Noodles & Company — 2023 Form 10-K Summary
Reporting period: Fiscal year ended January 2, 2024 (52 weeks), compared with fiscal 2022 ended January 3, 2023 (53 weeks). This is an annual filing, not a standalone fourth-quarter report. Noodles operated 470 restaurants in 31 states: 380 company-owned and 90 franchised.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $503.4 million | $509.5 million |
| Operating income (loss) | $(5.0) million | $(0.8) million |
| Net income (loss) | $(9.9) million | $(3.3) million |
| Operating margin | (1.0)% | (0.2)% |
| Net margin | (2.0)% | (0.7)% |
| Adjusted EBITDA | $33.0 million | $29.7 million |
| Operating cash flow | $27.5 million | $9.6 million |
| Capital expenditures | $52.0 million | $33.9 million |
Company-owned comparable sales fell 2.0%; franchise comparable sales fell 1.1%, for a 1.9% system-wide decrease. Company-owned average unit volume declined 2.3% to $1.329 million. Digital orders represented about 54% of 2023 sales; catering grew 37% year over year.
Cost and margin factors: Cost of sales declined to 25.2% of restaurant revenue from 27.7%, reflecting menu pricing/mix and lower commodity costs. Labor rose to 32.0% from 31.1%, primarily due to wage and benefit inflation. General and administrative expense increased to 10.3% of revenue from 9.8%. Interest expense nearly doubled to $4.8 million, driven by higher average debt and rates.
Liquidity, debt and capital
At year-end, cash was $3.0 million and reported availability for future borrowings under the credit agreement was $39.9 million. Debt outstanding was $82.2 million, excluding $2.0 million of unamortized issuance costs; $3.0 million of letters of credit was also outstanding. The company reported covenant compliance and expected to meet covenants for at least the next four fiscal quarters, while noting there is no assurance.
Operating cash flow of $27.5 million was below investing cash outflows of $51.8 million, principally reflecting $52.0 million of property and equipment purchases. Financing cash flow was $25.8 million, largely from revolving-credit borrowings. Total lease liabilities were $220.2 million. Management said available cash, operating cash flow and credit-facility borrowings should meet needs for at least 12 months.
Changes, outlook and key risks
- Revenue fell 1.2% year over year; the comparison was affected by fiscal 2022’s extra week. Management attributed the decline principally to lower same-store sales, the extra-week comparison and closures, partly offset by new restaurant revenue.
- Management said 2022 and early-2023 price increases likely contributed to weaker traffic. It moderated price increases and introduced value-oriented options, but their impact remains uncertain.
- The company opened 18 company-owned restaurants in 2023 and plans 10–12 in 2024. It reduced its 2024–2025 development pipeline following lower-than-expected returns on recent openings and higher construction costs. Planned 2024 capital expenditures are $28–$32 million.
- Management is evaluating a smaller store prototype and expects an updated menu rollout in late 2024 and 2025. No specific revenue or earnings guidance is provided in the filing.
- The December 2023 credit amendment increased borrowing-rate margins and changed financial covenants, including leverage limits and restrictions related to new restaurant growth. Debt is variable-rate; a 1 percentage-point rate change would affect annual pretax interest expense by about $0.8 million at year-end borrowings.
- Other material exposures include discretionary consumer spending, food and labor inflation, lease commitments, execution and returns on new restaurants, franchisee development, food safety, technology/cybersecurity, and potential asset impairments. The company recorded $3.0 million of restaurant impairment charges and $8.4 million of total restaurant impairments, closure costs and asset disposals in 2023.
- The company reported an interim CEO during its permanent CEO search and hired a new CFO in 2023. The auditor issued unqualified opinions on the financial statements and internal control; the critical audit matter was restaurant long-lived-asset impairment estimates. Ordinary-course legal matters were assessed as remote or not material, though outcomes are uncertain.
Most important facts for investors to verify
- Whether traffic and comparable-sales trends stabilize after the pricing changes, and whether value offerings support guest counts without undermining margins.
- Whether lower commodity costs offset labor inflation and higher interest expense, and whether adjusted EBITDA improvement translates into sustainable GAAP profitability and cash generation.
- Progress toward the 10–12 planned 2024 openings, actual returns on recent units, and delivery of the reduced capital-spending plan.
- Borrowing availability, variable rates, covenant headroom and the company’s ability to service debt alongside substantial lease obligations.
- That the $5.0 million share repurchase occurred in the third quarter of 2023; the filing says there were no fourth-quarter repurchases and the program was canceled in the fourth quarter.