Business Context and Reporting Period
Company: Noodles & Company (NDLS)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Fiscal Quarter Ended March 31, 2026
Business Overview: The Company operates a fast-casual restaurant chain serving globally-inspired noodle and pasta dishes. As of March 31, 2026, the system comprised 400 restaurants (320 company-owned, 80 franchise) across 31 states. The Company operates as a single reportable segment.
Capital Structure Update: A 1-for-8 reverse stock split was effectuated on February 18, 2026. All share and per-share data in this filing have been retroactively adjusted to reflect this change.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Total Revenue | $123.8 million | $123.8 million |
| Net Loss | $(3.4) million | $(9.1) million |
| Loss Per Share (Basic & Diluted) | $(0.58) | $(1.58) |
| Operating Cash Flow | $6.0 million | $4.0 million |
| Adjusted EBITDA | $7.7 million | $2.4 million |
| Restaurant Contribution Margin | 14.9% | 10.3% |
| Cash and Cash Equivalents | $1.4 million | $1.4 million |
| Long-Term Debt (Net) | $105.6 million | $108.8 million |
| Stockholders' Deficit | $(48.0) million | $(45.3) million |
Material Changes vs. Prior Period
- Profitability Improvement: Net loss narrowed by 62.3% to $3.4 million, driven by a significant reduction in operating loss (from $6.4 million to $0.8 million) and improved cost management.
- Revenue Stability: Total revenue remained flat year-over-year. This was the result of a 9.1% increase in system-wide comparable restaurant sales (9.4% at company-owned locations) being offset by the permanent closure of 50 company-owned restaurants and 11 franchise restaurants over the period.
- Cost Reductions:
- Cost of Sales: Decreased 4.3% due to menu price increases and reduced food waste.
- Labor Costs: Decreased 7.6% due to sales volume leverage and labor efficiencies.
- Occupancy Costs: Decreased 9.9% primarily due to restaurant closures.
- Impairments: Restaurant impairments, closure costs, and asset disposals increased by $1.4 million to $2.7 million. This included fixed asset impairments on three restaurants and lease asset write-downs on ten restaurants.
- Portfolio Optimization: The Company closed 20 company-owned restaurants in Q1 2026 and anticipates closing an additional 10 to 15 restaurants in the remainder of 2026. No new company-owned restaurants were opened in Q1 2026.
Guidance, Outlook, and Risks
- Strategic Review: The Board initiated a review of strategic alternatives in September 2025 to maximize stockholder value. Options include refinancing, refranchising, or the sale of all or part of the business. This review remains in process.
- Capital Expenditures: The Company does not plan to open new company-owned restaurants in 2026. Estimated capital expenditures for fiscal 2026 are $9.5 million to $10.5 million, focused on reinvestment in existing locations and technology.
- Liquidity: As of March 31, 2026, the Company had $1.4 million in cash and $15.2 million available under its revolving credit facility. Management believes these resources are sufficient for the next 12 months.
- Debt Covenants: The Company is in compliance with its credit agreement covenants. The agreement requires a Consolidated Total Lease Adjusted Leverage Ratio of no greater than 5.00 to 1.00 for the quarter ended March 31, 2026.
- Risks:
- Tariffs and Inflation: Potential impacts on food, beverage, and construction costs due to import tariffs and inflation.
- Strategic Transaction Uncertainty: Risks associated with the ongoing strategic review and potential changes to the business structure.
- Commodity Prices: Volatility in food costs and supply chain challenges.
Investor Verification Checklist
- Strategic Review Status: Verify the current status of the strategic alternatives review announced in September 2025 and any potential impact on the company's future structure.
- Debt Covenant Compliance: Confirm the Company's ability to maintain the required leverage ratios (5.00:1.00) and fixed charge coverage ratios (1.15:1.00) given the high debt load relative to cash flow.
- Closure Execution: Monitor the execution of the planned 10-15 additional restaurant closures in 2026 and the associated one-time costs versus long-term savings.
- Comparable Sales Sustainability: Assess whether the 9.4% comparable sales growth at company-owned restaurants is sustainable without new unit openings.
- Liquidity Buffer: Evaluate the adequacy of the $1.4 million cash balance and $15.2 million credit availability against the $106.8 million outstanding debt and ongoing operational cash needs.