Executive Summary / Key Takeaways

• Noodles & Company has demonstrated significant sales and traffic acceleration since initiating a comprehensive strategic transformation, highlighted by a 4.4% system-wide comparable sales increase in Q1 2025 and sustained momentum post-March menu launch.
• The core of the turnaround strategy involves operations excellence, a comprehensive menu transformation impacting nearly two-thirds of the menu, a redefined brand positioning ("We Know Noodles") supported by increased marketing, and leveraging its digital ecosystem and growing catering business.
• Financially, the company is focused on strengthening its foundation through significant capital expenditure reduction (targeting $11M-$13M in 2025), cost savings initiatives, and a portfolio review leading to targeted restaurant closures, aiming for positive free cash flow in the latter half of 2025 to facilitate debt reduction.
• While Q1 2025 saw a net loss and pressured restaurant contribution margin (10.3%) due to strategic investments and cost pressures (higher food costs from new menu, training, marketing, delivery fees), management expects sales leverage and cost savings to drive sequential improvement.
• The company operates in a competitive fast-casual landscape against larger, more digitally advanced players, but aims to differentiate through its noodle specialization, improving guest experience, and leveraging its digital platform and catering growth to drive profitable traffic.

Setting the Scene: A Fast-Casual Niche Player's Strategic Pivot

Noodles & Company, established in 1995 and incorporated in 2002, operates within the competitive fast-casual restaurant sector, carving out a niche with its globally-inspired noodle and pasta dishes. The company's history reflects periods of growth interspersed with challenges, including recent years marked by net losses (in 2022, 2023, and 2024) and volatility stemming from macroeconomic headwinds, shifting consumer sentiment, and intense competitive discounting. These pressures, coupled with operational inconsistencies and unexpected declines in key channels like third-party delivery, underscored the need for a fundamental strategic shift.

In response, Noodles & Company embarked on a comprehensive transformation centered around five key priorities: elevating operations excellence, revitalizing the menu, enhancing its digital capabilities, expanding its catering business, and fortifying its financial structure. This pivot is not merely a reaction to recent difficulties but a deliberate effort to build a more resilient and relevant business model capable of sustained profitable growth. The company positions itself as the only national chain specializing in a broad variety of expertly crafted noodle bowls, aiming to satisfy diverse comfort food cravings.

Within the competitive landscape, Noodles & Company faces formidable rivals ranging from large, established players like Chipotle Mexican Grill (CMG) to growing chains like Sweetgreen (SG), Cava Group (CAVA), and Shake Shack (SHAK). While larger competitors often boast superior scale, brand recognition, and significant investment in technology, Noodles & Company seeks to differentiate through its unique menu focus and operational efficiency initiatives. The company's digital ecosystem, including its customer data platform and loyalty program, represents a key technological asset, enabling personalized engagement and driving profitable traffic, contrasting with the broader digital platforms of rivals like CMG. Recent technology integrations, such as the ezCater system and internal transfer solutions, aim to improve operational throughput and reduce friction, particularly in the growing catering segment.

Strategic Transformation Ignites Momentum

The strategic initiatives implemented over the past year are beginning to yield tangible results, most notably in the acceleration of sales momentum. A cornerstone of this transformation is the comprehensive menu upgrade, the most significant in the company's history, which saw a broad rollout in March 2025. This initiative introduced five new dishes and reimagined four popular favorites, impacting nearly two-thirds of the menu. Management reports that new Mac and Cheese dishes, in particular, have significantly exceeded expectations, alongside strong performance from new items like Cajun Shrimp Fettuccine and reimagined favorites like Rigatoni Rosa. This culinary innovation is designed to increase guest desire and relevance in a crowded market.

Supporting the menu transformation is a redefined brand positioning, "We Know Noodles," backed by increased marketing investment and new activation strategies. This includes leveraging broader reach media channels like connected TV and digital audio, alongside traditional digital marketing and PR/influencer campaigns. The goal is to elevate brand awareness and drive traffic by highlighting the company's unique expertise in noodles and the excitement around the new menu. Early results from this effort are promising, with reported double-digit increases in brand awareness, search traffic, and app sessions since the March launch.

Operational excellence remains a top priority, focusing on fundamental improvements in staffing, training, and execution. Efforts to enhance guest satisfaction, particularly around taste of food and order accuracy, have shown significant progress, narrowing the gap with the fast-casual industry average. This focus on the guest experience is seen as foundational to building long-term loyalty and driving sustainable traffic growth.

Financial Performance Reflects Investment and Momentum

The first quarter of 2025 provided the first look at the financial impact of these accelerated strategic initiatives. Total revenue increased by 2.0% to $123.8 million compared to $121.4 million in Q1 2024. This growth was primarily driven by a 4.4% increase in system-wide comparable restaurant sales, composed of a 4.7% increase at company-owned restaurants and a 2.9% increase at franchise locations. Company comparable traffic saw a positive increase of 1.8%, complemented by a 2.9% increase in average check (including 1.3% effective pricing). Management noted that the Easter holiday shift provided an estimated 50 basis point benefit to Q1 comps. Crucially, comparable sales momentum continued post-March menu launch, running at approximately 5% through April, despite facing a difficult prior-year comparison.

While top-line trends improved, profitability metrics in Q1 2025 reflected the costs associated with the strategic transformation and ongoing market pressures. Restaurant contribution margin decreased to 10.3% from 13.1% in Q1 2024. This decline was influenced by several factors:

• Cost of Sales: Increased to 26.6% of restaurant revenue (up 160 bps) due to the higher cost of new menu items and inflation (less than 2% in Q1).
• Labor Costs: Increased to 32.5% (up 20 bps) due to wage inflation (2.7%) and one-time training expenses for the new menu rollout, partially offset by sales leverage.
• Other Restaurant Operating Costs: Increased to 21.1% (up 140 bps) driven by higher third-party delivery fees (from increased channel sales), increased marketing expenses related to the menu launch, and higher utilities.
• Occupancy Costs: Decreased to 9.5% (down 40 bps) due to sales leverage and restaurant closures.

General and administrative expenses decreased slightly by 1.8% to $12.8 million, primarily due to lower salary and incentive compensation, partially offset by increased spend related to the menu rollout. Depreciation and amortization decreased by 3.8% to $7.1 million, mainly due to restaurant closures. Restaurant impairments, closure costs, and asset disposals increased slightly to $1.3 million, driven by impairment charges on leased assets, partially offset by a gain on lease termination.

The net loss for Q1 2025 widened to $9.1 million, or $0.20 per diluted share, compared to a net loss of $6.1 million, or $0.14 per diluted share, in Q1 2024. Adjusted EBITDA decreased to $2.4 million from $5.5 million in the prior year period, reflecting the lower restaurant contribution and increased marketing investment. Interest expense increased to $2.6 million due to higher average debt balances. The effective tax rate remains low due to a valuation allowance against deferred tax assets.

Strengthening the Financial Foundation

A critical component of Noodles & Company's strategy is improving its financial health and liquidity. The company has historically relied on cash flow and its revolving credit facility to fund operations and growth. As of April 1, 2025, cash and cash equivalents stood at $1.4 million. Total indebtedness under the AR Credit Agreement was $102.7 million, with $19.3 million available for future borrowings under the $125 million facility, which matures in July 2027. The company was in compliance with all debt covenants as of the quarter end.

A key lever for strengthening the balance sheet is a significant reduction in capital expenditures. After spending $29 million in 2024 (down from $52 million in 2023), the company estimates total capital expenditures for fiscal year 2025 will be between $11 million and $13 million. This reduced spending is primarily allocated to reinvestment in existing restaurants, technology investments, and the opening of only two new company-owned restaurants (one opened in Q1, one planned for Q2/Q3). This compares to 10 new company-owned openings in 2024.

Furthermore, the company is actively managing its restaurant portfolio. Following a comprehensive review, it expects to close 13 to 17 company-owned restaurants and four franchise restaurants in 2025, targeting underperforming locations or those with expiring leases. This is in addition to closures in prior periods, including three company-owned and one franchise restaurant closed in Q1 2025. These closures, while impacting revenue in the short term, are intended to improve overall portfolio profitability and cash flow.

Combined with ongoing cost savings initiatives (targeting over $5 million in savings in 2024 and a similar amount in 2025), the reduced capital spending is expected to significantly improve free cash flow generation. While Q1 2025 was slightly free cash flow positive, the company anticipates being free cash flow positive in the third and fourth quarters of 2025, enabling debt reduction in the back half of the year.

Competitive Positioning and Outlook

Noodles & Company operates in a dynamic fast-casual market characterized by intense competition and evolving consumer preferences. Compared to larger players like CMG, which boasts significantly higher revenue ($11.2B in 2024) and operating margins (15-18%), NDLS is a much smaller player with a TTM revenue of approximately $493M and negative TTM operating margins (-3.53%). However, NDLS's strategic focus on operational efficiency and cost savings aims to improve its relative profitability. Its TTM Gross Profit Margin of 17.99% trails CMG's ~27%, SG's 20%, and CAVA's 25%, indicating potential areas for supply chain or pricing optimization relative to peers. The company's negative TTM Net Profit Margin (-7.89%) highlights the need for sustained improvement across the P&L to reach profitability levels seen at competitors like CMG (14%) or CAVA (14%).

Against growth-focused peers like SG and CAVA, which have demonstrated rapid revenue expansion (SG 25% growth to $500M, CAVA 30% growth to $800M in 2024), NDLS's recent 2% revenue growth in Q1 2025 appears modest. However, the acceleration in comparable sales momentum post-menu launch suggests the potential for improved top-line performance going forward. NDLS's digital ecosystem and catering growth represent areas where it seeks to compete, although larger rivals also invest heavily in these channels. The company's unique menu specialization remains its primary differentiator in a market where many competitors offer similar bowl-based formats.

For the full year 2025, Noodles & Company has reiterated its P&L guidance provided in March, with a slight adjustment to the restaurant contribution margin range. The company expects total revenue between $503 million and $512 million, supported by mid-single-digit comparable restaurant sales growth. Restaurant contribution margin is projected to be between 12% and 14%, including an estimated impact from tariffs (widening the lower end by 50 bps) and a permanent 100 basis point investment in food cost for the new menu. G&A expenses are guided between $49 million and $52 million, D&A between $27 million and $29 million, and interest expense between $8 million and $10 million. Management's confidence in achieving this outlook is based on the sustained sales momentum, the expected benefits from the menu and brand relaunch, ongoing cost savings, and operational improvements.

Risks and Challenges

Despite the positive momentum, several risks and challenges could impact Noodles & Company's ability to achieve its strategic and financial objectives. Macroeconomic uncertainty and fluctuating consumer sentiment remain significant headwinds, potentially impacting discretionary spending on restaurants. While commodity inflation moderated in Q1 2025, price volatility and potential tariff impacts (particularly on imported produce and shrimp) could pressure food costs. Labor costs continue to rise due to wage inflation, requiring ongoing focus on operational efficiency to mitigate the impact.

The reliance on third-party delivery services, while a source of revenue, also incurs significant fees and exposes the company to changes in platform algorithms or competitive dynamics, as experienced in Q3 2024. The success of the comprehensive menu transformation and brand relaunch is critical; failure to sustain guest interest or execute consistently could undermine recent sales gains. The portfolio review and restaurant closures carry execution risk and could impact revenue more significantly than anticipated if not managed effectively. Finally, the company's debt levels and financial covenants require careful management, although the recent amendment provides increased flexibility. Achieving positive free cash flow and reducing debt in the back half of 2025 is crucial for strengthening the balance sheet and reducing financial risk.

Conclusion

Noodles & Company appears to be entering a potentially transformative phase, driven by a focused strategic plan that is beginning to show tangible results in sales and traffic momentum. The comprehensive menu upgrade and brand relaunch, supported by operational improvements and a strengthened leadership team, are key drivers behind the recent acceleration in comparable sales. While the first quarter of 2025 reflected the costs of these strategic investments and ongoing market pressures, leading to a net loss and pressured margins, management's guidance for the full year anticipates leveraging top-line growth and cost savings to improve profitability sequentially and achieve positive free cash flow in the latter half of the year.

The core investment thesis hinges on the company's ability to sustain this momentum, effectively execute its strategic priorities, and navigate the challenging competitive and macroeconomic environment. The significant reduction in capital expenditures and focus on portfolio optimization are prudent steps towards strengthening the financial foundation and enabling debt reduction. Investors should closely monitor comparable sales trends, the trajectory of restaurant contribution margin improvement, progress on debt reduction, and the company's ability to maintain operational consistency as it rolls out new menu items and brand messaging. While risks persist, the early signs of traction from the strategic transformation suggest Noodles & Company may be on the path to unlocking its potential for sustained profitable growth within its fast-casual niche.