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Noodles & Co. sells $31.5M in shares to investment firm

Fast-casual chain sells stock to Mill Road Capital as part of fundraising effort

Noodles & Co., looking to raise cash amid store closures and sales challenges, said Tuesday that it has sold $31.5 million in stock to the investment firm Mill Road Capital.

The stock sale is the second in the past month for the Denver-based noodle chain, which in February sold $18.5 million in preferred stock to the private equity group L Catterton.

Noodles sold nearly 8.9 million shares to Mill Road for $3.55 per share. Noodles went public in 2013 at $18 per share. The $3.55 is equal to the price of Noodles stock as of close on Friday.

Funds from the sale will be used to “strengthen the company’s balance sheet and fund strategic initiatives,” the company said.

Noodles had sought a secondary offering of stock last month after the Catterton sale to pay for costs associated with the closure of 55 locations — expected to cost $30.5 million to $31.5 million — as well as $11 million in costs associated with a data breach last year.

The company will no longer seek the secondary offering.

“This significant investment demonstrates our confidence in the management team and the strategic plan the company has outlined,” Thomas Lynch, Mill Road’s founder, said in a statement. “We believe Noodles & Company has a bright future ahead of it and look forward to assisting the company in this transformative year and beyond.”

Same-store sales have fallen in each of the past two years, including a 0.9 percent decline last year. But restaurant margins have fallen, too, from nearly 21 percent in 2013 to 12.8 percent in 2016, according to U.S. Securities and Exchange Comission filings.

The drop in sales has wiped out the chain’s profits. The fast-casual chain in 2016 recorded a $71.7 million loss on $487.5 million in revenue. While the company’s expenses included $47.3 million in restaurant impairment charges, that still represents a loss of about $24 million.

Noodles has about 500 locations. Average unit volumes have declined from $1.18 million in 2013 to $1.08 million last year.

Mill Road has offices in Greenwich, Conn., and the San Francisco area. It has $670 million in assets under management. The company is no stranger to the restaurant industry — investments include the 200-unit fast-casual Mexican chain Rubio’s Coastal Grill.

Noodles stock rose 14 percent Tuesday on news of the investment.

Contact Jonathan Maze at [email protected]

Follow him on Twitter at @jonathanmaze  

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