Noodles & Company (NDLS) Earnings Call Transcript

Thanks, and good afternoon to all of you. It's a pleasure to have you join us for the earnings call covering our first quarter of 2026. Joining me this afternoon is Joseph Christina, who serves as our Chief Executive Officer. Before anything else, I want to walk through some regulatory items. Over the course of this call, forward-looking statements may be made by us concerning future events or how the company's finances will perform ahead. Statements of that kind ought to be viewed as forward-looking within the meaning set out in the Private Securities Litigation Reform Act. Those statements amount to nothing more than projections, and what actually happens or what results we ultimately see might diverge from them, given various risks and uncertainties, among them those mentioned in this afternoon's news release along with the cautionary statement contained in the company's annual report on Form 10-K and later filings made with the SEC. While on this call, non-GAAP measures will come up, and in our view these can be helpful when assessing how the company is operating. Such measures ought not to be looked at on their own, nor treated as a replacement for our financial results that have been prepared in line with GAAP. You can find a reconciliation of these measures against the GAAP measures that are most directly comparable in our earnings release for the first quarter of 2026. Whenever the company offers guidance, that guidance is given solely on a non-GAAP basis, and no reconciliations of forward-looking non-GAAP measures are provided. Without unreasonable effort, quantitative reconciling information for such measures cannot be obtained. Having said that, I'd now like to hand things over to Joseph Christina, our Chief Executive Officer.

Thank you, Mike, and good afternoon everyone. When we examine how we performed during Q1 and then moving into Q2, one thing stands out plainly: Noodles & Company is producing steady, lasting positive outcomes. Proof of that comes from system-wide comparable sales rising above 9%, while adjusted EBITDA grew to more than three times the prior-year figure during the first quarter. Even more significant is that this trajectory carried forward into Q2, when April system-wide comp sales climbed past 9%, and our company-operated locations exceeded 10%. Up to this point, we have now posted positive same-store sales across 16 straight months. Alongside that lift in comparable sales, restaurant contribution margins rose sharply — up 460 basis points during Q1 — and the blend of robust sales plus margin gains is what drove adjusted EBITDA to more than triple. My confidence that these results can last stems from the fact that what we're achieving isn't the product of one initiative or a single unlock. Instead, it comes from a focused, disciplined commitment to nailing the fundamentals of this business and getting the little details right daily, so that those incremental gains compound into substantial victories. Beyond that, we're watching these winning habits take hold throughout the company, which produces better execution and an improved experience for every guest. The key thing to grasp is that none of this happened by chance. It reflects the way our teams turn up and perform each day. That reality shows itself clearly in 3 areas. Number one, our restaurant operations run with greater consistency. Number two, our marketing has grown more disciplined and better connected. And number three, our culinary approach generates demand by offering relevant, craveable food. Let me begin with the restaurants. To put it plainly, the restaurants we run now outperform those from 12 months ago. System-wide, we're performing at a higher standard during the moments our guests care about most. We've achieved real gains in service, especially in the dinner daypart, where reliability and hospitality matter most. Our guest satisfaction scores overall climbed 10% over the past 6 months, and we saw notable gains across every major sales channel: in-restaurant, native digital, and third-party delivery. That stems from teams that are more focused and better aligned — people who grasp what counts most and hold one another responsible for it. We call out strong performance and build on it, which lifts standards company-wide. Guests pick up on the change, and it surfaces through stronger in-restaurant sales along with steadier traffic patterns. Meanwhile, as restaurant execution improved, our marketing grew more disciplined, better connected, and more effective. We aren't leaning on any single campaign or promotion. Rather, we maintain a steady, ongoing conversation with our guests, rooted in our greatest strength — serving craveable, globally inspired noodle dishes. That effort is paying off in the business. We see this across both sales and transactions, and it's backed by stronger engagement in our paid, owned, and earned channels. What matters is that a significant share of this growth comes from new guests discovering the brand; new guest active purchases were up 36% versus a year ago, and loyalty sign-ups rose 33% during the quarter, which are clear signs our brand is connecting with new audiences. We've also gotten deliberate about how we put money to work. With paid media, we're managing performance live across channels, which lets us direct dollars more efficiently and get the most out of them; we don't treat traffic and brand as separate things. The very efforts that draw guests into our restaurants also shape how they view noodles. During the first quarter, we rolled out something we call a boost week offer — a targeted, limited-time activation built to generate immediate profitable traffic at key moments. Within that period, reward members can get 2 of our culinary classics for $12. Performance was solid: we gained new loyalty members, won back lapsed guests, and generated a substantial jump in traffic to our website. Given those results, we intend to turn this into a repeatable program and run it every quarter. We also debuted our fresh campaign, which spotlights ingredient quality and underscores the care behind every dish, helping raise guests' perception of our food. When it comes to culinary, we're running a disciplined strategy that balances the return of fan favorites, daring global flavors, and culturally relevant partnerships to fuel both frequency and new guest engagement. This momentum started last year with the biggest menu overhaul in our company's history, when we rolled out a variety of new and improved dishes that bolster the core of what we offer. Next came our Delicious Duos platform, which strengthened our value proposition in a disciplined manner and gave additional support to the new and enhanced menu items. Later in the year, we rolled out Chili Garlic Ramen, among our most successful limited-time offers, which drew new guests to the brand and further cemented noodles as a credible, differentiated fast casual destination for globally inspired noodle dishes. In the first quarter, Steak Stroganoff came back as a highly successful limited-time offer; we reintroduced it because guests demanded it strongly, and the results confirm both the strength of our loyal guest base and our capacity to bring in new guests. We also broadened how we backed that launch with differentiated marketing initiatives to build wider awareness and reach past our core guests. More broadly, fan favorites such as Steak Stroganoff were key to our strategy; for long-time guests, they provide a reason to come back. For new guests, they offer a simple entry point into a brand through dishes we know resonate; we carried that approach into March by spotlighting our Asian category and bringing back Indonesian Peanut Saute together with Chili Garlic Ramen; this effort bolstered our global flavor profile, showed off the range on our menu, and helped raise the entire Asian category. Throughout this limited-time offer period, the proportion of our Asian menu items has grown by 40%, which clearly shows that this approach is connecting with our guests. Since limited-time offerings continue to be an important component of how we build our menu, I'm happy to introduce our latest LTO: Chicken Artichoke and Asparagus Rigatoni, now available at locations across the country starting today. This pasta is a vibrant, spring-inspired dish that combines fresh ingredients of the season with the familiar, comforting tastes people look for from noodles. Alongside this LTO, we've teamed up with CRAVINGS by Chrissy Teigen to give guests an irresistible bundle featuring our new Chicken Artichoke and Asparagus Rigatoni plus a CRAVINGS-inspired take on our signature treat — crispy, nostalgic, and both sweet and salty. This shows once more how we serve craveable food and lift it up through the right collaboration. We understand noodles, and the CRAVINGS brand — which enjoys a sizable following within one of our important customer segments — truly understands cravings. United, we bring those strengths together in a manner that lets us appear in culture genuinely while building awareness, trial, and engagement. Through all of this work, one thing stands out plainly. We're performing strongly in our restaurants, backing them with consistent marketing and serving craveable food, which produces a better guest experience that turns into reliable results and ongoing improvement in comparable sales and margins alike. Simultaneously, we've carefully reviewed our portfolio and how our restaurants are doing market by market. In certain places, we carried too much density, especially with off-premise sales continuing to rise, so we chose to optimize our footprint. Through shutting underperforming locations in those places, we've observed a substantial shift of their sales toward nearby restaurants, producing a higher baseline average unit volume for the go-forward restaurants, which further boosts restaurant-level margin and profitability; it also lets us direct our resources toward our strongest restaurants, enhancing efficiency and generating stronger overall company profitability. The progress we're witnessing benefits the whole business and compounds over time. A change in mindset is taking hold throughout the organization, and our teams feel they can influence results. They're stepping up and taking ownership. And as we keep reinforcing strong execution, winning is spreading infectiously among our teams. That's what keeps this momentum going. Looking forward, we'll remain focused, stay disciplined, and keep performing at a high level each day. With that, I'll hand things over to Mike to go through the financial details.

Thanks, Joe. During Q1, our overall revenue came in nearly level versus the prior year, at $123.8 million, as solid comparable sales gains were largely canceled out by shutting down weaker-performing sites. Across the system, comparable restaurant sales rose 9.1% in Q1, made up of a 9.4% gain at company-owned locations and an 8% gain at franchised locations. Company comparable traffic grew 4.8% in Q1, while average check rose 4.4%, which includes 2% of effective pricing for the period. Company average unit volumes climbed 13.5% in Q1, reaching $1.49 million. Our Q1 sales growth, which marked a pickup from the growth pace seen in the latter half of 2025, produced strong growth in restaurant contribution margin. Restaurant contribution margin for Q1 rose 460 basis points, hitting 14.9%, up from 10.3% in Q1 of 2025. < > during Q1 accounted for 25.4% of sales, a drop of 120 basis points versus a year ago, thanks to less food waste tied to new menu items, menu pricing, and reduced discounting, partly offset by greater food costs linked to our new menu offerings along with modest inflation. Food inflation for Q1 came to 0.2%. Labor costs in Q1 represented 30.0% of sales, a decline of 250 basis points year over year, mainly from the benefit of sales leverage and labor efficiencies, partly offset by wage inflation. Hourly wage inflation for Q1 was 1.9%. Q1 occupancy costs fell to $10.4 million from $11.5 million in 2025, reflecting a lower company-owned restaurant count over the last 12 months. Other restaurant operating costs rose 10 basis points in Q1, to 21.2%. That rise in other restaurant operating costs was chiefly the result of a mix of higher third-party delivery fees stemming from greater third-party delivery channel sales and higher marketing expenses, which were mostly offset by sales leverage and reduced repairs and maintenance costs. G&A for Q1 was $12.5 million versus $12.8 million in 2025. Net loss in Q1 was $3.4 million, equal to a loss of $0.68 per diluted share, compared with a net loss of $9.1 million, or a loss of $1.58 per diluted share, a year earlier. The Q1 2026 loss included a $2.7 million noncash impairment charge tied mainly to our decision to close underperforming restaurants. Adjusted EBITDA in Q1 more than tripled, reaching $7.7 million versus $2.4 million in Q1 of 2025. Q1 capital expenditures came to $2.1 million, compared with $2.9 million in 2025. As Q1 ended, we held $1.4 million in available cash, and our debt balance stood at $106.8 million, down $3.4 million from the debt balance at the close of 2025, since we managed to pay down debt during a seasonally slow quarter. During Q1, we shut down 20 locations we own and 3 that are franchised. Those 20 company-owned closures came about through our restaurant portfolio optimization project, and that initiative keeps producing a major shift of sales toward nearby sites — thanks to how much of our business runs through off-premise — which helps lift both our comp sales and our profitability overall. Even so, most of the comp restaurant sales gain during the first quarter came from better underlying business fundamentals, while portfolio optimization gave us an extra boost. All told, we feel very good about how the first quarter turned out — it came in above what we expected — since gains in our restaurant contribution margin and adjusted EBITDA resulted from double-digit rises in average unit volume combined with disciplined cost management. Looking back at Q1 and ahead to the remainder of the year, we are lifting our full-year 2026 guidance as follows: total revenue between $483 million and $498 million, which includes comp restaurant sales growth of 7% to 10%. Restaurant contribution margin of 15.5% to 17%, general and administrative expenses from $50 million to $53 million, which includes roughly $2.5 million in stock-based compensation expense, depreciation and amortization expense of $24 million to $25 million, and interest expense of $10 million to $11 million. Adjusted EBITDA of $32.5 million to $37.5 million, 1 to 2 new franchise restaurant openings, restaurant closures consisting of 30 to 35 company-owned restaurants plus 5 franchise restaurants. And for 2026 overall we project capital expenditures of $9.5 million to $10.5 million. We still anticipate being free cash flow positive and having a chance to bring our debt balance down by about $10 million in 2026, which takes in the $3.4 million decrease from Q1. For more details on what we expect in 2026, please look at the Business Outlook section in our press release, where you will also find earnings per share of $0.58. With that, I want to hand the call back to Joseph for his closing comments.

Appreciate that, Mike. Our results for the first quarter make us quite happy, and they show the strong momentum that Noodles & Company keeps building, which is carrying over into the second quarter. That momentum gives us a lot of encouragement, and we stay committed to nailing the basics daily, since those basics are producing a better experience overall for guests — something shown by guest satisfaction scores improving sequentially, traffic continuing to grow, deeper engagement with the people we serve, and steadier performance inside our restaurants. Thanks for spending part of your day with us, and at this point I'll hand the call back to the operator.

Nice work, everyone. Mike, when you described Q1 same-store sales, you said most of it came from core business gains along with the momentum we're seeing. During the prior quarter, I believe you broke apart how much of the sales transfer added versus what the fundamental improvements added. Will you be doing that same breakdown this quarter too?

Are you asking about Q2? Does that same message hold for the second quarter?

OK, so regarding same-store sales, I'm simply trying to figure out how much of that resulted from shuttered stores' contribution as opposed to the underlying business itself?

Right. During our Q4 call a few weeks back, we mentioned 200 to 300 basis points, and that's roughly where we ended up — right in the middle, around 250 basis points tied to the closed locations. So the bulk of the gain came from improvement in the core business, which is genuinely encouraging to witness.

This may sound odd given how robust same-store sales have been, yet was there any effect tied to winter weather that held back first-quarter results and that you'd want to flag?

It really just came down to how things fell between the two periods. Still, on the whole, we view it as having evened out and made no meaningful difference for the quarter.