Boennighausen said to expect a lot of infill, low-risk sites “that we absolutely understand and have the people pipeline to execute.”
“As we go into new markets from a company perspective, we'll be focused a bit more on contiguous to our markets that we already have good brand awareness and we know we can execute from an operational supply chain perspective as well as activate the brand,” he said.
It’s worth circling the franchising opportunity. Of Noodles & Company’s 458 restaurants at Q3’s end, only 67 were franchised. And that’s been about the mix throughout the past six years.
Boennighausen said the company “absolutely believes” that model will represent a larger part of its growth.
“We've been relatively conservative in terms of our approach to growing that franchise network over the past couple of years because we knew we had such tremendous upside with our prototype with those labor initiatives,” he said. “Now that those are coming to pass and we're seeing such great momentum on the margin side as well as the sales side, you will see us be more aggressive on the franchise side, which is where a lot of the new market growth will occur.”
Noodles & Company’s margin expansion increased 70 basis points in Q3 versus the prior year despite a significant increase in delivery fees, which upped 140 basis points, year-over-year (more on this later). This has stirred mainly from better economics and a healthier labor model. Noodles & Company is doing some back-end work currently to optimize its kitchen equipment package and operating processes to improve labor efficiency, throughput, food quality, off-premises ease of pickup and flexibility for future menu innovation.
To date, the brand retrofitted the fresh kitchen design into three existing locations. While early, Boennighausen said, the results “indicate meaningful opportunity for savings in labor cost.” New restaurants are expected to begin incorporating the updated look in early 2020.
Boennighausen didn’t dive too deep into details, but said there are a few new pieces of equipment as well as changes in flow within restaurants. “It's not just labor savings. It's speed, it's flexibility, it's temperature of food, and we're seeing good movement in all of those items in those existing restaurants that have been retrofitted,” he said.
Boennighausen said earlier this year, “while we expect franchise growth to remain modest as we vet our new design, we are seeing increased appetite for growth from existing and new franchisees alike.” In July, the company refranchised five units to an existing operator. And the company finalized its first new area development “in several years,” a deal that called for the construction of six new franchises in South Carolina.
The growth equation for Noodles & Company is really three-fold: A more efficient back-of-the-house kitchen design, smaller square footage units, and accelerated franchise expansion.
There’s another element, however: The chain’s restaurants are simply more profitable than they’ve been in some time.
System-wide same-store sales bumped 2.1 percent in Q3 (2.2 percent at company run and 1.6 percent at franchised). The brand’s two-year stack sits at 7.6 percent. This past period’s comp comprised of 5 percent average check, partially offset by a 1 percent decline in discounting and a 1.8 percent drop in traffic.
During that two-year span, Noodles & Company’s average-unit volume boosted $95,000 to $1.157 million. Just year-over-year, the brand’s AUVs are up $50,000 to $1.157 million from $1.107 million.
Here’s a look at the corporate same-store sales turnaround:
- Q1 2017: –2.5 percent
- Q2 2017: –3.9 percent
- Q3 2017: –3.8 percent
- Q4 2017: –0.9 percent
- Q1 2018: –0.3 percent
- Q2 2018: 5 percent
- Q3 2018: 5.2 percent
- Q4 2018: 3.4 percent
- Q1 2019: 3 percent
- Q2 2019: 4.8 percent
- Q3 2019: 2.2 percent
Total revenue hiked $1.6 million in Q3 to $118.3 million. Adjusted net income was $4.1 million.