Noodles & Co. focus on guest satisfaction with new menu

BROOMFIELD  — New leadership has brought a new look at the inner workings of Noodles & Co. (Nasdaq: NDLS) which will translate to an almost complete menu revamp and closures of underperforming stores by the end of the year.

In its second-quarter earnings call Wednesday, Noodles & Co, leaders Drew Madsen, CEO, and Michael Hynes, chief financial officer, reported mixed results that have prompted them to adjust their earnings guidance through the end of the year, but it also came with assurances that increased focus on menu improvement and store performance.

Overall total revenue increased 1.8% to $127.4 million from the same time last year, but the company also recorded a net loss of $13.6 million in the second quarter. EBITDA earnings were $9.2 million, compared with $8.5 million in the second quarter of 2023. The company during the quarter opened five new company-owned restaurants and re-franchised six company-owned stores to a new franchise partner.

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Madsen said he was pleased with the quarter, but promised a continued transformation of two-thirds of the menu, with slow introductions of new items and re-introduction of existing menu items throughout the rest of the year. The idea is to improve dinner sales, which Madsen said has experienced the most loss in recent years.

He added that the company has worked hard in the second quarter to focus on in-store training to deliver consistent flavors and cooking methods, and to double-check bags before they leave the store.

“These efforts are paying off with guest satisfaction accelerating, and it has improved most at dinner,” he said in the earnings call with investors. “We are clearly establishing the culture and team member behavior required for a more consistent and satisfying guest experience. I am confident this will drive stronger guest loyalty and improve traffic over the long term.”

During the quarter, Noodles added two new menu items and one improved menu item at a test location, and some performed 50% higher in guest satisfaction. The company will introduce all three to the menus nationwide in October. The company updated its chicken alfredo dish to become Crispy Chicken Bacon Alfredo, which is said to be more contemporary. The company added Lemon Garlic Shrimp Scampi and Chipotle Chicken Cavatappi, as well. The company deleted its zucchini with roasted garlic cream sauce, linguini rosa and linguini fresca. Madsen said consumers should look to be reintroduced to Spicy Korean steak noodles this month.

The company also plans to focus more on catering opportunities, which showed a 42% growth in systemwide sales from the same time last year.

“Going forward, we will continue to grow profitable sales by unlocking new catering occasions like teacher appreciation day last quarter, and adding new menu categories like boxed lunches and other individual grab n go items,” Madsen said. He said the company also will strengthen this segment by improving its point of sale system, and “a technology driven solution to transfer catering orders between restaurants when needed.”

In January, the company implemented cost-reduction efforts through targeted headcount reduction, employee benefit adjustment that saved money and supply-chain savings through improved vendor management, Madsen said.

“We are now expecting to deliver $5 million in savings in 2024,” Madsen said on the call.

Madsen said officials took a prolonged look into its portfolio and identified 20 under-performing stores that contributed $10 million of the $13.6 million net loss in the quarter. Those stores may be scheduled for closure by the end of the year.

“We believe closing underperforming stores will allow us to focus more on restaurants with the most growth potential,” Madsen said.