Noodles CEO Kevin Reddy talks growth

Noodles & Company saw its stock price more than double on the first day of trading as a public company, indicating a hunger among investors for fast-casual brands despite a volatile market.

After raising the initial price to $18 per share late Thursday, Noodles & Company’s share price climbed to more than 105 percent to $36.92 per share at midday Friday and closed at $36.75 per share.

The fast-casual brand is trading under the symbol NDLS, and it was the first public filing of an IPO in the restaurant space this year.

The activity sparked comparisons with the IPO of Chipotle Mexican Grill in 2006, which also saw a 100-percent increase in share price on its opening day. Chipotle opened at $22 per share and it ended its first day of trading at $44 per share.

Chipotle at the time was a larger chain that grew with the help of McDonalds Corp. over several years, with nearly 500 units that were almost all company owned. Noodles & Company has about 343 units, of which 291 are company owned.
 
John Gordon, principal of Pacific Management Consulting Group, based in San Diego, said the market response to Noodles & Company is “clearly an indicator of supply and demand of investors wanting to look at a fresh name and growth potential.”

Noodles & Company chair and chief executive Kevin Reddy, who was chief operating officer of Chipotle before joining the Denver-based pasta chain in 2005, rang the opening bell at the Nasdaq exchange in New York on Friday morning. Afterward, he spoke with Nation’s Restaurant News about the company’s planned growth.

How does being a public company benefit Noodles & Company?

This offering is all primary, so it allows us to significantly reduce and pay off debt, giving us a pristine balance sheet. And with the strong restaurant-level margins and our growth rate, we can fund a lot of our growth from operations and continue to move forward and have plenty of capital to do what we need to do to have a disciplined and compelling growth story over the next decade.

You upped the set price last night to $18, and the stock was trading at $36 this morning. What does that say about investor demand?

Why I believe so strongly in Noodles, and us being the right investment at the right time, is that we have already laid a national footprint from coast to coast with our brand. We have built the infrastructure. We have great leaders that have built teams and brands in the past, and we have already been delivering the results of a high-growth company, consistently and steadily, over the past five years.

We’ve reached a nice critical size, and we believe we have potential to grow seven times our current size and reach 2,500 restaurants in the United States alone. With our steady and reliable track record with a compelling consumer proposition that we have on the brand side and with the amount of white space in front of us, we’re a strong investment opportunity. That’s one of the reasons why you see the reception that we’ve had.

Noodles has been investing in rebranding efforts, with the refresh of interiors, new menu boards and tests of new service formats. Where is the company in that process, and what kind of results are you seeing?

We have come up with a new menu and, really, a new voice, building on the same strengths that Noodles has always had. On the menu boards we’ve added more food photography — and we’re probably one of few brands where the real food actually looks better than the food photography, so we’re excited about that.

We recently completed rolling out those menu boards to our company-operated system at the end of March. Our franchisees finished up a few months after that. So on a systemic basis it’s relatively new, but what we’re finding with our early results is we’re very, very pleased.

It’s helping our guests make better choices. It’s building on strength and variety that we have in terms of artisan sauces and great noodles, as well as gluten-free noodles and rice noodles.

What we’re discovering is that, even in markets that we’re in, there’s new engagement with the brand and a deeper understanding of all the choices that we have. It has been really well received, and it’s just one of factors that continues to allow us to have positive same-store sales growth that has primarily driven by traffic.

A 'disciplined' approach to growth

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Panera began offering pasta dishes earlier this year. Does that worry you?

Not really. We share about 78 trading areas where we’re within a quarter of a mile of each other. Where we have looked at that, we have not seen any negative impact on our brand. If anything, just the additional awareness of noodles and pasta has caused our restaurants to go up a little bit.

Can you talk about where you’re growing?

We’re currently in 26 major markets across the U.S. We have really high unaided brand awareness only in a handful of markets, like our home base of Colorado, Wisconsin and Minnesota. So we will continue doing what we have been doing in that the majority of our growth — somewhere between 50 and 60 percent — is probably going to continue to be in markets that we’ve already entered. We’ll build restaurants, gain economies of scale and increase brand awareness.

Having said that, we add a couple of new markets every year. And as we begin to fill them in, we have plenty of new neighborhoods to focus on and introduce the brand. We’ll continue that very disciplined process in the years ahead.

Where are the opportunities regionally?

We’re already in Texas, in Austin, so we’re looking at Dallas and Austin. We’re looking at San Francisco and Orlando/Tampa. Those are the markets where we’re doing early market entry strategies now.

Why haven’t we seen more fast-casual brands go public? Is it purely a matter of scale or a reflection of market volatility?

Clearly the markets have been more volatile. The eating- and drinking-out pie hasn’t been growing, so successful brands that can endure and grow have to be able to take market share from other concepts. I think a lot of brands just focus on trying to get better and not necessarily high growth in difficult times.

We have been fortunate to continue to grow both our same-store sales base and new units because of the broad appeal of the business proposition and the guest experience. But, really, it’s because we have such a strong, experienced team that can focus on growth and restaurant execution.

I can’t really speak to why others may or may not choose this path. As you know, we were very patient in getting to this day and the reality is, for us, being a public company was never a goal. Our goal was to focus on a dining experience that we’re proud of. If you do that well and you make money, you have opportunities to raise money.

How was ringing the bell at Nasdaq today?

It was really a nice moment for the team to celebrate together all the hard work in creating a brand and delivering such great food to so many neighborhoods. That’s really what allowed us to do what we did today.

Contact Lisa Jennings at [email protected].
Follow her on Twitter: @livetodineout