NASDAQ:NDLS Noodles & Company Q1 2023 Earnings Report $0.95 +0.00 (+0.11%) As of 04/24/2025 04:00 PM Eastern Earnings HistoryForecast Noodles & Company EPS ResultsActual EPS-$0.05Consensus EPS -$0.08Beat/MissBeat by +$0.03One Year Ago EPSN/ANoodles & Company Revenue ResultsActual Revenue$126.08 millionExpected Revenue$126.78 millionBeat/MissMissed by -$700.00 thousandYoY Revenue GrowthN/ANoodles & Company Announcement DetailsQuarterQ1 2023Date5/10/2023TimeN/AConference Call DateWednesday, May 10, 2023Conference Call Time4:30PM ETUpcoming EarningsNoodles & Company's Q1 2025 earnings is scheduled for Wednesday, May 7, 2025, with a conference call scheduled at 4:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Noodles & Company Q1 2023 Earnings Call TranscriptProvided by QuartrMay 10, 2023 ShareLink copied to clipboard.There are 6 speakers on the call. Operator00:00:00Afternoon, and welcome to today's Noodles and Company's First Quarter 2023 Earnings Conference Call. All participants are now in a listen only mode. After the presenters' remarks, there will be a question and answer session. As a reminder, this call is being recorded. I would now like to introduce Noodles and Company's Chief Financial Officer, Karl Lukacs. Operator00:00:23Please go ahead. Speaker 100:00:28Thank you, and good afternoon, everyone. Welcome to our Q1 2023 earnings call. Here with me this afternoon is Dave Benninghausen, our Chief Executive Officer. I'd like to start by going over a few regulatory matters. During our opening remarks and in response to your questions, we may make forward looking statements regarding future events or the future financial performance of the company. Speaker 100:00:50Any such items, including details relating to our future performance, should be considered forward looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are only projections, and actual events or results could differ materially from those projections due to a number of risks and uncertainties. The Safe Harbor statement in this afternoon's news release and the cautionary statement in the company's annual report on Form 10 ks for its 2022 fiscal year and subsequent filings with the SEC are considered a part of this conference call, including the portions of each that set forth the risks I refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on Form 10 ks for its 2022 fiscal year and subsequent filings we have made. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections or forward looking statements. During the call, we will discuss non GAAP measures, which we believe can be useful in evaluating the company's operating performance. Speaker 100:02:00These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our Q1 2023 earnings release and our supplemental information. To the extent that the company provides guidance, it does so only on a non GAAP basis and does not provide reconciliations of such forward looking non GAAP measures to GAAP, Specifically, forecasted adjusted EBITDA, adjusted EPS and contribution margin are forward looking non GAAP measures. Quantitative reconciling information for these measures is unavailable without unreasonable efforts. The corresponding GAAP measures, including net income, Earnings per share and income or loss from operations are not accessible on a forward looking basis as such information is likely to be significant to an investor. Speaker 100:02:52Now, I would like to turn it over to Dave Benninghausen, our Chief Executive Officer. Thanks, Speaker 200:02:56Carl, and good afternoon, everyone. During the Q1, Noodles and Company delivered strong results with comparable restaurant sales of 6.9% And a 400 basis point improvement in restaurant level margin versus prior year, culminating in adjusted EBITDA of $7,000,000 A $4,800,000 increase and more than tripled our results from Q1 of 2022. Our results in the Q1 are testament to the continued strength in restaurant level execution and our ability to take advantage of a more normalized and favorable expense environment than we previously anticipated. I'd like to start today's call by discussing our initiatives to improve restaurant level margins. These initiatives were instrumental in driving the 400 basis point improvement we saw in the Q1. Speaker 200:03:46Last year at this We were seeing unprecedented inflation in the cost of many of our core products, particularly our high quality all white meat boneless chicken breast. Combined with continued pressure and wage inflation, we encountered the most challenging expense environment that we have seen in decades. During 2022, the company has definitely reacted to these pressures through several cost saving and productivity initiatives. We work with our vendor partners to optimize the production of certain items, maintain the same quality ingredients while improving efficiencies. We carefully monitored our primary commodities and during the Q4 entered into a fixed contract on chicken for the full year 2023 at very favorable rates compared to 2022. Speaker 200:04:35We tested a simplified menu, removing approximately 10% of our menu items, which yielded strong guest and operational metrics and was expanded nationwide during the Q1. We began the rollout of digital menu boards nationwide, which affords us the opportunity to reduce testing costs and gives us more flexibility for executing real time marketing and pricing strategy. And we engaged with a third party to help us identify opportunities to streamline operations in existing restaurants, while further reducing our footprint needs for future new restaurant builds. These initiatives were met with great success and will allow us to continue to have a more favorable long As we executed against cost savings initiatives, the company additionally capitalized on our value proposition By strategically increasing our menu pricing across our system, including an additional 5% menu price that was implemented in February of this year. The effects of all of these initiatives can be seen in our Q1 margin expansion. Speaker 200:05:39Additionally, what's exciting is that we continue to see favorability in our expense profile, Particularly in commodities, which we now anticipate in 2023 will have low single digit deflation relative to 2022. During the Q1, our cost of goods sold decreased to 25.2 percent with an even lower COGS percentage during the last half of the quarter. While our long term margin profile continues to improve, I do want to share some thoughts on our current trends and how we anticipate 2023 to progress. As you have heard from multiple companies throughout the industry, there has been a meaningful amount of noise in recent traffic trends As we have lapped the benefit of Omicron from 2022 as well as face our most challenging comparisons of the year, which for Noodles and Company was primarily during the March through May timeframes. Similar to others, we have seen choppiness in sales of late, Which for us has particularly manifested itself in the delivery channel. Speaker 200:06:42The delivery channel, which represented over 30% of our sales in Q1, Had in past quarters been relatively stable. However, beginning during the last half of Q1, while dine in sales continue to improve, We've seen a meaningful decline in our delivery sales. Although we believe the trend of reduced delivery sales is consistent with others in the industry Seeing the shift from delivery to on premise ordering, we additionally believe that we are seeing resistance to our prior price increases, presenting themselves in our overall traffic trends. In particular, we are seeing a reduction in conversion rates during the checkout process on our digital channels, as well as a reduction in frequency from lower and middle income cohorts. While we feel our pricing strategy over the last 12 months was an appropriate approach to protect and ultimately expand margins, we had not anticipated the expense environment to improve as quickly as it did. Speaker 200:07:41Combined with the current consumer sentiment, we ultimately have seen some consumer pushback on price, particularly with this most recent 5% price increase in mid February. Coupled with the most challenging traffic comparisons of the year, we do believe that Q2 will be below our prior As things currently stand, we would expect the positive delta versus expectations that we realized in the Q1 to be offset by our early second quarter results. Fortunately, given the more favorable expense environment, We have been able to quickly pivot the business to provide value for our guests. Including this past Monday, Implementing the return of the previously successful $7 for $7 menu, as well as the introduction of our $10 mac and cheese meal, which gives guests the opportunity to enjoy our top selling mac and cheese, famous homemade rice krispies and a drink at an affordable price. These offerings are also on some of our most favorable margin items. Speaker 200:08:46And when combined with other value focused promotions, Gives us the opportunity to provide value while still maintaining strong profitability. We have already seen a nice response to our value offerings With sales stabilizing and traffic declines improving, we continue to expect to complete the full year with significant margin expansion and EBITDA growth, And we've reiterated our full year guidance as we believe our strength in Q1, the promotions we have in place And our underlying margin momentum will offset the challenges that we have seen early in the Q2. As we focus on traffic driving initiatives, Our performance will be bolstered by continued strides in our rewards program, which grew 14% versus prior year to 4,700,000 members at Encouragingly, we continue to see strength in the engagement and frequency of our reward members, with frequency up 3% relative to last year. Many of our traffic driving activities are specifically designed to continue to increase enrollment in our rewards program, which brings with it increased ability to better engage our guests and become more effective with our marketing communications. Additionally, our team continues to be incredibly engaged And people metrics continue to improve meaningfully versus last year. Speaker 200:10:08We are fully staffed with both year to date annualized hourly and GM turnover roughly 30 points below 2022. This has led to continued improvement in operational metrics from cook times to net promoter stores. The improvement in people metrics is critical as we continue to increase our media growth rate. During the Q2, we anticipate opening 6 to 7 new company restaurants. Assuming no material changes in the development environment, we continue to expect for full year 2023 Approximately 7.5% gross new units, offset by roughly 5 closures of units approaching lease end, including 2 during the Q2. Speaker 200:10:49Finally, I would like to end by sharing a few awards our team has recently achieved. Over the past few months, we've been honored to be named by Newsweek Magazine I'd like to express our gratitude to our teams as these awards recognize our strength in becoming an employer of choice in an improving but still challenging labor environment. Now, I'd like to turn it over to Carl to walk through our Q1 results. Speaker 100:11:25Thank you, Dave, and good afternoon, everyone. I will provide details on the quarter and some forward looking views. During the Q1, Total revenue increased 12% to $126,100,000 compared to last year, driven by strong comparable restaurant sales growth And revenue generated from units opened since 2022. Average unit volumes were $1,340,000 during the Q1, representing a 7.5% increase from the Q1 last year. System wide comparable restaurant sales during the Q1 increased 6 point 4%, including 6.9% at company owned restaurants and 4.1% at franchise locations. Speaker 100:12:06We benefited from positive traffic growth during the 1st several weeks in the Q1, similar to the positive traffic growth we saw during the Q4 of 2022. However, as Dave mentioned, comparisons became more challenging throughout the Q1, resulting in sequential traffic declines that continued into April. These declines have since stabilized, and we are encouraged by our recently launched traffic driving marketing initiatives, which feature our most craveable menu offerings at attractive entry price points. Pricing during the Q1 was just above 10%, driven by a 5% pricing increase taken across the core menu in mid February. At its height, we were carrying 13% of price during the back half of Q1 and the early portion of Q2. Speaker 100:12:57Since then, we have lapped our primary pricing activity from last year and expect to run meaningfully lower price through the remainder of the year. Additionally, our marketing promotions will include selective pricing reductions across our core menu to maintain several entry point entrees at $7 This pricing reduction is supporting the relaunch of our $7 for $7 marketing campaign, which was extremely effective last fall Turning to the P and L. For the Q1, restaurant level contribution margin was 13.7%, a 400 basis point increase compared to last year. This improvement was predominantly a result of a 280 basis point improvement in our cost of goods sold to 25.2 percent of sales, driven by the expected benefit from our contracted food vendors, namely chicken, in addition to improvements in the commodity market for our formula based food ingredients. Looking ahead, we expect both our full year food contracts and As we launch a higher level of traffic driving marketing spend during the Q2, we expect discounts to better than expected cost of goods sold environment in the Q2. Speaker 100:14:18Importantly, while these initiatives are expected to negatively impact cost of goods sold, We expect they will be accretive to restaurant margin dollars. We will continue to monitor the impact of these marketing initiatives on our margin, but anticipate our cost of goods sold percentage in the high 25% area for the full year. We continue to That cost of food deflation for the year in the low single digits, inclusive of our favorable contracted rates for chicken. Labor costs for the Q1 were 32.3 percent of sales, which was essentially flat to last year. Wage inflation during the quarter was approximately 9%, but represented sequential improvement throughout the quarter. Speaker 100:15:00We anticipate high single digit wage inflation for the 2nd quarter with continued moderation from our Q1 level. Other operating costs for the quarter were 19.5 percent of sales compared to 19.9% last year, reflecting strong sales leverage Throughout our restaurant expenses, occupancy expense for the quarter was 9.3% of sales compared to 10.1% last year, driven by sales leverage. We anticipate continued leverage in both of these expenses through 2023 to further support margin expansion. G and A for the Q1 was in line with our expectations at $13,600,000 compared to $11,800,000 in 2022. G and A includes non cash stock based compensation of approximately $1,400,000 during the Q1 compared to approximately $1,200,000 last year. Speaker 100:15:52It is important to note that G and A includes a bonus accrual that assumes a year end payout at Target, all contingent upon the results for the remainder of 2023, compared to a lower bonus accrual in last year's Q1. GAAP net loss for the Q1 was 3,100,000 or $0.07 loss per diluted share compared to a net loss of $6,400,000 last year or a $0.14 loss per diluted share. Non GAAP diluted earnings per share was a loss of $0.05 compared to a loss of $0.13 last year. Please refer to our earnings release As Dave mentioned, we have reiterated our full year guidance as we believe the strength in Q1, the promotions we have in place and our underlying margin momentum will offset the challenges we have seen early in the Q2. For the full year 2023, We continue to expect adjusted EBITDA of approximately $45,000,000 to $50,000,000 a 35% to 50% increase versus prior year And adjusted EPS of $0.10 to $0.20 versus a modest adjusted net loss in 2022. Speaker 100:17:07We additionally continue to anticipate full year restaurant contribution margins between 16% 17% compared to 13.9% during the prior year. As a reminder, absolute first quarter restaurant level margin is historically below full year results due to seasonality and consequently is not indicative of full year expectations. For further details on our 2023 expectations, Please refer to the supplemental information in our Q1 earnings release. Turning to the balance sheet. At quarter end, we had cash and cash equivalents of $2,100,000 and a total debt balance of approximately $52,800,000 We maintain nearly $70,000,000 of incremental liquidity available for future borrowings under our amended credit facility. Speaker 100:17:54For the full year, we continue to expect $53,000,000 to $58,000,000 of capital expenditures, of which we spent approximately $10,000,000 during the Q1. We anticipate a majority of our capital investment will support new unit growth, in addition to continued innovation of our website, mobile app and digital capabilities. Our capital plan also includes the investment A full digital menu board rollouts and an upgraded network capability in all of our company locations by year end. With that, I would like to turn the call back over to Dave for final remarks. Speaker 200:18:28Thanks, Carl. We're proud that the first Quarter of 2023 continued the momentum that we saw in the Q4 of 2022 as we make progress toward a significant improvement And our baseline adjusted EBITDA. While navigating the current economic environment and the related consumer sentiment can be challenging, We believe our improving margin profile, which in turn gives us the ability to be more aggressive with targeted promotions, the expansion of our rewards consumer base, New restaurant growth and the simplification of our menu should all combine to support meaningful earnings growth in this year and beyond. While it's early, we are already seeing a positive response to our marketing strategy and look forward to sharing with you progress over upcoming quarters. Thank you for your time today. Speaker 200:19:16And with that, please open the lines for Q and A. Operator, are you there? Operator00:19:40Thank you. All right. So we will now conduct our question and answer session. All right. And our first question comes from the line of Joshua Long of Stephens Incorporated. Operator00:19:50Your line is now open. Speaker 300:19:53Great. Thanks for taking my question, guys. Curious if we can revisit your guest mix or by cohort, however you want to talk about it there. It feels like you've got some Strong trends among your more loyal rewards guests where you have more connections and more visibility. And then you talked about maybe some softness there on the pricing side with Maybe your lower, more mid tier guests. Speaker 300:20:14So just can you remind us kind of what the overall profile of the new customer looks like? And then secondarily, as you start to work some of these More value oriented price points into the business. How do you communicate that and maybe get some of those Guest that you lost along the way back into the store and reengaged? Speaker 200:20:33Certainly, Josh. We certainly skew a bit more toward higher income cohorts. And again, that's an area that we are not seeing as much price resistance. Where the price resistance we're seeing Isn't that percentage of our guests that tend to be a bit lower middle income, particularly that delivery guest. That's where we're particularly seeing the price resistance. Speaker 200:20:52When it comes to the 7 for 7 deal, which we're extremely excited about, as well as the mac and cheese meal deal, you're going to see a very integrated marketing campaign. Certainly, we'll be touching our rewards guests, which we've been very successful with. But additionally, you'll see a little bit more enhanced media, The more social presence, inside restaurants and actually utilizing, some efforts inside the restaurant to actually share a friend, do bounce back Type opportunities to continue to spread the word. And we're very encouraged with what we're seeing so far in terms of returning that lapsed guest back into the Noodles Into the Niels family. Speaker 300:21:31Very helpful. I appreciate that context. On the simplified menu test, that sounds Interesting and exciting. Can you talk to us about what you learned? Maybe this is the first initial phase of it, but are there opportunities To do another round, just any sort of early learnings and how you're sort of integrating or digesting what you've seen thus far on that side? Speaker 200:21:54Yes, absolutely. What we feel is ultimately the brand's menu itself today, Josh, is very well positioned to meet the needs of today's consumer. Clearly, we feel that there's opportunity from a value perspective. And what you'll also see is we're leaning into the customer favorites, Which in today's consumer environment, we are just seeing guests gravitate towards. Hence, when you look at the promotions around mac and cheese, around rice krispies, Some of our most favorable items are most craveable items. Speaker 200:22:23For the menu simplification test, what we're seeing is we've been able to identify through all of our data From the rewards membership program as well as other third party sources that there were certain items that were potentially a little bit more difficult to execute from the operational side As well as had clear substitutes from the existing menu. As an example, one of the dishes that we removed Was our orange chicken. And even as we reduced an item on that category of the Asian category, our mix in the Asian category remains the exact same. We were able to move all of those people into our Japanese pan noodle, our Korean beef or our pad thai. We found all of that through testing. Speaker 200:23:05And importantly, from the operational side, we saw significant cook time improvements. We saw better 90 day retention rates As people were able to be trained easier from a new restaurant perspective, significantly easier to train new guests as well. So we're seeing better operational metrics from our most recent few openings. So there were great learnings in terms of just how we can improve the efficiency and effectiveness Inside our restaurants give a better guest experience and at the same time not have the concern that we could potentially lose guests, Because we are seeing them shift to items that we know they'll love and they'll come back time and time again for us. So continue to believe there is still opportunity in there. Speaker 200:23:49We like what we're seeing thus far from the changes we've made and it's something we'll continue to evaluate. Speaker 300:23:55Super helpful. Appreciate it. And One last one for me. Carl, you mentioned a couple of times that 2Q was going to come in below your internal expectations. You might have shared some of the points and if you did, I missed them. Speaker 300:24:06I'll go back to the transcript and pull it. But are there specific items that you'd point us towards that within the context of maybe a softer 2Q, but then the overall Yes. Annual guidance for the year being reiterated? Speaker 100:24:19Sure. So I'll start with we did reiterate our full year guidance, Particularly the contribution margin of 16% to 17%. And we are happy with our new traffic driving marketing initiatives thus far And that's factored into the guidance. In terms of the cadence throughout the year and what we were indicating for Q2, this will be the most challenging quarter for us. As with the rest of the industry, you've seen a shift from average check driving comp and margin to traffic being the driver again, and that's what's underlying all the marketing And traffic driving initiatives that we have in place. Speaker 300:24:55Thank you. Speaker 200:25:14Are you willing to share what April comps wound up being or at least some guide or range? Yes. Ultimately, Andy, we don't believe that what we've seen thus far in the quarter is very indicative of what you're going to see for the full year or For the full year of 2023 as well as even Q2, as you've heard from others in the industry, there is some noise And the calendar, I think more importantly for us in particular, the comparisons become meaningfully softer as we get past mid May. So we're already seeing some nice momentum from the marketing activities that we've been doing, but ultimately feel like the quarter to date numbers Aren't really indicative of what Speaker 300:26:01we would expect for the full quarter. Speaker 200:26:04Got you. And then just a clarification, did you Jay, I mean, there have been some items on the 7 for 7 that have moved up and you're actually taking some Menu price reductions on some things, I've never heard of anybody doing that, I don't think. Yes. Actually, so In August of last year, Andy, we introduced a 7 for 7 menu, which has 7 of our most popular dishes, including our mac and cheese, our Japanese And at that time, those were actually not, they were not it's not a price change. Those were already items that On the whole average $7 When we did this most recent price increase in February, which again we feel it was the appropriate approach given the importance of preserving margins and expanding margins as we ultimately saw. Speaker 200:27:02But we had not foreseen necessarily the consumer sentiment being a little bit softer than we had potentially expected for the industry as well as the overall expense environment Being as favorable as it was. So those were items that had temporarily kind of shifted above $7 We're returning them back to $7 might not be permanent, Andy, but this hits about 50% of our guests It's not a meaningful change in terms of the overall pricing of the system, but we feel creates an incredibly attractive price point Between the $7 price point for those core very strong dishes combined with the $10 price point for The bundle that includes that famous Rice Krispies Treats and the drink, we feel we're going to be at a very attractive price point for what the guest is looking for today. Understood. Thank you. And then finally, just understand the dynamics In delivery, first of all, do you think some of it is Seasonality or the way you slice cohorts, it does appear to be some price resistance. Speaker 200:28:14And then With the lower percentage, is there a benefit you're seeing up in paper and packaging as well as in lower delivery fees and other operating expense? Yes, absolutely. And some of those I think and one reason why we can't get too much extra into Q2 is because how those delivery trends change, One benefit of it is people are shifting to more profitable channels for us. We're pleased with the overall delivery Program, we think it is additive absolutely to the business. When you look at the declines, Andy, we're looking year over year. Speaker 200:28:48So from a year over year perspective, so it kind of removes seasonality. You are correct. Seasonally, typically a Q1 in a winter would have higher Delivery seasonality, but this is purely looking year over year. We've been seeing that shift. Again, we think part of it has to do with price. Speaker 200:29:05But additionally, there is a larger macro trend around people just shifting towards more on premise occasions, which again for us are more profitable. So that is a trend that we think the whole industry is seeing and we're seeing as well. Andy, what I'll add to Speaker 100:29:19it just on your comment for the expense environment, We're seeing a favorable expense environment. The paper and packaging costs you alluded to are also supporting the COGS favorability. A lot of that is also just our cost of food, which we're seeing lower inflation than anticipated. So these tailwinds on the expense environment are affording us the ability To take these traffic driving marketing initiatives. Speaker 200:29:44Understood. Thank you, guys. Operator00:29:48Thank you. One moment please. Our next question comes from the line of Todd Brooks The Benchmark Company, your line is now open. Speaker 400:30:01Hey, thanks for taking my questions. Just a follow-up to Josh's question to begin with. Can you bucket high income, maybe 100 plus households versus how are you defining mid tier versus low, so we can get a sense of That customer mix? Speaker 200:30:20Yes. I'll tell you that how we look at those particular cohorts, Todd, is a little bit dependent on the market. So when you look at Noodles and Company, which tends to be a more suburban concept, not coastal, we look at ourselves relative to the market median. And from that perspective, we skew more towards higher income than most of our fast casual brethren. That said, it is the restaurant space. Speaker 200:30:46We have broad appeal. And so you'd still do see a meaningful number That does exist in that lower and middle income tiers. That's right. Speaker 100:30:55And Todd, just to put some context on the numbers, About 55% of our guests are over $100,000 annual household income, and the remaining 44% are under. So that's how we look at in terms of our distribution. Speaker 400:31:11Okay, great. Thanks, Karl. And then the second follow-up there, You talked about really returning to some pricing value messaging, especially to the rewards database. But then I think you also said that On the rewards frequency, it's only down a few percent. So I guess how do we broaden the messaging around value at Noodles out Beyond just marketing to the rewards customer to maybe that customer that never got over the rewards hurdle So we got from a frequency standpoint, how do we get them back in the restaurant? Speaker 200:31:45Yes. I think that's one thing that's incredibly exciting, Todd, is We do have just a much more dialed in program in terms of getting very effective media out there. We do expect marketing spend to increase modestly from Q1 to Q2, probably about from 1.5% to 2%. That includes a heavy up In particularly focused on new and last guest, we're able to target those guests specifically. And while traditionally we might have 70 Our media spend, when you think of media, you think of web, you think of social, you think of connected TV. Speaker 200:32:19Traditionally, it's about 70% of our spend That went towards people that were existing guests and that obviously has been very successful. So you only had about 30% that was targeted towards Newer gas look alike gas to our most loyal, so look alikes that would be new as well as lapsed. We have now shifted that towards 70% of our spend, is going towards that environment. Additionally, as you look at that, The messaging itself is very much around value. It's very much around the 7 for $7 it's around the $10 mac and cheese meal. Speaker 200:32:56So you will see more media spend, and you'll just see in general the brand become a bit more visible, and we'll be able to do it in just a much more efficient way as well. So it's not as if we have to make a tremendous investment in terms of our overall marketing spend, just a modest investment shifting the mix of spend We'll yield tremendous results. Speaker 400:33:19That's great. Thanks, Dave. And my last one, Karl, for you. Can you walk through kind of the next three quarters what the pricing waterfall looks like as you start to roll off some of last year's increases? And then Can you talk to what the negative mix impact with the rollbacks and focus on promotion relative to what the raw price Speaker 100:33:44Sure. For the Q1, we were just over 10% in price. It peaked At the end of the Q1 at around 13%, and we're carrying that through April. However, we're rolling off some significant pricing actions last at this time, which will roll which are rolling off in May. So you'll see a reduction in price beginning in May of this year to about mid single digits. Speaker 100:34:09And that's where we would expect this to continue throughout the rest of the year with no further pricing actions. As a reminder, last year, the last Pricing action we took was in May of 2022. So we're not going to roll off anything else beyond that action last year. And then in terms of the marketing initiatives, This is going to be dynamic. There's going to be a portion of this that as Dave mentioned will be some spend to get the message out more broadly. Speaker 100:34:34That's going to be social media and costs that are around these initiatives. But also there will be some pricing reduction as we learn The guest purchasing these specific items. So it's too early to tell what that pricing reduction may be, but it could be a percent or 2. Speaker 400:34:53Okay, great. Thanks guys. Operator00:34:57Thank you. All right. Our next question comes from the line of Jake Bartlett of Truist Securities. Your line is now open. Speaker 500:35:10Great. Thanks for taking the questions. Mike, it sounds like you're not giving specific second quarter same store sales guidance like you In the Q1, I understand how dynamic it all is. But I wonder if you could help us out whether you expect it to be positive or negative, maybe just to make sure we're in the right Zone, first name store sales? Speaker 200:35:32Yes. I think again, ultimately, Jake, we just feel it's ultimately too early. And I can share that what we saw during the Q1 was that in March same store sales remained positive, but traffic negative during that back half of Q1. We did see even sequential declines then to the 1st part of Q2. But encouragingly, as we quickly pivoted To that value marketing messaging, we immediately saw some very nice results in terms of some of the changes in traffic trends and even same store sales as we lapped The price increases from prior year, but ultimately feels a little too early for us to be giving kind of clear expectations of what we'd expect Q2 comp to be Because it's very early on in terms of those promotions. Speaker 500:36:18Okay. And throughout earnings season, for the Bunch of companies and what restaurants have reported and we haven't heard commentary that the consumer, even on the lower end, there's some commentary Some check management, but what you're describing seems much more intense than what really I've heard from any of the other companies I cover. So My question is whether your markets are different. I know you're in a lot of smaller markets, Maybe it's regionally, but do you think there's anything about your consumer and where your stores are located that make you more sensitive to The macro environment, just it feels like what you're describing is a sensitivity to the macro environment that I'm not hearing from others. Speaker 200:37:07Yes. I wouldn't say it's significantly different from what others and I believe there are several folks that have showed that there is a little bit of softness that they're seeing from the lower and middle income Consumer, where we're particularly seeing the resistance though Jake, I think is in that delivery platform, which is unique because it has that 25% price premium attached. What we had seen during prior price increases was we didn't see a change in that delivery channel. We didn't see a change in overall menu mix. So as you look at menu mix, when you see a decline in delivery, That also ultimately results in a decline in Shack. Speaker 200:37:45And that's what we're seeing at the moment is that that delivery channel is the one that we're starting to see more resistance. Now I would layer into that, that from a geographic perspective, while I don't necessarily think it's value, What we are seeing is that there are some changes in terms of how work from home has evolved for that group versus others. We tend to be a bit more smaller town oriented. We tend to be a bit more suburban oriented. We are seeing from pure year over year perspective, There is less work from home in those environments, which again we think is impacting some of the delivery aspect. Speaker 200:38:25Our most Positive restaurants are certainly urban, which is not a large part of our percentage. But when you get, you see this kind of temporary shift, The lapping of Omicron, those restaurants particularly are doing extremely strong, and then you're just not seeing the delivery sales that you had typically seen From some of those smaller, more suburban areas, which I believe are coming back to a more normal work from home environment. Speaker 500:38:51Okay, great. And then last question is on your development. In the past, you've talked about how many signed leases do you have. It's encouraging to hear that the 6 to 7 you expect in the Q2, I see 9 is coming soon on the website, so that's encouraging. But Any other metrics you can share that just give you the visibility, give you the confidence that you're going to hit your targets in 2023? Speaker 200:39:17Yes, absolutely. So as you mentioned, we have 2 sites that are actually opening this Friday. We have additional 6 that are under construction. And then as you look at the vast majority of the rest of the restaurants, the leases are signed and the environment remains fluid. From a landlord delivery perspective in particular Of what we control, we're well ahead of where we need to be. Speaker 200:39:39We have a pipeline that can support kind of continued challenging environment, can support that fallout, It still achieved that 7.5% target. So as we had already always expected, it was going to be a bit back loaded And that does seem to how it's going to play out, but significantly we have the lease assigned, we have the restaurants under development in order for us to hit that objective. Speaker 300:40:02Great. I really appreciate it. Operator00:40:07Thank you. I am showing no further questions at this point. I would now like to turn the conference back to management for closing remarks. Speaker 200:40:17Thank you, Betty. Again, we're pleased with our Q1 results and the underlying margin momentum at Noodles and Company. While there remains an uncertain macro environment, We're excited the initial response that we're seeing from our targeted value messaging activities and we continue to expect that ultimately everything is going to culminate Into a full year 2023, it's going to be a year of meaningful margin and EBITDA expansion. We really look forward to Thank you very much for your time today. Have a great evening. Operator00:40:49Thank you. And this concludes today's conference call. Thank you for participating. You may nowRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallNoodles & Company Q1 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Noodles & Company Earnings HeadlinesNoodles & Company to Announce First Quarter 2025 Results on May 7, 2025April 17, 2025 | gurufocus.comNoodles & Company (NASDAQ:NDLS) Stock Price Crosses Below Two Hundred Day Moving Average - Should You Sell?April 17, 2025 | americanbankingnews.comTrump’s treachery Trump’s Final Reset Inside the shocking plot to re-engineer America’s financial system…and why you need to move your money now.April 25, 2025 | Porter & Company (Ad)Get a Taste of What's New: Noodles & Company Launches April Taste Tour with Bold New Flavors and Exclusive Daily Offers for Rewards MembersApril 11, 2025 | prnewswire.comNoodles (NDLS): Buy, Sell, or Hold Post Q4 Earnings?April 10, 2025 | msn.comRestaurant stocks fall as investors fear recession, sales slowdownApril 7, 2025 | cnbc.comSee More Noodles & Company Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Noodles & Company? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Noodles & Company and other key companies, straight to your email. Email Address About Noodles & CompanyNoodles & Co. engages in the business of development and operation of fast-casual restaurants that serve noodle and pasta dishes, soups, salads, and appetizers. The firm also offers pleasant dining, pick-up, and delivery experiences by quickly preparing fresh food with friendly service. 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There are 6 speakers on the call. Operator00:00:00Afternoon, and welcome to today's Noodles and Company's First Quarter 2023 Earnings Conference Call. All participants are now in a listen only mode. After the presenters' remarks, there will be a question and answer session. As a reminder, this call is being recorded. I would now like to introduce Noodles and Company's Chief Financial Officer, Karl Lukacs. Operator00:00:23Please go ahead. Speaker 100:00:28Thank you, and good afternoon, everyone. Welcome to our Q1 2023 earnings call. Here with me this afternoon is Dave Benninghausen, our Chief Executive Officer. I'd like to start by going over a few regulatory matters. During our opening remarks and in response to your questions, we may make forward looking statements regarding future events or the future financial performance of the company. Speaker 100:00:50Any such items, including details relating to our future performance, should be considered forward looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are only projections, and actual events or results could differ materially from those projections due to a number of risks and uncertainties. The Safe Harbor statement in this afternoon's news release and the cautionary statement in the company's annual report on Form 10 ks for its 2022 fiscal year and subsequent filings with the SEC are considered a part of this conference call, including the portions of each that set forth the risks I refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on Form 10 ks for its 2022 fiscal year and subsequent filings we have made. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections or forward looking statements. During the call, we will discuss non GAAP measures, which we believe can be useful in evaluating the company's operating performance. Speaker 100:02:00These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our Q1 2023 earnings release and our supplemental information. To the extent that the company provides guidance, it does so only on a non GAAP basis and does not provide reconciliations of such forward looking non GAAP measures to GAAP, Specifically, forecasted adjusted EBITDA, adjusted EPS and contribution margin are forward looking non GAAP measures. Quantitative reconciling information for these measures is unavailable without unreasonable efforts. The corresponding GAAP measures, including net income, Earnings per share and income or loss from operations are not accessible on a forward looking basis as such information is likely to be significant to an investor. Speaker 100:02:52Now, I would like to turn it over to Dave Benninghausen, our Chief Executive Officer. Thanks, Speaker 200:02:56Carl, and good afternoon, everyone. During the Q1, Noodles and Company delivered strong results with comparable restaurant sales of 6.9% And a 400 basis point improvement in restaurant level margin versus prior year, culminating in adjusted EBITDA of $7,000,000 A $4,800,000 increase and more than tripled our results from Q1 of 2022. Our results in the Q1 are testament to the continued strength in restaurant level execution and our ability to take advantage of a more normalized and favorable expense environment than we previously anticipated. I'd like to start today's call by discussing our initiatives to improve restaurant level margins. These initiatives were instrumental in driving the 400 basis point improvement we saw in the Q1. Speaker 200:03:46Last year at this We were seeing unprecedented inflation in the cost of many of our core products, particularly our high quality all white meat boneless chicken breast. Combined with continued pressure and wage inflation, we encountered the most challenging expense environment that we have seen in decades. During 2022, the company has definitely reacted to these pressures through several cost saving and productivity initiatives. We work with our vendor partners to optimize the production of certain items, maintain the same quality ingredients while improving efficiencies. We carefully monitored our primary commodities and during the Q4 entered into a fixed contract on chicken for the full year 2023 at very favorable rates compared to 2022. Speaker 200:04:35We tested a simplified menu, removing approximately 10% of our menu items, which yielded strong guest and operational metrics and was expanded nationwide during the Q1. We began the rollout of digital menu boards nationwide, which affords us the opportunity to reduce testing costs and gives us more flexibility for executing real time marketing and pricing strategy. And we engaged with a third party to help us identify opportunities to streamline operations in existing restaurants, while further reducing our footprint needs for future new restaurant builds. These initiatives were met with great success and will allow us to continue to have a more favorable long As we executed against cost savings initiatives, the company additionally capitalized on our value proposition By strategically increasing our menu pricing across our system, including an additional 5% menu price that was implemented in February of this year. The effects of all of these initiatives can be seen in our Q1 margin expansion. Speaker 200:05:39Additionally, what's exciting is that we continue to see favorability in our expense profile, Particularly in commodities, which we now anticipate in 2023 will have low single digit deflation relative to 2022. During the Q1, our cost of goods sold decreased to 25.2 percent with an even lower COGS percentage during the last half of the quarter. While our long term margin profile continues to improve, I do want to share some thoughts on our current trends and how we anticipate 2023 to progress. As you have heard from multiple companies throughout the industry, there has been a meaningful amount of noise in recent traffic trends As we have lapped the benefit of Omicron from 2022 as well as face our most challenging comparisons of the year, which for Noodles and Company was primarily during the March through May timeframes. Similar to others, we have seen choppiness in sales of late, Which for us has particularly manifested itself in the delivery channel. Speaker 200:06:42The delivery channel, which represented over 30% of our sales in Q1, Had in past quarters been relatively stable. However, beginning during the last half of Q1, while dine in sales continue to improve, We've seen a meaningful decline in our delivery sales. Although we believe the trend of reduced delivery sales is consistent with others in the industry Seeing the shift from delivery to on premise ordering, we additionally believe that we are seeing resistance to our prior price increases, presenting themselves in our overall traffic trends. In particular, we are seeing a reduction in conversion rates during the checkout process on our digital channels, as well as a reduction in frequency from lower and middle income cohorts. While we feel our pricing strategy over the last 12 months was an appropriate approach to protect and ultimately expand margins, we had not anticipated the expense environment to improve as quickly as it did. Speaker 200:07:41Combined with the current consumer sentiment, we ultimately have seen some consumer pushback on price, particularly with this most recent 5% price increase in mid February. Coupled with the most challenging traffic comparisons of the year, we do believe that Q2 will be below our prior As things currently stand, we would expect the positive delta versus expectations that we realized in the Q1 to be offset by our early second quarter results. Fortunately, given the more favorable expense environment, We have been able to quickly pivot the business to provide value for our guests. Including this past Monday, Implementing the return of the previously successful $7 for $7 menu, as well as the introduction of our $10 mac and cheese meal, which gives guests the opportunity to enjoy our top selling mac and cheese, famous homemade rice krispies and a drink at an affordable price. These offerings are also on some of our most favorable margin items. Speaker 200:08:46And when combined with other value focused promotions, Gives us the opportunity to provide value while still maintaining strong profitability. We have already seen a nice response to our value offerings With sales stabilizing and traffic declines improving, we continue to expect to complete the full year with significant margin expansion and EBITDA growth, And we've reiterated our full year guidance as we believe our strength in Q1, the promotions we have in place And our underlying margin momentum will offset the challenges that we have seen early in the Q2. As we focus on traffic driving initiatives, Our performance will be bolstered by continued strides in our rewards program, which grew 14% versus prior year to 4,700,000 members at Encouragingly, we continue to see strength in the engagement and frequency of our reward members, with frequency up 3% relative to last year. Many of our traffic driving activities are specifically designed to continue to increase enrollment in our rewards program, which brings with it increased ability to better engage our guests and become more effective with our marketing communications. Additionally, our team continues to be incredibly engaged And people metrics continue to improve meaningfully versus last year. Speaker 200:10:08We are fully staffed with both year to date annualized hourly and GM turnover roughly 30 points below 2022. This has led to continued improvement in operational metrics from cook times to net promoter stores. The improvement in people metrics is critical as we continue to increase our media growth rate. During the Q2, we anticipate opening 6 to 7 new company restaurants. Assuming no material changes in the development environment, we continue to expect for full year 2023 Approximately 7.5% gross new units, offset by roughly 5 closures of units approaching lease end, including 2 during the Q2. Speaker 200:10:49Finally, I would like to end by sharing a few awards our team has recently achieved. Over the past few months, we've been honored to be named by Newsweek Magazine I'd like to express our gratitude to our teams as these awards recognize our strength in becoming an employer of choice in an improving but still challenging labor environment. Now, I'd like to turn it over to Carl to walk through our Q1 results. Speaker 100:11:25Thank you, Dave, and good afternoon, everyone. I will provide details on the quarter and some forward looking views. During the Q1, Total revenue increased 12% to $126,100,000 compared to last year, driven by strong comparable restaurant sales growth And revenue generated from units opened since 2022. Average unit volumes were $1,340,000 during the Q1, representing a 7.5% increase from the Q1 last year. System wide comparable restaurant sales during the Q1 increased 6 point 4%, including 6.9% at company owned restaurants and 4.1% at franchise locations. Speaker 100:12:06We benefited from positive traffic growth during the 1st several weeks in the Q1, similar to the positive traffic growth we saw during the Q4 of 2022. However, as Dave mentioned, comparisons became more challenging throughout the Q1, resulting in sequential traffic declines that continued into April. These declines have since stabilized, and we are encouraged by our recently launched traffic driving marketing initiatives, which feature our most craveable menu offerings at attractive entry price points. Pricing during the Q1 was just above 10%, driven by a 5% pricing increase taken across the core menu in mid February. At its height, we were carrying 13% of price during the back half of Q1 and the early portion of Q2. Speaker 100:12:57Since then, we have lapped our primary pricing activity from last year and expect to run meaningfully lower price through the remainder of the year. Additionally, our marketing promotions will include selective pricing reductions across our core menu to maintain several entry point entrees at $7 This pricing reduction is supporting the relaunch of our $7 for $7 marketing campaign, which was extremely effective last fall Turning to the P and L. For the Q1, restaurant level contribution margin was 13.7%, a 400 basis point increase compared to last year. This improvement was predominantly a result of a 280 basis point improvement in our cost of goods sold to 25.2 percent of sales, driven by the expected benefit from our contracted food vendors, namely chicken, in addition to improvements in the commodity market for our formula based food ingredients. Looking ahead, we expect both our full year food contracts and As we launch a higher level of traffic driving marketing spend during the Q2, we expect discounts to better than expected cost of goods sold environment in the Q2. Speaker 100:14:18Importantly, while these initiatives are expected to negatively impact cost of goods sold, We expect they will be accretive to restaurant margin dollars. We will continue to monitor the impact of these marketing initiatives on our margin, but anticipate our cost of goods sold percentage in the high 25% area for the full year. We continue to That cost of food deflation for the year in the low single digits, inclusive of our favorable contracted rates for chicken. Labor costs for the Q1 were 32.3 percent of sales, which was essentially flat to last year. Wage inflation during the quarter was approximately 9%, but represented sequential improvement throughout the quarter. Speaker 100:15:00We anticipate high single digit wage inflation for the 2nd quarter with continued moderation from our Q1 level. Other operating costs for the quarter were 19.5 percent of sales compared to 19.9% last year, reflecting strong sales leverage Throughout our restaurant expenses, occupancy expense for the quarter was 9.3% of sales compared to 10.1% last year, driven by sales leverage. We anticipate continued leverage in both of these expenses through 2023 to further support margin expansion. G and A for the Q1 was in line with our expectations at $13,600,000 compared to $11,800,000 in 2022. G and A includes non cash stock based compensation of approximately $1,400,000 during the Q1 compared to approximately $1,200,000 last year. Speaker 100:15:52It is important to note that G and A includes a bonus accrual that assumes a year end payout at Target, all contingent upon the results for the remainder of 2023, compared to a lower bonus accrual in last year's Q1. GAAP net loss for the Q1 was 3,100,000 or $0.07 loss per diluted share compared to a net loss of $6,400,000 last year or a $0.14 loss per diluted share. Non GAAP diluted earnings per share was a loss of $0.05 compared to a loss of $0.13 last year. Please refer to our earnings release As Dave mentioned, we have reiterated our full year guidance as we believe the strength in Q1, the promotions we have in place and our underlying margin momentum will offset the challenges we have seen early in the Q2. For the full year 2023, We continue to expect adjusted EBITDA of approximately $45,000,000 to $50,000,000 a 35% to 50% increase versus prior year And adjusted EPS of $0.10 to $0.20 versus a modest adjusted net loss in 2022. Speaker 100:17:07We additionally continue to anticipate full year restaurant contribution margins between 16% 17% compared to 13.9% during the prior year. As a reminder, absolute first quarter restaurant level margin is historically below full year results due to seasonality and consequently is not indicative of full year expectations. For further details on our 2023 expectations, Please refer to the supplemental information in our Q1 earnings release. Turning to the balance sheet. At quarter end, we had cash and cash equivalents of $2,100,000 and a total debt balance of approximately $52,800,000 We maintain nearly $70,000,000 of incremental liquidity available for future borrowings under our amended credit facility. Speaker 100:17:54For the full year, we continue to expect $53,000,000 to $58,000,000 of capital expenditures, of which we spent approximately $10,000,000 during the Q1. We anticipate a majority of our capital investment will support new unit growth, in addition to continued innovation of our website, mobile app and digital capabilities. Our capital plan also includes the investment A full digital menu board rollouts and an upgraded network capability in all of our company locations by year end. With that, I would like to turn the call back over to Dave for final remarks. Speaker 200:18:28Thanks, Carl. We're proud that the first Quarter of 2023 continued the momentum that we saw in the Q4 of 2022 as we make progress toward a significant improvement And our baseline adjusted EBITDA. While navigating the current economic environment and the related consumer sentiment can be challenging, We believe our improving margin profile, which in turn gives us the ability to be more aggressive with targeted promotions, the expansion of our rewards consumer base, New restaurant growth and the simplification of our menu should all combine to support meaningful earnings growth in this year and beyond. While it's early, we are already seeing a positive response to our marketing strategy and look forward to sharing with you progress over upcoming quarters. Thank you for your time today. Speaker 200:19:16And with that, please open the lines for Q and A. Operator, are you there? Operator00:19:40Thank you. All right. So we will now conduct our question and answer session. All right. And our first question comes from the line of Joshua Long of Stephens Incorporated. Operator00:19:50Your line is now open. Speaker 300:19:53Great. Thanks for taking my question, guys. Curious if we can revisit your guest mix or by cohort, however you want to talk about it there. It feels like you've got some Strong trends among your more loyal rewards guests where you have more connections and more visibility. And then you talked about maybe some softness there on the pricing side with Maybe your lower, more mid tier guests. Speaker 300:20:14So just can you remind us kind of what the overall profile of the new customer looks like? And then secondarily, as you start to work some of these More value oriented price points into the business. How do you communicate that and maybe get some of those Guest that you lost along the way back into the store and reengaged? Speaker 200:20:33Certainly, Josh. We certainly skew a bit more toward higher income cohorts. And again, that's an area that we are not seeing as much price resistance. Where the price resistance we're seeing Isn't that percentage of our guests that tend to be a bit lower middle income, particularly that delivery guest. That's where we're particularly seeing the price resistance. Speaker 200:20:52When it comes to the 7 for 7 deal, which we're extremely excited about, as well as the mac and cheese meal deal, you're going to see a very integrated marketing campaign. Certainly, we'll be touching our rewards guests, which we've been very successful with. But additionally, you'll see a little bit more enhanced media, The more social presence, inside restaurants and actually utilizing, some efforts inside the restaurant to actually share a friend, do bounce back Type opportunities to continue to spread the word. And we're very encouraged with what we're seeing so far in terms of returning that lapsed guest back into the Noodles Into the Niels family. Speaker 300:21:31Very helpful. I appreciate that context. On the simplified menu test, that sounds Interesting and exciting. Can you talk to us about what you learned? Maybe this is the first initial phase of it, but are there opportunities To do another round, just any sort of early learnings and how you're sort of integrating or digesting what you've seen thus far on that side? Speaker 200:21:54Yes, absolutely. What we feel is ultimately the brand's menu itself today, Josh, is very well positioned to meet the needs of today's consumer. Clearly, we feel that there's opportunity from a value perspective. And what you'll also see is we're leaning into the customer favorites, Which in today's consumer environment, we are just seeing guests gravitate towards. Hence, when you look at the promotions around mac and cheese, around rice krispies, Some of our most favorable items are most craveable items. Speaker 200:22:23For the menu simplification test, what we're seeing is we've been able to identify through all of our data From the rewards membership program as well as other third party sources that there were certain items that were potentially a little bit more difficult to execute from the operational side As well as had clear substitutes from the existing menu. As an example, one of the dishes that we removed Was our orange chicken. And even as we reduced an item on that category of the Asian category, our mix in the Asian category remains the exact same. We were able to move all of those people into our Japanese pan noodle, our Korean beef or our pad thai. We found all of that through testing. Speaker 200:23:05And importantly, from the operational side, we saw significant cook time improvements. We saw better 90 day retention rates As people were able to be trained easier from a new restaurant perspective, significantly easier to train new guests as well. So we're seeing better operational metrics from our most recent few openings. So there were great learnings in terms of just how we can improve the efficiency and effectiveness Inside our restaurants give a better guest experience and at the same time not have the concern that we could potentially lose guests, Because we are seeing them shift to items that we know they'll love and they'll come back time and time again for us. So continue to believe there is still opportunity in there. Speaker 200:23:49We like what we're seeing thus far from the changes we've made and it's something we'll continue to evaluate. Speaker 300:23:55Super helpful. Appreciate it. And One last one for me. Carl, you mentioned a couple of times that 2Q was going to come in below your internal expectations. You might have shared some of the points and if you did, I missed them. Speaker 300:24:06I'll go back to the transcript and pull it. But are there specific items that you'd point us towards that within the context of maybe a softer 2Q, but then the overall Yes. Annual guidance for the year being reiterated? Speaker 100:24:19Sure. So I'll start with we did reiterate our full year guidance, Particularly the contribution margin of 16% to 17%. And we are happy with our new traffic driving marketing initiatives thus far And that's factored into the guidance. In terms of the cadence throughout the year and what we were indicating for Q2, this will be the most challenging quarter for us. As with the rest of the industry, you've seen a shift from average check driving comp and margin to traffic being the driver again, and that's what's underlying all the marketing And traffic driving initiatives that we have in place. Speaker 300:24:55Thank you. Speaker 200:25:14Are you willing to share what April comps wound up being or at least some guide or range? Yes. Ultimately, Andy, we don't believe that what we've seen thus far in the quarter is very indicative of what you're going to see for the full year or For the full year of 2023 as well as even Q2, as you've heard from others in the industry, there is some noise And the calendar, I think more importantly for us in particular, the comparisons become meaningfully softer as we get past mid May. So we're already seeing some nice momentum from the marketing activities that we've been doing, but ultimately feel like the quarter to date numbers Aren't really indicative of what Speaker 300:26:01we would expect for the full quarter. Speaker 200:26:04Got you. And then just a clarification, did you Jay, I mean, there have been some items on the 7 for 7 that have moved up and you're actually taking some Menu price reductions on some things, I've never heard of anybody doing that, I don't think. Yes. Actually, so In August of last year, Andy, we introduced a 7 for 7 menu, which has 7 of our most popular dishes, including our mac and cheese, our Japanese And at that time, those were actually not, they were not it's not a price change. Those were already items that On the whole average $7 When we did this most recent price increase in February, which again we feel it was the appropriate approach given the importance of preserving margins and expanding margins as we ultimately saw. Speaker 200:27:02But we had not foreseen necessarily the consumer sentiment being a little bit softer than we had potentially expected for the industry as well as the overall expense environment Being as favorable as it was. So those were items that had temporarily kind of shifted above $7 We're returning them back to $7 might not be permanent, Andy, but this hits about 50% of our guests It's not a meaningful change in terms of the overall pricing of the system, but we feel creates an incredibly attractive price point Between the $7 price point for those core very strong dishes combined with the $10 price point for The bundle that includes that famous Rice Krispies Treats and the drink, we feel we're going to be at a very attractive price point for what the guest is looking for today. Understood. Thank you. And then finally, just understand the dynamics In delivery, first of all, do you think some of it is Seasonality or the way you slice cohorts, it does appear to be some price resistance. Speaker 200:28:14And then With the lower percentage, is there a benefit you're seeing up in paper and packaging as well as in lower delivery fees and other operating expense? Yes, absolutely. And some of those I think and one reason why we can't get too much extra into Q2 is because how those delivery trends change, One benefit of it is people are shifting to more profitable channels for us. We're pleased with the overall delivery Program, we think it is additive absolutely to the business. When you look at the declines, Andy, we're looking year over year. Speaker 200:28:48So from a year over year perspective, so it kind of removes seasonality. You are correct. Seasonally, typically a Q1 in a winter would have higher Delivery seasonality, but this is purely looking year over year. We've been seeing that shift. Again, we think part of it has to do with price. Speaker 200:29:05But additionally, there is a larger macro trend around people just shifting towards more on premise occasions, which again for us are more profitable. So that is a trend that we think the whole industry is seeing and we're seeing as well. Andy, what I'll add to Speaker 100:29:19it just on your comment for the expense environment, We're seeing a favorable expense environment. The paper and packaging costs you alluded to are also supporting the COGS favorability. A lot of that is also just our cost of food, which we're seeing lower inflation than anticipated. So these tailwinds on the expense environment are affording us the ability To take these traffic driving marketing initiatives. Speaker 200:29:44Understood. Thank you, guys. Operator00:29:48Thank you. One moment please. Our next question comes from the line of Todd Brooks The Benchmark Company, your line is now open. Speaker 400:30:01Hey, thanks for taking my questions. Just a follow-up to Josh's question to begin with. Can you bucket high income, maybe 100 plus households versus how are you defining mid tier versus low, so we can get a sense of That customer mix? Speaker 200:30:20Yes. I'll tell you that how we look at those particular cohorts, Todd, is a little bit dependent on the market. So when you look at Noodles and Company, which tends to be a more suburban concept, not coastal, we look at ourselves relative to the market median. And from that perspective, we skew more towards higher income than most of our fast casual brethren. That said, it is the restaurant space. Speaker 200:30:46We have broad appeal. And so you'd still do see a meaningful number That does exist in that lower and middle income tiers. That's right. Speaker 100:30:55And Todd, just to put some context on the numbers, About 55% of our guests are over $100,000 annual household income, and the remaining 44% are under. So that's how we look at in terms of our distribution. Speaker 400:31:11Okay, great. Thanks, Karl. And then the second follow-up there, You talked about really returning to some pricing value messaging, especially to the rewards database. But then I think you also said that On the rewards frequency, it's only down a few percent. So I guess how do we broaden the messaging around value at Noodles out Beyond just marketing to the rewards customer to maybe that customer that never got over the rewards hurdle So we got from a frequency standpoint, how do we get them back in the restaurant? Speaker 200:31:45Yes. I think that's one thing that's incredibly exciting, Todd, is We do have just a much more dialed in program in terms of getting very effective media out there. We do expect marketing spend to increase modestly from Q1 to Q2, probably about from 1.5% to 2%. That includes a heavy up In particularly focused on new and last guest, we're able to target those guests specifically. And while traditionally we might have 70 Our media spend, when you think of media, you think of web, you think of social, you think of connected TV. Speaker 200:32:19Traditionally, it's about 70% of our spend That went towards people that were existing guests and that obviously has been very successful. So you only had about 30% that was targeted towards Newer gas look alike gas to our most loyal, so look alikes that would be new as well as lapsed. We have now shifted that towards 70% of our spend, is going towards that environment. Additionally, as you look at that, The messaging itself is very much around value. It's very much around the 7 for $7 it's around the $10 mac and cheese meal. Speaker 200:32:56So you will see more media spend, and you'll just see in general the brand become a bit more visible, and we'll be able to do it in just a much more efficient way as well. So it's not as if we have to make a tremendous investment in terms of our overall marketing spend, just a modest investment shifting the mix of spend We'll yield tremendous results. Speaker 400:33:19That's great. Thanks, Dave. And my last one, Karl, for you. Can you walk through kind of the next three quarters what the pricing waterfall looks like as you start to roll off some of last year's increases? And then Can you talk to what the negative mix impact with the rollbacks and focus on promotion relative to what the raw price Speaker 100:33:44Sure. For the Q1, we were just over 10% in price. It peaked At the end of the Q1 at around 13%, and we're carrying that through April. However, we're rolling off some significant pricing actions last at this time, which will roll which are rolling off in May. So you'll see a reduction in price beginning in May of this year to about mid single digits. Speaker 100:34:09And that's where we would expect this to continue throughout the rest of the year with no further pricing actions. As a reminder, last year, the last Pricing action we took was in May of 2022. So we're not going to roll off anything else beyond that action last year. And then in terms of the marketing initiatives, This is going to be dynamic. There's going to be a portion of this that as Dave mentioned will be some spend to get the message out more broadly. Speaker 100:34:34That's going to be social media and costs that are around these initiatives. But also there will be some pricing reduction as we learn The guest purchasing these specific items. So it's too early to tell what that pricing reduction may be, but it could be a percent or 2. Speaker 400:34:53Okay, great. Thanks guys. Operator00:34:57Thank you. All right. Our next question comes from the line of Jake Bartlett of Truist Securities. Your line is now open. Speaker 500:35:10Great. Thanks for taking the questions. Mike, it sounds like you're not giving specific second quarter same store sales guidance like you In the Q1, I understand how dynamic it all is. But I wonder if you could help us out whether you expect it to be positive or negative, maybe just to make sure we're in the right Zone, first name store sales? Speaker 200:35:32Yes. I think again, ultimately, Jake, we just feel it's ultimately too early. And I can share that what we saw during the Q1 was that in March same store sales remained positive, but traffic negative during that back half of Q1. We did see even sequential declines then to the 1st part of Q2. But encouragingly, as we quickly pivoted To that value marketing messaging, we immediately saw some very nice results in terms of some of the changes in traffic trends and even same store sales as we lapped The price increases from prior year, but ultimately feels a little too early for us to be giving kind of clear expectations of what we'd expect Q2 comp to be Because it's very early on in terms of those promotions. Speaker 500:36:18Okay. And throughout earnings season, for the Bunch of companies and what restaurants have reported and we haven't heard commentary that the consumer, even on the lower end, there's some commentary Some check management, but what you're describing seems much more intense than what really I've heard from any of the other companies I cover. So My question is whether your markets are different. I know you're in a lot of smaller markets, Maybe it's regionally, but do you think there's anything about your consumer and where your stores are located that make you more sensitive to The macro environment, just it feels like what you're describing is a sensitivity to the macro environment that I'm not hearing from others. Speaker 200:37:07Yes. I wouldn't say it's significantly different from what others and I believe there are several folks that have showed that there is a little bit of softness that they're seeing from the lower and middle income Consumer, where we're particularly seeing the resistance though Jake, I think is in that delivery platform, which is unique because it has that 25% price premium attached. What we had seen during prior price increases was we didn't see a change in that delivery channel. We didn't see a change in overall menu mix. So as you look at menu mix, when you see a decline in delivery, That also ultimately results in a decline in Shack. Speaker 200:37:45And that's what we're seeing at the moment is that that delivery channel is the one that we're starting to see more resistance. Now I would layer into that, that from a geographic perspective, while I don't necessarily think it's value, What we are seeing is that there are some changes in terms of how work from home has evolved for that group versus others. We tend to be a bit more smaller town oriented. We tend to be a bit more suburban oriented. We are seeing from pure year over year perspective, There is less work from home in those environments, which again we think is impacting some of the delivery aspect. Speaker 200:38:25Our most Positive restaurants are certainly urban, which is not a large part of our percentage. But when you get, you see this kind of temporary shift, The lapping of Omicron, those restaurants particularly are doing extremely strong, and then you're just not seeing the delivery sales that you had typically seen From some of those smaller, more suburban areas, which I believe are coming back to a more normal work from home environment. Speaker 500:38:51Okay, great. And then last question is on your development. In the past, you've talked about how many signed leases do you have. It's encouraging to hear that the 6 to 7 you expect in the Q2, I see 9 is coming soon on the website, so that's encouraging. But Any other metrics you can share that just give you the visibility, give you the confidence that you're going to hit your targets in 2023? Speaker 200:39:17Yes, absolutely. So as you mentioned, we have 2 sites that are actually opening this Friday. We have additional 6 that are under construction. And then as you look at the vast majority of the rest of the restaurants, the leases are signed and the environment remains fluid. From a landlord delivery perspective in particular Of what we control, we're well ahead of where we need to be. Speaker 200:39:39We have a pipeline that can support kind of continued challenging environment, can support that fallout, It still achieved that 7.5% target. So as we had already always expected, it was going to be a bit back loaded And that does seem to how it's going to play out, but significantly we have the lease assigned, we have the restaurants under development in order for us to hit that objective. Speaker 300:40:02Great. I really appreciate it. Operator00:40:07Thank you. I am showing no further questions at this point. I would now like to turn the conference back to management for closing remarks. Speaker 200:40:17Thank you, Betty. Again, we're pleased with our Q1 results and the underlying margin momentum at Noodles and Company. While there remains an uncertain macro environment, We're excited the initial response that we're seeing from our targeted value messaging activities and we continue to expect that ultimately everything is going to culminate Into a full year 2023, it's going to be a year of meaningful margin and EBITDA expansion. We really look forward to Thank you very much for your time today. Have a great evening. Operator00:40:49Thank you. And this concludes today's conference call. Thank you for participating. You may nowRead morePowered by