Noodles & Company — Q1 2015 Form 10-Q
Business context and reporting period. The filing covers the 13-week fiscal quarter ended March 31, 2015, compared with the quarter ended April 1, 2014. Noodles & Company operates fast-casual restaurants and reported one operating segment. At quarter-end it had 399 company-owned and 56 franchise restaurants, across 33 states and the District of Columbia.
Key financial results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Total revenue | $105.8 million | $89.5 million |
| Operating income (loss) | $(4.3) million | $2.5 million |
| Net income (loss) | $(2.8) million | $1.4 million |
| Diluted EPS | $(0.09) | $0.05 |
| Operating cash flow | $13.3 million | $10.3 million |
| Capital expenditures | $9.8 million | $11.5 million |
| Cash and cash equivalents, quarter-end | $1.6 million | $0.7 million |
Revenue rose 18.1%, primarily reflecting restaurant growth; restaurant revenue increased 18.5%, while franchising royalties and fees declined 8.6%. Comparable restaurant sales increased 0.8% at company-owned restaurants and 0.9% system-wide. Average unit volumes fell 2.3% to $1.136 million.
Restaurant operating costs were 83.7% of restaurant revenue, compared with 82.8% a year earlier; restaurant contribution was approximately $17.0 million, or 16.2% of restaurant revenue, versus $15.3 million, or 17.3%. Cost of sales improved to 26.5% of restaurant revenue from 27.0%, but labor, occupancy and other restaurant operating costs rose as percentages of revenue. Net loss included $5.9 million of restaurant impairment expense. EBITDA was $2.6 million versus $8.1 million; adjusted EBITDA was $8.8 million versus $8.4 million.
Debt under the revolving credit facility was $22.5 million at March 31, down from $27.5 million at December 30, 2014. The $45.0 million facility had $19.6 million available after $2.9 million of letters of credit; the company reported compliance with all covenants. Current liabilities exceeded current assets by approximately $5.5 million. Cash decreased by $0.3 million during the quarter.
Material changes, outlook and risks
- Restaurant impairment, asset disposal and closure costs increased to $6.1 million from $0.2 million, largely due to impairments at eight restaurants based on expected future cash flows. Management said additional impairments may occur.
- The company opened 13 company-owned and three franchise restaurants during the quarter. The company-owned restaurant base grew from 318 to 399 year over year, including franchise restaurant acquisitions.
- Management estimated 2015 capital expenditures of $55–$60 million, including $45–$50 million for new restaurant construction before landlord reimbursements. It expected to fund spending through operating cash flow and credit-facility borrowings.
- Management cited restaurant development, commodity prices, labor and energy costs, minimum-wage increases, and lease-related expenses as factors that may affect results. A 1 percentage-point change in the variable interest rate would change annualized pretax interest expense by approximately $0.2 million.
- The estimated 2015 annual effective tax rate was 39%–40%. The filing reported ordinary-course legal claims, but management considered an unfavorable outcome remote or the potential loss not material; no material risk-factor changes were reported.
Important facts for investors to verify
- Whether sales and unit growth can translate into stronger comparable sales and AUVs, given the quarter’s lower AUV and weaker restaurant contribution margin.
- Whether the eight impaired restaurants signal broader underperformance or lead to further impairment or closure costs.
- Whether the $55–$60 million capital plan can be funded while maintaining adequate liquidity and covenant compliance.
- How labor, commodity, occupancy and other operating-cost pressures affect margins in subsequent quarters.