Solid numbers like the ones Noodles & Co. reported at the conclusion of its initial quarter as a publicly owned company will definitely keep shareholders happy. But plans revealed during its conference call with analysts might be a cause for worry among its rivals in both the fast casual and casual dining segments.
Let’s look at those numbers first. Noodles & Co. went public in early July via a wildly successful initial public offering. Shares in the company were priced at $18, but closed at $36.75 on their first day of trading—a one-day increase of 104 percent. After a start like that, Wall Street was looking for strong performance numbers to back it up.
It got them. For its second quarter of 2013—the first quarter for which Noodles & Co. reported as a public entity—company revenues were up 18 percent and same-store sales rose 4.7 percent. Noodles & Co. executives reported that the chain remains on track to open 40 new stores this year, an impressive growth rate for a relatively mature (founded in 1995) organization.
But additional stores are just part of the company’s growth strategy. Noodles & Co. plans on capturing a bigger share of dinner business to boost same-store sales figures and drive future revenue growth. It’s a tall order. Even fast casual standouts like Chipotle and Panera haven’t totally solved the puzzle of how to do more business at dinner. Given the breadth of its menu, its modest price points and a service format that falls somewhere between pure fast casual and full-service casual dining, Noodles & Co. has a shot.
Here’s how Noodles & Co.’s president and c.o.o. Keith Kinsey positioned the dinner effort for the Wall Street analysts on its call:
“The team is in various stages of several operations initiatives including improving the design and flow of our kitchen in order to enhance throughput as well as leveraging our strength in the dinner day part. While lunch and dinner are currently at about 50% of our sales each, we feel we are uniquely positioned to excel at dinner. Aside from the great variety of our menu offerings, a world of flavors under one roof, we also offer an enhanced service model, compared to many of our competitors. Preparing each dish to order and delivering them to their table on real china. All of this without the need to tip.”
There are two additional reasons this dinner initiative might work.
One is that it’s relatively inexpensive to eat at Noodles & Co. “We offer our customers great value with an average spend of approximately $8,” chairman/c.e.o. Kevin Reddy told the analysts.
The second is that the noodles and pasta section of the Noodles & Co.’s menu consists primarily of what is traditionally dinner-type food. Bangkok Curry, Indonesian Peanut Sate, Pesto Cavatappi, Spaghetti and Meatballs, Wisconsin Mac and Cheese, Pad Thai, Steak Stroganoff, Truffle Mac—as dinner experiences go, having a real china bowl full of one of these items delivered to your table at these price points (and in a no-tipping environment) is a strong value proposition for any customer.
Factor in a now-pristine balance sheet and it looks like a company that’s ready to make it happen. Post-IPO, Noodles & Co. is virtually debt-free.
“As a result of our initial public offering, we were able to raise approximately $100 million in net proceeds after underwriter discounts and commissions and estimated offering expenses,” c.f.o. Dave Boennighausen said on the call. “This allows us to repay all but $200,000 of our outstanding debt as of July 2, 2013 and as of the same date, the company had $600,000 on hand in cash and cash equivalents.”
Fast casual is already the fastest-growing segment in the restaurant industry, eating away at the customer base of both casual dining and QSRs. If Noodles & Co. can figure out how to make the dinner daypart work, look for that trend to accelerate.