CEO Drew Madsen sees reasons for optimism in a promising April performance for the restaurant company
Noodles & Company continued to see sales decline in the most recent quarter, but CEO Drew Madsen said he was encouraged by the fact that those declines decreased over the course of the quarter, which ended April 2, and that sales and traffic actually increased year-over-year in April.
The fast-casual noodle chain based in Broomfield, Colo., has been struggling since traffic and sales started falling after price increases in February of last year.
For the most recent quarter, same-store sales were down by 5.4%, and revenue was down by 3.7% to $121.4 million compared to the first quarter of 2023. The company booked a net loss of $6.1 million, or 14 cents per share.
Margins also fell, by 3.4%.
“Now, 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,” Madsen said in an earnings call announcing the quarterly results.
He said that a traffic decline of 9% in the fourth quarter of 2023 was followed by a 12% decline in January, which he, similarly to many other chains reporting traffic losses in the first quarter, blamed largely on severe weather. The situation improved somewhat in February with a decline of 4.9%, followed by a decline of 5.5% in March exacerbated by the fact Easter, a slow-traffic weekend, occurred that month (it was on April 9 in 2023).
But traffic increased by 0.3% in April.
“Of course, this is only one month,” Madsen 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.”
Those strategic priorities, which Madsen outlined previously, include improving operations and digital engagement as well as a menu overhaul that won’t be completed until next year.
Madsen said that during the first quarter management introduced biweekly training sessions to improve execution and order accuracy. The company also reworked managers’ schedules to ensure they spent more time in the restaurants during the crucial dinner daypart, when customer satisfaction and traffic have fallen more than they have during lunch.
He said guest satisfaction scores have, in fact, improved, as has employee retention, including a 10-year high in general manager retention, since the new training was implemented.
The chain also benefitted from the return of its Steak Stroganoff limited-time offer, which Madsen said outperformed forecast sales by almost 50%. As a result, Noodles & Company ran out of product several weeks early. The item will be reintroduced in mid-May, he said.
That will be followed by a new baked Alfredo with grilled chicken in June, playing on the success of the Chicken Parmesan LTO from last year.
Further LTOs will be introduced in the runup to a fuller scale menu relaunch, accompanied by a new menu design, early next year.
Meanwhile, Madsen said the chain was working on further improving digital traffic, which already accounts for 53% of the chain’s sales. It’s using its new customer data platform to leverage its robust loyalty program, whose members spend twice as much per year at Noodles than non-members.
Using its new personalized data capabilities, Madsen said the number of Noodles’ active reward members increased, as did related transactions, while the discount rate was reduced “by using smart, segmented, and personalized offers,” he said, adding that transactions were up by around 7% while related discounts were down by around 15%.
Madsen said he also planned to launch an SMS communication channel in the second half of 2024 to allow the chain to send text messages to anyone who opts in to that service.
The CEO said he also sees potential for growth in catering, which is currently around 1.5% of sales.
“We now have an industry-experience catering leader for the first time, and I am excited about the focus she has already brought to this area where noodles should excel.”
Last year Madsen hired Liz Matakis as Noodles’ director of catering. Like Madsen himself, she was previously at Panera.
Madsen said he believes catering could account for 5% of sales or more, “but we need to reduce the complexity in our operating model and enhance our menu offering before aggressively pursuing new growth opportunities later this year and into next year.”
Noodles & Company opened two company-owned restaurants during the quarter and also closed two. One franchised restaurant opened and two were closed in the quarter, giving it a total of 469 locations, of which 89 are franchised.
Contact Bret Thorn at [email protected]
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