Operations

Inflation isn't hurting traffic, at least at Noodles & Co.

The fast-casual noodle chain said its sales momentum has continued so far this year while margins are improving thanks to normalizing commodity costs.
Noodles & Company exterior
The rollout of digital menu boards has been transformative, Noodles & Company officials said. / Photograph: Shutterstock.

Inflation may be here to stay for a while, but consumer dining trends don’t appear to be impacted so far this year, officials with Noodles & Company said Wednesday.

“The frequency of guests is stable, if not increasing. And we’re not seeing any trade down in the menu, in fact, the mix is positive,” said Dave Boennighausen, Noodles & Company CEO, after reporting earnings for the Jan. 3-ended fourth quarter.

Noodles reported momentum across all channels, including higher-priced options, like delivery, Boennighausen said.

Same-store sales were up 8.7% systemwide in the fourth quarter for the Broomfield, Colo.-based chain, including a 10.2% increase at company-owned units and 1.3% at franchised restaurants. Boennighausen said traffic was positive.

For the full year, same-store sales were up 5.6% systemwide, including 6% at company and 3.4% at franchised units.

Menu prices were about 9% higher in the fourth quarter, resulting from actions taken earlier in the year. Noodles & Company took another 5% price hike in February, but no more price increases are expected this year unless the economic environment changes significantly, Boennighausen said.

Margin expansion is expected to continue this year as commodity costs drop. Boennighausen estimated the normalization of cost of goods sold would add about $10 million in EBITDA growth this year. High chicken costs, in particular, were a headache for the brand in 2022, but Boennighausen said restaurant-level margins are expected to be between 16% and 17% in fiscal 2023.

The rollout of digital menu boards is expected to be completed in 2023, and Boennighausen said that investment has been transformative for the fast-casual chain.

During the holiday season, for example, units with digital menu boards promoted gift cards and those units had double the gift card sales of restaurants without digital menu boards.

The units with digital menu boards also saw about a 50% lift in “Make it a Meal” sales, which encourage guests to add in a drink or dessert. Sales of the chain’s signature LEANguini dish were also higher, thanks to digital menu board promotion.

“Digital menu boards are not necessarily new in the restaurant space,” said Boennighausen. “It’s all about how you use them.”

In fact, Noodles & Company is improving at the digital game overall, with about 58% of fourth-quarter sales coming through digital channels, an increase of 11% over the prior year.

The chain’s loyalty program also grew to 4.5 million members, and they accounted for 25% of sales in the quarter, which Noodles attributed to more targeted messaging, better tracking of guest behavior and creating a deeper engagement with those loyal to the brand.

Revenues for the quarter increased 18.9% to $136.5 million, though results were offset somewhat by the refranchising of 15 company-owned units in January 2022 and an extra week. The company swung to a profit, with net income of $1 million compared to a net loss of $4.7 million a year ago.

For the year, Noodles’ revenue increased 7.2% to $509.5 million. But the chain recorded a net loss of $3.3 million, compared with net income of $3.7 million the prior year.

Noodles ended the year with 16 new company locations and three new franchised units for 461 restaurants, of which 368 were company owned and 93 franchised.

 

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