Noodles expects 10 to 15 systemwide openings in 2021, including two to four franchises. More restaurants are coming to South Carolina, which will mark Noodles’ first new franchise territory in several years. Company restaurants will comprise the majority of openings during the next few years, with a goal of at least 50 percent coming from franchisees starting in 2024.
The brand anticipates that at least 70 percent of its 2022 pipeline will include an order-ahead window. Additionally, two ghost kitchens are scheduled to debut later in Q2. Boennighausen said the ghost kitchens will open in “dense, residential urban” areas.
Noodles ended Q1 with 448 stores systemwide, including 372 company-run restaurants and 76 franchise stores. Six corporate units closed in Q1. Each shuttered unit was underperforming even as sales recovered across the system, and many of them were in undesirable locations. The company currently anticipates only one additional permanent closure through the rest of 2021.
“We believe the brand's improved menu, digital and off-premise strengths, evidenced by the performance and economics achieved by our most recent classes, have Noodles & Company well-positioned to attract prospective franchisees as well as achieve our company growth objectives, and we are extremely excited with the unit growth opportunity ahead of us,” Boennighausen said.
Noodles’ third strategy toward its accelerated growth objectives is rooted in menu innovation. Boennighausen noted that the chain’s current test of Tortelloni has been the best-performing test in his 17 years at the company. The brand has used the past few months to optimize the offering, operational procedures, and marketing strategy behind Tortelloni. The innovation is expected to roll out nationwide later in Q2. In the first quarter, Noodles introduced the low-carb, gluten-free Cauliflower Gnocchi nationwide, and so far, the item is outperforming its results in test.
The restaurant’s mix of healthier menu items is now at 14 percent, a significant uptick from a just a few years ago, the CEO said.
“We continue to believe there remains meaningful upside to our healthier platforms, and are currently innovating around improvements to our salad and vegetable noodle offerings," Boenninghausen said.
The biggest potential obstacle appears to be labor pressures, but Boennighausen said Noodles has that under control. Labor was 31.8 percent of sales in Q1, a 290-basis-point improvement year-over-year. That was driven by labor model efficiencies through Noodles’ kitchen of the future initiative, particularly a reduction in front-of-house hours.
Management turnover is roughly half of what it was a few years ago, as well, the CEO noted.
“We feel like we've got a great pipeline and a culture that supports a lot of retention," Boennighausen said. "That said, as we continue to add new units coming through the pipeline, as we continue to have increases in our average unit volumes, we're certainly focused on ensuring that we continue to have a significant application flow to support those restaurants. We definitely feel we're in a better position than most of the industry given just the strength of our team below.”
Total revenue was $109.6 million in Q1 compared to $100.3 million last year. Net loss was $2 million, or $0.04 per diluted share, compared to net loss of $5.8 million, or $0.13 per diluted share, in Q1 2020. Adjusted EBITDA was $6.3 million compared to $1.8 million last year.
