The Broomfield-based chain blamed a tough winter for sales that fell short of expectations and sent its shares plunging to the lowest price since last summer’s initial public offering.
A slew of public companies have played the cold-weather card to explain disappointing performance.
But fast-growing Noodles was hit harder than many because its restaurant mix is weighted in Northern and Eastern states that were pummeled by heavy snow and freezing temperatures. About 80 percent of the locations are in the Rocky Mountain West, upper Midwest and mid-Atlantic.
“Maybe there’s a sense of fatigue in discussing the cold weather,” said Kevin Reddy, CEO of the chain whose specialty is pasta prepared in a dozen different styles. “But it’s true. It was one of the harshest winters ever.”
Not coincidentally, Noodles is focusing some of its growth plans on warmer states such as California and Florida.
The company recently reported first-quarter revenue of $89.5 million, falling short of analysts’ expectations of $92.2 million.
More telling of the cold-weather malaise, Noodles said sales at restaurants opened for more than one year fell 1.4 percent. It marked the first time in five years that the company failed to show an increase in the important financial metric of same-store sales.
Investors were shaken. Shares of Noodles plummeted 14 percent percent April 30, the day after earnings were reported. That was the lowest level since Noodles launched its IPO last year at a price of $18 a share. The stock closed Friday at $33.25, well below its high of $48.30 reached in October.
Yet analysts are largely positive about Noodles’ future. They say that winter performance aside, the chain shows well. Sales and unit growth are on upward trajectories. The sensational rise in share price shortly after the public offering, they note, unduly raised investors’ expectations.
“Fundamentally, there is still nothing wrong with Noodles,” said restaurant analyst John Gordon of San Diego-based Pacific Management Consulting Group. “They just have to continue to grow stores and sales to equal the stock value. That takes time.”
Noodles often is compared to its Denver-based peer in fast-casual dining, Chipotle. The similarities stem from the chains’ common geographic origins and the fact that Noodles’ top two executives — Reddy and chief operating officer Keith Kinsey — are alumni of the management ranks at Chipotle.
“But Noodles is not the next Chipotle,” Gordon said. “That’s an unfair comparison.”
Chipotle, in business since 1993, operates more than 1,600 restaurants. Noodles opened its first unit in Cherry Creek in 1995 and now has 398 locations.
Chipotle’s share price has risen from $22 at the start of its 2006 IPO to $547.09 Friday.
Chipotle is strong in the younger adult demographic, while Noodles targets families with children.
The two chains also differ dramatically in executive compensation.Chipotle recently made headlines when shareholders voted to reject the company’s pay plan, which last year gave co-CEOs Steve Ells and Monty Moran $25.1 million and $24.4 million, respectively, in total compensation.
Noodles’ Reddy last year made $3.7 million in total compensation, including a $1 million bonus related to the launch of the IPO.
Reddy said Noodles defies comparison to any other fast-casual restaurant chain. The company often refers to itself as “a category of one.” No other mass-market eatery, officials say, offers pasta prepared in a variety of ways encompassing American, Indonesian, Italian, Japanese and Thai flavors. The menu also includes soups, salads and sandwiches. Customers order at the counter, then are served at tables with china and silverware.
The chain receives mixed reviews for its nutrition profile.
Nutrition Action Healthletter recently gave Noodles a “Food Porn” rating for its Barbecue Pork Mac dish, in which a regular-sized serving weighs in at 1,270 calories and 29 grams of saturated fat.
“Basically you’re looking at a big bowl of white flour, meat and cheese in most of their dishes,” said Jayne Hurley, senior nutritionist at the Center for Science in the Public Interest. “The number of healthy choices on the menu is dwarfed by the number of unhealthy choices.”
However, Hurley gives Noodles credit for giving customers a choice between smaller- and regular-sized entrees, and for prominently listing calorie counts on the menu.
“If you’re careful, you can get a decent meal,” she said.
Reddy said Noodles seeks a balance between good nutrition — with items including whole-grain pastas and vegetable add-ons — and indulging customers’ tastes.
“The strength of the brand is that we create choice,” he said. “We’re not preachy about (nutrition). We’d rather not tell people what they should be eating.”
New initiatives include providing table service in which restaurant staffers offer beverages, appetizers and an expanded menu of desserts to customers tableside. Noodles also is launching catering for business and social events.
Reddy said he expects catering to produce a material boost to revenue and earnings.
Restaurant analyst Darren Tristano of Chicago-based Technomic said Noodles is likely to overcome its first-quarter financial stumble through a continued emphasis on store growth and appeal to consumers.
“If you go out with your friends or family, somebody can get mac and cheese, and somebody else can get Italian. Customers appreciate the diversity,” Tristano said.
“The brand is very strong,” he said. “There’s nothing wrong with what they’re doing.”