Noodles & Company Turns the COVID-19 Corner

    Trends are improving, but the fast casual won't rush back into dining rooms.

    Noodles & Company

    CEO Dave Boennighausen said customers first gravitated toward comfort food. Lately, it's been healthy choices.

    All things considered, Noodles & Company was well positioned to navigate COVID-19. In the first quarter pre-pandemic, more than 60 percent of its sales were coming via off-premises channels. So the crisis bottom for the fast casual didn’t end up as deep as some category peers.

    CEO Dave Boennighausen said Wednesday Noodles & Company’s same-store sales plunged 55 percent at its lowest point—the last week of March. But the trajectory since has provided a jolt of optimism.

    Comps declined 33.6 percent in the week that ended May 5. They were down 36.1 percent over the past three weeks combined.

    “Our food travels extremely well, and our guests are already accustomed to seamlessly ordering through our digital channels to enjoy the variety and value in our menu regardless of where they were dining,” Boennighausen said. “We've been able to leverage that strength as well as build upon it with our recent initiatives, resulting in the consistent improvement we have seen during the last few weeks.”

    It also helped Noodles & Company’s was riding top-line momentum coming in. Same-store sales were up 5.5 percent during the first 10 weeks of Q1, including positive traffic. This followed a Q4 where comps lifted 2.9 percent to give Noodles & Company seven consecutive periods of positive gains.

    Q1 finished at negative 7.2 percent following March’s coronavirus impact. Digital sales hiked 44.2 percent to account for 31 percent of sales. Net loss was $5.8 million, or 13 cents per diluted share, compared to 1.9 million in Q1 2019. Revenue declined 8.8 percent to $100.3 million.

    Same-store sales at corporate restaurants

    • Four weeks ended January 28: 4.4 percent
    • Four weeks ended February 25: 7.4 percent
    • Two weeks ended March 10: 4.5 percent
    • March 11–March 31: –45.5 percent

     

    Q1’s strong start was the continuation of a comeback that stretched back more than two years. In Q1 2017, the chain shuttered 55 restaurants and reported a net loss of $26.8 million.

    In addition to getting sales back in order, Noodles & Company entered 2020 with growth on the docket—this after four new restaurants opened to better levels than any class in more than 15 years. The chain said it was targeting 5 percent unit growth systemwide starting in 2021, with potential acceleration to at least 7 percent in the years beyond. And, notably, it included meaningful expansion of Noodles & Company’s franchise network. As of March 31, only 77 of the brand’s 458 locations were franchised. Although that’s up from 68 on December 31, 2019.

    To put it simply, a lot was happening. And much of it on an upward angle.

    Boennighausen said positive momentum insulated Noodles & Company and its operators a bit from COVID-19. Still, it’s had to act rapidly in several areas. Three mainly.

    With employees, Noodles & Company introduced an emergency sick leave policy to cover up to 14 days and started providing face coverings for all workers. It’s now in the process of installing Plexiglas shields at cashier stations and has purchased infrared thermometers to allow teams to perform temperature checks at the start of every shift.

    Next, Noodles & Company turned toward accessibility and convenience. It brought curbside service to roughly 350 locations. In late March, Noodles & Company introduced direct delivery through its digital avenues. Alongside, it expanded its third-party delivery coverage to include Uber Eats in addition to DoorDash.

    Lastly, Noodles & Company put value at the forefront. The company shifted its culinary strategy in 2020, Boennighausen said, to leverage what’s already available—but just to do so in pandemic-curated ways. For instance, family meals where guests can choose from one of four options. Each comes with two sides, runs $40, and feeds four people. Customers can choose from one of the following options: Italian Classics, Mac Pack, Asian Bowls, and World Flavors.

    “The success of the family meal has been facilitated by our increasing ability to target and engage with our guests through our rewards program, which has grown to over 3 million members since its launch last fall,” Boennighausen said. “We plan to continue enhancing the guest experience by evolving our menu to accommodate dietary preferences and broadening how guests use our digital channels to get the noodles they love from the comfort of their own home.

    At the onset of COVID-19, Noodles & Company pulled back nonessential spending so it could focus on these above measures. It delayed the majority of its planned new unit growth for 2020. Only two to four restaurants are on deck for the entire fiscal calendar. The original plan called for 10–15 new builds.

    Additionally, Noodles & Company is temporarily postponing its “Kitchen of the Future” initiative originally designed to provide labor cost savings.

    Noodles & Company previously drew down $47 million on its revolving credit facility in March. This past month, it drew down an additional $8.5 million.

    As of May 5, the company had $61.1 million of cash on hand. At current cash burn rates of about $3 million per month, Noodles & Company has sufficient liquidity for well over a year, even if the recovery is slower than expected.

    CFO Ken Kuick said the company would be cash-neutral, expenses included, if same-store sales could get into the negative 20 percent territory.

    The brand should be reach the aim when dining rooms reopen. Boennighausen, however, said Noodles & Company is in no rush to do so.

    “That said, we're actually prepared to open dining rooms, provide our guests and team members a safe and healthy environment that, again, meets the regulations and surpasses guests' expectations. We're ready to do that reasonably soon as markets open up. But what we're going to look is, we're going to take our cues from not just the regulatory agencies, but also the guests,” he said.

    Noodles & Company was among the early wave of chains to shut down, making the call systemwide on March 16. It furloughed 10 percent of its Central Support Office, with another 20 percent reduced to part-time and reduced salaries for executives and non-furloughed, full-time Central Support Office employees. The compensation for the board of directors was scaled back as well.

    To assist franchisees, the company granted deferral of certain royalties, IT support, and marketing fees. Capital expenditures for 2020 were reduced from $20 million to $30 million to $7 million to $10 million.

    We've been one of the first national chains to shift to an off-premise-only model, very early on began executing a lot of practices that then became commonplace throughout the industry,” Boennighausen said. “Those will remain in place or they'll be bolstered by additional safeguards, such as Plexiglas, temperature checks. We're pretty much ready to provide a really great and safe environment for our guests. But we don't necessarily feel the need to rush into it given that we already have such a strong off-premise business."