Noodles & Co Stock is a Tasty Turnaround Play

Fast-casual pasta restaurant chain Noodles & Company NASDAQ: NDLS stock has staged an impressive rally since bottoming off its pandemic lows, indicating the turnaround has taken shape. Consumer tastes and preferences can be fickle in the food industry as health trends can flip flop instantly. Whether waging a war on carbohydrates, gluten, fats or pursuing organic, non-GMO, and plant-based foods, restaurants need to be ahead of the curve to accommodate diners and investors. Noodles & Co. has been able to innovate its menu to cater to these trends including low-carb and gluten-free pasta options. The pandemic forced companies to accelerate their digital transformation and omnichannel customer accommodation. The Company is back in growth mode opening new and modernized locations with a bolstered loyalty program incentivizing healthy and habitual repeat business. With the acceleration COVID-19 vaccinations driving re-openings, the Company is positioned to bolster gains as a stronger company. Prudent investors seeking exposure in a turnaround fast-casual restaurant play, can monitor shares of Noodles & Co. for opportunistic pullback levels.

Q1 Fiscal 2021 Earnings Release

On April 28, 2021, Noodles & Co. released its fiscal first-quarter 2021 results for the quarter ending March 2021. The Company reported an adjusted earnings-per-share (EPS) loss of (-$0.02), excluding non-recurring items versus consensus analyst estimates for a loss of (-$0.01), missing estimates by $0.01. Revenues rose 9.2% year-over-year (YOY) to $109.6 million, beating analyst estimates for $104.1 million. Comparable store sales increased 10.7% YoY of which company-owned stores rose 10.5% and franchise stores rose 11.7%. Average unit volumes hit historical highs of $1.35 million in April 2021. Digital sales rose 110% YoY accounting for 62% of sales. The contribution margin rose 290 basis points to 13.6%. The Company expects to open 10 to 15 new restaurants in 2021 and capex between $20 million to $24 million. Noodles & Co. CEO Dave Boennighausen stated, “Our culinary innovations continue to resonate with consumers and redefine the brand for consumers, which was reinforced by the first quarter rollout of our low carb, gluten-free Cauliflower Gnocchi and will be bolstered later in the second quarter through our national launch of Tortelloni. Furthermore, our digital platforms remain a significant strength, as we improve the level of convenience and engagement with guests.”

Forward Outlook

While still cautious of COVID-19 effects, the Company provided a number of forward metrics while not providing actual guidance. Noodles & Co. expects to hit at 7% system-wide annual growth starting in 2022 with the goal of reaching 10% as it grows to 1,500 units. The average unit volume is expected around $1.45 million with restaurant contribution margins of 20% by 2024.

Conference Call Takeaways

CEO Boennighausen set the tone, “As most of you are aware, in late February, we laid out our accelerated growth objectives, which include annual systemwide unit growth of at least 70% annually beginning in 2022 and quickly reaching 10% annually on a path to at least 1,300 united nationwide, average year volumes of $1.45 million by 2024 and in that same year, restaurant-level margin 20%.” He went on to detail the three main strategies covering lifestyles (differentiation of concept), convenience (digital) and dietary needs, accelerating unit growth. The Company will also open up two ghost kitchens dense, residential urban locations and 70% of the new restaurants will be outfitted with an order-ahead drive-through window. He summed it up, “Noodles and Company remained the only national chain of flavors through noodles and pasta and our menu is perfectly suited to meet the  needs of today’s consumer. As we’ve noted in the past, our food travels extremely well and even considerable strength with the variety inherent in our menu, as we offer favorites from kids to adults, healthy to indulgent and flavors both familiar and new.”

NDLS Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for NDLS stock. The weekly rifle chart is testing a double-top near the $12.91 Fibonacci (fib) level. The weekly rifle chart has a dual pup breakout with a rising moving average (MA) support at $12.14 pointing at weekly upper Bollinger Bands at $13.90. The weekly stochastic has a mini pup grinding up through the 80-band. The rising 15-period MA overlaps the $11.05 fib. The weekly market structure low (MSL) buy triggered above $12.48, with a weekly market high (MSH) sell trigger on a breakdown below $11.79. The daily rifle chart has a stochastic mini pup with a rising 5-period MA at $12.68 and upper BBs at the $13.52 fib. The daily formed a MSL trigger on the breakout through $11.09. Prudent investors can monitor for opportunistic pullback levels at the $11.79 fib, $11.05 fib, $10.68 fib, $10.41 fib, $9.71 fib, and the $9.33 fib. The upside trajectories range from $14.50 fib level up to the $17.50 level.