Noodles & Company — Q1 2021 Form 10-Q
Business context and reporting period. The 13-week fiscal quarter ended March 30, 2021. Noodles & Company operates fast-casual restaurants and reported 448 locations across 29 states: 372 company-owned and 76 franchised. The prior-year comparable quarter ended March 31, 2020. Results are affected by COVID-19 and comparisons partly reflect the sharp sales decline beginning in March 2020.
Financial performance
- Revenue: $109.6 million, up 9.2% year over year; company restaurant revenue was $107.7 million and franchise royalties, fees and other revenue were $1.8 million. System-wide comparable restaurant sales rose 10.7% (company-owned +10.5%; franchise +11.7%).
- Profitability: Net loss was $2.0 million, or $0.04 per share, versus a $5.8 million loss, or $0.13 per share. Operating loss was $1.4 million versus $4.9 million. Adjusted EBITDA, a non-GAAP measure, was $6.3 million versus $1.8 million.
- Restaurant cost ratios: Cost of sales improved to 25.0% of restaurant revenue from 25.5%; labor to 31.8% from 34.7%; and occupancy to 10.8% from 12.2%. Other restaurant operating costs increased to 18.8% from 16.9%, including higher delivery fees. Operating margin was -1.2% versus -4.8% of revenue.
- Cash flow: Operating activities provided $3.8 million, compared with $0.7 million used in Q1 2020. Capital spending was $2.7 million; financing activities used $5.8 million, primarily for debt and finance lease repayments. Cash decreased $4.7 million to $3.1 million.
- Debt and liquidity: Debt outstanding was $38.8 million, excluding $1.6 million of unamortized issuance costs; $3.2 million of letters of credit were outstanding. The company reported $52.3 million available for future borrowing and said it was covenant-compliant. Total current assets were $19.5 million and current liabilities $63.1 million. Operating lease liabilities totaled $230.1 million; finance lease liabilities totaled $8.1 million.
Material changes and management commentary
- Sales recovery and positive comparable sales were attributed to stronger traffic, off-premise and digital sales, reopened dining rooms, and comparison with the pandemic-related 2020 decline. Comparable sales growth reached 40.8% in March, which management noted was influenced by the comparison period.
- Delivery fees were 5.7% of total revenue versus 3.0% a year earlier. Management cited delivery expansion and repair and maintenance costs as drivers of higher other restaurant costs; supply-chain savings, pricing and lower discounting helped reduce food-cost percentage.
- The company permanently closed six company-owned restaurants and impaired one restaurant during the quarter. It opened no company-owned restaurants; total system restaurants declined to 448 from 458 a year earlier.
- Management estimated FY2021 capital expenditures of $20–$24 million, primarily for eight to eleven company-owned openings, kitchen equipment and maintenance. Its stated growth plan targets at least 7% annual system-wide unit growth beginning in 2022, moving toward 10% and at least 1,500 units.
Outlook, risks and contingencies
Management said current cash, operating cash flows and available credit should fund liquidity needs for at least 12 months. COVID-19 effects remain uncertain; dining rooms were open in over 98% of company-owned restaurants at filing. Other risks cited include possible supply-chain disruption, wage and commodity inflation, labor availability, delivery costs, customer demand and variable-rate debt exposure. The credit agreement’s covenant waivers had ended for Q1 2021, with amended thresholds applying thereafter; the company stated it expected to remain compliant. Routine legal claims were described as unlikely to have a material outcome, though results are uncertain.
Important facts for investors to verify
- Whether comparable-sales gains persist after the unusually weak pandemic comparison period, and how much reflects traffic versus check and pricing.
- Whether delivery fees, labor and other operating costs constrain restaurant-level profitability as sales recover.
- Cash generation, borrowing availability and covenant compliance as cash was $3.1 million and debt was $38.8 million at quarter-end.
- Execution of the $20–$24 million capital plan and the stated restaurant-development targets.
- COVID-19 impacts, restaurant closures or impairments, and exposure to interest-rate, wage and commodity cost increases.