Noodles & Company — Q1 2024 Form 10-Q
Business context and period. The quarter ended April 2, 2024, and comprised 13 operating weeks. Noodles & Company operated 469 restaurants across 31 states: 380 company-owned and 89 franchised. It reports as one operating segment.
Financial performance
| Metric | Q1 2024 | Prior-year quarter | Change |
|---|---|---|---|
| Total revenue | $121.4 million | $126.1 million | Down 3.7% |
| Restaurant revenue | $119.0 million | $123.2 million | Down 3.4% |
| Operating loss | $4.1 million | $2.2 million | Loss increased $1.9 million |
| Net loss | $6.1 million | $3.1 million | Loss increased $3.0 million |
| Diluted loss per share | $0.14 | $0.07 | Loss per share doubled |
| Operating cash flow | $7.0 million | $7.2 million | Down $0.2 million |
| Capital expenditures | $8.6 million | $10.4 million | Down $1.8 million |
- Restaurant contribution was $15.6 million, with a 13.1% margin, versus $16.9 million and 13.7% a year earlier. Restaurant contribution is a company-defined non-GAAP measure.
- Adjusted EBITDA was $5.5 million versus $6.2 million; EBITDA was $3.3 million versus $4.0 million. Both are non-GAAP measures.
- Company-owned comparable sales fell 5.7% after rising 6.9% in the prior-year quarter; system-wide comparable sales fell 5.4%. Company-owned average unit volume declined 6.7% to $1.253 million.
- Restaurant contribution cost ratios: cost of sales improved to 25.0% from 25.2% of restaurant revenue; labor was flat at 32.3%; occupancy rose to 9.9% from 9.3%; other restaurant costs rose to 19.7% from 19.5%.
- Cash and cash equivalents were $1.3 million at quarter-end, down from $3.0 million at January 2, 2024. Operating cash flow less property and equipment purchases was negative $1.6 million.
- Long-term debt, net of issuance costs, was $81.2 million. The company reported $83.0 million of borrowings, excluding $1.8 million of unamortized debt issuance costs, and $3.0 million of letters of credit. Revolver availability was $39.0 million. Average borrowing interest rate was 8.85% in Q1 2024 versus 4.09% in Q1 2023.
- Total liabilities included $209.1 million of operating lease liabilities. The company reported total assets of $360.4 million and stockholders’ equity of $21.9 million.
Material changes and notable items
- Management attributed lower revenue primarily to weaker guest traffic and said traffic declines during 2023 and Q1 2024 may be partly related to customer response to prior price increases. The company moderated price increases and is pursuing other initiatives, but their success is not assured.
- Interest expense rose to $2.0 million from $1.0 million, primarily due to higher interest rates. Occupancy deleverage and higher depreciation also weighed on results.
- The company opened two company-owned restaurants and closed two in the quarter; franchise locations had one opening and two closures. In April, it agreed to sell six Oregon restaurants to a new franchisee. The assets were classified as held for sale, with no Q1 write-down; a gain was expected to be recorded in Q2, but the filing does not provide a clear amount.
- The company closed two restaurants in the quarter and recorded $1.2 million in restaurant impairments, closure costs and asset disposals, including $1.2 million of losses on asset disposals and other items.
Outlook, liquidity and risks
- Management plans 10–12 new company-owned openings in 2024, fewer than in recent years, and said openings could be reduced further in 2025 while it focuses on operating-model improvements and lowering development costs.
- Fiscal 2024 capital expenditures are estimated at $28–$32 million, including $19–$23 million for the remainder of the year. Funding is expected from cash, operating cash flow and, if needed, the revolving credit facility.
- Management believes available cash, expected operating cash flows and borrowing availability will cover liquidity needs for at least 12 months and expects covenant compliance. The company said it was in compliance with debt covenants at quarter-end.
- The $125 million secured credit facility matures July 27, 2027. Its December 2023 amendment raised borrowing-rate ranges and revised covenants, including leverage limits. The company’s debt is variable-rate; a 1 percentage-point rate change would affect annualized pretax interest expense by approximately $0.8 million.
- Management cited inflation in food, labor, energy and construction, competitive labor conditions, third-party delivery fees, commodity volatility, supply-chain challenges and consumer sensitivity to pricing. It noted food commodity costs, particularly chicken, improved in 2023, while inflation remained above historical averages in Q1 2024.
- Ordinary-course claims and proceedings are possible; management said it could not determine their aggregate ultimate impact but believed an unfavorable outcome was remote or any potential loss range was not material. No material legal proceedings or material changes to previously reported risk factors were disclosed.
Important facts for investors to verify
- Whether traffic and comparable-sales declines stabilize, and whether pricing and operating initiatives improve demand without pressuring margins.
- Quarterly cash generation, capital spending and borrowing availability, particularly given low cash and variable-rate debt.
- Compliance with credit-facility covenants and the impact of interest rates on debt service and liquidity.
- Progress against the 2024 opening and capital-expenditure plans, including any further reductions to planned development.
- Completion and financial effects of the six-restaurant franchise sale, including the Q2 gain amount, which is not specified in this filing.