Operations
Noodles & Co jumping on price-increase bandwagon
CEO Dave Boennighausen said temporary store closures and reduced operating hours caused by Covid's delta surge in the Rocky Mountain West and Upper Midwest, has held Noodles & Co back from its full potential.
February 25, 2022 by Cherryh Cansler — Editor, FastCasual.com
Although same-store sales and revenues were up 11.2% and 7.1%, respectively, temporary store closures and reduced operating hours, caused by Covid's Delta surge in the Rocky Mountain West and Upper Midwest, has held Noodles & Co back from its full potential, CEO Dave Boennighausen said Wednesday during an earnings call, where he revealed the chain will raise prices by 3% or 4% in Q2.
"We estimate that the temporary closures and reduced operating hours associated with the Delta variant impacted our revenue by approximately $8 million during the fourth quarter," he said on the call. "Importantly, as staffing improved and the Delta variant declined, system-wide comparable restaurant sales increased throughout the quarter, from 6.8% in October to 11.9% in November and 14.7% in December."
Boennighausen doesn't expect much push back from customers, saying the brand has a strong value proposition, with the majority of its dishes having entry points of about $7, giving him the confidence to implement the price hike. The chain is also open to a second round of increases later in the year to "to mitigate anticipated margin pressures."
Noodles isn't the only chain fast casual chain raising prices.
Shake Shack, for example, announced similar price hikes last week after reporting that it lost $9.7 million in Q4. Chipotle CEO Brian Niccol is also open to increases, telling investors earlier this month that Chipotle scored high on value when it comes to customization, access and portion.
"We're kind of in our own space, and we're very fortunate to be in that space," he said. "And there's a lot of headroom from what we can tell. And I really hope we never have to use all of it, but we'll be judicious. And when we need to, we will."
Starbucks, too, is also on the price-increase bandwagon, recently telling investors that high inflation, supply chain issues, COVID-19 resurgences and labor shortages were to blame.
Despite the price increases at Noodles, Boennighausen said he is confident about the future of the business, predicting the chain would be a "premier growth story in the restaurant industry."
"We do expect near term pressures in the first quarter due to the Omicron variant, as well as during the first half of the year due to commodity inflation, but we are confident we will successfully navigate this environment and rapidly return to the AUV and margin expansion we saw during the majority of 2021," he said.
Boennighausen said the chain was revising its accelerated growth objectives that were introduced in early 2021, increasing its AUV target to $1.5 million and reiterating its goal of 20% contribution margins by 2024. He also forecasted 10% annual unit growth beginning in 2023, and a target of 8% unit growth in 2022, inclusive of seven restaurants anticipated to open during the first quarter of 2022.
Highlights for fiscal year 2021 compared to fiscal year 2020 include:
- Total revenue increased 20.7% to $475.2 million from $393.7 million.
- Comparable restaurant sales increased 22.1% system-wide, including an increase of 21.3% for company-owned restaurants and an increase of 27.1% for franchise restaurants.
- Company average unit volumes of $1.30 million represented a 22.2% increase versus 2020 and an 11.3% increase versus 2019.
- Digital sales grew 20% and accounted for 56.6% of sales.
- Net income was $3.7 million, or $0.08 per diluted share, compared to a net loss of $23.3 million, or $0.53 loss per diluted share.
- Operating margin was 1.2% compared to an operating margin of (5.1)%.
- Adjusted net income was $7.8 million, or 17 cents per diluted share, compared to an adjusted net loss of $17.8 million, or 40 cents loss per diluted share..
- Restaurant contribution margin increased 400 basis points to 15.9%.
- Adjusted EBITDA increased 232.5% to $38.1 million from $11.5 million.
- Opened six company-owned restaurants opened in 2021.
Highlights for the fourth quarter of 2021 compared to the same quarter of 2020 include:
- Total revenue increased 7.1% to $114.8 million from $107.2 million.
- Comparable restaurant sales increased 11.2% system-wide, including an increase of 9.5% for company-owned restaurants and an increase of 20.8% for franchise restaurants.
- Company average unit volumes of $1.31 million represented a 14.1% increase compared to the fourth quarter of 2020 and a 10.8% increase versus the fourth quarter of 2019.
- Digital sales grew 1% and accounted for 57.3% of sales.
- Net loss was $4.7 million, or 10 cent loss per diluted share, compared to a net loss of $3.8 million, or 9 cent loss per diluted share.
- Operating margin was 3.8% compared to an operating margin of 3.1%.
- Adjusted net loss was $2.5 million, or $0.05 loss per diluted share, compared to adjusted net loss of $2.3 million, or $0.05 loss per diluted share.
- Restaurant contribution margin decreased 120 basis points to 12.4%.
- Adjusted EBITDA decreased 7.3% to $4.9 million from $5.3 million.
About Cherryh Cansler
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