Noodles & Company said it will close 16 underperforming restaurants before the end of the year to focus resources on brand awareness initiatives, the company said Thursday.
Seven restaurants have closed as of Wednesday in Texas, including six in Austin and one in Lubbock. Of the remaining nine to close later this year, several are in the Washington, D.C. area, said Dave Boennighausen, Noodles & Company’s chief financial officer.
Both Austin and Washington have been challenging markets for the fast-casual chain, which reported a 0.9-percent systemwide decline in same-store sales at company-owned units for the Sept. 29-ended third quarter, including a drop of 0.7 percent at company locations and decline of 1.9 percent at franchised restaurants.
However, Kevin Reddy, Noodles & Company’s chairman and CEO, said the third quarter also marked a turning point for the Broomfield, Colo.-based chain with the launch of a marketing campaign and other initiatives to turnaround sinking sales.
“Results aren’t where they need to be,” he said in a call with Wall Street analysts. “But we have the right plan in place and we’re seeing progress as we activate this plan.”
Reddy said Noodles & Company is focusing efforts on increasing off-premise sales, which now account for about 40 percent of business.
The chain plans to increase its promotion of online ordering, which accounts for 5 percent of total sales and 12 percent of off-premise sales. Efforts include allowing smaller groups of 10 to 20 to order online.
Catering, which accounted for about 1.5 percent of sales in the third quarter, up 50 percent from a year ago, is also an opportunity, he said. Noodles & Company will make a big push during the holidays to grow that business.
Noodles & Company is also expanding the availability of delivery, using various third-party partners, to 40 restaurants, primarily in college towns and urban areas, he said.
The chain will also expand to more markets its new “Made. Different” marketing campaign, launched in October.
The campaign, which targets Millennial parents in particular, spotlights the chain’s removal of artificial ingredients and its move toward antibiotic-free meat and poultry by 2017, as well as the made-to-order menu.
In markets where the campaign is in place, the company is seeing improvements in traffic, said Reddy.
Through Wednesday, fourth quarter same-store sales were running at negative 1.5 percent, but that represented about a 1.2 percent improvement in traffic over the third quarter, he said.
The decision to close restaurants were the result of a thorough evaluation of Noodles & Company’s real estate portfolio, said Boennighausen.
Though the brand has done well in Houston, the chain “had difficulty overcoming operational setbacks in the Austin area, despite a considerable investment in resources,” he said.
In Washington, some units continue to do well, he added. “But, similar to Austin, we believe our resources are better focused on supporting our initiatives, versus focusing on these underperformers.”
Boennighausen said the 16 restaurants that will close generated less than 3 percent of total sales in the third quarter, so the impact will be negligible.
A common thread among the underperforming units is that they are all in urban areas with fewer families, a target demographic for brand.
Revenues for the third quarter increased 10.5 percent to $117.3 million, boosted in part by 16 new restaurants opened during the quarter and the acquisition of four franchised units over the past 12 months.
The company reported a net loss of $9.8 million, or a loss of 35 cents per share, compared with income of $2.9 million, or 10 cents per share, a year ago.
In the third quarter, the company reported $16.2 million pre-tax impairment charge associated with the closures as well as 15 other restaurants that will remain open.
In the fourth quarter and into 2016, the company is expecting $5 million in pretax charges related to the closures, including employee severance costs.
For the year, the company expects same-store sales to be flat to slightly negative.
Noodles & Company ended the quarter with 488 restaurants, including 424 company-owned and 64 franchised locations.
Contact Lisa Jennings at [email protected]
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