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Noodles & Company (NDLS) Down on Wider-Than-Expected Q1 Loss


Noodles & Company NDLS reported mixed results in the first quarter of 2018, wherein earnings missed the Zacks Consensus Estimate while revenues surpassed the same. In the quarter, the company reported adjusted loss of 4 cents, wider than the consensus estimate of 2 cents but narrower than the prior-year quarter’s loss of 8 cents.

Meanwhile, revenues of $110.5 million surpassed the consensus mark of $109.1 million by 1.3% but fell 5.3% year over year. The decline in revenues was primarily due to the closure of 55 restaurants during the year-ago quarter, partially offset by restaurant opening since the beginning of 2017.

Comps in the quarter were also affected by a shift in the timing of the Easter holiday. System-wide first-quarter comps declined 0.2% and that of company-owned restaurants fell 0.3%. Comps at Noodles & Company’s franchise restaurants however increased 0.9%.

Notably, Noodles & Company has been bearing the brunt of soft consumer demand and declining comps over the past few quarters. Despite its major sales building initiatives like streamlining of menu and innovation, the introduction of new cooking procedures, effective marketing strategy, increased focus on the off-premise business and investments in technology-driven initiatives like digital ordering, it has recorded negative comps in each of the trailing four quarters in 2017 and also in the first quarter of 2018.

Meanwhile, high costs from restaurant operation and increased labor expenses might have been a potential threat to Noodles & Company’s earnings. Conversely, the company has been undertaking the task of closing underperforming restaurants, which has positively impacted its margins.

Noodles & Company Price, Consensus and EPS Surprise

Following the earnings miss, shares of the company have gone down 5.8% in after-hours trading on May 10. However, shares of the company have rallied 61.6% in the past year, outperforming the industry’s growth of 4.8%.

Let’s delve deeper into the numbers.

Costs & Margins

Total costs and expenses in the first quarter declined 99.2% year over year, owing to a sharp decline in pre-opening costs. Cost of Sales and labor costs also declined 8.8% and 7.6%, respectively, from the year-ago quarter.

Restaurant contribution margin was 12.9% in the first quarter of 2018 compared with 11% in the first quarter of 2017, reflecting an increase of 190 basis points (bps). This increase is attributable to the closure of underperforming restaurants in the first quarter of 2017, as well as labor saving initiatives and favorable commodity pricing during the first quarter of 2018. Excluding restaurant closures, restaurant contribution margin also increased 20 bps from the prior-year quarter.

Balance Sheet

Total current assets as of Apr 3, 2018 are roughly $20 million, down from $22.1 million as of Jan 2, 2018. Long-term debt in the first quarter came in at $62.9 million, up from $57.6 million in the fourth quarter of 2017.

Total stockholders’ equity as of Apr 3, 2018 totaled $31.4 million, down from $35.9 million as of Jan 2, 2018.

2018 Outlook

The company expects earnings per share to be between loss of a penny and earnings of 3 cents. Restaurant contribution margin is expected to be in the range of 14.5-15.0%. Total revenues are anticipated in the band of $440-$450 million on the back of positive comps.

Zacks Rank & Peer Releases

Currently, Noodles & Company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Darden DRI reported mixed third-quarter fiscal 2018 results, wherein earnings surpassed the Zacks Consensus Estimate while revenues lagged the same. Adjusted earnings of $1.71 per share increased 29.5% year over year on the back of higher revenues.

Restaurant Brands’ QSR first-quarter 2018 earnings and revenues both surpassed the Zacks Consensus Estimate. Earnings under the previous accounting standard came in at 67 cents, growing 86.1% from the prior-year quarter.

Chipotle’s CMG first-quarter 2018 earnings surpassed expectations while revenues were in line with the same. Adjusted earnings of $2.13 grew 33.1% from the year-ago quarter, driven by higher revenues and lower food costs.

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