Noodles & Company is considering shuttering some underperforming restaurants as it plugs away at its turnaround strategy. 

The fast casual has identified approximately 20 locations with substantial negative cash flows. Combined, those units account for annual contribution losses of around $2 million. It is now working with a national broker and beginning discussions with landlords to evaluate closing those stores by or before the end of the lease terms. 

“We believe closing underperforming restaurants will allow us to focus more on our restaurants with the most growth potential and provide an increase in company earnings and cash flow post-closure,” CEO Drew Madsen said during the company’s Q2 earnings call last week. 

The timing of potential closures is uncertain and will be determined on a case-by-case basis, added CFO Mike Hynes. He also said the company anticipates closing 10 to 15 restaurants in fiscal 2024, including “a few of the underperforming restaurants.” 

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Noodles opened five company-owned restaurants in Q2 and one in July, bringing its year-to-date total company openings to eight. One new franchise location also opened in July. The company anticipates opening a total of 10 new company-owned restaurants and three new franchised restaurants in fiscal 2024. Additionally, it refranchised six restaurants in the Portland area to a new franchise group in Q2, bringing its total number of franchised locations to 95, or 20 percent of its 475-store footprint. 

Those changes come amid ongoing efforts to overhaul operations and revamp the menu after a year of falling sales, which saw an uptick in Q2. Total revenue grew 1.8 percent to $127.4 million. Systemwide comps were up 2 percent, including a 4.7 percent increase at franchised restaurants and a 1.3 percent increase at company-owned restaurants. Company comp traffic during Q2 declined 1.1 percent, with pricing contributing 0.9 percent and mix contributing 1.5 percent. 

Madsen said he was pleased with the comp improvement “despite a challenging consumer environment” and noted that Noodles equaled the fast-casual benchmark on same-store sales and traffic for the first time since 2022. The chain also improved its restaurant contribution margin by 70 basis points, “aided by strong cost management.”

Most importantly, he said Noodles made “meaningful progress” on its five strategic priorities for long-term profitable growth, including an improved foundation for better operations and encouraging early test market results for its menu transformation. 

“Although the current consumer environment may cause variability in our near-term results, I am confident we are on the right path,” Madsen said. 

He emphasized that the top priority is establishing operational excellence, focusing on key aspects of the guest experience such as food quality, overall satisfaction, and order accuracy—particularly during dinner hours where traffic has declined. To achieve this, Noodles has implemented biweekly training sessions across its locations to reinforce new standards in food execution. Training includes specific tasks like cooking proteins and caramelizing noodles, as well as improving service elements like table check-backs and drink accuracy.

Additionally, the company is enhancing adherence to staffing standards, ensuring general and assistant managers are present during peak dinner shifts. These initiatives have led to steady improvements in guest satisfaction during the daypart. 

“In the near-term, it’s difficult to correlate guest satisfaction improvement with traffic growth, but we are clearly establishing the culture and team member behaviors required for a more consistent and a more satisfying guest experience,” Madsen said. “I’m confident this will drive stronger guest loyalty and improve traffic over the long term.” 

Noodles’ second priority focuses on a comprehensive menu overhaul aimed at sparking greater guest interest. That initiative is progressing through several phases. In Phase 1, concept testing with The Culinary Edge identified compelling new-and-improved dishes. Phase 2 involved taste tests to ensure new dishes created by the food and beverage consulting firm exceed guest satisfaction benchmarks. 

With those phases nearly complete, Phase 3 has begun, placing the new offerings in test locations to evaluate real-world guest satisfaction, operational feasibility, and financial impacts. The goal is to refresh about two-thirds of the menu with new or improved items over the next year.

Recent additions in test locations include Crispy Chicken Bacon Alfredo, which has seen a 50 percent increase in sales and higher guest satisfaction compared to its predecessor; Lemon Garlic Shrimp Scampi, addressing the demand for lighter options; and Chipotle Chicken Cavatappi, catering to a Latin-inspired flavor profile. These dishes are set for a national rollout in October. Meanwhile, less popular dishes like Zucchini with Roasted Garlic Cream Sauce have been removed. Five more dishes were introduced recently, with plans for further rollouts post-holiday season into early 2025.

The company is employing limited-time offers as a temporary solution while it finalizes its core menu testing. Madsen said the most recent LTO, Baked Alfredo with Grilled Chicken, didn’t perform as well as its predecessor, Steak Stroganoff. 

“Our hypothesis is that three of our last four LTOs, including Chicken Parmesan, Chicken Prosciutto Tortelloni, and Baked Alfredo with Chicken, have all fallen into the classic Italian comfort category and felt too similar to each other to generate special visit interest,” he said. “With that in mind, we plan to feature an item from our existing menu, Spicy Korean Steak Noodles, starting mid-August.” 

The dish has low awareness but high guest satisfaction and strong appeal among younger consumers, he added.

“Our belief is that it will be more newsworthy and do a better job of driving special visit interest,” Madsen said. “So, with Spicy Korean Steak Noodles starting in August, plus Crispy Chicken Bacon Alfredo, Lemon Garlic Shrimp Scampi, and Chipotle Chicken Cavatappi introduced nationally in October, we will have plenty of exciting menu news to effectively bridge to the full new menu introduction in 2025.”

With 55 percent of sales coming from digital channels and 26 percent from loyalty members—who spend twice as much annually as non-members—the company’s third priority is maximizing its digital ecosystem. It invested in a customer data platform in 2023, allowing for more personalized and relevant offers with fewer discounts. The strategy has reactivated lapsed loyalty members, resulting in a 5 percent increase in their traffic and a 32 decrease in loyalty discount spending through Q2.

Noodles also has seen strong performance from third-party delivery, aided by investments in sponsored listings, exclusive dishes, and profitable promotions that drove double-digit traffic growth in the second quarter. The plan is to continue focusing on these areas while testing broader media channels like connected TV, streaming audio, podcasts, and direct mail to attract new customers and boost loyalty program enrollment.

The fourth priority is to sustain double-digit growth in catering while enhancing the infrastructure needed for more aggressive future expansion. The channel, which accounted for 1 percent of sales in 2022 and 1.2 percent in 2023, has risen to 1.7 percent of sales year-to-date in 2024, with a 42 percent increase in system-wide sales during Q2. 

“We continue to believe catering has the potential to be at least 4 percent to 5 percent of sales in the future, and we believe that catering growth would be incremental and contribute to higher overall margins,” Madsen said. 

To drive this growth, Noodles plans to expand catering opportunities by targeting events like Teacher Appreciation Day and introducing new menu options such as box lunches and grab-and-go items. It will also employ new tactics, including fractional catering managers to build relationships with local organizations and targeted LinkedIn ads to reach catering decision-makers. Additionally, it will streamline operations by integrating a new ordering solution to eliminate manual entry from third-party platforms and exploring options to outsource delivery and transfer orders between locations.

The final priority is to bolster financial stability through proactive cash management and heightened operational efficiency. The company has reduced capital expenditures from $52 million in 2023 to an anticipated $28 million to $32 million this year, thanks to fewer new unit openings and the completion of its digital menu board rollout.

In January, it launched a major cost reduction initiative expected to save about $4 million in 2024. This effort included targeted headcount reductions in less critical areas, adjustments to employee benefits, and supply chain improvements. The company’s smart cost savings team is actively pursuing further reductions in restaurant operating expenses and general administrative costs. It now projects total savings of over $5 million for the year.