Noodles & pany(NDLS) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Adjusted EBITDA for Q3 2023 was $11.7 million, nearly 20% above Q3 2022, driven by a 200 basis point improvement in restaurant-level margin to 16.4% [6] - Total revenue decreased 1.2% YoY to$ 127.9 million in Q3 2023, with system-wide comparable restaurant sales declining 3.7% [7] - Company average unit volumes in Q3 were $1.34 million, with comparable traffic declining 6.7% and pricing at 3.9% [15] - Full-year 2023 revenue guidance is$ 502 million to $506 million, with negative low-single digit comparable restaurant sales [19] - Full-year adjusted EBITDA guidance is$ 36 million to $40 million, with Q4 adjusted EBITDA expected between$ 8 million and $12 million [20] Business Line Performance - Catering grew 35% YoY in Q3, with significant potential for further expansion [14] - Digital menu boards have been installed in over 75% of company restaurants, with full rollout expected by year-end [10] - NoodlesREWARDS program reached 5 million members, contributing to a 45% increase in the likelihood of digital guests adding recommended items and a 1% lift in average check on digital platforms [11] Market Performance - Chicken Parmesan, introduced in Q3, has consistently been one of the top 3 selling dishes, with a 33% increase in rewards program sign-ups during its exclusive pre-launch period [12] - The dish appeals primarily to younger and lower-income cohorts, with a 30% higher index in trade areas with younger, lower-income demographics [28] Strategic Initiatives and Industry Competition - Five key initiatives to drive sales: price optimization, technology platform advancements, leveraging Chicken Parmesan, menu optimization with third-party consulting, and catering program expansion [8] - Price optimization efforts include testing pricing strategies and partnering with third-party research firms to understand pricing elasticity [9] - Menu optimization with The Culinary Edge focuses on menu architecture, offerings, and culinary operations, with tests expected to broaden and implement in early 2024 [33] Management Commentary on Operating Environment and Future Outlook - Management is encouraged by Q3 margin expansion and EBITDA growth, despite a challenging Q2 [7] - The company expects low-single digit food deflation for 2023, led by chicken, which is contracted for the full year [16] - Labor costs moderated in Q3, with hourly wage inflation at 5.5% YoY, down to 3.9% in September [17] - The company is focused on transforming the menu and pricing structure to optimize long-term performance [40] Other Important Information - The company retired 1.7 million shares at an average price of$ 2.86 per share in Q3, completing a $5 million share repurchase authorization [21] - Four new restaurants were opened in Q3, with a total of 20 expected for the full year, representing 5% gross unit growth in company-owned restaurants [21] Q&A Session Summary Question: Learnings from past pricing strategies and future optimization [25] - The company acknowledged being too aggressive with pricing in 2022 and early 2023 but sees opportunities for more surgical pricing strategies, including trade area tiering and menu item-specific pricing [26] Question: Trends among different income cohorts [27] - Chicken Parmesan has shown strong appeal among younger, lower-income demographics, with a 30% higher index in those trade areas [28] Question: Q4 guidance and comparisons to last year [30] - Q4 2022 had strong same-store sales growth above 10%, making comparisons challenging, but the company is seeing acceleration in 2-year same-store sales growth [31] Question: Menu optimization timing and balancing complexity [32] - Menu optimization with The Culinary Edge is ongoing, with tests expected to broaden and implement in early 2024, focusing on menu architecture, offerings, and culinary operations [33] Question: Chicken Parmesan sales mix [34] - Chicken Parmesan is the third highest-selling item, with top taste scores, though specific mix percentages are not disclosed [35] Question: Digital menu board rollout and impact [37] - Digital menu boards are at 85% rollout, with tests on pricing strategies already underway, and broader implementation expected in early 2024 [38] Question: Value perception and traffic recovery [39] - The company believes that transforming the menu and pricing structure will be key to improving traffic and value perception over time [40] Question: 2024 COGS and commodity inflation expectations [41] - The company is in the process of locking in 2024 prices, with initial conversations on chicken pricing showing positive progress [42][43] Question: 2024 development pipeline [44] - 2024 growth is expected to be similar to 2023, with franchise growth potentially playing a larger role, and signed leases already in place for the pipeline [45]