Financing

Layoffs and sales declines hit Noodles & Co. last quarter

But CEO Drew Madsen sees signs of a turnaround, as sales and traffic turned positive in April while the chain works on menu and operations improvements.
Noodles logo
It's not clear how many were impacted by the headcount reduction at Noodles & Company. | Photo: Shutterstock.

It appeared to be a dismal first quarter for Noodles & Company. But CEO Drew Madsen saw glimmers of hope.

Same-store sales for the fast-casual brand declined 5.4% systemwide, including traffic down 7.3%. Revenues were down 3.7% to $121.4 million. The company deepened its net loss to $6.1 million, compared with a loss of $3.1 million a year ago.

And there were unspecified layoffs.

Madsen said the headcount reduction was in areas that were “deprioritized for the short term, like new unit openings.”

The company also adjusted benefits in a way that saves money but keeps the company competitive in the marketplace, he said, along with other cuts that saved about $4 million—despite a $474,000 hit from severance and executive transition costs.

“None of this was easy, but it was necessary,” said Madsen. “And our cost structure is now more closely aligned with the size of our current business.”

That said, Madsen said he was encouraged by signs of progress that have resulted from his turnaround efforts announced last year, which will include a menu overhaul in the works this year that will touch at least 40% of the menu.

Despite the rough start, the company has projected same-store sales will be flat to up 3% for the year. Here are the reasons for Madsen’s optimism:

Sales trends are heading the right direction.

Sales trends showed improvement through the quarter and turned positive in April. That breakthrough was driven in part by a Steak Stroganoff LTO introduced April 10 that surpassed expectations by almost 50%.

It was so popular, the chain ran out of the dish and plans to bring it back next week for another three weeks. Then, on its heels, will come the next LTO in June: a Baked Alfredo that Madsen expects will be as popular as a Baked Chicken Parmesan special last year.

Later this year, the chain will start testing new dishes being developed by consulting firm The Culinary Edge, which Madsen expects will bring more new menu interest later this year.

The full menu overhaul will come in two phases, and will include a redesign of digital menu boards. Some weaker-performing dishes will disappear.

Traffic was, well, less negative.

The 7.3% reduction in traffic during the first quarter marked an improvement from the 9% decline in the prior fourth quarter of 2023.

Noodles units, which have a heavy presence in the Midwest, were severely impacted by weather in January, he said, as well as the Easter shift in March. But same-store sales in April at company units were up 2.7% with traffic up 0.3%.

Dinner did better than lunch.

Part of Madsen’s turnaround plan includes boosting sales at dinner, which traditionally have trailed lunch sales. Efforts are paying off.

The company introduced bi-weekly training to improve service, accuracy and food execution. As a result, guest satisfaction scores are up at dinner, after being flat last year, and Madsen said dinner traffic slightly outpaced lunch.

“When operations excellence improves, and guest satisfaction goes up, and transactions go up,” said Madsen. “And that’s exactly what’s happening now.”

Catering is a sales growth opportunity.

Noodles has never really invested in catering, now about 1.5% of sales, but Madsen says it could be at least 5%. The company has hired a catering manager, and there are plans to improve the catering fundamentals to invest in that channel.

The company will opportunistically refranchise.

During the first quarter, Noodles sold six units in Portland, Oregon, to a franchisee, who has agreed to open 10 more in the market.

Madsen said the company would be opportunistic about refranchising going forward, and his focus is more on improving unit economics. The company plans to open 10 to 12 new restaurants this year.

During the first quarter, two company units and one franchised location opened for a total of 469 restaurants, 380 of which were company owned and 89 franchised.

 

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