Lemon Garlic Shrimp Scampi is one of the new dishes on Noodles’ menu. | Photo courtesy of Noodles & Company.
With pressure on to improve its stock performance to avoid delisting, Noodles & Company on Monday offered a ray of hope that ongoing turnaround efforts were taking hold.
The Broomfield, Colorado-based chain reported preliminary fourth-quarter results in conjunction with the annual ICR investor conference in Orlando. CEO Drew Madsen did not present publicly at the conference, but he was there for investor meetings.
For the fourth quarter, systemwide same-store sales for the quarter increased 0.8%, including a 0.5% increase at company-owned restaurants and a 1.9% increase at franchised units.
Traffic was down 0.1%, or basically flat, Madsen said, but that’s a big sequential improvement from the third quarter prior, when traffic decreased 5.8%.
The chain’s average unit volume was flat at $1.3 million.
Madsen said the improved trends were a result in part of fall promotions, like a kids-eat-free deal and a buy-one, get-one offer on three new pasta dishes. But he was pleased to see that the strongest four weeks of comparable-sales growth came in the last four weeks of the quarter, after those promotions had ended, indicating it wasn’t just about discounts.
During the third quarter last year, Noodles blamed a 3.3% decline in same-store sales on an unexpected drop in third-party delivery, which Madsen said was a result of high menu-price markups on those channels.
After testing various tweaks to pricing through the third-party platforms during the fourth quarter, Madsen said the chain this month is rolling out a new pricing structure on the platforms that has improved delivery traffic.
“The more value you give to customers, the more they’re going to react and the more traffic you’ll get,” he said.
When he joined the company as CEO last year, Madsen also pledged to overhaul the menu, upgrading or replacing about two-thirds of the menu.
Madsen promised a busy year of menu news, starting this week with the return of Steak Stroganoff on Wednesday as a limited-time offer.
Steak Stroganoff was a huge hit last year, selling out in just two weeks and breaking records as the most successful LTO in the brand’s history.
“It was so successful last April, that we said let’s bring it back,” said Madsen. “And this time of year, in these cold winter months, it’s an emotionally comforting, craveable dish. It has better seasonality.”
The company is also looking to reduce menu complexity, and less popular items are being cut.
So far, for example, Noodles has moved away from its lighter LEANguini and zoodles dishes (the latter, with zucchini noodles, and one of those options remains), and instead launched dishes like Lemon Garlic Shrimp Scampi, a Chipotle Chicken Cavatappi and Crispy Chicken Bacon Alfredo. The chain is also testing upgrades of its mac and cheese with twists like adding Buffalo chicken, bacon and pulled pork.
With its stock price down about 80% last year, the 471-unit chain is under pressure to boost its share price above $1 within the next six months to avoid being delisted by the Nasdaq, though it can ask for more time. The company said it may also consider efforts like a stock split.
Madsen, however, on Monday expressed confidence that the menu upgrades, and a media strategy to support those moves, will show results this year.
Over the past eight months, Noodles has also invested in biweekly training sessions to improve the taste of food, accuracy and friendliness of staff. “That’s what drives overall satisfaction,” he said.
Madsen also sees opportunity in catering, which currently accounts for about 1.7% of sales, but he thinks could grow to about 5%. The company is building that team and looking to remove some operational barriers.
Noodles gets a fair amount of business from EZCater, for example, and in the past, team members had to enter those orders into the point-of-sale system manually. In a recent move, now those orders come into the POS directly, streamlining the process.
“We need to do a couple of things like that to really set catering up for success and growth,” he said.
Noodles is also reviewing its portfolio and has identified about 20 underperforming locations that are cash-flow negative. Madsen said the company is still working with landlords to exit those units, and it’s being done case by case.
A cost savings team has cut about $5 million in expenses as a result of “lots of little things,” ranging from product specifications to staffing changes, including those related to a slowing of new unit growth, which Madsen said is not a priority at the moment.
Noodles is a unique brand with a lot of opportunity ahead, Madsen contends.
“We think we’re working on the right things to make a difference. Operational excellence and menu, in particular,” he said. “All of our test market work on the menu suggests we have exciting dishes coming that will meet the need for craveability.”
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.
