Noodles & Company — Q1 2022 Form 10-Q
Business context and period. The fiscal quarter ended March 29, 2022 (13 operating weeks); comparison is with the quarter ended March 30, 2021. The company operated 453 restaurants in 30 states: 360 company-owned and 93 franchised. It reports one operating segment.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $112.6 million | $109.6 million | +2.7% |
| Operating loss | $6.1 million | $1.4 million | Loss widened |
| Net loss | $6.4 million | $2.0 million | Loss widened |
| Net loss per share, diluted | $0.14 | $0.04 | Loss widened |
| EBITDA | $(0.4) million | $4.2 million | Down |
| Adjusted EBITDA | $2.2 million | $6.3 million | Down |
| Operating cash flow | $(6.1) million | $3.8 million | Declined |
Comparable sales rose 6.4% system-wide (company-owned +5.3%; franchised +11.9%). Company-owned average unit volume increased 6.8% to $1.249 million. Net loss was 5.7% of revenue versus 1.8% a year earlier. Cost of sales rose to 28.0% of restaurant revenue from 25.0%; labor rose to 32.3% from 31.8%; other restaurant operating costs rose to 19.9% from 18.8%. Occupancy improved to 10.1% from 10.8%.
At March 29, cash was $1.6 million, total current assets were $19.6 million and current liabilities were $67.6 million. Debt was $35.3 million before $1.2 million of unamortized issuance costs; $3.2 million of letters of credit were outstanding and $58.0 million was available for borrowing. Total lease liabilities were $230.7 million. The company reported compliance with debt covenants. Capital expenditures were $8.4 million; financing cash inflow of $12.2 million included credit-facility borrowings.
Material changes and unusual items
- Revenue growth reflected comparable-sales gains and new openings, partially offset by an estimated $4.0 million of sales lost to temporary COVID-related closures and reduced hours, and about $3.0 million associated with refranchising 15 restaurants.
- Food commodity inflation—particularly chicken—and wage inflation pressured margins. Cost of sales increased 14.1%, faster than restaurant revenue; labor expense increased 3.5%.
- The company opened five company-owned and two franchised restaurants, closed two company-owned restaurants, and sold 15 company-owned restaurants to a franchisee in January. The sale generated $1.6 million in divestiture proceeds during the quarter. A 12-year California development commitment with the franchise partner includes 40 locations.
- Restaurant impairments, closure costs and asset disposals totaled $1.4 million, including closure costs and Warner Sale-related asset disposal expense. No restaurant impairment was recorded in Q1 2022.
Outlook, risks and contingencies
Management estimated fiscal 2022 capital expenditures of $30–34 million, principally for new company-owned restaurants, existing-restaurant investment and technology. Its development plan targeted approximately 8% unit growth in 2022 and 10% thereafter. Management stated that available cash, operating cash flows and undrawn credit capacity should fund liquidity needs for at least 12 months; no specific revenue or earnings guidance was provided.
Management cited continuing risks from COVID-related operating disruption, labor availability and wage inflation, food and commodity prices, supplier and distribution costs, third-party delivery fees, consumer inflationary pressures and geopolitical uncertainty. Variable-rate debt creates interest-rate exposure; a 1 percentage-point rate change would affect annualized pretax interest expense by approximately $0.4 million. The company said it could not predict the duration or full effects of pandemic-related and market conditions. Ordinary-course claims and proceedings were disclosed, with management stating that an unfavorable outcome was remote or any potential loss range was not material; no material legal proceedings or material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether comparable-sales gains can offset inflation and restore restaurant-level profitability, given the quarter’s higher food and labor cost ratios.
- Cash generation and borrowing needs: operating cash flow was negative, cash was $1.6 million, and the company drew on its credit facility.
- Execution and funding of the $30–34 million capital-spending plan and targeted restaurant growth, including the California franchise development commitment.
- Debt covenant headroom, variable-rate exposure and the effect of substantial lease obligations on liquidity.
- How much of reported sales and operating trends reflect refranchising, temporary closures, and recovery in staffing and operating hours.