Breaking Down Noodles & Company (NDLS) Financial Health: Key Insights for Investors

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Understanding Noodles & Company (NDLS) Revenue Streams

Understanding Noodles & Company's Revenue Streams

Revenue Breakdown

For the third quarter of 2024, total revenue decreased by $5.1 million, or 4.0%, to $122.8 million, down from $127.9 million in the third quarter of 2023. The decline was mainly attributed to lower same-store sales, restaurant closures, and the refranchising of six company-owned restaurants.

Revenue Source Q3 2024 (in thousands) Q3 2023 (in thousands) Change ($) Change (%)
Restaurant Revenue 120,163 125,208 (5,045) (4.0)
Franchising Royalties and Fees 2,588 2,646 (58) (2.2)
Total Revenue 122,751 127,854 (5,103) (4.0)

The primary drivers of the revenue decline included a 3.3% decrease in system-wide comparable restaurant sales. Specifically, company-owned restaurants reported a 3.4% decline, while franchise-owned locations saw a 2.9% decrease.

Year-over-Year Revenue Growth Rate

In the first three quarters of 2024, total revenue decreased by $7.6 million, or 2.0%, to $371.5 million, compared to $379.1 million in the same period of 2023. This was influenced by a 2.3% decline in comparable restaurant sales, with a 2.6% decrease at company-owned restaurants and a 1.0% decrease at franchise restaurants.

Period Total Revenue (in thousands) Change ($) Change (%)
Q1-Q3 2024 371,497 (7,588) (2.0)
Q1-Q3 2023 379,085

Contribution of Different Business Segments

In the first three quarters of 2024, restaurant revenue accounted for 98.0% of total revenue, while franchising royalties and fees contributed 2.0%. This distribution highlights the company's reliance on company-owned restaurant operations for the majority of its revenue.

Significant Changes in Revenue Streams

Notable changes in revenue streams include the refranchising of six company-owned restaurants, which affected revenue from both direct sales and franchising fees. Additionally, the company has opened ten new company-owned restaurants and two franchise locations in the first three quarters of 2024, partially offsetting losses from closures.

Historical Trends

Over the past few years, the company has experienced fluctuations in revenue, impacted by various operational and market challenges. The following table summarizes the revenue performance over the last few fiscal years:

Fiscal Year Total Revenue (in millions) Year-over-Year Change (%)
2024 (Q1-Q3) 371.5 (2.0)
2023 379.1 (3.5)
2022 392.0 5.0



A Deep Dive into Noodles & Company (NDLS) Profitability

Profitability Metrics

Gross Profit Margin: The gross profit margin for the first three quarters of 2024 was 74.5%, a slight decrease from 75.0% in the same period of 2023. The total revenue for the first three quarters of 2024 was $371.5 million, down from $379.1 million in 2023, reflecting a decline of 2.0%.

Operating Profit Margin: The operating profit margin turned negative, with a loss from operations of $(20.4) million for the first three quarters of 2024, compared to a loss of $(0.5) million in 2023. This equates to an operating margin of (5.5)%, down from (0.1)% in the previous year.

Net Profit Margin: The net profit margin for the first three quarters of 2024 was (7.1)%, compared to (1.0)% in 2023, with a net loss of $(26.5) million in 2024 against a net loss of $(3.7) million in 2023.

Metric Q3 2024 Q3 2023 Change
Gross Profit Margin 74.5% 75.0% -0.5%
Operating Profit Margin (5.5)% (0.1)% -5.4%
Net Profit Margin (7.1)% (1.0)% -6.1%

Trends in Profitability: The decline in profitability metrics from 2023 to 2024 can be attributed to several factors. The total costs and expenses rose to $391.9 million in the first three quarters of 2024, an increase of 3.3% from $379.6 million in 2023. Specifically, restaurant impairments and closure costs surged to $15.5 million in 2024 from $5.3 million in 2023, marking a significant increase of 191.5%.

Comparison with Industry Averages: The average net profit margin in the restaurant industry typically ranges between 5% to 10%. The current net profit margin of (7.1)% indicates a performance below the industry average, highlighting challenges in maintaining profitability amidst rising costs and declining revenues.

Operational Efficiency Analysis: The cost of sales as a percentage of restaurant revenue increased to 25.5% in Q3 2024 from 25.1% in Q3 2023. Labor costs also increased to 32.0% of revenue, up from 31.3%. Other operating costs rose to 20.1%, compared to 18.0% in the prior year, reflecting pressures from wage inflation and increased marketing expenses.

Cost Metric Q3 2024 (%) Q3 2023 (%) Change (%)
Cost of Sales 25.5% 25.1% 0.4%
Labor Costs 32.0% 31.3% 0.7%
Other Operating Costs 20.1% 18.0% 2.1%

Overall, the profitability metrics illustrate a challenging financial landscape, with increased costs outpacing revenue generation and resulting in significant operating and net losses for the company in 2024.




Debt vs. Equity: How Noodles & Company (NDLS) Finances Its Growth

Debt vs. Equity: How Noodles & Company Finances Its Growth

Debt Levels: As of October 1, 2024, the company had $89.9 million of total indebtedness (excluding $1.6 million of unamortized debt issuance costs) . The company also had $3.0 million of letters of credit outstanding under its credit agreement .

Debt-to-Equity Ratio: The debt-to-equity ratio is calculated by dividing total debt by total equity. As of October 1, 2024, the total stockholders' equity was $3.735 million . Thus, the debt-to-equity ratio is approximately 24.1 (calculated as $89.9 million / $3.735 million), which significantly exceeds the industry average of around 1.5 to 2.0 .

Recent Debt Issuances and Refinancing Activity: The company’s revolver had a balance of $89.9 million as of October 1, 2024, with interest rates ranging from 7.95% to 10.50% . The interest expense for the first three quarters of 2024 was $6.058 million, an increase of 89.3% compared to $3.201 million in the same period in 2023 .

Balance Between Debt and Equity Financing: The company has been increasingly reliant on debt to finance its operations, reflected in its rising interest expenses and the significant debt-to-equity ratio. As of October 1, 2024, the company had $3.3 million in cash on hand, which is insufficient for covering its total debt . This imbalance indicates a potential risk for investors regarding the company's ability to manage its debt load effectively.

Metric Value
Total Indebtedness $89.9 million
Unamortized Debt Issuance Costs $1.6 million
Letters of Credit Outstanding $3.0 million
Total Stockholders' Equity $3.735 million
Debt-to-Equity Ratio 24.1
Interest Expense (Q3 2024) $6.058 million
Cash on Hand (October 1, 2024) $3.3 million



Assessing Noodles & Company (NDLS) Liquidity

Assessing Noodles & Company’s Liquidity

Current Ratio: As of October 1, 2024, the current ratio is 0.61, indicating that the company has $0.61 in current assets for every $1.00 in current liabilities.

Quick Ratio: The quick ratio stands at 0.51, suggesting liquidity challenges as it excludes inventory from current assets.

Analysis of Working Capital Trends

As of October 1, 2024, total current assets were approximately $19.6 million while current liabilities were approximately $32.1 million, resulting in negative working capital of ($12.5 million).

Cash Flow Statements Overview

Cash Flow Activities Three Fiscal Quarters Ended October 1, 2024 (in thousands) Three Fiscal Quarters Ended October 3, 2023 (in thousands)
Net cash provided by operating activities $17,545 $27,331
Net cash used in investing activities ($22,921) ($36,622)
Net cash provided by financing activities $5,671 $10,298
Net increase in cash and cash equivalents $295 $1,007

Potential Liquidity Concerns or Strengths

As of October 1, 2024, the company reported a cash balance of $3.3 million, up from $3.0 million as of January 2, 2024. The available borrowings under the Amended and Restated Credit Agreement was $32.1 million.

Despite the negative working capital and low liquidity ratios, the company believes that its cash flows from operations and available credit will be sufficient to meet its cash requirements for the next twelve months.




Is Noodles & Company (NDLS) Overvalued or Undervalued?

Valuation Analysis

The valuation of a company is crucial for understanding whether it is overvalued or undervalued in the market. For this purpose, key financial ratios and stock performance metrics are analyzed.

Price-to-Earnings (P/E) Ratio

The price-to-earnings (P/E) ratio is a common measure to assess a company's valuation relative to its earnings. As of October 1, 2024, the P/E ratio stood at not applicable due to reported losses.

Price-to-Book (P/B) Ratio

The price-to-book (P/B) ratio provides insight into how the market values a company's equity compared to its book value. As of October 1, 2024, the P/B ratio was calculated at 0.39, indicating potential undervaluation.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The enterprise value-to-EBITDA (EV/EBITDA) ratio is another important metric. As of October 1, 2024, the EV/EBITDA was approximately -7.66, reflecting negative earnings before interest, taxes, depreciation, and amortization.

Stock Price Trends Over the Last 12 Months

The stock price has shown significant volatility over the past year, with a 52-week range between $1.40 and $6.05. The stock closed at $1.82 on October 1, 2024.

Dividend Yield and Payout Ratios

As of October 1, 2024, the company does not pay a dividend, resulting in a dividend yield of 0%. The payout ratio is also not applicable due to the absence of dividends.

Analyst Consensus on Stock Valuation

Analysts have a mixed view on the stock valuation. The consensus rating as of October 1, 2024, is Hold, with a target price of $3.00.

Metric Value
P/E Ratio Not Applicable
P/B Ratio 0.39
EV/EBITDA -7.66
Stock Price (Oct 1, 2024) $1.82
52-Week Range $1.40 - $6.05
Dividend Yield 0%
Analyst Consensus Hold
Target Price $3.00



Key Risks Facing Noodles & Company (NDLS)

Key Risks Facing Noodles & Company

Overview of Internal and External Risks

The company faces significant risks from various internal and external factors that can impact its financial performance. Key risks include:

  • Industry Competition: The competitive landscape within the fast-casual dining sector is intense, with numerous players vying for market share. This competition can lead to price wars and increased marketing expenses.
  • Regulatory Changes: Changes in food safety regulations, labor laws, and health policies can increase operational costs and impact profitability.
  • Market Conditions: Economic downturns or shifts in consumer preferences towards healthier or different dining options can adversely affect sales.

Operational, Financial, or Strategic Risks

Recent earnings reports have highlighted several operational and financial risks:

  • Comparable Restaurant Sales: In the first three quarters of 2024, comparable restaurant sales decreased by 2.6% at company-owned restaurants and 1.0% at franchise-owned restaurants, contributing to a total revenue decline of $7.6 million, or 2.0%, compared to the same period in 2023.
  • Net Loss: The company reported a net loss of $26.5 million for the first three quarters of 2024, compared to a net loss of $3.7 million in the same period of 2023.
  • Restaurant Impairments and Closure Costs: Restaurant impairments, closure costs, and asset disposals surged to $15.5 million in the first three quarters of 2024, a significant increase of 191.5% from $5.3 million in 2023.

Mitigation Strategies

The company has outlined several strategies to mitigate these risks:

  • Menu Revitalization: The introduction of new menu options is aimed at attracting customers and improving sales, particularly in response to declining consumer interest.
  • Operational Efficiency: Focus on maximizing labor efficiency and reducing costs associated with third-party delivery services.
  • Financial Management: The company plans to manage its debt obligations carefully, with $89.9 million of indebtedness as of October 1, 2024, reflecting an average interest rate of 8.67%.
Risk Factor Description Financial Impact
Comparable Sales Decline Decrease in sales from existing restaurants 2.6% decline at company-owned restaurants
Net Loss Overall financial performance $26.5 million loss in 2024
Restaurant Impairments Costs associated with closures and asset disposals $15.5 million in 2024
Debt Levels Total indebtedness and interest rates $89.9 million at 8.67% interest rate



Future Growth Prospects for Noodles & Company (NDLS)

Future Growth Prospects for Noodles & Company

Analysis of Key Growth Drivers

Several key factors influence the growth potential of the company, including:

  • Product Innovations: In 2024, the company is focusing on revitalizing its menu options, which is expected to attract new customers and retain existing ones.
  • Market Expansions: The company plans to open two new company-owned restaurants in 2025 and has committed to a six-year development plan that includes opening ten new locations in Oregon and Washington.
  • Acquisitions: The refranchising of six company-owned restaurants signals a strategic shift to focus on franchise growth, thereby reducing operational risks while expanding market presence.

Future Revenue Growth Projections and Earnings Estimates

For fiscal year 2024, total revenue is projected to be approximately $371.5 million, a slight decline from $379.1 million in fiscal year 2023. This decrease primarily stems from a decline in comparable restaurant sales and restaurant closures.

Future earnings estimates suggest a potential recovery, with analysts forecasting a rebound in revenues driven by new restaurant openings and enhanced menu offerings.

Strategic Initiatives or Partnerships That May Drive Future Growth

Strategic initiatives include:

  • Menu Transformation: The introduction of new menu items aimed at enhancing customer appeal and increasing foot traffic.
  • Franchise Development: The company is actively pursuing partnerships with franchisees to expand its footprint without incurring heavy capital expenditures.
  • Technology Investments: Investments in restaurant technology aimed at improving operational efficiency and customer experience.

Competitive Advantages That Position the Company for Growth

The company's competitive advantages are characterized by:

  • Brand Recognition: Established brand presence in the fast-casual dining segment.
  • Operational Efficiency: Focus on maximizing labor efficiency and reducing food costs through effective supply chain management.
  • Menu Flexibility: Ability to adapt menu offerings based on consumer trends and preferences.

Financial Overview Table

Metric 2024 2023 Change
Total Revenue $371.5 million $379.1 million Decrease of $7.6 million (2.0%)
Net Loss $(26.5 million) $(3.7 million) Increase of $(22.8 million)
Average Unit Volume $1,282 $1,335 Decrease of $(53) (4.0%)
Comparable Restaurant Sales (2.6)% (1.3)% Decrease of (1.3)%
Restaurant Openings 10 Increase of 10

Conclusion

Growth opportunities for the company are supported by strategic initiatives, a focus on product innovation, and plans for market expansion. Investors should monitor developments closely as the company navigates through market challenges and leverages its competitive advantages for future growth.

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Resources:

  1. Noodles & Company (NDLS) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Noodles & Company (NDLS)' financial performance, including balance sheets, income statements, and cash flow statements.
  2. SEC Filings – View Noodles & Company (NDLS)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.