Noodles & Company CEO Drew Madsen outlined his plan to turn around the fast-casual chain during an earnings call to discuss a punishing fourth quarter for the chain.
Madsen, who had been appointed interim CEO in November following the departure of his predecessor Dave Boennighausen, was named the company’s permanent CEO right before the call.
Total revenue in the quarter ended Jan. 2, 2024, fell by 8.9% to $124.3 million, and same-store sales were down by 4.2%. The company reported a net loss of $6.1 million or 14 cents per share.
Operating margins were down by 50 basis points to 14.7%.
For the year, revenue was down by 1.2% to $503.4 million and same-store sales were down by 1.9%. Noodles booked a net loss of $9.9 million or 21 cents per share.
Central to the plan to turn the brand around is an overhaul of the menu, which Madsen said looks dated, and while it offers familiar and comforting dishes that the chain’s regulars enjoy, “we are not currently a compelling alternative for lapsed guests or new guests.”
He reminded investors that Noodles was working with consulting firm The Culinary Edge to help with the multi-phased menu transformation.
“We need to do more than offer Italian dishes living beside Asian dishes,” he said. “We need to offer dishes that are creatively fused — dishes with classic profiles, bold flavors, and signature twists that make them our own. We also need to offer dishes that interpret modern trends in approachable ways that resonate with our guests.”
He added that he wanted to rework Noodles’ limited-time-offer program so that it “better leverages trending flavor profiles and seasonality.”
Madsen, who described himself as a “measure twice, cut once” kind of person, said new dishes have already been developed and will be tested operationally later this month, followed by a market test early this summer and then a phased systemwide rollout starting later in 2024 and into 2025.
The revamp is going beyond new dishes, however, and includes reworking the architecture of the menu — something that will be easier to test now that digital menu boards have been installed in all company-owned locations — as well as reworking and possibly renaming existing dishes, and changing descriptions to add more “ingredient-forward menu descriptors to conjure craveability.”
“This is a really big menu change we’re focused on,” he said, adding that it will probably affect about half of the existing menu.
“It is a very ambitious program that involves new concepts, recipes, prices, and a new layout across our menu.”
Pricing in particular is an important issue for Noodles & Company, which has faced a decline in sales since a menu hike in February 2023 that management ultimately deemed too aggressive.
Madsen said the company was using its new menu boards to get a better understanding of how to adjust its prices.
“We are testing a variety of ways to drive check without hurting value perception and plan to feature signature dishes that showcase our culinary expertise and strengthen brand relevance,” he said.
Other priorities for the coming year include improving the guest experience in terms of order accuracy and taste of the food, focusing on the lowest quartile of restaurants in terms of performance, where Madsen said there’s the most opportunity for meaningful improvement in the short term, and shoring up dinner traffic, which suffered a greater loss than the lunch daypart.
Madsen said he was also focused on increasing membership of its loyalty program, which already has more than five million members who accounted for 25% of all transactions.
He said he was working to win back lapsed members by leveraging personalized data to provide more relevant messaging,
Additionally, the company is testing different spending levels in digital media buys that, if successful, will be implemented in the second half of the year.
Noodles & Company is also working to improve its financial strength by slowing growth.
“For 2024 we plan to strategically slow short-term new unit growth to approximately 10-12 new company restaurants,” he said.
It opened 18 company restaurants in 2023.
“In addition, we're focused on driving increased efficiencies across the business which we believe will have a material positive impact on our future financial results,” he added.
The company’s turnaround will take a while. Chief financial officer Michael Hynes said that for the first quarter of 2024 investors should expect a same-store sales decrease in the mid-single digits, and that full-year comps would be flat to +3%.
The company closed out the year with 470 locations, of which 380 are company-owned and 90 are franchised.
Contact Bret Thorn at [email protected]