Noodles & Company got hit by a one-two punch of the delta and omicron COVID surges, dealing a major blow to the fast casual’s revenues, the chain reported late Wednesday.
The news sent Noodles’ stock price down nearly 14% mid-day Thursday.
The Broomfield, Colo.-based chain lost about $8 million in anticipated fourth quarter revenue due to temporary store closures and reduced operating hours because of the delta surge’s impact on restaurants in the Rocky Mountain West and Upper Midwest, CEO Dave Boennighausen told analysts.
Business started to pick up before Noodles was hit by the impacts of omicron early in 2022. But sales have improved this month, with same-store sales up 8.7% systemwide as of this week, the company said.
“These results give us confidence that the brand will again prove its resilience and accelerate both sales and margin expansion quick as omicron subsides,” Boennighausen said, according to a transcript from financial services site Sentieo.
Noodles expects to see restaurant-level margins of just 7% to 9% in the first quarter due to the impacts of omicron, inflation and historic slowness during the season. Later in the year, the chain said margins should improve to the “high teens.”
By 2024, the fast casual has set the target of 20% margins.
For the quarter ended Dec. 28, Noodles’ same-store sales increased 11.2% systemwide over the same period last year. Total revenue grew 7.1% to $114.8 million. Average unit volumes increased 14.1% to $1.31 million.
The chain ended the quarter with 372 company-owned restaurants and 76 franchised locations. That’s a decrease of six company-owned locations from a year ago.
Noodles said it intends to open 35 new stores during 2022, with seven during the first quarter. By 2023, the chain said it still plans to see 10% annual unit growth.
Increased labor costs represent a major challenge for the chain. During the fourth quarter, Noodles paid an extra $1.1 million in one-time labor expenses for hiring, retention and COVID-related charges. Wage inflation during the quarter was about 9%.
And there’s little sign of that wage pressure letting up. For the first quarter, Noodles said it predicts “low double-digit wage inflation.”
Inflation also hit the company’s chief protein, boneless chicken breasts, raising the total cost of goods sold by 8%, the company said.
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