Noodles & Company — FY2021 Form 10-K
Reporting period: Fiscal year ended December 28, 2021 (52 weeks); comparison is with FY2020, also 52 weeks. This filing reports annual results, not standalone fourth-quarter results.
Business context
The company operates a fast-casual restaurant business. At year-end it had 448 restaurants in 29 states: 372 company-owned and 76 franchised. Approximately 57% of 2021 sales came from digital ordering. The business continued to face COVID-19-related staffing, operating-hour and supply-chain disruption.
Financial and operating performance
| Metric | FY2021 | FY2020 | Change or context |
|---|---|---|---|
| Total revenue | $475.2 million | $393.7 million | Up 20.7% |
| Net income (loss) | $3.7 million | $(23.3) million | Improved by $26.9 million; diluted EPS was $0.08 versus $(0.53) |
| Operating income (loss) | $5.8 million | $(20.0) million | Operating margin was 1.2%, versus (5.1)% |
| Adjusted EBITDA | $38.1 million | $11.5 million | Non-GAAP measure; excludes specified items including impairments and stock compensation |
| Comparable sales | Company-owned: 21.3%; system-wide: 22.1% | Company-owned: (11.6)% | Franchise comparable sales rose 27.1%; 2021 growth partly reflects comparison with the pandemic-affected 2020 period |
| Company-owned AUV | $1.30 million | $1.06 million | Up 22.2% |
| Operating cash flow | $36.2 million | $9.1 million | Improved with earnings recovery and working-capital changes |
| Capital expenditures | $18.8 million | $11.8 million | Primarily restaurant development, equipment and technology |
As a percentage of restaurant revenue, cost of sales increased to 25.2% from 25.1%; labor improved to 31.2% from 32.5%; occupancy fell to 9.8% from 12.0%; and other restaurant operating costs declined to 17.9% from 18.3%. Management attributed labor and occupancy improvements to operating efficiencies, sales recovery and restaurant closures. Packaging, commodity costs, delivery fees and wage inflation remained pressures.
Cash and cash equivalents were $2.3 million at year-end, down from $7.8 million. The company reported $71.8 million available for future borrowings under its credit facility. Debt principal was $22.3 million, excluding $1.3 million of unamortized issuance costs, compared with $42.1 million at FY2020 year-end. The company was in compliance with its debt covenants. Operating lease liabilities totaled $226.9 million; finance lease liabilities totaled $6.6 million.
Material changes and notable items
- Revenue and comparable sales rebounded sharply from 2020, while FY2021 revenue also exceeded FY2019 revenue of $462.4 million.
- Net income returned to positive territory after the 2020 loss. Interest expense declined to $2.1 million from $3.1 million, primarily reflecting lower average borrowings and interest rates.
- The company opened six company-owned restaurants and closed twelve; franchisees opened one and closed one. Total restaurant count fell to 448 from 454.
- FY2021 included $3.4 million of restaurant impairment charges across six restaurants and a $0.5 million write-down associated with a sale of 15 restaurants. That sale to a new franchise partner closed in January 2022.
- Operating, investing and financing cash flows were $36.2 million, $(18.4) million and $(23.4) million, respectively. Financing outflows were largely debt and finance-lease repayments.
Outlook, risks and contingencies
- Management targeted approximately 8% unit growth in 2022 and 10% thereafter, including company and franchise development. It expected FY2022 capital expenditures of $30–$34 million.
- The filing does not provide a clear numerical earnings or revenue forecast. Management said liquidity should be sufficient for at least 12 months, using cash, operating cash flow and credit-facility borrowings.
- Key risks include continuing COVID-19 effects, labor availability and wage inflation, food and packaging inflation, supply-chain disruption, delivery costs, consumer demand, and execution of restaurant development and franchise plans. Management noted that higher costs may not be fully offset by menu pricing.
- The credit facility matures in November 2024 and carries variable-rate debt. A 1 percentage-point interest-rate change would affect annualized pretax interest expense by approximately $0.2 million at year-end borrowings.
- Ordinary-course legal claims were disclosed; management considered an unfavorable outcome remote or the potential loss range not material. The auditor issued unqualified opinions on the financial statements and internal controls; the critical audit matter concerned restaurant long-lived-asset impairment estimates.
Important facts for investors to verify
- Whether comparable-sales and AUV growth persist after the unusually weak 2020 comparison period, and how much reflects traffic versus pricing.
- Whether labor, food, packaging and delivery costs continue to pressure restaurant-level profitability despite efficiency initiatives.
- Whether projected 2022 unit growth and capital spending are achieved, including the economics of smaller, drive-through-oriented locations and franchise expansion.
- How the company manages its low year-end cash balance, variable-rate debt, covenant requirements and 2024 credit-facility maturity.
- Whether impairment charges, staffing constraints, or the completed 15-restaurant refranchising transaction affect future results or reported restaurant counts.