Noodles & Company executives outlined a turnaround plan Thursday that includes streamlining the menu, slowing new unit growth and building off-premise sales.
The Broomfield, Colo.-based fast-casual operator also announced the departure of chief marketing officer Mark Mears as part of a corporate restructuring. Last month, chairman and CEO Kevin Reddy resigned.
Mears joined the company in June 2015. His duties will be absorbed by the existing marketing team, said David Boennighausen, chief financial officer and Noodles & Company interim CEO.
Noodles & Company swung to a net loss of $14.1 million, or a loss of 51 cents per share, for the June 28-ended second quarter, compared with net income of $3.1 million, or 10 cents per share, a year ago.
As previously announced, same-store sales for the quarter decreased 0.9 percent at company-owned restaurants and fell 2.1 percent at franchised units, for a 1-percent drop systemwide. Revenue, however, increased 5.4 percent, to $121.4 million.
Mears’ departure was part of a plan to reduce general-and-administrative expenses, labor and overhead by about $2 million, Boennighausen said.
Meanwhile, Noodles is moving forward with a plan to stem the erosion of sales and margins.
The chain, for example, will streamline the menu, which will also help cut back rising labor costs by requiring less in the way of preparation and procedures.
Boennighausen said the menu has gotten overstretched.
“Guests get a little overwhelmed at the variety and breadth of the menu, and we’re not able to execute as consistently as we would if we streamlined,” he said.
The chain is also considering a shift to asking customers to bus their plates, which Boennighausen said is common in the fast-casual segment.
One of the key pain points for Noodles has been the underperformance of newer restaurants not in the same-store sales base, he added. Those restaurants are averaging about 80 percent of the average sales of company-owned units, compared with the 85 percent to 90 percent range seen in the past.
“On top of that, we’ve had the added inefficiency of often being in new markets without economies of scale,” he said.
High unit-growth rates have also hurt consistency in execution over the past few years, he added.
In addition to slowing growth, Boennighausen said the company will tighten real estate screens to only A-plus locations in higher-performing markets.
This year, the chain plans to open 35 to 40 company-owned restaurants, after opening 49 units in 2015.
In 2017, he said company-owned new openings would be limited to 10 to 15 locations, and the focus will be on markets with strong restaurant performance.
The chain’s marketing spend will also be trimmed to about 1.5 percent of sales from 1.75 percent, compared with 2.1 percent of sales during the second quarter.
Last year, the chain launched a marketing campaign around the phrase “Made. Different – Real Food, Real Cooking, Real Flavors.”
Going forward, marketing efforts will target cities where they seem to be having an impact, Boennighausen said, like Washington, D.C., and Indianapolis. In markets like Denver, however, where competition is fierce and marketing efforts aren’t cutting through the noise, the company will cut back its spend.
Last year, Noodles & Company closed 16 underperforming units. Boennighausen said the company will revisit the portfolio to see if more closures may be necessary.
On the upside, however, the chain still sees opportunity to grow off-premise occasions, which now account for about 43 percent of sales.
Boennighausen said the chain is working to improve the carryout experience with online ordering. Noodles is also testing delivery with partner Olo, the company’s online ordering provider.
“While still early, we believe there is great potential in the delivery occasion,” he said.
Noodles will also continue to target Millennial families, a strength for the brand. The chain has renewed its commitment to make donations to the nonprofit organization No Kid Hungry, which is tied to the purchase of kids’ meals.
Boennighausen said the consumer backdrop is challenging, and improvements at Noodles & Company will not happen overnight.
“But we feel the brand will resonate in good times and bad,” he said. “Noodles has been, is, and will continue to be a strong national brand.”