Noodles & Company officials pledged to exit a sluggish cycle of weak sales trends with a marketing campaign to spotlight the brand’s cooked-to-order global flavors and the use of “real” artificial-free ingredients.
The Broomfield, Colo.-based fast-casual chain's stock price dipped nearly 20 percent Friday following the report Thursday of a disappointing second quarter. By midday, the stock price had moderated at $12.84, but it was well below the high of $28.02 seen over the past year.
Same-store sales for the June 30-ended quarter were flat systemwide, including a 0.5-percent decline at franchised locations. A 0.1-percent increase in comparable sales at company-owned restaurants included a 2-percent increase in price that was offset by slightly negative traffic.
Third-quarter comparable sales were tracking along the same lines, the company said, warning that it may take time for sales-building efforts to take hold during the second half of the year.
“We recognize that traffic and earnings have stalled of late,” said Kevin Reddy, Noodles & Company’s chair and CEO. But the company has completed an analysis of what needs to be done and how to capitalize on the strengths of the brand, he said.
“Despite being in the heat of the battle, with plenty of road ahead of us, I do feel very good about the ideas and energy channeled into the action plans to rebuild momentum,” he said.
The brand awareness campaign is focused on the theme “Made Different,” said Reddy.
“Our goal is to get credit for our hand-crafted, fresh, quality, clean ingredients, as well as our complex, artisanal sauces, while reaffirming our commitment to real cooking to order,” he said.
Noodles & Company was ahead of the game in moving away from artificial ingredients, Reddy noted, and the chain plans to make further progress on the path toward “pure and wholesome ingredients.”
Employees inside the chain’s restaurants will also be tapped to better educate guests about the ingredient story, as well as promote catering and develop community marketing efforts, he said.
Catering is an opportunity, he said. It represented about 1.3 percent of sales in the second quarter, compared with 0.9 percent in the first quarter this year, and investments in technology aim to boost catering sales.
Reddy added that the company’s online ordering platform is growing and Noodles & Company plans to test delivery.
The chain’s “natural, emotional connection” to families and kids also remains a strength, he noted, and will be included in the marketing campaign. Noodles & Company has been testing a new kid’s meal, which Reddy said has been “incredibly well received.” The $5 meal includes the choice between four dishes with two sides and a drink.
The chain also plans to link local store marketing efforts with schools, sports and community causes, said Reddy.
Noodles & Company’s marketing spend will increase for the second half of the year, reaching between 1.5 percent to 2 percent of sales, or about a $1 million increase over the prior year for each quarter. In the second quarter, the spend was 0.8 percent of sales.
Meanwhile, the company is rolling out initiatives to simplify operations so “our teams can be better engaged, have more fun and spend more time in the front of the house,” Reddy said.
Fundamental business model remains strong
The chain’s rapid unit growth pace of about 15 percent last year will slow slightly to the 12 percent to 13 percent rate initially projected, as the company focuses more on building out existing markets and managing risk. The chain ended the second quarter with 472 units.
Negative comparable sales trends in the chain’s home state of Colorado, as well as the Washington, D.C. area and Austin, Texas, continued to be a drag in the second quarter, but those markets are improving — just not enough yet to move the needle, said David Boenninghausen, Noodles & Company’s chief financial officer.
Despite the challenges, Reddy said Noodles & Company’s fundamental business model remains strong.
“The brand continues to meet the most important consumer needs of today’s guests, including globally inspired flavors, clean, fresh, artificial-free ingredients, real cooking, fast, efficient, friendly service — all delivered at a fair price,” said Reddy.
In reports Friday, Wall Street analysts lowered their estimates, saying it wasn’t clear whether the initiatives outlined by company officials would turn around negative trends.
“While management is optimistic a range of initiatives can help to spur better performance in upcoming periods, visibility remains somewhat low, in our opinion,” wrote David Tarantino of Robert W. Baird & Co.
Nicole Miller Regan, senior research analyst for Piper Jaffray & Co., said the problem is not the plan, but the action.
“Our belief in many of the multi-dimensional strategic sales drivers being put in place is unchanged,” she said. “However, we feel that the company has not been able to consistently execute these tactics.”