Noodles & Company is headed into the back half of 2021 with momentum, backed by a strong second quarter, which saw total revenue of $125.6 million, an increase of 57 percent compared to the previous COVID-19-saddled year.
Q2 was kind to the fast casual—AUV for the period rose 12.3 percent compared to the same period in 2019. The brand also experienced its best restaurant-level margin (18.9 percent) since Q4 2014, which represented a 180 basis-point increase compared to the Q2 2019.
“With significantly stronger restaurant level volumes and profitability and a long runway of unit growth, we continue to be extremely excited with the opportunity ahead of us,” Dave Boennighausen, CEO said in the Q2 earnings call.
Bolstered by a new menu item and a successful loyalty program, the Broomfield, Colorado-based company has set itself up for a busy stretch. Boennighausen laid out three key strategies for the brand moving forward.
“The first is the continued differentiation of our concept to appeal to a broad range of lifestyles, convenience and dietary needs,” he said. “Second, further activating our brand, particularly through our digital assets and marketing strategy, and third, accelerating our unit growth to take advantage of an operating model we feel is ideally situated for post-COVID world.”
Boennighausen described Noodles’ new stuffed pasta offering, a three-cheese Tortelloni stuffed with specialty ingredients such caramelized onions, mozzarella, parmesan and ricotta cheeses, as achieving “many minutes higher than any prior launch.”
“For years stuffed pasta has been the most requested item from our guests,” Boenninghausen said. “While it's still too early to determine the ultimate sales-driving impact the Tortelloni will have on the business, we have been very pleased with the initial results we're seeing, particularly on the frequency of our core guest.”
Noodles & Company managed to recapture 70 percent of pre-COVID in-restaurant sales during recent weeks, while holding on to 90 percent of digital sales as well. Boenninghausen sees this specific digital dynamic as something the company can continue to improve upon. Digital sales still accounted for 56 percent of sales during Q2, but he believes the company can “more effectively utilize our digital assets and data to better engage with our guests in our new rewards program.”
The rewards program, which has grown to 3.8 million members, expanded considerably during the period The newly launched three-cheese Tortelloni was offered exclusively to rewards members for the first two weeks, a move Boenninghausen credits with helping boost membership numbers.
Growing the brand is a major priority going forward, too. After a strong quarter, Boenninghausen is looking to make major moves.
“We continue to believe in our opportunity to ultimately operate at least 1,500 restaurants domestically supported by at least 7 percent system or unit growth in 2022 and soon thereafter reaching an annual growth rate of at least 10 percent,” he said. “During the second quarter we opened three restaurants system wide, two company and one franchise location.”
Of those three new units, one of them was the company’s first ghost kitchen located in Chicago. The success of the Chicago kitchen, due in part to its small footprint and more efficient operations, has led to Noodles opening a second one, which will be located in San Jose. The ghost concept is expected to be open later this year.
“While we expect the balance of 2021 openings will be a bit back-loaded,” Boenninghausen said, “the pipeline for new restaurant development for 2022 and beyond looks very strong, both from a company and franchise perspective.”
Noodles CFO Carl Lukach echoed Boenninghausen’s optimism. Same-store sales rose 56.8 percent systemwide year-over-year, comprised of a 55.7 percent lift at corporate units and a 63.8 percent hike at franchises. AUVs, as noted, upped 12.3 percent from 2019 levels to $1.35 million (51.5 percent higher than this time last year).
Lukach said that although the chain saw minimal financial impact related to commodity inflation, staffing shortages and supply chain issues are still realities that must be considered.
“We are taking an additional 3 percent pricing increase to our core menu beginning next week,” Lukach said. “Our anticipated 3 percent pricing increase would take our year-to-date pricing to 5.5 percent, which we expect to offset the expected commodity inflation we are forecasting for the back half of the year.”
Labor costs for Q2 were 29.8 percent of sales, a 410-basis point improvement from the last year and a 290-basis point improvement from 2019.
“Our performance was primarily driven by realized labor model efficiencies through our kitchen of the future initiatives,” Lukach said. “Particularly a reduction in front of house hours in addition to sales leverage. These drivers more than offset an increase in restaurant level incentive-based compensation given our sales outperformance this quarter.”
Lukach said the rollout of the company’s new steamer equipment, which results in a more consistent product for the customer and reduces labor costs for the operator, continues to provide further runway to boost efficiencies. Boenninghausen added: “By virtue of being faster, the food's actually hotter,” he said. “So, you actually get a better experience from the guest perspective.”