Noodles & Company (NDLS) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture. Financial performance shows growth in sales and digital engagement, but increased net loss due to impairments and cost pressures from inflation and delivery fees. The Q&A indicates positive reception to new menu items but also highlights uncertainties like strategic alternatives and debt levels. The optimistic guidance and operational improvements provide some upside, but risks and uncertainties balance this out, resulting in a neutral outlook for stock price movement.
Key Financial Performance
Comparable Sales Growth 4% increase year-over-year in the third quarter, with October accelerating to 8%. This growth is attributed to the success of new menu rollouts, the Delicious Duos platform, Chili Garlic Ramen limited-time offer, and enhanced marketing and operational execution.
Digital Sales Growth 12% increase year-over-year, driven by third-party delivery and increased engagement in the NoodlesREWARDS program.
Average Unit Volumes Increased 5.4% year-over-year to $1.34 million in the third quarter, reflecting improved sales trends.
Restaurant Contribution Margins Improved by 40 basis points year-over-year to 13.2% in the third quarter, driven by higher comparable sales, closure of underperforming restaurants, and cost management.
Adjusted EBITDA Increased by $1.6 million or 33% year-over-year to $6.5 million in the third quarter, due to sales improvement and cost controls.
Net Loss Increased to $9.2 million in the third quarter from $6.8 million in the prior year, primarily due to a $5.3 million noncash impairment charge related to restaurant closures.
Labor Costs Decreased by 60 basis points year-over-year to 31.4% of sales in the third quarter, benefiting from sales leverage despite 2.5% wage inflation.
Food Costs Increased by 20 basis points year-over-year to 25.7% of sales in the third quarter, driven by higher costs for new menu offerings and inflation, partially offset by menu pricing and vendor rebates.
Capital Expenditures Decreased to $3.7 million in the third quarter from $7.1 million in the prior year, reflecting reduced spending.
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Operating Highlights
New Menu Rollout: The success of the new menu rollout earlier this year has delivered noticeable improved food to guests.
Chili Garlic Ramen: The limited-time offer has resonated with guests, including younger ones, and reflects thoughtful menu evolution and flavor innovation.
Holiday Crispy Collaboration: A new holiday crispy created in collaboration with a popular candy bar will be introduced in December.
Fan Favorite Return: A highly requested fan favorite will return early next year.
Digital Sales Growth: Digital sales increased significantly, with third-party delivery up 12%.
NoodlesREWARDS Program: Increased enrollment and engagement supported by targeted promotions.
Delicious Duos Platform: Introduced in late July, this value offering has expanded reach and reinforced value credibility.
Restaurant Closures: Strategic closure of underperforming restaurants is expected to retain 30% of sales through transfer to nearby locations.
Cost Savings Plan: A comprehensive plan is on track to deliver over $5 million in savings across the P&L in 2025.
Operations Excellence Coaching Program: Focused on improving order accuracy, speed of service, taste of food, and hospitality, with nearly 200 restaurants visited.
Strategic Alternatives Review: The Board of Directors is reviewing options to maximize shareholder value, including refinancing debt or other transactions.
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Risk or Challenges
Consumer Environment: Despite positive sales trends, the company acknowledges operating in a difficult consumer environment, which could impact future performance.
Restaurant Closures: The company is closing underperforming restaurants, which, while improving profitability, involves risks such as potential loss of customer base and operational disruptions.
Food Costs and Inflation: Higher food costs associated with new menu offerings and inflation have increased cost pressures, partially offset by pricing and vendor rebates.
Labor Costs: Although labor costs have decreased as a percentage of sales, wage inflation remains a challenge.
Third-Party Delivery Fees: Higher third-party delivery fees due to increased digital sales are adding to operational costs.
Debt Levels: The company has a debt balance of $109.8 million, which could pose financial risks if not managed effectively.
Strategic Alternatives Review: The ongoing review of strategic alternatives, including refinancing debt or other transactions, introduces uncertainty and potential risks to operations and shareholder value.
Marketing and Operational Costs: Increased marketing expenses and operational costs, despite being offset by sales leverage, could strain profitability.
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Guidance & Outlook
Revenue Expectations: Total revenue for 2025 is expected to be between $492 million and $495 million, with comparable restaurant sales growth of 3.6% to 4.2%.
Margin Projections: Restaurant contribution margin is projected to be between 12.3% and 12.7% for the full year 2025.
Capital Expenditures: Total capital expenditures for 2025 are estimated to be between $12 million and $13 million.
Operational Changes: The company plans to close 31 to 34 underperforming company-owned restaurants by the end of 2025, which is expected to positively impact 2026 restaurant-level contribution by over $2 million.
Cost Savings: A comprehensive cost savings plan is on track to deliver more than $5 million in savings across the P&L in 2025, with further optimization planned for 2026.
Menu and Marketing Initiatives: New menu items, including a holiday crispy and a returning fan favorite, are planned for December 2025 and early 2026, respectively, to drive guest engagement and sales.
Digital and Third-Party Channels: Continued growth in digital and third-party channels is expected to remain a key driver of awareness, convenience, and incremental sales.
Strategic Alternatives: The Board of Directors is reviewing strategic alternatives to maximize shareholder value, which may include refinancing existing debt or other financial transactions.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you discuss the performance and value of the Delicious Duos menu?
A:Delicious Duos, launched at the end of July, has been filling the value void for guests, mixing around 4% to 5% depending on the restaurant. It has shown a strong mix across lunch, dinner, and third-party platforms, with positive value scores from guests.
Q:What is the repeat frequency and behavior of customers accessing the brand through Duos?
A:The mix has been steady at 4% to 5%, indicating it attracts both new and existing guests. Teams have successfully upsold other menu items to these guests, showing that Duos drive traffic and encourage exploration of other menu offerings.
Q:How does organic traffic compare to the contribution from sales transfer due to store closures?
A:In October, sales transfer from closures contributed about a 1% lift. Despite this, organic traffic remained positive, which is encouraging given the heavy discounting in October last year.
Q:What are the learnings and future plans for the ramen LTO?
A:The ramen LTO has shown strong trial and repeat business, fitting well with the platform. While it is too early to decide on making it a permanent menu item, the results are encouraging. The promotion is slated to end by the end of the year, having started in October.
Q:What was the benefit of underperforming store closures on margins for Q3?
A:The closures provided a limited benefit to Q3 adjusted EBITDA, contributing about $300,000, as most closures occurred in September and October.
Q:What is the impact of lapping prior year promotions on Q4 performance?
A:The impact of last year's discounts falls off significantly post-Thanksgiving, leading to a more normal year-over-year check increase in December. This, along with sales transfers, is embedded in the full-year and Q4 guidance.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer on whether ramen would become a permanent menu item, stating it was too early to tell and that they would monitor results through the rest of the promotion.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Chili Garlic
Delicious Duos
Duos platform
Garlic Ramen
PL
closure restaurant
coaching
comp sale
decision
discount
driver
efficiency
enthusiasm
experience sale
focus
food guest
guest experience
guest value
increase sale
location
menu flavor
mix
model
option
portfolio restaurant
price
quality
quarter
ramen
relevance brand
restaurant closure
result guest
result restaurant
review
sale leverage
sale restaurant
sale trend
success
transfer
NDLS Transcript
Noodles & Company (NDLS) Q3 2025 Earnings Call Transcript
Unknown11-5
The earnings call presents a mixed picture. Financial performance shows growth in sales and digital engagement, but increased net loss due to impairments and cost pressures from inflation and delivery fees. The Q&A indicates positive reception to new menu items but also highlights uncertainties like strategic alternatives and debt levels. The optimistic guidance and operational improvements provide some upside, but risks and uncertainties balance this out, resulting in a neutral outlook for stock price movement.
Noodles & Company (NDLS) Q2 2025 Earnings Call Transcript
Unknown8-13
The earnings call summary shows mixed results: slight revenue decline, increased costs, and a net loss. While there are positive aspects like menu innovations and digital engagement, challenges such as increased food costs, CEO transition, and negative cash flow guidance weigh heavily. The Q&A section provided no clarity, further clouding outlook. Given these factors, the stock is likely to experience a negative reaction in the short term.
Noodles & Company (NASDAQ:NDLS) Q1 2025 Earnings Call Transcript
Unknown5-9
The company's earnings miss and increased food and labor costs indicate financial instability. Despite strong sales growth from new menu items, restaurant-level margins declined. The plan to close multiple restaurants and existing debt levels further highlight operational challenges. Although loyalty engagement is strong, the lack of a share repurchase program and high debt levels are concerning. The absence of specific guidance on ongoing marketing investments adds uncertainty. Overall, the financial risks and operational challenges outweigh the positive sales trends, suggesting a negative stock price movement in the near term.
Noodles & Company, Inc. (NDLS) Q1 2025 Earnings Conference Call Transcript
Unknown5-7
The earnings call reveals several challenges: net loss, declining margins, and increased costs, despite a slight revenue increase. The Q&A highlights positive loyalty program responses but lacks clarity on ongoing marketing expenses. No share repurchase plan or partnership announcements were made. The guidance for 2025 shows modest growth, but the economic environment and operational risks pose threats. The market may react negatively due to weak financials and unclear future guidance, especially with increased closures and cost pressures.
NDLS Report
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