Q1 2025 Noodles & Co Earnings Call
Speaker Change: Good afternoon and welcome to today's Noodles & Companies first quarter 2025 earnings conference call. All participants are now in a listen only mode. After the presenter's remarks there will be a question and answer session. As a reminder this call is being recorded. I would now like to introduce Noodles & Companies Chief Financial Officer Mike Hynes.
Speaker Change: Thank you and good afternoon everyone. Welcome to our first quarter, 2025, Ernie's call. Here with me this afternoon is Drew Madsen, our chief executive officer.
Speaker Change: I'd like to start by going over a few regulatory matters.
Speaker Change: During the call, we may make forward-looking statements regarding future events or the future of financial performance of the company.
Speaker Change: Any such items should be considered forward-looking statements within the meaning of the private securities litigation reform act.
Speaker Change: Such statements are only projections in actual events or results could differ from those projections.
Speaker Change: Due to a number of risks and uncertainties, including those referred to in this afternoon's news release in the cautionary statement in the company's annual report on Form 10K and subsequent filings with the SEC.
Speaker Change: During the call, we will discuss non-GAAP measures , which we believe can be useful in evaluating the company's operating performance.
Speaker Change: A reconciliation of these measures to the most directly comparable GAAP measures is available in our first quarter, 2025 earnings release.
Speaker Change: 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 .
Speaker Change: quantitative reconciling information for these measures. It's unavailable without unreasonable efforts.
Speaker Change: With that, I would like to turn the call over to Drew Madsen, our chief executive officer.
Drew Madsen: Thank you, Mike. Good afternoon, everyone. We are very pleased with the positive Q1 same-star sales performance we achieved, despite the challenging macroeconomic
during the first quarter.
Drew Madsen: Traffic increased 1.8% and checked increased 2.9% resulting in a same-store sales increase of 4.7% in our company owned restaurants.
and 4.4% system-wide including franchisees.
Drew Madsen: Why will the Q1 increase was helped by the introduction of three new menu items in October of last year as well as favorable Easter timing?
Drew Madsen: It was also due to the comprehensive menu rollout in mid-March of this year, including the impact of increased marketing and increased brand awareness.
Drew Madsen: We are also pleased this Q1 momentum continued in April , which is our most difficult monthly comparison versus last year.
Drew Madsen: Same-store sales since the mid-march roll-out through April have increased approximately five percent.
Drew Madsen: Both Q1 and April results represent a significant acceleration for Q4 last year when traffic was down minus 0.1% in same-store sales group 0.5%
Drew Madsen: This sustained and significant improvement in our sales trends demonstrates to us that the execution of our previously announced strategic priorities have gained traction.
Drew Madsen: especially while coming during a period when the industry has been impacted by lower consumer sentiment.
Drew Madsen: Let me highlight several of the key dynamics driving our improving Q1 sales results.
Creating a foundation of operations excellence remains our top priority.
Drew Madsen: Our primary operations focus during Q1 was ensuring that we were prepared to introduce our new menu with excellence on March 12th.
to do this.
Drew Madsen: We instituted a comprehensive four week training program starting at the regional director level that cascaded down to all hourly team member roles.
New training modules were created for every position.
Drew Madsen: focused on increased menu knowledge and suggestive selling for our guest-facing team members.
Drew Madsen: along with step-by-step preparation instructions for each new dish for culinary team members.
Drew Madsen: We also significantly increased the time for hands-on practice preparation of all new dishes for culinary team members to ensure they were well prepared to consistently follow the recipe and execute to our standard.
Drew Madsen: We achieved a 95% trading module completion rate and then certified restaurant readiness for the new menu launch through Area Manager Certification Business.
Drew Madsen: The new menu training culminated with the Hike video and restaurant team meetings to create energy and excitement around the menu roll out.
Drew Madsen: This was a significant one-time training investment to set our teams up for success and helping sure we were ready to delight guests once the new menu launched on March 12th.
Drew Madsen: Regarding limited time offers, we brought Stake Stroganoff back in mid-January and it performed consistently well for two months leading up to our new menu introduction.
Drew Madsen: We believe this dish will continue to be a strong, seasonally appropriate Q1 LTO in future years.
Drew Madsen: But the really big news is our fully reimagined new menu.
Drew Madsen: As you may recall, our many transformation began last October with the introduction of three
Drew Madsen: Lemon Garlic Shrimps Campy, Crispy Chicken Bacon Elf Rado, and Chipotle Chicken
Drew Madsen: On March 12, we added 5 knee dishes and 4 re-imagined recipes for popular favorites currently on the menu.
Drew Madsen: The five new dishes include pulled pork barbecue mac and cheese, garlic bacon crunch mac and cheese
Buffalo Chicken Ranch Mac and Cheese.
Cajun Shrimp Petitini, and Green Goddess Chicken Cuts Out
The four reimagined fan favorites include Basil Pesto Cavatopi,
Rigatoni Rosa [inaudible]
Creamy Cheddar Mac & Cheese [inaudible]
Drew Madsen: and Chicken Caesar salad. In total, nearly two-thirds of our menu is new or improved. We believe this is the most comprehensive menu transformation in our nearly 30-year history.
Drew Madsen: In addition to these new and improved dishes, we have also replaced the black plastic takeout packaging we have used for in restaurant dining since COVID with new white ceramic
Drew Madsen: And we have updated our digital menu boards with a cleaner, more contemporary design that highlights rotating video vignettes of our new and improved dishes.
Drew Madsen: We are certainly excited about the guest response to our new menu after seven weeks, including sales of our new Mac and cheese dishes which have significantly exceeded expectations.
Drew Madsen: Our third priority is to increase brand relevance and create new menu excitement through a redefined brand positioning and new activation strategies.
Drew Madsen: We have a long brand history and a built competitive levels of brand awareness.
Drew Madsen: But this has not previously translated into competitive levels of sales.
We saw the need to increase brand relevance.
Drew Madsen: We need to give current and potential new customers a reason to relate to us. We need to tell them why Noodles & Co is the best choice to satisfy their comfort food cravings.
Drew Madsen: We've been perfecting the Art of Noodles for 30 years, and to our knowledge, we are the only chain of scale to offer a menu devoted entirely to noodles, expertly crafted to satisfy a broad variety of comfort food cravings. We needed to do a better job of telling that story.
The name of our new campaign is We Know Noodles.
Drew Madsen: And the more effectively tell our story, recreated two new commercials.
Drew Madsen: One that focuses on the enduring love consumers of all ages have for noodles and lets them know we have a big new menu they will be excited to try.
Drew Madsen: And a second commercial that focuses specifically on our new Mac & Cheese dishes and how we do Mac & Cheese better than anyone else.
Drew Madsen: We confirm through a commercial testing with the Cantar Agency that our new commercials scored in the top quartile of all competitive commercials tested and showed a high likelihood to drive both brand perception and traffic.
Drew Madsen: Then, we significantly increased our paid media and invested in new awareness driving channels, including digital out-of-home, digital audio and additional social channels like Pinterest.
Drew Madsen: We also leverage PR and influencer campaigns to get the news out and lean into our loyalty program through offers, personalized communications, and our recent taste-tour promotion to drive trial among our existing users.
Drew Madsen: The results across a variety of key success measures since our March 12 brand relaunch have been very exciting. Let me walk you through some of the highlights.
Drew Madsen: Our early-stage brand launch PR garnered 450 million impressions, with over 95% being single brand stories devoted entirely to Noodles & Co
Drew Madsen: Since the menu launch and through April , we have seen double-digit increases in brand awareness.
Drew Madsen: brand search traffic and app sessions in our own platforms for both new users and existing customers. We have definitely created more interest in our brand.
Drew Madsen: We have outperformed our digital media channel KPIs such as video completion rates, telling us consumers are positively engaging with our new message.
Drew Madsen: Compared to the pre-launch period, we've seen a significant increase in loyalty signups and loyalty transactions as well.
Drew Madsen: And finally, between April 12th and April 25th, loyalty members had the opportunity to taste their way through our new menu with 14 days of exclusive offers, transactions from this taste tour promotion more than doubled our expectations.
Drew Madsen: Also notable is the improvement in traffic through our in-store and owned first-party digital channels since our March 12 brand relaunch.
Drew Madsen: Reattribute this at least in part to additional investment in broader reach media assets that have helped increase awareness and attract lapsed and new users.
Third-party traffic has remained strong.
Drew Madsen: Most importantly, the combined impact of our new menu, new brand positioning, new activation strategies and increased marketing investment is readily apparent in our strong sales trends that I shared earlier.
Drew Madsen: There is no question we will continue to learn to innovate and improve going forward.
Drew Madsen: But there is also no question that our business foundation has improved dramatically in the last few months.
Drew Madsen: Combined with a strategic reduction in capital spending and continued emphasis on smart cost savings, we are well positioned to strengthen our balance sheet this year as well.
Drew Madsen: Overall, we are confident in the foundation we have put in place and excited by ourselves for those moments to start 2025.
Drew Madsen: With that, I'll turn it over to Mike to review our first quarter financial highlights and full-year guidance.
Mike Hynes: Thank you, Drew. In the first quarter, our total revenue increased 2% compared to last year to $123.8 million.
Mike Hynes: System-wide comp restaurant sales during the first quarter increased 4.4%, including an increase of 4.7% at company owned restaurants, an increase of 2.9% at franchise restaurants.
Mike Hynes: Company Comt traffic during the first quarter increased 1.8%, an average check increased 2.9%, inclusive of 1.3% effective pricing during the quarter.
Mike Hynes: Company Average Unit Volumes in the first quarter for $1.31 million.
Mike Hynes: We experience a shift in the Easter holiday from the first quarter in 2024 to the second quarter in 2025. We estimate that the Easter holiday shift benefited our first quarter comp sales by approximately 50 basis points.
with the corresponding headwind in our second quarter.
Drew Madsen: As Drew mentioned, we are encouraged by the continued strength in our recent sales trends. Our comp restaurant sales post-march menu launch were up approximately 5% through April , despite in April being our most difficult 2024 comparison.
Drew Madsen: which was primarily driven by higher food costs associated with her new menu offer.
Drew Madsen: which have been added since the first quarter of 2024. Our food inflation in the first quarter was approximately 2%.
Drew Madsen: Labor Cods for the first quarter were 32.5% of sales, which was up 20 basis points to prior year.
Drew Madsen: Primarily due to wage inflation and one-time training expenses for the new menu rollout. Personally offset by sales leverage.
Drew Madsen: A really wage inflation in the first quarter was 2.7 percent.
Drew Madsen: Occupancy costs in the first quarter were 11.5 million dollars compared to 11.8 million dollars in 2024 due to a reduction in our company-owned restaurant account for the last 12 months.
Drew Madsen: The restaurant operating costs increase 140 basis points in the first quarter to 21.1%.
Drew Madsen: The increase in other restaurant operating costs was primarily driven by a combination of higher third party delivery fee from higher third party delivery channel sales and higher marketing expenses related to our new menu roll up.
Drew Madsen: Our restaurant level contribution margin was 10.3% down from 13.1% in the first quarter of 2024, and a seasonally low first quarter.
Drew Madsen: GNA for the first quarter was $12.8 million compared to $13 million in 2024, primarily due to decreases in salary and incentive compensation partially offset by increased spend related to our Dumenti rollout.
Drew Madsen: Netloss for the first quarter was $9.1 million, or a loss of 20 cents per diluted share, compared to a net loss of $6.1 million, or a loss of 14 cents per diluted share last year.
Drew Madsen: Adjusted EBITDA for the first quarter was $2.4 million, compared to $5.5 million in the first quarter at 2024.
Drew Madsen: In the first quarter, we opened one company on restaurant and closed three company on restaurants.
One franchise restaurant was closed in the first quarter.
Drew Madsen: Our first quarter capital expenditures totaled $2.9 million compared to $8.6 million in 2024.
Drew Madsen: Our debt balance at the end of the first quarter was $102.7 million, with over $19 million available for future borrowings under our Revolving Credit Facility.
Drew Madsen: Before turning to guidance, I want to highlight the significant progress in our financial foundation over the past 12 months.
Drew Madsen: Through the actions we have taken, including a strategic reduction in capital spending.
and continued emphasis on smart-caught savings.
Drew Madsen: with over $5 million of savings in 2024, and a similar amount targeted for 2025, combined with the strong results Drew spoke to earlier, we are well positioned to strengthen our balance
Drew Madsen: We are excited by the future we have ahead of us as our strategic plans are working and we believe setting us up well to drive long-term shareholder value.
Drew Madsen: Turning to our full-year guidance for 2025, we're extremely pleased with our year-to-day results, and we're reiterating our P&L guidance provided in March with one exception.
Drew Madsen: We're widening the lower end of our restaurant contribution margin range by 50 basis points to capture an estimated impact from terrorists.
Drew Madsen: Due to most of our product being sourced from the U.S.
Drew Madsen: In over 50% of our food purchases for the remainder of 2025, being secured through fixed rate agreements, we believe our 2025 tariff exposure is limited and primarily relates to some of our produce items.
Source from Central America, and Shrink that Source from Asia.
Drew Madsen: Our complete guidance for the full year 2025 is as follows.
Drew Madsen: Total Revenue of $503 to $512 million, including mid-single-digit Comp Restaurant Sales Group.
Restaurant Contribution Margin, between 12 and 14 percent.
Drew Madsen: GNA expenses of $49 to $52 million, inclusive a stock based compensation expense of approximately $3.7 million.
depreciation and hammerization expense of $27 to $29 million.
Interest expense of $8 to $10 million $10 million.
Drew Madsen: We expect to open two new company owned restaurants in 2025, one new restaurant opened in January with the remaining restaurants scheduled to open in June .
Drew Madsen: We expect to close 13-17 company owned and four franchise restaurants in 2025.
[inaudible]
Drew Madsen: We estimate total 2025 capital expenditures of $11 to $13 million. As I mentioned earlier, with significantly lower capital expenditures in 2025, we continue to expect to reduce our debt balance in the back half of the year.
Drew Madsen: For further information regarding our 2025 expectations, please see the business outlook section of our press release.
Drew Madsen: With that, I'd like to turn the call back over to Drew for final remarks.
Drew Madsen: Thanks Mike. It is an exciting time for Noodles as the improvements we have seen to date set the stage for a transformational 2025.
Drew Madsen: Our complimenting to start the year sets a strong foundation for our brand relaunch as we work to become more relevant to what today's consumer is looking for.
Drew Madsen: The sustained top-line sales growth is the key to establishing a stronger business model that could justify new unit growth in the future and which creates value for all stakeholders.
Drew Madsen: Thank you for your time today. Operator, please open the lines for Q&A.
Thank you.
Speaker Change: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Drew Madsen: You may press star two if you would like to remove your question from the queue for participants using speak or equipment and maybe necessary to pick up your handset before pressing the star keys. One moment, please while we pull for questions.
Speaker Change: The first question is from Todd Brooks from Benchmark Company. Please go ahead.
Todd Brooks: Okay, thank you and congrats on the strong start with the new menu, great to see.
If I could lead off... Thanks Todd.
Speaker Change: And it is a question about the new menu on two facets. One, the marketing commitment that you put behind it around the launch.
Speaker Change: How does that paper over the course of the year? Do you expect a continual kind of investment at the same level? So if we could walk through that and then secondly, if you look at how loyalty customers are responded to the menu, knowing the brand well versus...
Speaker Change: New to brand customers or non-loyalty customers, how they're responding given what you focused on in the advertising. I'd be curious if there's much of a spread there. Thanks.
Speaker Change: Yeah, first on the marketing investment, we're really pleased with the response both to the marketing and the new creative messaging that the marketing supporting. So as I said on our last call...
We are roughly doubled.
Speaker Change: Our media investment over the first several months of the new menu.
and historically, we've put that media...
in the paid search and in the paid social.
Vehicles like Connected TV, Digital Out of Home, Digital Audio.
Speaker Change: online video, things like that that really can broaden our potential audience.
in the creative that we've put behind that media.
Speaker Change: Most of our creative has been telling the story about limited time offer right now.
Speaker Change: that has a menu devoted entirely to noodles with a broad variety of flavor profiles and impremable dishes for everybody to choose from.
Speaker Change: and we're seeing a great response from that. Ultimately, the proof is in the traffic being up 1.8%, our check is up almost 3%, same-store sales are up almost 5%, a little over 5% through April .
Speaker Change: And it's telling us that we are really saying something that guests are resonating with paying attention to and acting on.
Speaker Change: And so we are now updating our media mix model and looking at whether additional investment like that throughout the course of the year.
Speaker Change: would make sense, but we've certainly gotten a great response so far.
Speaker Change: And I think that's part of the reason we're seeing double digit transaction growth.
Speaker Change: in Loyalty. And also why we've seen such a good response to the most recent loyalty promotion we did, where we essentially invited current loyalty customers to...
Speaker Change: Sample through the menu for a 14-day event where they have different offers every day to try something new and different. It's a little early for us to read frequency, yet it's only done seven weeks.
Speaker Change: But the increase in sign-ups for loyalty and the increase in purchase in transactions for loyalty as well as just the broader increase in awareness, the increase in branded search are really encouraging.
That's all great to hear, congrats to you guys.
Speaker Change: You know, don't come back or maybe, you know, it builds. So, you know, how has the traffic kind of trended since you launched it? And then, you know, I guess, building on that, what are you planning to do for the rest of the year? I know...
Speaker Change: You just accomplished a lot so to ask what you're doing next is probably a lot, but what do you do to maintain this momentum maybe even build on it?
Speaker Change: Yeah, so the trend, the sales growth and transactions have remained.
Strong, and that's why we...
Added the additional comment about how our sales have maintained
Speaker Change: Since the menu started through the month of April , so we're up over 5% a little over 5% since the menu launch in March.
Speaker Change: through April . And it started quickly, honestly. I mean, it was...
Speaker Change: We got a pretty good response right away in part because a lot of the early stage work we did with influencers and earned media public relations up front that it started quickly and there have been some some impacts because of Easter but if you take that out of the equation the transaction growth has maintained through April and we're really excited about that.
Speaker Change: We will have some additional news over the course of the year, but it's not going to be at the same level as this many transformation, and we want to make sure that we continue to execute this at a high level and keep our operations team set up for success.
Speaker Change: Great. In terms of the margins and obviously the first quarter, the margins were pressured by the menu launch and all the investments you made to make that successful. Can you help us understand what is one time and what is ongoing, trying to assess how maybe abnormally low the first quarter is because of the dynamics of offering the menu. In that they called it a one-time charge or one-time expense of training on a basis, point spaces, how much
Andrew Madsen, CFP®, Financial Planner & Co-Founder
Speaker Change: Yeah, I'll give you a headline on it, on it first. As I said, we're very, very pleased with the transaction growth and the sales growth.
Speaker Change: in the seven weeks since the menu launched and our expectations overall for our results overall for the quarter.
Speaker Change: and in total we are right on where we expected to be at the end of the first quarter, and we expect with continued sales growth and transaction growth, some additional smart cost savings in the course of the year to improve quarter by quarter, and that's why we reaffirmed our guidance going forward.
Mike Hynes: Mike can give you a little more color but we were right on our expectations for the court. Yeah, Drew covered it well. A couple of one-time costs to point out, we've talked about March females, about $500,000 to Europe a year. Some of that shows up in operating costs in some in GNA and that was, that was been...
G&A piece we mentioned in the prepare of remarks.
Mike Hynes: and then a million dollars of just other one-time menu rollout costs that are spread throughout the P&L. One to call out would be about 60 basis points and cogs, so for the rest of the year we would anticipate cogs to be closer to 26%.
Great, you said $55.00 for the car's impact.
Mike Hynes: Quarter, maybe just to just to help us out to the.
Mike Hynes: The trajectory of when we can really start feeling good about the balance sheet.
Mike Hynes: Sure and yes, we were slightly free cash flow positive in the first quarter. There are some working capital.
Mike Hynes: Items that will work against us in the second quarter. So we are anticipating from in Q3 and in Q4 to a free cash flow positive.
Mike Hynes: Great I appreciate it I'll pass it on thank you.
Mike Hynes: Thank you.
Speaker Change: This concludes the question and answer session as well as todays teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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