Exclusive: Noodles & Company CFO Discusses Longer-Term Outlook, Says Chain Has 'A Lot Of Opportunity On The Top Line'

Casual fast food chain Noodles & Co NDLS reported fourth-quarter results on Feb. 25 and discussed a three-year strategic growth plan.

On Monday, Benzinga had the opportunity to chat with Noodles & Co. CFO Carl Lukach about the company's outlook one year after the coronavirus pandemic first rattled the restaurant industry.

Lukach On Leveraging Digital Growth: Digital sales rose 128% year-over-year in the quarter and accounted for 62% of all sales.

The "very high" growth should be seen as a key highlight from the quarter and can be attributed to management's investments and energy in its off-premise business, Lukach said.

The company is seeing a favorable trend playing out, he said: restaurants that reopened dining rooms are seeing higher same-store sales performance. 

"We're encouraged that some of the digital mix that we've seen during the pandemic is more sticky and going to stick around," he said. 

Noodles & Co. will continue investing and improving its digital channel, but it won't overlook the importance of indoor dining, Lukach said. 

Noodles is actively converting digital orders placed via a third-party delivery platform to its own channels, the CFO said.

While third-party delivery companies are expensive, he said the route remains an important channel to introduce new guests to the Noodles brand. 

Noodles & Co.'s 2024 Outlook: Noodles said in its fourth-quarter report it is targeting systemwide unit growth acceleration from 7% in 2022 to 10% in 2024. The ultimate goal is to increase the total store count from 454 as of the end of 2020 to at least 1,500 units.

The company is also targeting average unit volumes of $1.45 million by 2024 and a restaurant contribution margin of 20%.

At the same time, Noodles & Co. did not provide any specific full-year 2021 guidance, and this has become part of the industry norm, Lukach told Benzinga.

The company did say it expects first-quarter comparable restaurant sales to be higher by a mid-to-high single digit.

"When we guided to our accelerated long-term objective in 2024, that's where we are able to say, 'look, this is the path that we're marching down and feel very confident that we have a lot of opportunity on the top-line perspective given all that we've done in digital,'" the CFO said.

A multiyear timeline will eliminate some of the "volatility" associated with the vaccine rollout and consumer sentiment related to indoor dining, he said. 

In the meantime, some restaurants are already operating at or above $1.45 million in unit volume and generating a 20% restaurant contribution margin, Lukach said.

Noodles & Co.'s multiyear objective is "not something we haven't already been able to achieve," the CFO said. 

Noodle & Co.'s Unit Growth Strategy: Noodles doesn't operate in all 50 states, and management's unit growth plan will prioritize regions where it already benefits from strong brand recognition.

For example, the company has a strong presence in Cincinnati and Columbus, Ohio, so it would make sense to build out a presence in nearby Cleveland.

The majority of new Noodles & Co. stores will include pickup windows along with areas for curbside pickup.

Ghost kitchens will also play a role in Noodles' growth plans. These ghost kitchens could take on the form of a fully off-premise model, meaning offering both delivery and pickup options, Lukach said. One of the two ghost kitchens will open in San Jose, California, a region where there is no existing company presence.

The objective of the ghost kitchen will be to determine if it is a cheaper way of expanding to a new region versus putting up a full-standing restaurant, the CFO said.

The second ghost kitchen will open in Chicago and will test whether the new concept is appropriate for a region where the company already has strong brand recognition, he said. 

"We haven't guided to what specifically we're testing on a return basis, but what we are looking for is what kind of performance can we get in a ghost kitchen with a hybrid awareness market." 

New Noodles & Co. Products: Noodles is "very early" in terms of building out a protein strategy that focuses on vegan options, Lukach said.

The menu already includes many vegetarian-friendly and healthy options, including the recently launched cauliflower gnocchi.

Noodles started testing ravioli in December, and the stuffed pasta option will sell at a higher price point and generate superior margins, the CFO said.

At a time when it seems every fast-food chain is scrambling to improve or create a premium chicken sandwich, Noodles is operating alone in a "category of one" that offers healthy and indulgent options for young and older consumers, he said. 

"We are approaching guests and showing a variety of menu offerings with an international flair, and we cater to the 'veto vote,' where we offer something for everybody."

Photo courtesy of Noodles & Co.