Casual restaurant chain Noodles & Company (NASDAQ:NDLS) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 2% year on year to $123.8 million. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $507.5 million at the midpoint. Its non-GAAP loss of $0.20 per share was 81.8% below analysts’ consensus estimates.
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Noodles (NDLS) Q1 CY2025 Highlights:
- Revenue: $123.8 million vs analyst estimates of $123.6 million (2% year-on-year growth, in line)
- Adjusted EPS: -$0.20 vs analyst expectations of -$0.11 (81.8% miss)
- Adjusted EBITDA: $1.61 million vs analyst estimates of $5.35 million (1.3% margin, 69.8% miss)
- The company reconfirmed its revenue guidance for the full year of $507.5 million at the midpoint
- Operating Margin: -5.2%, down from -3.4% in the same quarter last year
- Locations: 460 at quarter end, down from 469 in the same quarter last year
- Same-Store Sales rose 4.4% year on year (-5.4% in the same quarter last year)
- Market Capitalization: $38.94 million
StockStory’s Take
Noodles & Company’s first quarter results reflected a significant shift in sales trends, with management attributing performance to the comprehensive menu transformation and increased marketing efforts. CEO Drew Madsen cited the introduction of five new dishes and four reimagined recipes as key factors in driving higher guest traffic and average check size, noting, “Our new menu is selling better than it did in test market, particularly mac and cheese.” The company also invested in a broad-based media campaign and extensive employee training to support the rollout. CFO Michael Hynes emphasized that these initiatives led to higher one-time costs, including training and marketing expenses, which weighed on margins during the quarter. The company’s focus on brand relevance and operational execution was evident in increased loyalty program signups and improved same-store sales performance.
Looking forward, management’s guidance centers on sustaining elevated sales growth through ongoing marketing investment and maintaining momentum from the new menu. CEO Drew Madsen explained the company is “updating our media mix model and looking at whether additional investment like that throughout the course of the year would make sense,” signaling a willingness to adjust strategy based on consumer response. CFO Michael Hynes outlined plans to keep capital expenditures low and target further cost savings, aiming to strengthen the balance sheet and return to free cash flow positivity in the second half of the year. While management remains confident in the foundation built by the recent menu relaunch, they acknowledge the need for continued innovation and operational discipline to navigate input cost pressures and uncertain consumer sentiment.
Key Insights from Management’s Remarks
Management pointed to the comprehensive menu overhaul, targeted marketing, and operational investments as the main drivers of sales growth, while also flagging the impact of one-time costs on near-term profitability.
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Menu transformation impact: The rollout of five new dishes and four enhanced recipes in March was described by CEO Drew Madsen as “the most comprehensive menu transformation in our nearly 30-year history,” and drove significant increases in both guest traffic and check size. The new mac and cheese offerings notably exceeded internal sales expectations.
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Marketing and brand relaunch: The company roughly doubled its marketing investment to promote the new menu, expanding beyond traditional paid search and social channels to include connected TV and digital out-of-home advertising. Early-stage campaigns, including influencer outreach and PR, led to double-digit increases in brand awareness and digital engagement, as well as loyalty program signups.
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Operational training investment: To prepare for the menu rollout, Noodles & Company instituted a four-week training program for all restaurant roles, achieving a 95% completion rate. This one-time training investment ensured consistent execution but contributed to higher labor and operating costs in the quarter.
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Cost pressures and margin decline: CFO Michael Hynes identified higher food costs from new menu items and increased third-party delivery fees as factors pressuring margins. Additionally, one-time expenses for training and marketing added to cost inflation, resulting in a lower restaurant-level margin compared to the prior year.
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Store network optimization: The company closed more locations than it opened in the quarter, reflecting ongoing efforts to optimize the restaurant footprint and reduce occupancy costs. Management noted that this approach, along with targeted capital spending reductions, is designed to support financial stability while focusing on core markets.
Drivers of Future Performance
Management expects future performance to hinge on sustained sales momentum, cost discipline, and strategic marketing investments as they navigate margin headwinds and evolving consumer trends.
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Sales momentum from new menu: Management emphasized the importance of maintaining guest interest in new and improved menu offerings, with CEO Drew Madsen stating sustained top-line sales growth is vital to supporting the business model and potential future unit growth. The ongoing success of the menu transformation and associated promotions, especially through digital and loyalty channels, is seen as central to revenue growth.
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Cost controls and capital allocation: CFO Michael Hynes outlined plans to keep capital expenditures low and pursue further cost savings, targeting over $5 million in annual savings. Management intends to limit new openings while closing underperforming stores, with a focus on strengthening the balance sheet and achieving free cash flow positivity in the second half of the year.
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Input cost and tariff risks: The company anticipates continued exposure to food cost inflation and tariffs on select imported ingredients, though over half of food purchases are locked in at fixed rates. Management expects these factors to be partially offset by operational efficiencies and smart sourcing strategies but acknowledges they could pressure margins if inflation persists.
Catalysts in Upcoming Quarters
Looking ahead, the StockStory team will be monitoring (1) sustained customer engagement and repeat traffic following the menu transformation, (2) margin recovery as one-time launch costs subside and cost controls take effect, and (3) the pace of store closures relative to openings as the company optimizes its footprint. Effective execution on marketing strategies and response to input cost pressures will also be key signposts for progress.
Noodles currently trades at a forward EV-to-EBITDA ratio of 1.3×. Should you double down or take your chips? The answer lies in our full research report (it’s free).
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