Business Context and Reporting Period
Company: Noodles & Company (NDLS)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Fiscal Quarter and Two Fiscal Quarters ended July 1, 2025
Business Overview: The Company operates fast-casual restaurants serving globally-inspired noodle and pasta dishes. As of July 1, 2025, the system comprised 453 restaurants (364 company-owned, 89 franchise) across 31 states. The Company operates as a single reportable segment.
Key Financial Metrics
| Metric (in thousands) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 |
|---|---|---|---|---|
| Total Revenue | $126,433 | $127,352 | $250,227 | $248,746 |
| Net Loss | $(17,552) | $(13,625) | $(26,609) | $(19,765) |
| Loss Per Share (Basic/Diluted) | $(0.38) | $(0.30) | $(0.58) | $(0.44) |
| Operating Cash Flow (YTD) | $3,181 | $11,728 | $3,181 | $11,728 |
| Cash and Equivalents (End of Period) | $2,264 | $1,806 | $2,264 | $1,806 |
| Long-Term Debt (Net) | $106,441 | $100,742 | $106,441 | $100,742 |
| Stockholders' Deficit | $(30,775) | $9,643 | $(30,775) | $9,643 |
Non-GAAP Metrics (YTD): Adjusted EBITDA was $8.4 million for the first two quarters of 2025, compared to $14.7 million in the same period of 2024. Restaurant contribution margin was 11.6% for the first two quarters of 2025, down from 14.4% in 2024.
Material Changes vs. Prior Period
- Revenue: Total revenue decreased 0.7% in Q2 2025 compared to Q2 2024, driven by a $3.6 million reduction from permanent closures, partially offset by a 1.5% increase in system-wide comparable restaurant sales. YTD revenue increased 0.6%.
- Profitability: Net loss widened significantly. Q2 2025 net loss increased 28.8% to $17.6 million. YTD net loss increased 34.6% to $26.6 million.
- Cost Structure: Cost of sales increased 6.5% in Q2 due to menu investments and inflation. Labor costs rose 0.8% due to wage inflation and increased hours for new menu rollouts. General and administrative expenses decreased 8.6% due to lower stock-based compensation and legal fees.
- Impairments: Restaurant impairments, closure costs, and asset disposals increased 13.2% in Q2 to $13.7 million. The Company recorded fixed asset impairments on 15 restaurants and wrote down lease assets on 10 restaurants in Q2 2025.
- Interest Expense: Net interest expense increased 37.9% in Q2 to $2.8 million, driven by higher average debt balances and interest rates (averaging 8.6% YTD 2025 vs. 8.7% YTD 2024).
Guidance, Outlook, and Risks
- Outlook: Management expects comparable restaurant sales growth to remain constrained by macroeconomic uncertainty. The Company plans to continue launching new menu items, including lower-priced value offerings.
- Restaurant Portfolio: The Company closed nine company-owned restaurants in the first two quarters of 2025 and anticipates closing an additional 19 to 23 restaurants in fiscal 2025. No new company-owned openings are planned for the remainder of 2025.
- Capital Expenditures: Estimated at $12.0 million to $13.0 million for fiscal 2025, with $5.0 million to $6.0 million expected for the remainder of the year.
- Liquidity: The Company had $2.3 million in cash and $13.7 million available under its revolving credit facility as of July 1, 2025. Management believes this is sufficient for the next 12 months.
- Debt Covenants: The Company is currently in compliance. However, covenants tighten in Q4 2025 (Leverage Ratio steps down to 5.25:1.00; Fixed Charge Coverage steps up to 1.15:1.00).
- Listing Risk: On June 24, 2025, the Company received a notice from Nasdaq regarding non-compliance with the minimum bid price requirement ($1.00 per share). The Company has 180 days to regain compliance, potentially via a reverse stock split.
- Tax Legislation: The Company is evaluating the impact of the "One Big Beautiful Bill Act" signed in July 2025 but does not anticipate a material impact.
Investor Verification Checklist
- Nasdaq Compliance: Verify the status of the minimum bid price deficiency and any proposed reverse stock split to avoid delisting.
- Covenant Compliance: Monitor the ability to meet the tightening leverage and fixed charge coverage ratios starting in Q4 2025.
- Closure Execution: Track the execution of the planned 19-23 additional restaurant closures and the associated impairment charges.
- Comparable Sales: Assess whether the 1.5% Q2 comparable sales growth is sustainable given the macroeconomic headwinds and menu changes.
- Debt Refinancing: Review the maturity of the credit facility (July 2027) and the Company's ability to refinance or extend terms given current interest rate environments.