something that's being currently contemplated or may be down the road. If you could give us just a little more context and the work that's gone on with.
Andrew Marc Barish: With this new focus.
Speaker Change: Sure and good to talk with you again Andy.
Drew Madsen: No, we're going to stay in our lane. We know what our brand position is all about. We know what capabilities we've developed.
Speaker Change: No.
Speaker Change: We're going to stay in our lane, we know what.
Speaker Change: Our brand positioning is all about we know our capabilities we've developed.
Drew Madsen: So we're not going to fundamentally change from a noodle and pasta dish-based concept. We're going to continue to have salads. We're going to continue to have soup, but we're going to be a noodle and pasta-based menu. We just need to make it more compelling by updating some existing recipes and adding some new ones in need states, as I said, that we're not addressing today. And then make the overall menu easier for our guests to navigate. It's kind of confusing now in my mind.
Speaker Change: So we're not going to fundamentally change from.
Speaker Change: A noodle and pasta days.
Speaker Change: Dish based concept, we're going to continue to add talent, we're going to continue to have suite, but we're going to be a noodle and pasta based menu, we just seem to make it more compelling.
Speaker Change: By updating some existing recipes and adding some new ones.
Speaker Change: In these states as I said that we're not addressing today and then make the overall menu easier for our guests to navigate it's kind of confusing.
Drew Madsen: But we're not fundamentally trying to change our identity, just update it. Got it helpful. And then, Mike, I may have missed it, but can you lay out the the pricing menu price assumptions, I know there's a lot of things that are going to go on over the next, you know, nine, 10 months or so, but just kind of what's embedded in your comp expectations, you know, in terms of menu price, and then, It sort of relates to it, but the guide is, you know, basically for flattish margins with You know, a lot of things going on this year and obviously probably starting out a little bit lower just given the first quarter comps, but, Is there something, you know, in addition to or additional productivity that's kind of an offset to, you know, maybe some of the complexity or at least near-term costs as you guys work through a lot of these changes? Sure, yeah, the margin, I'll give you a little color there.
Now in my mind, but we're not fundamentally trying to change our identity just updated.
Speaker Change: Got it helpful and then.
Speaker Change: Mike I may have missed it but can you lay out.
Michael Hynes: Pricing menu price assumptions I know, there's a lot of things better.
Go on over the next.
Michael Hynes: 910 months or so, but just kind of what's embedded in your comp expectations in terms of menu price and then.
Michael Hynes: It sort of relates to it but.
Michael Hynes: The guidance basically for flattish margins with.
Michael Hynes: A lot of things going on this year, and obviously, probably starting out a little bit lower just given the first quarter comps but.
Speaker Change: Is there something.
Speaker Change: In addition to our additional productivity that that's kind of an offset.
Speaker Change: Maybe some of the complexity or at least near term costs. As you guys worked through a lot of these changes.
Speaker Change: Sure Yes.
Michael Hynes: I'll start with the pricing, and you're right, there are a lot of moving parts, especially as we're considering a new menu and some changes to our menu and just how that'll shake out. But our assumption is, especially after the last couple of years, that our overall pricing is going to be pretty conservative this year in the low single digits. So we're not anticipating aggressive pricing this year, just enough to offset the modest inflation that we're forecasting on a dollar basis. And you're right; the margin is pretty flat compared to what we saw on 23. In addition to pricing and inflation, a couple moving parts for you, we are going to see some labor productivity benefits in the front part of the year to help offset inflation, because a lot of the measures we put in last year were weighted towards the back half, the productivity we saw in Q3, Q4, and so we'll get a full-year benefit this year. A bit of a wild card is marketing.
Speaker Change: Margin I'll give you a little color there I'll start with the pricing and Youre right Theres a lot of moving parts, especially as we're considering new menu and some changes to our menu and just how that will shake out, but our assumption is that especially after the last couple of years at our overall pricing is going to be pretty conservative this year in the low single digits.
Speaker Change: So we're not anticipating aggressive pricing this year just enough to offset the modest inflation that where we're forecasting on a dollar basis and you're right. The margin, it's pretty flat compared to what we saw in 'twenty three.
Speaker Change: In addition to pricing and inflation a couple moving parts for you and we are going to see some labor productivity.
Speaker Change: In the front part of the year to help offset inflation.
Speaker Change: Because a lot of the measures we put in last year weighted towards the back half the productivity we saw in Q3 Q4.
Speaker Change: And so we'll get a full year benefit this year.
Speaker Change: A bit of a wildcard is marketing.
Michael Hynes: We are considering marketing, and incremental marketing spend that will impact margin. Some of that is going to be related to testing and research for the new menu and menu innovation, and some of it's going to be related to us considering incremental media spend in the back half of the year as we roll out our new menu. We're going to test that, and we're going to make sure we see what we're hoping to see out of that media spend before we commit to it, but that's part of the 14 to 15% margin guide.
Our considering marketing incremental marketing spend that will impact margin.
Speaker Change: Some of that is going to be related to testing and research for the new menu and menu innovation and some of it is going to be related to.
Speaker Change: Considering the incremental media spend in the back half of the year as we roll out our new menu, we're going to test that and we're going to.
Speaker Change: Make sure we see what we are hoping to see out of that media spend before we commit to it but thats part of the <unk>.
Speaker Change: 14% to 15% margin guidance.
Andrew Marc Barish: Okay, appreciate the call. Thank you, and I'm showing no further questions at this time, and I would like to hand the conference back over to Drew Masson for any further remarks. Well, once again, thank you, everybody, for joining us today. I'm delighted to be part of the noodles team, delighted to be part of the future. We see big opportunities ahead. It's not going to be immediate. It's going to require some change.
Speaker Change: Okay I appreciate the color on that.
Thank you and I'm showing no further questions at this time and I would like to hand, the conference back over to drew Madsen for any further remarks.
Drew Madsen: Well once again, thank you everybody for joining us today.
Drew Madsen: Delighted to be part of the noodles team delighted to be part of the future.
Drew Madsen: We see big opportunity ahead, it's not going to be immediate it's going to require some change we've.
Drew Madsen: We've identified five priorities that I think are going to make a major difference, and we look forward to keeping you updated on our progress as we move forward. Thank you so much. This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you for watching!
Drew Madsen: We've identified five priorities that I think are going to make a major difference and we look forward to keeping you updated on our progress as we move forward.
Speaker Change: Thank you so much.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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Speaker Change: Okay.
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Speaker Change: Okay.