Noodles & Company (NDLS) Earnings Call Transcript

Thanks, and good afternoon to all of you. I'm glad you could join us for the earnings call covering our fourth quarter of 2025. Joe Christina, who serves as our Chief Executive Officer, is here with me this afternoon. Before anything else, I want to walk through some regulatory items. While we speak today, forward-looking statements about upcoming events or how the company's finances may perform later on could be made. Anything of that nature ought to be treated as a forward-looking statement under the Private Securities Litigation Reform Act's definition. Statements like these amount to nothing more than projections, and because of various risks and uncertainties — among them those mentioned in this afternoon's news release along with the cautionary statement found in the company's annual report on Form 10-K and later filings with the SEC — what actually happens or what results we achieve may not match those projections. We'll also be talking about non-GAAP measures today, since we feel they can help when assessing how the company is operating. You shouldn't look at these measures by themselves, nor treat them as something that replaces our financial results prepared under GAAP. Our fourth quarter 2025 earnings release contains a reconciliation of these measures against the GAAP measures that are most directly comparable. Whenever the company gives guidance, that guidance comes solely on a non-GAAP basis, and no reconciliations are supplied for forward-looking non-GAAP measures. Without unreasonable efforts, quantitative reconciling information for such measures cannot be obtained. Having said all that, I'd now like to hand the call over to Joe Christina, our Chief Executive Officer.

Thanks, Mike, and good afternoon, everyone. Looking back at 2025, the picture is obvious. Across Noodles & Company we've established real, lasting momentum, building to roughly 7% growth in system-wide comp sales during the fourth quarter of 2025, and then accelerating past 9% so far in the first quarter of 2026, with just one week left before that quarter ends. In the fourth quarter of 2025, profitability came in well above the prior year, and the same holds for the first quarter of 2026, consistent with the guidance we gave. None of this happened by chance. It comes from disciplined execution and a sharp focus on the things that matter most. For the brand, 2025 was a pivotal year. Our food got a significant upgrade as we introduced the biggest menu overhaul in the history of the company, plus tempting limited-time offerings such as Chili-Garlic Shrimp Ramen — one of our best-performing LTOs in recent years, which we think attracted new customer segments to Noodles & Company. We leaned into value-focused communication with the debut of Delicious Duos, giving diners attractive meal pairings at a price that felt appealing and provided balance, variety, and daily affordability with no drop-off in quality, all while raising familiarity among consumers about the items on our new menu. We kicked off an in-depth look at our entire portfolio, and that resulted in closing restaurants that weren't performing well — work that continued into Q1 of 2026 — and what mattered most is that this shifted a significant amount of sales over to restaurants close by, which gave us a step-up in the baseline for average sales volume at the locations we're keeping, and that has benefited margins too, something Mike will walk through in greater depth in a moment. On top of that, we strengthened how well we operate by launching our operational excellence review program, raising the bar and bringing greater consistency and accountability to each and every restaurant. Running beneath everything was a fresh focus on the basics. Throughout 2025, we sharpened how our restaurants execute, made our food more consistent, kept costs under tight control, and refined the way we go to market. Strong execution on the basics, done consistently, produces results — and that's what began to show up for us during the second half of the year. Ahead of walking through everything we accomplished in 2025, I'd like to call out how our first quarter comparable sales are trending so far, because the momentum we carried out of last year has picked up even more as we move through 2026, generating sales growth that in our view leads the fast casual segment. Through this first quarter to date, we've kept building both traffic and same-store sales, posting system-wide comparable sales up more than 9% alongside traffic growth exceeding 4%. When March arrives, we'll have recorded traffic gains for a seventh straight period. On top of that, period two of 2026 gave us one of the best comparable sales results in the 31 years this company has been around. To kick off the year, we brought Steak Stroganoff back as a limited time offer — it's among the most requested items our fans have ever loved. Using a campaign built with creative AI, we reached that fan base, and it produced strong engagement while reminding guests why this dish remains such an enduring favorite. Steak Stroganoff outperformed previous launches of this LTO, cementing this wonderful dish as a returning favorite — a craveable LTO for winter seasons to come. When you take something like Steak Stroganoff — a dish people already find comforting — and pair it with stronger execution in the restaurants plus a terrific experience for guests, the result becomes even more irresistible. There's a clear connection with our guests when excellent food meets reliable operations. We kicked off this year with well-defined objectives and a more focused approach, getting the whole organization lined up behind 4 strategic goals: building winning teams, sparking growth, elevating guest satisfaction, and producing robust financial results. How we run the business, where we put our money, and how we gauge success are all shaped by these goals. That momentum is something we can already see continuing. Against that backdrop, let's walk through what we accomplished in fiscal 2025, which laid the groundwork for the strong start we've had this year. During fiscal 2025, our focus was on making the heart of this company stronger and bringing steadiness back across the entire system. Food came first. We refined what appears on the menu, raised the bar for our recipes, and got better at executing in each restaurant. By bolstering training programs and keeping a tighter grip on operational discipline, we achieved far greater consistency in every single bowl. Our limited time offerings grew sharper and carried more punch as well, injecting excitement into the brand and cementing our reputation as the noodle authority. Chili-Garlic Shrimp Ramen stands out as a prime illustration — we introduced it as an LTO during October. Drawing from viral ramen hack trends, this brothless creation served up the rich, spicy, umami-heavy taste profile customers already wanted. Before long, it ranked among the most successful LTOs we have ever launched. Our loyalty program members really connected with a new ramen offering, and beyond that, we think it drew in a different kind of customer — someone who was looking for ramen in a fast casual setting. We've just reintroduced that ramen, plus Indonesian Peanut Sauté, an item fans had loved before, since we're working to build more awareness around the Asian noodle portion of our menu. On top of that, we're looking at more ramen recipes right now, because we think a ramen category on our menu could perform just as well as our Macs lineup. All of this together builds guest trust in what we serve and helps create deeper engagement with the brand across the year. Operational excellence came next. With our Operational Excellence Review—what we call OER—now rolled out, we've brought in a tighter framework for coaching and accountability in every restaurant. Through these reviews, area managers along with regional leaders zero in on underlying causes, build concrete plans of action, and make sure teams keep executing the same way. Leadership is more aligned as a result, training accountability has gotten better, and operational standards have gone up throughout the system. That effort shows up in how guests experience us. Across the year, SMG data shows our OSAT scores rose significantly, and we've been narrowing the distance to the fast casual category average step by step. During January, the satisfaction score we measure overall hit 72%, which is the nearest we've gotten to the fast casual standard since this program first appeared in early 2024. What's driving these gains is better execution on guest experience basics — places that are cleaner, friendlier service, food that comes out the same way every time, and a stronger dinner daypart. Equally significant, our people now work with expectations that are clearer, coaching that is stronger, and one common commitment to getting better all the time across people, operations, guests, and financial results. We also built a value strategy that's more considered and can be sustained. Hearing our guests carefully made it obvious that price alone doesn't define value. What people want is to feel good about how much food shows up compared with the money they handed over. Balance, satisfaction, and walking away feeling you had a terrific meal — that's what value is; on top of that, given today's macro backdrop, the consumer of today watches value more closely, and we wanted our menu to speak to that, not via some limited-time markdown, but instead as a lasting value-focused choice for guests. That realization led us to create Delicious Duos. Instead of rolling out a discount, we aimed to lift what we offer in terms of value with tempting pairings that bring both variety and satisfaction at a price people can reach.

Guests have really connected with this platform. It helped us drive traffic and visit frequency, all while keeping our margins intact. It also boosted visibility for our new menu, thanks to the pairings that Delicious Duos provides and the campaign behind it, which put those different menu items in the spotlight. Our approach to marketing is now more disciplined, driven by data, and centered on the essence of our brand identity; we went back to the basics of our business, Noodles. Our messaging emphasized craveability, variety, and the comfort and shareable moments that are central to what Noodles & Company is all about. As we frequently say among ourselves, we know noodles, and our marketing once more focuses on honoring that expertise. Simultaneously, we changed the way we plan and oversee marketing spending. We shifted from fixed yearly plans to a continuously running, performance-optimized marketing engine. With AI-backed data and channel-specific performance feedback, our teams make real-time adjustments to investment depending on return, incrementality, and how audiences respond, which lets us balance brand building against demand generation. Consequently, we now manage media spending more actively across channels, moving dollars to the opportunities with the best returns while sharpening audience targeting and emphasizing markets where guest response is strongest. Along with gains in food operations and value, these initiatives drove consistent improvement in comparable sales trends, stabilization and then growth in traffic, and an expansion in restaurant-level margins. Simultaneously, we reinforced the company's financial underpinnings; we boosted labor productivity via improved scheduling and stricter operational oversight. We controlled food costs more precisely, and we raised efficiency in how we deploy marketing. These steps, together with capitalizing on the substantial same-store sales gains, lifted restaurant-level margins in the fourth quarter of 2025 to 14.1%, a 290 basis point increase versus the prior year. Our 2026 guidance, which Mike will cover, anticipates better margins for the entire 2026 year compared with 2025 because of everything I've described. What we have now is a healthier system with stronger unit-level economics and a more resilient operating model. The consistency we're witnessing throughout the business is what gives me confidence today. Food quality is up, execution is better, standards are more defined, and results are coming through. The efforts we made in 2025 laid a solid foundation. We're now building on that foundation as we progress through 2026. Before handing things to Mike, I want to give an update on where things stand with the review of strategic alternatives we announced earlier. As we've said before, our board of directors launched a review of strategic alternatives to look at ways to maximize shareholder value. This process could involve a variety of possible paths, including refinancing current debt or other strategic or financial deals. Nothing has been decided yet, and there's no fixed timeline for when it will wrap up. While the review is ongoing, we won't offer any further comments. With that, I'll pass it to Mike to go over the financial specifics.

Thanks, Joe. For Q4, total revenue rose 0.8% year over year, reaching $122.8 million. System-wide same-restaurant sales grew 6.6% in Q4, with company-owned locations up 7.3% and franchised locations up 3.8%. Company comp traffic rose 1.4% in Q4, while average check climbed 5.8%, which includes 2% effective pricing for the quarter. Company average unit volumes rose 9.9% in Q4, hitting $1.44 million. As Joe noted, our sales momentum kept building into Q1 2026. Year to date in 2026, company comp sales are up more than 9%. We're very encouraged by this acceleration, particularly given the tougher comparison in Q1 2025, when comps were up 4.7% and included heavy marketing around our new menu launch in March 2025. Back to Q4 2025: the sales acceleration produced strong bottom-line growth. Restaurant contribution margin in Q4 rose to 14.1%, up from 11.2% in Q4 2024. COGS came in at 26.0% of sales in Q4, down 120 basis points from a year ago, driven by menu price, vendor rebates, and less discounting, partly offset by higher food costs tied to our new menu items and modest inflation. Food inflation in Q4 was about 1%. Labor costs were 30.9% of sales in Q4, down 140 basis points versus the prior year, mainly from sales leverage, partly offset by wage inflation. Hourly wage inflation was 2.3% in Q4. Occupancy costs fell to $10.7 million in Q4 from $11.4 million in 2024, reflecting fewer company-owned restaurants over the past 12 months. Other restaurant operating costs rose 40 basis points in Q4 to 20.1%. That increase was mostly from higher third-party delivery fees, driven by more third-party delivery channel sales, and higher marketing expenses, largely offset by sales leverage. G&A was $11.7 million in Q4 versus $11.3 million in 2024. Net loss in Q4 was $6.8 million, or $1.16 per diluted share, compared with a net loss of $9.7 million, or $1.70 per diluted share, a year ago. Q4 2025's loss included a $5.6 million non-cash impairment charge, mainly tied to our decision to close underperforming restaurants. Adjusted EBITDA was $7.6 million in Q4 versus $4 million in Q4 2024, up more than 88%. During Q4, we shuttered nine company-owned restaurants and three franchised restaurants. Q4 capital expenditures came to $2.3 million, compared with $3.8 million in 2024. When the fourth quarter wrapped up, our available cash stood at $1.3 million, and we were carrying a debt balance of $110.2 million, plus more than $11 million we could still draw down through our revolving credit facility. Under our restaurant portfolio optimization project, we shut down 33 restaurants altogether in 2025, and so far in 2026 we've closed 20 more. This ongoing project keeps delivering excellent results. The biggest single effect comes from sales transferring after a closure to Noodles locations nearby, which is pushing up our company-wide restaurant level profits substantially; a major reason for that is how heavily weighted we are toward off-premise sales. During the fourth quarter of 2025, we figure those closures lifted comp sales by somewhere around 100 to 150 basis points. Looking ahead, we expect the portfolio optimization project to add 200 to 300 basis points to comp sales in the first quarter of 2026. When sales shift from a closed restaurant to a nearby Noodles, we treat that as a lasting gain to the baseline average unit volumes at those go-forward sites. All through 2026, we'll keep hunting for further chances to optimize our restaurant portfolio as we work to raise restaurant level profitability, factoring in the sales transfer trends we've been seeing; right now our estimate is that 30 to 35 restaurants will close during 2026. Now for guidance: our first quarter of 2026 forecast calls for comp sales of roughly 9% and adjusted EBITDA of $5.7 to 6.3 million, which is more than double what we posted a year earlier. For the whole of 2026, here's the guidance we're giving: total revenue of $478 to 493 million, which includes comp restaurant sales growth of 6%-9%. Restaurant contribution margin of 14.7% to 16%. General and Administrative expenses of $49 to 52 million, and that figure includes stock-based compensation expense of about $2.5 million. Depreciation and amortization expense of $24 to 25 million. Interest expense of $10 to 11 million. Adjusted EBITDA of $30 million to $35 million. One to two new franchise restaurant openings. We project total 2026 capital expenditures of $9.5 to 10.5 million; we anticipate being free cash flow positive and having the chance to bring our debt balance down by $5 to 10 million in 2026. For more details on what we expect in 2026, please look at the Business Outlook section of our press release; with that, I'd like to hand the call back to Joe for final remarks.

Thank you, Mike. By keeping our attention on the basics and running things with discipline so that the guest experience improves, we've generated real momentum. When excellent food, a solid operation, and focused marketing that resonates with guests all align, results come — and that is exactly what we have watched unfold. Proof of this can be seen in the substantial rise in adjusted EBITDA compared with the prior year during Q4 of 2025, along with what we anticipate will be considerable additional expansion in adjusted EBITDA for 2026. We have every confidence that the base we established in 2025, together with the powerful sales acceleration seen early in 2026, puts us in position for growth that can be sustained across 2026 and afterward. I appreciate you spending time with us today. At this point, I'll hand the call back to the operator.

Hi there, appreciate you taking the questions, and congratulations on a very strong beginning to Q1 following such an excellent close to 2025. Nice work on that.

Thanks, Todd.

If I could, I'd like to ask two things. Thanks. Let me ask two things, if that's alright. The first one is probably easiest to consider by looking at what you've guided for 2026. You mentioned that sales transfer would contribute in Q1. You also gave a qualitative description of the margin advantage from that sales transfer. Mike, could we discuss how much of the year-over-year gain in each of those two metrics within the 2026 guidance comes from the sales transfer, and how much comes from the underlying core momentum the business is showing at present?