Noodles and Company saw repeated sales and traffic declines last year after guests started pushing back against price hikes. The trend continued into Q1 2024, with comps sliding 5.4 percent systemwide and revenues down 3.7 percent. Its net loss nearly doubled year-over-year from $3.1 million to $6.1 million. 

Still, CEO Drew Madsen sees signs of a turnaround, and he’s encouraged by the progress the company is making in some key areas that will drive its recovery. 

“I use the word ‘encouraged’ because of the improving trends we saw in traffic and sales as we moved through the first quarter and into April,” he told investors during the company’s Q1 earnings call on May 8.  

Traffic in Q1 was down 7.3 percent, an improvement from Q4’s 9 percent decline. But what Madsen finds most encouraging is the improving month-to-month trend. January traffic was down 12 percent and was heavily impacted by severe weather in the Midwest, where the chain has a heavy presence, along with a difficult comp prior to last year’s mid-Q1 price increase. February traffic was down 4.9 percent. March was about the same, despite Easter shifting into the month and negatively impacting results. And most notably, April traffic increased 0.3 percent. 

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Madsen said the company’s same-store sales gap to the fast-casual benchmark narrowed sequentially each month thanks to the traffic gains. In April, it exceeded that benchmark for the first time since early 2023. 

“Of course, this is only one month,” he said. “We expect that our progress going forward will continue to see variability until we fully activate our strategic priorities, but we are encouraged by what we’ve seen thus far.”

One of those priorities is strengthening the financial foundation with proactive cash management and an increased emphasis on efficiency across the business. To that end, Noodles has reduced its capital spending from $51 million in 2023 to a projected $28 million to $32 million in 2024, mostly driven by the completion of its digital menu board rollout last year and a reduction in new restaurants this year. It plans to open 10-12 units in fiscal 2024, down from the 18 new stores it clinched in 2023. 

In January, Noodles implemented a major cost-reduction effort that will save around $4 million. There was a round of layoffs geared toward reducing the headcount in areas that have been deprioritized for the short term, like new unit openings. The company also adjusted its benefits package and unlocked some supply chain savings through improved vendor management. 

“None of this was easy, but it was necessary,” Madsen said. “Our cost structure is now more closely aligned with the size of our current business. We have also created a smart cost savings team to continue to look for cost savings opportunities going forward.” 

Other priorities for the nearly 500-unit chain include improving operations and overhauling its food and beverage offerings—a far-reaching initiative that will impact around half of the menu. 

On the operations front, Noodles introduced bi-weekly training sessions to improve execution and order accuracy. It also reworked schedules for managers so they can spend more time in the restaurant during the dinner daypart, which has seen greater losses in both traffic and customer satisfaction compared to lunch. 

Those efforts are paying off. Madsen said general manager retention is at its highest level in a decade. Overall guest satisfaction ratings at dinner, after being flat every quarter in 2023, “improved significantly” in Q1. 

“When operations excellence improves and guest satisfaction goes up, transactions go up, and that’s exactly what is happening now,” Madsen said. “Dinner did better than lunch every month during the quarter, and we think that’s directly attributable to continued improvement in operations excellence and improvement in guest satisfaction.”

Noodles also benefited from the return of its Beef Stroganoff LTO. The dish outperformed expectations by nearly 50 percent. It was so popular, in fact, that the company ran out of product several weeks early. The item will be reintroduced in mid-May, followed by a new Baked Alfredo LTO in June that Mardsen said builds on the strength of last year’s Chicken Parmesan launch. 

Additional LTOs will come throughout the year as Noodles gears up for the full-scale menu overhaul—with changes encompassing new dishes, recipes, prices, and the overall layout. It is working with The Culinary Edge, a food and beverage consulting company, to bring that transformation to life. 

The first part of the project involved a rigorous concept testing process to identify the strongest ideas to take into actual menu development. That work wrapped up in February, at which point The Culinary Edge started developing against the highest potential concepts for both new and improved dishes. 

For the second part of the project, Noodles placed those items in a central location test, where customers tasted and rated each offering. Improvements to existing dishes had to be preferred over the original version and score higher than the current menu average to move forward. New offerings had to score higher than the current average, too. 

“The result of all this work is very encouraging,” Madsen said. “We have identified multiple new dishes that address gaps in our current menu plus improvements to existing dishes that are ready for in-market testing.”

Noodles also is working on a new menu board design that he said is easier to navigate and has a more contemporary look. Results from that test will be available at the end of May. 

The third part of the menu transformation will marry the new and improved dishes created by The Culinary Edge with the updated menu board design in a three-market test this summer. The goal is to keep the number of items and operations complexity close to the current menu, so the addition of those new dishes will likely result in the elimination of some weaker performers. 

“Managing both the guest and operator reaction to these menu additions and deletions is one of the most important reasons to do an in-market test,” Madsen said. 

Two of the new dishes going into test this summer will be introduced nationally in Q4. After that, the rest of the new offerings will start rolling out in Q1 of 2025 alongside the updated menu design. Another round of new launches and product improvements will come in Q2 of next year. 

“We’re working on three broad opportunity areas,” Madsen said. “One is on a light and fresh menu gap in our current menu. Second is what we call twisted classics, which is essentially just updating and making some of the classic dishes on our menu more contemporary to fit consumer tastes today. And the third is flavor profiles that are a little trendier but still approachable.”

The menu work expands to catering, which currently accounts for just 1.5 percent of sales. Madsen tapped fellow Panera veteran Liz Matakis to head up that part of the business after taking the helm last year. He thinks it could grow to 5 percent or more of sales but said the company needs to reduce complexity in its operating model before aggressively expanding in the channel. That includes revisiting shipping processes to clarify who delivers catering orders, removing additional steps required to input those orders into the POS, and updating the catering menu with refreshed offerings and a new pricing structure. 

“Noodles has never made a sustained commitment to grow catering sales and it shows in our fundamentals,” he said. “In particular, we want to reduce friction for operations and ultimately create a culture where we can confidently say yes to every order.”

Another key priority is improving digital traffic, which already accounts for over half of sales, and growing the number of loyalty members, who spend an average of twice as much per year compared to non-members. Madsen sees an opportunity to build frequency among those members by using personalized data from the company’s new customer insights platform. To that end, Noodles increased its active rewards audience and transactions by roughly 7 percent in Q1. At the same time, it reduced its discount rate by approximately 15 percent by using more segmented and personalized offers. 

The company plans to launch an SMS communication channel in the back half of the year that will allow it to send texts to customers that opt-in. They won’t need to download the app or join the rewards program to participate, so Madsen said “It’s a great way to expand our reach to non-loyalty members.” 

Noodles is investing in other digital marketing touch points, like Connected TV, which refers to any device that can stream content from the internet, including services like Hulu, Disney+, and Amazon Prime. The chain’s first Connected TV test showed a 2.8 percent lift in incremental traffic and delivered a “solid return on investment.” It plans to continue testing and refining how it uses that channel in preparation for the new menu launch. It also is investing in search engine optimization to ensure it can outperform competitors in search results.

“We believe there is a significant opportunity to drive digital traffic by strengthening organic search and investing in tactics that build top-of-mind brand awareness,” Madsen said. 

In Q1, Noodles sold six units in Portland, Oregon, to a franchisee who agreed to open 20 more stores in the market over the next six years. Executives said the deal made sense because those units were geographically distant from the rest of the company-operated system, and Noodles may consider refranchising more corporate stores in the future. 

“Looking forward, I would say we’re going to be opportunistic with refranchising,” Madsen said. “Our focus is on improving unit economics, including the cost to build new units. When we get that right, we think there’ll be more opportunities down the road to refranchise.”

One franchised restaurant and two corporate restaurants came online in Q1. The company also closed two franchised stores and two corporate stores. It ended the quarter with 89 franchised units, 380 company-owned units, and a total footprint of 469 units.