Noodles & Company (NDLS) Earnings Call Transcript

Thanks, and good morning to all of you. Welcome to the call covering our second quarter 2026 earnings. Joe Christina, our Chief Executive Officer, is joining me here today. First, I want to address a few regulatory points. On this call, we might make forward-looking statements about future events or about how the company will perform financially going forward. All items of that kind ought to be treated as forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995. Those statements amount to projections only, and because of various risks and uncertainties, actual events or results may differ from them — including the risks described in this morning's news release and in the cautionary statement contained in the company's annual report on Form 10-K and later filings made with the SEC. We will also discuss non-GAAP measures on this call, which in our view can help in evaluating how the company is operating. You should not view these measures alone or as a replacement for our financial results prepared under GAAP. A reconciliation of these measures to the GAAP measures most directly comparable to them appears in our second quarter of 2026 earnings release. Whenever the company gives guidance, it does so solely on a non-GAAP basis and does not provide reconciliations for forward-looking non-GAAP measures. Quantitative reconciling information for such measures cannot be obtained without unreasonable efforts; with that said, I'll hand the call to Joe Christina, our Chief Executive Officer.

Good morning, everyone, and thank you for joining us. This quarter stands out as one of the strongest we've delivered since Noodles went public — a milestone that fills our whole team with pride and shows how far we've traveled over the past year. Even more important, these results demonstrate that progress is arriving faster than we ourselves expected, and they deepen our confidence that the improvements we're making in the business can be sustained over the long term. When we last spoke with you a quarter ago, our momentum had already become consistent across the system. Our second quarter results showed that we haven't merely held onto it — we've pushed it further, reaching yet another significant milestone, with restaurant level margins widening by more than 400 basis points versus a year ago to over 17%, a margin level Noodles hasn't seen in the past five years. Adjusted EBITDA rose roughly 80% in the second quarter. Across the first half of the year, adjusted EBITDA more than doubled against the same period a year earlier. Our comparable restaurant sales have been positive — and increasingly so — for the last 18 months. For the last 12 months, both our comparable restaurant sales and our positive traffic growth have substantially outpaced the fast casual Black Box index. That robust sales momentum has continued into Q3, where company-owned comparable sales quarter to date are running roughly 10% higher. Faster comparable restaurant sales growth translated into substantially stronger margins. Both the wins from our portfolio optimization plan and the sharp profitability gains it has produced demonstrate plainly that the operating model we designed is performing as intended. As Mike will lay out, given where we stand so far this year and how we see the back half shaping up, we have lifted our fiscal 2026 guidance across revenue, margins, and adjusted EBITDA. Along with our plan to reduce debt further through free cash flow, we now anticipate that our debt balance at year-end will be at or below three times 2026 adjusted EBITDA. The manner in which we've delivered these results is what gives me confidence. We arrived at this point through steady execution of the fundamentals we know are capable of driving this business. First, we're operating better restaurants. It all starts with providing a consistently excellent guest experience, and our teams continue to raise the bar daily. Second, we've developed great food that offers guests additional reasons to select Noodles by adding relevant, craveable innovation to the menu while remaining true to what sets our brand apart. Third, we are reaching those guests via a more disciplined, connected marketing strategy that raises awareness, deepens loyalty, and draws new guests to the brand. Fourth, we have shut down — and will keep shutting down — locations that mostly sit close to better-performing restaurants nearby. Because of our large share of off-premise business along with solid brand recognition, roughly one-third of sales, on average, shift over from the closed location, which pushes average unit volume higher at the neighboring restaurants, boosting efficiency and the margins that follow. I should also note that a substantial portion of the growth in sales and traffic came on top of the benefit from sales transferring from closed restaurants. It's clear that what we're doing and how we're executing our strategy is paying off everywhere. These priorities strengthen each other, producing a company that is more profitable and more resilient, and that is set up for sustainable growth over the long term. What stands out most today is the culture we've established throughout the organization. Our team members feel they can shape results. They've assumed real ownership of the guest experience, holding themselves and each other accountable, and they've adopted a mindset of getting better all the time. That's driving improved execution in our restaurants day in and day out, and it's why we're confident the progress we're making is both sustainable and set to accelerate. Let me begin with our restaurants. The guest experience comes first in everything. Our dedication to operating more consistent restaurants remains intact. We continue to concentrate on the new operational playbook that was introduced last year, since we're certain it's the correct approach. Stronger hospitality, improved execution across the day, especially at dinner, more accountability, and consistently nailing the basics. What's different now is how thoroughly those behaviors have embedded themselves throughout the organization. Our teams have bought into the notion that each guest interaction counts, and that the little choices they make daily have a direct effect on how restaurants perform. We're not chasing a single major breakthrough; our focus is on achieving hundreds of small enhancements daily, and collectively, those enhancements deliver a substantially improved guest experience. The cultural transformation inside the organization is coming through as a fresh, focused mentality. Winning is no longer something our teams merely hope for. It has turned into what they expect. They feel they can shape outcomes, and that confidence is propagating throughout the organization. It's palpable in our restaurants. Pride, ownership, and energy have come back strong throughout the whole system, and that momentum is evident in the caliber of our teams. During the quarter, internal promotions accounted for nearly three-quarters of general manager openings and about 70% of all restaurant manager roles. That, in my view, demonstrates that we are building a solid leadership pipeline and creating new chances for team members to grow their careers at Noodles. Hourly retention keeps improving as well, giving our restaurants greater stability and helping teams deliver a more consistent guest experience. Running a better restaurant goes beyond any operational initiative — it is the foundation for everything else we do. When we reliably provide a great restaurant experience, we make our brand stronger, gain more repeat visits, and build lasting relationships with our guests. Next, we keep building demand through a disciplined method for menu innovation. Simply launching new items isn't our aim. What we want is a dependable innovation pipeline that keeps Noodles relevant, gives guests fresh reasons to come in, and reinforces the things that set our brand apart. In the quarter, we capitalized on a key advantage of ours: the Asian-inspired portion of our menu. Although we're best known for our excellent Mac & Cheese, we have offered a wide range of noodle dishes drawing on global flavors for a long time, and we made a deliberate point of honoring that tradition this quarter. Using guest input and how items had performed historically, we added back beloved items such as Indonesian Peanut Saute and Chili Garlic Ramen alongside our established Asian selections—2 dishes that customers had repeatedly requested we restore. The reaction confirmed that this approach is connecting with people. Throughout the promotional window, the mix of our Asian category rose by 42%, and the share of customers choosing an Asian entree climbed from 12.5% prior to the promotion to 17.8% while it ran. Just as important, our core main dishes performed solidly while those temporary offerings brought extra gains to the segment — evidence that clever new ideas can expand diners' options without undercutting our regular favorites. The kinds of customers we attracted also gave us reason for optimism. About 65% of promotion participants had never tried the brand before, while the remaining 35% were existing patrons placing their first order of an Asian entree.

We can't wait to take what we've learned and the results this strategy has produced and turn those new customers into regulars by introducing additional ramen items in Q4. As the launch gets closer, we look forward to providing more details on that. Our Chicken Artichoke & Asparagus Rigatoni LTO, which launched in May, got the same disciplined treatment. Fresh, seasonal ingredients met a flavor profile that resonated with diners, and we boosted its appeal by teaming up with Chrissy Teigen's Cravings brand, which especially attracted a key target demographic. Pairing bold menu creativity with a fitting brand collaborator and a well-planned marketing push, we delivered a launch that generated buzz, widened recognition, and made clear that Noodles can offer dishes that are both deeply satisfying and culturally attuned—exactly what we intend innovation to accomplish. Our limited-time items are becoming far more than short promotional pushes. They assist in conveying the Noodles narrative, maintain the brand's cultural relevance, highlight the strength of our established core lineup, and reintroduce guest favorites at the appropriate moment. Together, these efforts give longtime and first-time guests alike reasons to connect with the brand and come back more frequently. We also continue to sharpen how we convey the qualities that make Noodles distinctive. Our guest research keeps telling us that freshly prepared meals and fresh ingredients are still among the biggest factors behind how people judge quality and value, particularly among younger diners. That's what led us to introduce the Made Right Now campaign, which shines a light on something our restaurants have always done. Each bowl gets made to order, cooked in an open sauté pan, and nothing begins until the guest has placed their order. Rather than simply claiming freshness, we're demonstrating the care, craftsmanship, and real-time preparation that give every meal its distinctly Noodles character. That message has clearly connected. On paid media, Made Right Now ranked as our top creative campaign this quarter: it produced our best video completion rates and generated more site traffic plus more attributed digital and in-restaurant purchases than any other creative on Meta and TikTok. For me, that shows how combining meaningful consumer insights with authentic storytelling yields evergreen brand messaging that builds awareness and also prompts guest actions. This illustrates again how we've bolstered where our brand stands in the market and underscored what makes guests pick Noodles rather than conventional fast food. That energy continued through Q3 when we rolled out Mac Month, which featured a unique collaboration with Coca-Cola on the Fanta Vanilla Cherry Spritz—a drink crafted expressly to go with our Mac & Cheese offerings. Feedback from guests has been positive, especially with younger diners, and this exclusive item has earned substantial media coverage and social buzz that keep drawing attention to our Mac & Cheese lineup all month long. Even more significant is what this reveals about our efforts to craft unique experiences that generate excitement around the brand and provide customers with new motivations to choose Noodles. Prior to continuing, I'd like to offer a quick preview of upcoming plans. In the coming week, we will introduce our newest limited-time offering, which arose from considerable customer interest in a baked product that performed remarkably well during testing. We look forward to formally presenting it to our customers on August 5th, and we believe it exemplifies the rigorous, customer-driven innovation pipeline we are developing at Noodles. It should help us build further momentum in reach and results during the third quarter, and I hope you'll watch for it next week to see what's on the way. Last, we're now benefiting from a marketing engine that's more disciplined and better connected. During the past year, we've put in place a marketing system in which brand performance and consumer insights function together instead of operating separately; that lets us go beyond one-off campaigns and maintain an ongoing conversation with our guests. What matters more is that this system is producing a healthier, more balanced growth model, particularly through our digital channels, where second quarter digital channel comparable sales rose 18%. Within that digital channel expansion, we're driving more visits from rewards members and simultaneously attracting new diners via pertinent brand communications, enticing food announcements, captivating social material, and more intelligent media spending rather than depending largely on discounts; we're likewise still succeeding in connecting with younger customers by aligning our media approach with how they currently discover brands. Be it embracing culturally pertinent collaborations, partnering with creators and influencers, or putting money into platforms where younger audiences devote their time, like TikTok, YouTube, and Pinterest, we're expanding awareness while extracting greater value from each marketing dollar. During Q2, overall media impressions were close to twice what they were the prior year, while spending increased by only about 6% — a sign of improved efficiency as well as tighter execution discipline. Just as significant, all of our campaigns, offers, and menu innovations are now part of a larger strategy. Every touchpoint is designed to reinforce the brand, build stronger guest relationships, and drive lasting traffic rather than merely producing a near-term sales bump. Our Boost Weeks illustrate this too: these loyalty events are scheduled deliberately for a clear objective — bringing additional guests into our rewards program and giving them opportunities to engage with the brand. These targeted promotions, as opposed to blanket discounts, allow us to give something back to loyal customers, draw in new diners and those who haven't visited in a while, and drive repeat trips at important times across the year. They sit at the heart of our strategy, since they assist us in creating durable connections with guests while remaining prudent about where our promotional spend goes. Because Boost Weeks have delivered such strong results to date, we plan to carry them through the back half of the year and past that. That's the marketing function we're assembling — one that's more prudent, better connected, and more answerable. As these capabilities keep maturing, we expect them to become an increasingly meaningful competitive advantage for Noodles. Looking at how far we've come, it seems obvious to me that Noodles has made its comeback—not on the strength of a single quarter or a single campaign, but because we've assembled an organization that executes consistently. Our restaurants run better, the food we serve is what guests crave, and our marketing reaches them more intelligently. That is the basis for growth we can sustain, and it's what makes me confident about the road ahead. Work still lies in front of us, and we will never claim victory. Getting better all the time is simply part of who we are. Each quarter, we keep demonstrating that the improvement we're making holds up over time. I feel enormous pride in the team—both for the dedication they've displayed and for the results they've produced. And I'm eager about the opportunities in front of us as we go through the back half of the year. With that, I'll hand the call to Mike, who will walk through our financial results.

Thanks, Joe. For the second quarter, total revenue reached $127 million, which was a $600,000 increase compared with the prior year, driven by strong comparable sales growth that was mostly offset by closed locations. System-wide comp restaurant sales increased 10.3% in the second quarter, made up of an 11.4% increase at company-owned restaurants and a 5.5% increase at franchise restaurants. Company comp traffic rose 7.6% during the second quarter, while average check increased 3.8%, including 2.1% of effective price in the quarter. Company average unit volumes for the second quarter rose 15.9% to $1.57 million. That strong comp sales growth — another acceleration beyond our first quarter sales growth — continues to generate impressive year-over-year margin expansion. Restaurant contribution margin for the second quarter increased 440 basis points to 17.2%, up from 12.8% in the second quarter of 2025, producing a materially stronger operating model. Cost of sales in the second quarter was 24.9% of sales, a decline of 160 basis points versus last year, driven by menu price, a favorable menu mix shift, and reduced food waste, partly offset by modest inflation. Overall cost of sales inflation for the second quarter was 0.7%. Labor costs in the second quarter were 29.4% of sales, down 230 basis points from the prior year, mainly from the benefit of sales leverage and labor efficiencies, partly offset by wage inflation. Hourly wage inflation for the second quarter was 1.6%. Occupancy expense came in at $10.2 million during Q2, compared with $11.4 million in 2025, which reflects a reduced number of company-owned restaurants across the trailing 12 months. Other restaurant operating costs were 20.3% of sales in the second quarter, an increase of 60 basis points versus the prior year. The main driver of that increase was higher third-party delivery fees tied to greater sales through the third-party delivery channel, partially offset by lower spending on marketing. G&A rose to $13.9 million in Q2 from $12.4 million in 2025, driven largely by greater incentive-based compensation and partly offset by decreased wages and professional fees. Net loss for the second quarter was $4 million, or a loss of $0.67 per diluted share, versus a net loss of $17.6 million, or a loss of $3.04 per diluted share last year. The second quarter of 2026 loss included a $4.8 million non-cash impairment charge, primarily tied to our decision to close certain restaurants. Adjusted EBITDA for the second quarter grew 79% to $10.8 million, compared with $6 million in the second quarter of 2025. Second quarter capital expenditures totaled $1.5 million versus $3.4 million in 2025. At the close of the second quarter, available cash stood at $1.3 million and our debt balance was $105.4 million, a reduction of $1.4 million from the debt balance at the end of the first quarter, even with an extra payroll cycle in the second quarter. During the second quarter, we shut down two company-owned locations along with two franchise locations. Looking ahead, we expect capital expenditures of roughly $2.5 million to $3.0 million and an adjusted EBITDA margin in the range of 8.0% to 11.0%. Our portfolio optimization initiative is still a major force behind the wider push to strengthen the business. During Q2, we continued to observe a significant movement of sales away from stores we recently shuttered and toward nearby Noodles locations, and we figure that added about 250 to 300 basis points to our second quarter comp restaurant sales. That sales migration produces a step change as well as a lasting bump in AUVs at the restaurants close to the ones we closed, and it generates efficiencies throughout the operation while helping push our margin to a fairly solid 17.2% for the quarter. In fact, the sales transfer spread to other restaurants has come in larger than our initial estimate, and our robust off-premise sales mix is the reason. Although portfolio optimization delivered a meaningful benefit, the bulk of the comp restaurant sales increase came from menu innovation improvements and the other fundamental business drivers Joe highlighted. All told, we're quite pleased with our results, which keep surpassing our expectations. Better revenue gains combined with disciplined expense control are producing improvements in contribution margin, adjusted EBITDA, and free cash flow that substantially exceed what we anticipated when 2026 started. Turning to the remainder of the year, we are raising our full year 2026 guidance as follows: total revenue between $485 million and $500 million, which includes comparable restaurant sales growth of 8%-11%. Restaurant contribution margin of 16% to 17%. General and Administrative Expenses of $51 million-$54 million, including stock-based compensation expense of $2.5 million-$3 million. Depreciation and amortization expense of $24 million-$25 million. Interest expense of $10 million-$11 million. Adjusted EBITDA of $34 million to $38 million. One new franchise restaurant opening. As for the restaurants we're closing, the count should come to 30 to 35 company-owned locations plus five franchise locations, and we're setting total 2026 capital expenditures at $9 million-$10 million. We still expect to be free cash flow positive and to have a chance in 2026 to reduce the debt balance by about $10 million, and that number includes the $4.8 million of reduction already accomplished year-to-date through the second quarter. Combining our full year adjusted EBITDA guidance with a projected debt balance of roughly $100 million at the end of 2026, we expect the debt balance to sit at or below three times adjusted EBITDA — a considerable strengthening of our overall financial position compared with where we were a year ago. While we continue to examine strategic alternatives, we're still evaluating what to do regarding the credit facility maturing in Q3 of fiscal 2027. The Business Outlook section of our press release covers more about what we expect for 2026; with that, I'll hand things back to Joe for closing remarks.

Thank you, Mike. As we wrap up today, here's what I'd like to leave with you. When we started putting our new strategies into place across the last 12 months, we made a commitment to build a stronger Noodles — with better food, great restaurant operations, smarter investments, and disciplined execution. Today, it's obvious that we're following through on those promises. As we said earlier, restaurant level margins grew by over 400 basis points compared with a year ago. Adjusted EBITDA rose by roughly 80% in the second quarter. Across the first half of the year, adjusted EBITDA more than doubled versus the same period a year earlier. We've also posted our strongest second quarter comparable sales performance since we became a publicly traded company, and that's well ahead of the industry Black Box results. Those results confirm what we've said throughout the year. The momentum at Noodles is real. Our operating model is working, and consistent execution is translating into stronger financial performance. When we think about further menu innovation and our focus on additional improvements in the second half of the year and beyond, we're very excited about what lies ahead for Noodles & Company. Thank you for your continued confidence in Noodles. We look forward to updating you next quarter. I'll turn the call back over to the operator.

Hi, thanks for the question. Congratulations on the ongoing gains in your results—those are really impressive. Nice work, everybody.

Thank you, Todd.

Thanks.

Joe, I'd like to focus a bit on innovation. I realize we won't receive much detail on specific items, but you mentioned the success you're seeing with certain Asian-inspired dishes and how that's drawing what's really a new audience to the brand too. As you discussed a broader ramen platform rolling out, two things. First, how far can we expand this offering? Second, is there a point at which it turns into more of a permanent menu item rather than being LTO driven?

Well, I appreciate the question. Yes. I think one thing I'm quite proud of regarding the innovation team is that we now have a consistent testing process in place across our restaurants, and we have an 18-month calendar for items we believe can be relevant to the brand, whether that's an LTO or a permanent item. You'll be hearing some great news about our Q4 ramen launch. We're wrapping up testing on multiple ramens, ones we believe can be part of the quarter four launch, along with future LTOs that keep that very important innovation going in our restaurants. We haven't yet decided whether it's an LTO or a permanent item, but the offerings coming in Q4 are going to be very exciting, and there will be multiple offerings at that time.