Noodles & Company is about to announce an agreement to sign a franchisee for a development contract in the South, CEO Dave Boennighausen said during a conference call Wednesday afternoon.
“We are in the final stages of an agreement for a large area development in the southern part of the United States and have been very pleased with the increase in franchise interest we have seen in recent months,” he told investors as he and chief financial officer Carl Lukach discussed earnings for the second fiscal quarter, ended June 28, 2022.
The agreement comes as the chain has been ramping up its franchising initiatives, including a refranchising agreement with California-based Warner Foods earlier this year, and plans to enter South Carolina with franchisee SA Restaurant Groups Inc.
“Unlike the California deal, this is not a refranchise,” Boennighausen said in response to an analyst’s question. “It is a new market. We'll share more details as the deal gets finalized, but we're in the final stages of one that’s for one of the southern markets that we’ve targeted, a good-sized deal. … We target well established multi-unit operators. As you can imagine with the uncertain environment, that has increased the lead time a bit as they navigate inflation and demands in their own businesses. But we're saying that we're very happy with the amount of interest we're seeing over the past few months … with these types of high-quality, well capitalized partners that see the overall potential in the future of this brand.”
Noodles reported a robust quarter with figures that would likely appeal to potential franchisees, such as average unit volume at a record high for the company of $1.42 million, putting it on track to achieve the stated goal of company-level margins of 20% by 2024. Same-store sales were up by 5.1%.
Although cost of goods sold was 27.8%, 280 basis points above its target of 25%, the executives said prices of several key ingredients in Noodles’ menu mix, particularly durum wheat and boneless chicken breast, had peaked.
Chicken prices in particular, had been so high that the chain in April added a $1 surcharge to menu items that included chicken. But it discontinued that surcharge last week, although the company did implement price increases on the core menu.
At the moment, the chain’s marketing focus is on its “7 Delicious $7 Dishes”: Wisconsin Mac & Cheese, Japanese, Pan Noodles, Pesto Cavatappi, Med Salad, Pasta Fresca, Spaghetti and Buttered Noodles. Boennighausen said those dishes actually are already priced at around $7.
“So we’re able to lean into what already is a great value proposition,” he said.
He added that, although the promotion just started in the past week, “we’re already seeing some nice momentum … particularly from the low-income consumer, and we’re not seeing any trade-down at all, either.”
Lukach pointed out that low-income consumers only make up a small percentage of Noodles’
Guests, and that around 52% of the chain’s patrons have a household income of $75,000 or higher.
Broomfield, Colo.-based Noodles & Company saw total revenue increase by 4.3% to $131.1 million, up from $125.6 million in the 2nd quarter of 2021. Not income was $1.3 million or 3 cents per share, compared to $5.7 million, or 12 cents per share, a year earlier. Three new restaurants were opened during the quarter, all company-owned, bringing the chain’s total to 456 restaurants, of which 363 are company-owned and 93 are franchised.
Contact Bret Thorn at [email protected]