Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Noodles & Co (NDLS, Financial) achieved positive system-wide same-store sales growth of 2% during the second quarter.
- Restaurant contribution margin improved by 70 basis points compared to 2023, aided by strong cost management.
- Digital sales remain strong, accounting for 55% of total sales, with 26% of sales from loyalty members.
- Catering sales grew significantly, with system-wide sales up 42% versus last year.
- The company has made substantial progress on its five key strategic priorities, including operations excellence and menu transformation.
Negative Points
- Company comp traffic during the second quarter declined by 1.1%.
- Net loss for the second quarter was $13.6 million, significantly higher than the $1.3 million loss in the same period last year.
- July comp restaurant sales were down 3.2%, indicating a challenging consumer environment.
- G&A expenses increased to $13.6 million from $12.5 million in 2023, primarily due to severance and executive transition costs.
- The company identified approximately 20 underperforming restaurants that may be closed before the end of their lease terms, indicating operational challenges.
Q & A Highlights
Q: My first is on the guidance on same-store sales and your expectations. It looks like the midpoint of the annual guidance implies the back half it only shows maybe a very slight improvement from where you're kind of running on a kind of a normalized basis in July. So I just want to kind of confirm your thinking in terms of the back half guidance, it doesn't seem to bake in much of an impact from the new menu item centers coming down the pike. Maybe just to give a perspective on how you came to that guidance, what you have baked in? And maybe also what your view of the underlying demand environment is going to be that's baked into the guidance.
A: Thanks, Jake. I'll start and just give you some guidelines on what informed our guidance. So year-to-date through Q2, we're down about 2%. We know we're starting with a down 3% in July due to the holiday -- adjusted for the holiday shift, we're better at down 7% or down 0.7%, excuse me. And so to get to positive, we would have to exceed a plus 2% in the back half of the year. And we are planning on incremental improvement from where we are today, but we wanted to be measured considering the environment and what we've recently experienced in our month-to-month progress.
Andrew Madsen - Noodles & Co - Chief Executive Officer, Director: Yes. I mean I'd emphasize, we're very excited about the progress we're making on all of our priorities, operations excellence across the board in every quartile, especially at dinner on our menu transformation, really encouraging early test market results. We're getting good progress on our loyalty program for sure, in catering. That's going to be a little bit longer-term play, but up 40% in the second quarter. So really excited about the progress in all our priorities, but we recognize that the consumer environment is difficult, and we're basically tracking with the fast casual industry benchmark now, and that's what we anticipate going forward.
Q: And one of the kind of the -- I guess, the headwinds that you faced you're about 1.5 years now, maybe 1.5 years ago, when you kind of value that out of -- a little out of whack for your consumer and you show that price elasticity wasn't there. So the question is, has your -- have value perception starting to improve? It seems like a big headwind, something that you need to really improve. Are you seeing progress there? I know customer satisfaction has been improving, but how about just the value perceptions of the consumer?
A: Yes, they are gradually improving. And we expect with our new menu improvements, they're going to accelerate even further, and that's what we're seeing in the test market. We've chosen not to aggressively discount the way we did last year to try and artificially get value improvements. We're really focused on things that will fundamentally sustainably improve our experience and improve the value perception basically driven by what our guests are feeling in the restaurant with the experience we're getting and we're really going to see more of that with our menu transformation.
Q: And then my last question is on the hiring of Scott Davis as the Chief Concept Officer. And obviously, Scott has a great track record at Panera for one. And so my question is how his hiring, how does that change your approach to menu innovation? I think before we were -- it was -- you're focused on kind of more outsourcing to that kind of menu development function. In terms of the pace of the changes that you have coming down the pike, I know he's only been in the job for over a month now. So does that delay or have any impact on kind of what the plan was as we last had heard it. I think in the last call, you mentioned you're touching about 40% of the menu by the first quarter. Now you've talked about 2/3 by the second quarter, it sounds like or by the beginning of the third just any impact you expect Scott to make as well as just impact to the plan as we understood it before is higher.
A: Yes. We're super excited about bringing Scott on board. He is one of the really outstanding concept, culinary innovation leaders in our industry, and we're delighted to have him on the team. His presence is adding, I would say, a very strong voice on the leadership team as it relates to culinary excellence and not sacrificing our culinary standards in any way, shape or form. His presence isn't going to impact the timing, but I think it will impact materially the impact the success we have in our menu transformation efforts -- just the things he's pointing out already in the work PCE has done and how to bring it to light inside our restaurant more consistently is going to make a difference. So great insight, higher standards, really strong partnership with operations. So that can impact the timing. I just think it's going to impact the overall success of what we've started with TCE.
Q: I have a few, if I may. One, Drew, I think when we were talking about LTO cadence and using some of those new menu items as an LTO bridge around the introductions in the fourth quarter. You teased kind of a brand partnership that was the promotional focus on the third quarter. And it sounds like now maybe we've added an incremental LTO in August. Is there any detail around that brand partner? Is that event still happening? Or are we kind of locked in on using the food and promoting those items as our traffic driver for Q3?
A: Well, they're both still happening. We're excited about Spicy (inaudible) stake noodles for sure, starting pretty soon. And then the three new is from the culinary edge. The partnership we were referring to isn't strictly a culinary partnership. It's with Carbar, partnership targeting families, and that is still going to happen. So all three will be in the market starting towards mid- to end of third quarter.
Q: Secondly, Mike, I know you talked about the -- when you just updated the guidance, you talked about the lower range for revenues. But in the original guidance range, were these 10 to 15 closures by the end of the year contemplated? Or is that accounting for a decent share of the guide down in revenues for the full year?
A: That is a change, Todd, from our previous guidance. So the portfolio review was initiated in the second quarter. So we were aware of that with the original guidance, and that does contribute to a portion of the revenue decline. We're anticipating the closures associated the few that we have related to the portfolio review in 2024. There'll be late Q3 and into Q4, so not a huge impact to the 2024 full year revenue number. But when we went through guidance in March, we were anticipating our normal historical closure rate, which is 1% to 2%. So we're clearly stepping up from that now.
Q:
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
