Noodles & Company stock drops as 3Q results miss mark

Noodles & Company stock drops as 3Q results miss mark

Company continues to focus on service upgrades to boost future performance

Noodles & Company’s stock price took a modest tumble Thursday following a third-quarter earnings report that didn’t meet the expectations of Wall Street analysts.

The Broomfield, Colo.-based fast-casual chain on Wednesday reported a 45-percent increase in net income [3], after adjusting for charges related to the recent initial public offering and debt extinguishment.

Noodles & Company has become a darling of investors following its IPO in July, in which the company’s stock doubled on the first day of trading to $36.75 and since has reached a high of $51.97. By Thursday afternoon, however, the stock price dipped more than 10 percent to $42.34 after revenues missed analyst projections — despite the company’s upgraded expectations for the year, as well as plans to expand service upgrades and further improve speed of service.

In a call with analysts, Kevin Reddy, Noodles & Company’s chair and chief executive, said the company now expects same-store sales for the year to be between 3.25 percent to 3.75 percent, a 3-percent increase from earlier projections.

“We feel our food and service platforms, together, set us apart from many of our competitors, but are also aspects of the brand we haven’t fully capitalized on,” he said.

Reddy said the measured and disciplined expansion of an upgraded service program at dinner will boost results in the fourth quarter.

Now available in about 15 percent of the chain’s 368 restaurants, the almost-full-service service platform [6] is focused on dinner with meals delivered to tables on real china, and a service staff member dedicated to the dining room to help guests and generally ensure “that their meal exceeds expectations,” Reddy said.

Reddy declined to ascribe a specific sales lift to the initiative, but he said the company is very pleased with results and noted that the rollout will continue.

The chain is also working on improving speed of service at lunch by optimizing deployment of labor during heaviest hours, ensuring enough registers are open, and looking at preparation methods that could reduce the number of stations a dish must reach during production, said Keith Kinsey, Noodles & Company’s president and chief operating officer.

“The early results of these initiatives are encouraging,” he said. “In quarter three alone, we set nearly 200 different throughput records at our restaurants for numbers of orders executed during 15-minute revenue periods.”

Noodles is also leveraging online and mobile ordering, launched earlier this year, to reduce the wait time for guests, he said. The number of orders that came in through online and mobile platforms has doubled over the past year, and Kinsey said the company expects that trend to continue to grow.

Reddy said the chain’s “World Tour” limited-time offering, launched in October, has been the most popular to date, including a pasta Alfredo made with Italian montamoré cheese, as well as a Thai Hot Pot featuring a 30-ingredient curry broth, vegetables, Fresno peppers and both pulled chicken and pork. Also on the LTO menu is a Latin American-inspired pork adobo flatbread, which Reddy said has become a popular add-on.

Same-store sales rose 2.1 percent systemwide for the quarter, driven primarily by an increase in traffic and menu mix.

The chain carried a 1-percent price increase through the quarter. Reddy said company-owned units also implemented another modest price increase of about 1.5 percent to 2 percent at the beginning of the fourth quarter to offset rising food costs — particularly for pork and shrimp.

Reddy said price increases do not appear to have eroded attachment or traffic, furthering his confidence in future pricing flexibility.

Contact Lisa Jennings at [email protected] [7]
Follow her on Twitter: @livetodineout [8]