Noodles & Company (NDLS) Earnings Call Transcript

Thanks, and good morning to all of you. Welcome to the earnings call for our third quarter of 2026. Joe Christina, our Chief Executive Officer, is joining me here. First, I want to walk through a few regulatory items. On this call, we might make forward-looking statements about future events or about how the company will perform financially going forward. All such items ought to be treated as forward-looking statements under the meaning of the Private Securities Litigation Reform Act. Those statements amount to projections only, and because of various risks and uncertainties, actual events or results may differ from them, including the risks and uncertainties referenced in this morning's news release and in the cautionary statement contained in the company's annual report on Form 10-K and in later filings with the SEC. On this call, we'll also discuss non-GAAP measures, and we think those can be helpful when evaluating how the company is operating. They should not be viewed on their own or as a replacement for our financial results prepared in line with GAAP. You can find a reconciliation of these measures to the most directly comparable GAAP measures in our third quarter 2026 earnings release. When the company gives guidance, it does so only on a non-GAAP basis and does not reconcile forward-looking non-GAAP measures. Quantitative reconciling information for these measures cannot be obtained without unreasonable efforts. With that said, I'll hand the call over to Joe Christina, our Chief Executive Officer.

Thanks, Mike, and good morning to all of you. I'm glad you could be with us today as we go over the results for our third quarter and the ongoing progress we're achieving at Noodles & Company. For Noodles, the third quarter represented yet another solid move forward. Comparable sales across the system rose 9.5%, driven by 10.7% growth at company-owned restaurants, which included traffic growth of 7.8%. That makes the eighth quarter in a row of positive same-store sales growth, and all three quarters this year have come in above 9%. Restaurant contribution margins widened by 350 basis points, reaching 16.7%, and our restaurant contribution margin year to date has also come in above 16%, a meaningful improvement to our operating model. Adjusted EBITDA rose 34% to $8.7 million in the third quarter and has almost doubled on a year-to-date basis. This marks a step change in our operating model over the last year, as we gained from the leverage of higher AUVs along with greater efficiencies on the cost side and the removal of underperforming stores from our portfolio. Our average restaurant volume increased by more than 15%, to $1.54 million, which is a key pillar for the whole operating model to succeed. We reached this point the same way we have all year: by running better restaurants, creating food that guests crave, and engaging our guests through smarter marketing, complemented by the success of our store closure program, which we believe has produced a more permanent shift of predominantly off-premise sales to nearby restaurants. Over the last year, we have fundamentally transformed our business, building a stronger Noodles & Company through disciplined execution and a renewed focus on our guests. We have elevated restaurant operations, transformed our menu with more innovation, permanent and LTO offerings, and evolved our marketing strategy to strengthen our brand, connect with new and existing guests, and drive traffic. Together, these efforts are creating a stronger foundation for our business, and our third quarter performance reflects the sustainable progress we are making. What is especially encouraging is that our progress does not stem from any single initiative. It reflects a series of deliberate improvements across our organization that are strengthening our ability to execute, improving the guest experience, and creating new opportunities for growth. As we head into the final quarter of 2026, our priorities remain clear: keep delivering innovation and creative menu offerings that meet our guests' needs for great food and appropriate value, strengthen our restaurant operations, build a more effective marketing organization, and turn those efforts into sustainable, profitable growth. Today I want to share more about the progress we made in the third quarter, the early response to our new ramen menu, and how we are positioning Noodles & Company for continued success. Our menu transformation remains a central component of our strategy, and the third quarter marked another important milestone in that journey. During the last year, we’ve shifted toward a more thoughtful strategy for menu innovation, concentrating on inventive dishes that combine familiar comfort, vibrant flavors, and the cooking know-how that sets Noodles & Company apart. What we aim for is a menu with greater appeal—one that gives current guests additional reasons to come in and draws new guests who might not have thought about Noodles before. A key component of this strategy is the rigor of our testing process. We’re trying dishes that we believe our guests are looking for, and we use what we learn to craft appealing items and gain confidence before rolling them out to the wider menu. Guests stay central to every stage gate in testing, and each phase offers chances to refine concepts further in line with their feedback and changing expectations, so that we deliver what our loyal fans and new guests alike expect from us. In August, we added Baked Cheese Tortelloni to our baked lineup, extending an existing favorite and strengthening one of our strongest attributes, comfort food. This enticing dish was developed with help from our testing process, and better operational readiness for the promotion contributed to a successful launch. Combining those two elements gave us a sturdier base for presenting the offering to guests. The launch drew in existing guests and showed how familiar, craveable dishes can spark renewed interest when they’re promoted in a fresh and relevant way. The campaign also helped highlight comfort offerings throughout our menu. During the campaign window, both Baked Chicken Parm and Garlic Cream Tortelloni experienced more trial and stronger performance. We were especially encouraged by how first-time guests responded. Among new guests who tried Baked Cheese Tortelloni, we saw the highest return rate of any dish launched this year, which demonstrated the potential for approachable, familiar flavors to drive trial and bring guests back. The launch also showed tighter collaboration among our culinary, operations, supply chain, and marketing teams—from developing the offering to getting our restaurants ready and promoting it to guests. We’ll keep building on this approach, introducing dishes that strengthen our menu and give new and existing guests more reasons to choose Noodles & Company; we’re using the same testing approach as we build our menu pipeline for 2027 to extend the substantial growth we’ve achieved this year, concentrating on products we believe guests want and getting our teams ready to support continued success. That leads me to our newest innovation, which launched only a few weeks ago. In October, we took another significant step in transforming our menu by introducing ramen as a permanent category on our menu. Ramen is a natural extension of our culinary expertise and a chance to bring new flavor, formats, and experiences to our guests. Last year we laid the groundwork for this launch by introducing Chili Garlic Ramen, and that dish drew a really enthusiastic reaction from guests while showing that Noodles & Company could offer its own distinctive take on a noodle category that is already popular. Building on that momentum, in October we rolled out a fresh lineup of ramen dishes, with globally inspired flavors and unexpected spins on traditional ramens offered at different price points so we can reach guests who are more focused on value. Ramen is now a permanent part of our menu, which means we have set up one more platform for ongoing culinary innovation. That lets us bring in new ramen dishes and rotate them onto the menu sequentially, widening our appeal across different guest preferences and keeping excitement building around our menu. It also generates the kind of excitement an LTO brings as we rotate new ramen dishes in throughout the year, while assuring guests they can always find ramen dishes on our menu, much like our successful mac category. We are still in the early stages of the launch, but the initial response has been encouraging. In our October period, ramen posted a double-digit product mix and helped deliver 5.5% comparable sales growth, which we're extremely pleased with given that we were comping against an 8% comp sales growth in 2025. Importantly, the ramen launch isn't just about adding another menu category; it reflects our broader strategy of building a more differentiated brand through innovation that is grounded in our culinary expertise and informed by guest insights.

We believe there's a genuine chance to continue expanding this platform in the years ahead. Alongside launching new menu items, we're equally committed to ensuring our restaurant crews possess the tools, training, and operational backing required to execute those items reliably and well. Successful menu innovation represents merely one element of our transformation. Equally critical is our ability to deliver a consistently outstanding guest experience across every restaurant and digitally, each and every day. Throughout 2026, we've continued reinforcing our operational base, zeroing in on the fundamentals that guests care about most: food quality, guest service, order accuracy, and consistency. The people working in our restaurants are central to the business, and we're committed to giving them the backing and tools they need to deliver strong results. A good example is the more organized method we now use when rolling out menu items. As I mentioned before, our culinary operations, supply chain, marketing, and restaurant teams are working together more closely throughout development and launch, which helps make sure new offerings appeal to guests by being executed well in our restaurants; we've also continued to strengthen operational fundamentals through more consistent training, restaurant evaluations, and closer collaboration between our company-operated and franchise restaurants. The gains we're seeing in our restaurants are vital to the company's success over the long term. Improving how we execute gives guests a better experience, helps our restaurant teams, and lays a sturdier groundwork for ongoing innovation and profitable growth. The progress so far is encouraging, though we know more work remains. In addition to transforming our menu and upgrading operations, we have continued to evolve how we market, deepening our connection with guests and supporting sustainable traffic growth. We are moving toward a more integrated approach spanning national advertising, digital and social media, influencer partnerships, and local restaurant marketing, so that our menu innovation comes to life and awareness converts into restaurant visits. In the third quarter, those efforts backed the launch of our Baked Cheese Tortelloni and spotlighted comfort offerings across our menu. Fresh marketing mix modeling indicates that our campaigns drove a significant lift in guest traffic and are contributing to growth in first-time visitors. We will continue to draw on guest insights and these measurement tools to sharpen where our marketing dollars go, bring in new diners, and offer current guests additional reasons to come back. The ramen rollout in October showed once more how our menu and marketing strategies work in tandem; now that ramen is a permanent menu item, we can present Noodles & Company to fresh audiences while handing our established guests one more appealing incentive to stop by. The campaign we've built around this launch is meant to drive awareness, spark trial, and cement ramen as a key component of our lineup going forward. Our goal is a marketing approach that supports both the near-term wins from menu innovation and the Noodles & Company brand's lasting strength over time. As we move through Q4, we remain focused on sustaining the momentum we've built while continuing to shore up the fundamentals of the business. With ramen now a permanent addition to the menu, we have another innovation to bring guests, and it comes with a more cohesive marketing strategy as well as consistent improvement in restaurant-level execution. We're still watching the broader consumer environment and the competitive landscape carefully, but our energy goes to what lies within our control; the work done to reinforce our menu, operations, and marketing capability, we believe, has put us in position to handle whatever challenge lies ahead and to keep chasing growth opportunities. Looking toward 2027, we're centered on making Noodles & Company stronger and on pushing forward with the transformation of the business. During the past year, a sturdier foundation has been built through meaningful gains in our menu, restaurant operations, and marketing capabilities. The coming phase of our journey involves building on that foundation and keeping our performance moving higher. Discipline will guide our approach, centered on initiatives that enhance the guest experience, back our restaurant teams, and generate long-term value for shareholders. We're also making sure the growth we continue to see is underpinned by the right organizational capabilities, operational processes, and financial discipline. Transforming Noodles & Company is a journey still underway, and we know that lasting success demands consistent execution in every part of the business. Before handing the call to Mike, I want to thank our team members, franchise partners, and everyone throughout the Noodles & Company organization for their ongoing dedication and commitment. What we've gotten done during this year reflects how our teams pull together, showing up daily to improve how guests feel and to make the company stronger. A great deal has been finished, but plenty of work still lies ahead. Our attention remains on carrying our momentum forward, raising the bar throughout the company, and setting Noodles & Company up for ongoing success; with that said, I'll hand things over to Mike, who will take you through the third quarter financial results and outlook in more detail.

Thank you, Joe. Turning to Q3, we recorded total revenue of $120.9 million, which represents a $1.2 million decline versus the prior year, since substantial improvements in comparable sales growth were counterbalanced by restaurant closures. System-wide comparable restaurant sales increased 9.5% during the third quarter, driven by a 10.7% rise at company-owned locations and a 4.9% increase at franchised locations. Company comparable traffic expanded 7.8% in Q3, while average check climbed 2.6%, which includes 1.9% of effective pricing for the quarter. Company average unit volumes reached $1.54 million in the third quarter, a 15.2% increase. Before moving past our sales performance, I'd like to review October's sales results. During October of the prior year, we introduced Chili Garlic Ramen—the most successful LTO ever for this company—and achieved 8% comparable sales growth in October 2025. Now that we are annualizing against Chili Garlic Ramen, our sustained robust sales growth is encouraging, with October comps at 5.5%. This provides additional proof that the sales increases and margin gains achieved across the past 12 months are sustainable and have established a new baseline for AUVs and restaurant profitability across our system. Returning to our third quarter results, our strong company comp sales growth—which carried forward the momentum built during the first half of the year—continues to fuel impressive year-over-year margin expansion. In Q3, our restaurant contribution margin climbed 350 basis points, reaching 16.7% versus 13.2% during the same period in 2025. Cost of sales for the quarter came in at 24.8% of sales, which is 90 basis points lower than a year ago, thanks to menu pricing, helpful shifts in menu mix, and reduced food waste, though modest inflation partly offset those gains. Overall cost of sales inflation for Q3 stood at 1.4%. Labor costs during the quarter represented 29.5% of sales, a drop of 190 basis points year over year, mainly from sales leverage benefits, partly offset by wage inflation. Hourly wage inflation in Q3 was 1.7%. Occupancy expenses for Q3 came in at $9.8 million, down from $11.1 million in 2025, which reflects fewer company-owned restaurants over the past year. Other restaurant operating costs represented 20.8% of sales in the third quarter, a rise of 30 basis points year over year. That increase mostly stemmed from higher third-party delivery fees tied to greater sales through the third-party delivery channel, partly offset by sales leverage and reduced repairs and maintenance spending. G&A rose to $13.6 million in the third quarter from $12.3 million in 2025, largely because incentive-based compensation went up amid better company performance, along with higher corporate transaction-related costs. For Q3, our net loss was $2.1 million — that's $0.36 per diluted share in losses — versus a net loss of $9.2 million, or $1.58 per diluted share, a year ago. Within the 2026 third quarter loss was a $1.2 million non-cash impairment charge, largely connected to shutting some of our restaurants. Third quarter adjusted EBITDA increased 34%, reaching $8.7 million, compared with $6.5 million during Q3 of 2025. Capital expenditures for the third quarter totaled $2.8 million, against $3.7 million in 2025. When we wrapped up Q3, we had $1.5 million in available cash, and our debt stood at $101 million—down $9.2 million from where the debt balance was at the end of 2025. In Q3, we shut down 12 company-owned restaurants, launched one franchise location, and closed two franchise restaurants. We're continuing to observe substantial gains in restaurant-level economics connected to our portfolio optimization initiative; during Q3, we kept seeing sales move from recently shuttered restaurants to nearby Noodles sites, which we figure gave third quarter company comp sales a boost of about 300 basis points. This produces a lasting increase in average unit volumes for restaurants near those that have closed, and it adds to gains in restaurant contribution margin. Overall, the results have us very happy. Our sales growth—which carried forward the acceleration observed during the first half of the year—together with disciplined cost control, is generating better contribution margin, Adjusted EBITDA, and free cash flow, which is reinforcing the base of our business and enabling us to strengthen the balance sheet by lowering our debt level. With a strong year nearing its close, we are narrowing our guidance for full year 2026 to the following. Revenue should land between $485 million and $495 million, and that figure includes comparable restaurant sales growth of 9% to 10%. Restaurant contribution margin is projected at 16% to 16.7%. G&A expenses will run $52 million to $54 million, and that number contains stock-based compensation expense of $2.5 million to $3 million. Depreciation and amortization should come in at $23 million to $24 million. Interest expense will be roughly $10 million. Adjusted EBITDA is expected in the range of $35 million to $37 million. On unit count, we plan one new franchise restaurant opening; as for closures, 34 to 36 company-owned restaurants and seven to eight franchise restaurants will shut. We estimate total 2026 capital expenditures of $8.5 million to $9.5 million. We continue to anticipate being free cash flow positive in 2026, with the chance to lower our debt balance by $10 million, bringing it to approximately $100 million. Taking our full-year Adjusted EBITDA guidance alongside an anticipated debt balance of roughly $100 million at year end, we anticipate leverage will come in under 3x Adjusted EBITDA. We also announced today an amendment to our credit facility that, among other modifications, pushes the maturity date out to November 30, 2027. We feel that this longer maturity, combined with the gains we're seeing in business results, gives us added flexibility as our review of strategic alternatives proceeds. More detail on what we expect for 2026 can be found in the business outlook section of our press release. With that, I'll turn the call back over to Joe for some closing remarks.

Thanks, Mike, and congrats. As we wrap up today, I want to drive home something important about the company's current position and the direction we're taking. During the last year, we've achieved meaningful progress in reshaping Noodles & Company. Our menu is better, restaurant operations are stronger, our investments are smarter, and we've introduced more discipline and accountability into how the business is run. Those gains have shown up in better financial results and, just as importantly, have laid a sturdier foundation for what comes next. Looking forward, we know the consumer landscape keeps shifting, and we'll need to keep adjusting to evolving guest behaviors and expectations. We're doing that with a stronger operating model, a more relevant menu, and a disciplined approach to investing in our business. Our confidence in the strategy is unchanged, and our focus stays on the opportunities ahead. Our priorities are clear: keep delivering an exceptional guest experience, strengthen our value proposition, drive greater awareness and trial, and build on the operational and financial improvements we achieved throughout the year. As we look towards 2027, I'm confident that the foundation we've built, the actions we're taking, and our team's commitment position Noodles & Company to keep delivering sustainable, profitable growth. Thank you for your continued confidence in Noodles; we look forward to updating you next quarter. I'll now hand the call back over to the operator.

Hi there, good morning. Nice work on the Q3 results. I appreciate you taking my questions.

Thank you, Todd.

If we could begin with, I mean, clearly Q3 delivered strong results; regarding the guidance provided for the full year, you shaved roughly $5 million off the top end compared with prior guidance. Does that reflect a comment on the consumer? Is it tied to something about the size of the store base and contraction? I'm just trying to understand, perhaps despite the Q3 results, why that top end would have been pulled in by $5 million.

Yeah, Todd, the timing of our closures is the biggest factor there. Our total closures for the full year fall within our original guidance range, but we did pull some forward, and that is impacting the overall revenue line, though it is not hurting our profitability.

Okay, great. I suppose following that same line of thinking, when you look ahead to 2027, where do we stand in terms of getting the restaurant base properly sized for the future? Should we expect another, smaller round of closures in 2027, or is there anything else you can tell us about that?