It’s Mac Month at Noodles, with an exclusive beverage pairing. | Image courtesy of Noodles & Company
There’s no getting around the fact that when a restaurant chain closes underperforming locations, the remaining restaurants do better.
That isn’t always the case, of course. But it has certainly helped move the needle for Noodles & Company, a fast-casual chain in the midst of a turnaround.
But Noodles’ turnaround is about more than closing bad restaurants, CEO Joe Christina argued last week, after the chain reported one of its strongest quarters since becoming a public company in 2013.
Same-store sales grew 10.3% during the second quarter, marking the seventh consecutive quarter of growth. Comparable sales were up 11.4% among the 318 company restaurants, with traffic up 7.6%.
Among the 78 franchised locations, comparable sales increased 5.5%.
The chain’s average unit volumes increased nearly 16% to $1.57 million. Margins grew by 440 basis points to 17.2%. Revenues increased 0.5% to $127 million, despite four restaurants closing during the quarter.
“Those results reinforce what we’ve been saying all year, the momentum at Noodles is real,” said Christina. “Our operating model is working, and consistently executing is translating into stronger financial performance.”
The chain upped its guidance for the year, saying same-store sales will grow between 8% and 11%, an increase from earlier projections of 7% to 10%.
Christina acknowledged that the “portfolio optimization” plan is improving the numbers. Last year, the chain closed 33 restaurants. This year, another 30 to 35 company-owned and five franchised units are scheduled to shutter. Four of those closed during the second quarter.
When restaurants are closed, about one-third of sales on average transfer to nearby units, boosting margins and average unit volumes, he said.
But, noted Christina, “A significant majority of the sales and traffic growth has been realized over and above the sales transfer benefit from closed restaurants, as evident that our initiatives and the implementation of our strategy is working across the board.”
Christina credits a culture shift on the team that has improved the customer experience.
“The biggest difference today is the culture we’ve built across the organization,” he said. “Our team members believe they can influence the outcome. They take great ownership of the guest experience, holding themselves and one another accountable, and embracing a mindset of continuous improvement.”
In executing the turnaround, Noodles hasn’t been focused on one big breakthrough, Christina said.
“We’re focused on making hundreds of small improvements every day, and together, those improvements create a meaningfully better guest experience,” he said.
On the menu, the Indonesian Peanut Saute and the Chili Garlic Ramen performed well, bringing in first-time customers. More ramen dishes are coming in the fourth quarter, he said.
Next week, a new baked limited-time offer will debut, and Christina said the dish performed particularly well in tests.
For the third quarter so far, same-store sales at company units are up about 10%, Christina said.
Noodles has been promoting its dedicated Mac and Cheese menu, offering a new Fanta Vanilla Cherry Spritz developed exclusively for the brand by Coca-Cola to complement the rich, cheesy Creamy Cheddar Mac. (The chain has sold more than 11.2 million bowls of it in the past year alone.)
Noodles is still reviewing strategic alternatives, which could include a possible sale, refranchising or refinancing of debt scheduled to mature in July 2027.
Christina hasn’t really commented on that review, other than to say it is ongoing.
One aspect of the turnaround the company is keeping an eye on is the disparity of improvement between company-owned and franchised units. Same-store sales at franchised locations didn’t even see half of the sales growth marked by company-owned restaurants.
Christina said some franchisees are outperforming company units. But clearly others are not.
“We see a lot of variability in the franchise group and their performance,” he said. “And it really depends by market. It’s still a relatively small group to the overall system, and so it doesn’t take much variability to create that disconnect with the company.”
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