Noodles & Company makes a deal with an activist

The fast-casual chain, working its way through sales and profitability challenges, gave a board seat to an activist investor. But that’s not the only activist it has.
Noodles has two activist investors, one of which agreed to join the board. | Photo: Shutterstock

Activist investors are apparently circling Noodles & Company.

The Broomfield, Colorado-based fast-casual chain on Monday announced that it has reached an agreement with one of its activists, Hoak & Co., which began buying up shares last year and now owns 9.5% of the company.

Noodles appointed Britain Peaks, principal investor with Hoak, to its board. In exchange, Hoak agreed to keep its stock at that level and vote with the company on key decisions. “We have a productive and collegial relationship with Hoak & Co., and we share a commitment to building and increasing shareholder value,” Noodles Chairman Jeff Jones said in a statement.

But that’s not the only activist Noodles has. Headlands Strategic Opportunities started buying up shares earlier this year and in March filed as an activist investor on the company with the U.S. Securities and Exchange Commission.

Headlands controls 7.7% of Noodles stock, according to the most recent SEC filing.

The activists come during what has been a brutal period for the company, which last month said its same-store sales declined 5.4% in the first quarter, when it reported a net loss of $6.1 million.

Traffic was down 7.3%.

Restaurant margins were just 13.1% of sales, down from 13.7% in the first quarter a year ago.

The company’s stock, which started the year trading at just above $3 per share, is down 40% so far in 2024.

Noodles appeared to be headed in the right direction in 2022 and into 2023, thanks to a series of new menu items expanding the definition of noodles to include items like the zucchini-based Zoodles. In early 2023 the brand said that it had withstood the pressures of inflation, noting that traffic was “stable, if not increasing.”

But then it hit a wall. Just two months later, the company’s sales deteriorated, which executives blamed on resistance to the chain’s increasing menu prices.

By last November, the company ousted former CEO Dave Boennighausen and named board member and former Panera Bread President Drew Madsen his replacement.

Earlier this year, Noodles laid off an unspecified number of corporate employees.

Noodles since has shifted its attention to items like steak, which appears to have generated some consumer enthusiasm.

Still, the sales challenges hurt Noodles’ performance. The chain’s system sales recovered from the pandemic shock, thanks to a combination of some unit growth and strong same-store sales.

System sales grew nearly 15% between 2019 and 2022, according to the Technomic Top 500 Chain Restaurant Report.

But in 2023, they hit a wall as those same-store sales fell, increasing just 0.2%.

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