Casual restaurant chain Noodles & Company (NASDAQ:NDLS) missed Wall Street’s revenue expectations in Q3 CY2024, with sales falling 4% year on year to $122.8 million. The company’s full-year revenue guidance of $491 million at the midpoint came in 1.6% below analysts’ estimates. Its non-GAAP loss of $0.12 per share was also 112% below analysts’ consensus estimates.

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Company Overview

Offering pasta, mac and cheese, pad thai, and more, Noodles & Company (NASDAQ:NDLS) is a casual restaurant chain that serves all manner of noodles from around the world.

Modern Fast Food

Modern fast food is a relatively newer category representing a middle ground between traditional fast food and sit-down restaurants. These establishments feature an expanded menu selection priced above traditional fast food options, often incorporating fresher and cleaner ingredients to serve customers prioritizing quality. These eateries are capitalizing on the perception that your drive-through burger and fries joint is detrimental to your health because of inferior ingredients.

Sales Growth

A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

Noodles is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale.

As you can see below, Noodles’s sales grew at a weak 1.4% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts).

This quarter, Noodles missed Wall Street’s estimates and reported a rather uninspiring 4% year-on-year revenue decline, generating $122.8 million of revenue.

We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates.

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Restaurant Performance

Number of Restaurants

A restaurant chain’s total number of dining locations influences how much it can sell and how quickly revenue can grow.

Noodles operated 471 locations in the latest quarter. It has opened new restaurants quickly over the last two years and averaged 1.8% annual growth, faster than the broader restaurant sector.

When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where the concept has few or no locations.

Same-Store Sales

A company's restaurant base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales provides a deeper understanding of this issue because it measures organic growth for restaurants open for at least a year.

Noodles’s demand within its existing dining locations has barely increased over the last two years as its same-store sales were flat. Noodles should consider improving its foot traffic and efficiency before expanding its restaurant base.

In the latest quarter, Noodles’s same-store sales fell by 3.3% annually. This performance was more or less in line with the same quarter last year.

Key Takeaways from Noodles’s Q3 Results

We struggled to find many strong positives in these results. Its revenue, EBITDA, and EPS missed, and it lowered its full-year revenue guidance. Overall, this was a softer quarter. The stock traded down 9.2% to $1.09 immediately following the results.

Noodles underperformed this quarter, but does that create an opportunity to invest right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.