Noodles & Company — FY2022 Form 10-K
Business context and reporting period. Noodles & Company operates fast-casual restaurants serving globally inspired noodle and pasta dishes. This annual report covers the fiscal year ended January 3, 2023—not only Q4. FY2022 had 53 weeks, including a 14-week fourth quarter; FY2021 had 52 weeks. At year-end, the company operated 461 restaurants in 31 states: 368 company-owned and 93 franchised.
Financial and operating results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | $509.5 million | $475.2 million |
| Operating income (loss) | $(0.8) million | $5.8 million |
| Net income (loss) | $(3.3) million | $3.7 million |
| Diluted EPS | $(0.07) | $0.08 |
| Operating cash flow | $9.6 million | $36.2 million |
| Capital expenditures | $33.9 million | $18.8 million |
| Adjusted EBITDA (non-GAAP) | $33.1 million | $38.1 million |
FY2022 revenue rose 7.2%; company-owned average unit volume increased 4.6% to $1.36 million. System-wide comparable sales rose 5.6% (company-owned 6.0%; franchise 3.4%). The filing attributes sales growth mainly to pricing, new openings and higher average unit volumes; the extra fiscal week added approximately $9.1 million of revenue. Cost of sales rose to 27.7% of restaurant revenue from 25.2%; labor improved slightly to 31.1% from 31.2%, while other restaurant operating costs rose to 18.3% from 17.9%. Net cash used for capital expenditures exceeded operating cash flow by approximately $24.3 million.
Liquidity and debt. Year-end cash and cash equivalents were $1.5 million. Borrowings under the credit facility were $47.7 million, with $3.0 million of letters of credit outstanding and $74.3 million available for future borrowing. The $125 million revolving facility matures in July 2027 and bears variable interest at SOFR plus 1.50%–2.50%. The company reported compliance with its debt covenants and expected to meet them for at least the next four fiscal quarters. Total lease liabilities were $221.6 million.
Material changes versus FY2021
- Revenue increased, but the company shifted from net income to a net loss as total costs and expenses grew faster than revenue.
- Food cost inflation, particularly chicken, drove cost of sales higher. Wage inflation continued, although labor efficiency and lower health-benefit costs partly offset it.
- Operating cash flow fell to $9.6 million, primarily reflecting lower earnings and working-capital movements; capital spending increased with higher restaurant development.
- The company sold 15 California company-owned restaurants to a franchisee in January 2022. This reduced company-owned restaurant revenue by approximately $18.2 million, partly offsetting growth.
- FY2022 included 16 company-owned openings and five company-owned closures; franchisees opened three locations and closed one.
Outlook, commentary and risks
- Management anticipated approximately 7.5% system-wide unit growth in 2023 and 7%–10% annually thereafter. These are development expectations, not earnings guidance.
- Management projected FY2023 capital expenditures of $53 million–$58 million, principally for new restaurants, existing-store investment and digital menu boards.
- Management reported material improvement in chicken and other food commodity markets in Q4 2022 and expected to benefit in 2023 from fixed-price arrangements. Inflation, labor availability and construction costs remained risks; management said further menu price increases may be considered.
- Digital orders represented approximately 54% of 2022 sales. The company is investing in digital ordering, delivery, drive-through pickup, loyalty and smaller store formats, but notes that customer preferences and third-party delivery economics could limit returns.
- Key risks include consumer pullback amid inflation or recession, competition, food and labor cost volatility, staffing and development delays, restaurant impairment or lease-exit costs, food safety, cybersecurity and variable-rate debt. Litigation matters were described as ordinary-course; management considered unfavorable outcomes remote or potential losses not material, while noting outcomes are uncertain.
- Unusual items included $1.4 million of restaurant impairment charges, within $6.2 million of total impairments, closure costs and asset disposals; a $0.3 million write-off of debt issuance costs related to the credit-facility amendment; and the 53rd fiscal week.
Important facts for investors to verify
- Separate comparable-sales and revenue growth from the effects of menu pricing, the extra fiscal week, new units and the 15-store refranchising transaction.
- Track whether food-cost relief and fixed-price contracts offset continuing wage, delivery, utility and construction-cost pressures.
- Assess cash generation against planned capital spending, the low cash balance, variable-rate borrowings and substantial lease commitments.
- Monitor the pace, financing and returns of planned company and franchise openings, including delays and new-store performance.
- Review impairment assumptions and store-level cash-flow trends; the auditor identified long-lived-asset impairment as a critical audit matter. The auditor gave an unqualified opinion on the financial statements and reported effective internal control over financial reporting.