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FDD Talk: The Noodles & Company Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

by Franchise Chatter on February 19, 2017

in Fast Casual Restaurant Franchise, FDD Talk 2017: Food Franchises, Franchise Earnings

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Noodles & Company Photo by fensterj

In this FDD Talk 2016 post, you’ll learn the following:

  • Section I – Background information on the Noodles & Company franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Noodles & Company franchise, based on Item 7 of the company’s 2016 FDD
  • Section III – Presentation and analysis of Noodles & Company’s financial performance representations, based on Item 19 of the company’s 2016 FDD, including information on the:
  • 2015 average, high, and low net sales for the 372 company-owned and 51 franchised Noodles & Company Restaurants open during the entire 52-week period ended December 29, 2015
  • 2015 average net sales, cost of sales, gross profit, labor, controllable expenses, occupancy cost, non-controllable expenses, and restaurant EBITDA for the 372 company-owned Noodles & Company Restaurants open during the entire 52-week period ended December 29, 2015

Section I – Background Information

How Bad Reviews Led to a Successful Restaurant Chain

The idea for Noodles & Company began in 1994 when Aaron Kennedy, a former Pepsi marketing executive, was eating at an Asian noodle shop in New York. Kennedy felt that there weren’t enough restaurants serving noodles in the United States. Kennedy started developing recipes with future COO Joe Serafin and head chef Ross Kamens, and a year later, the first Noodles & Company opened in Denver, Colorado.

The restaurant had a rocky start and almost went out of business after a reporter published a negative review criticizing nearly every dish he sampled. Several other newspapers came out with additional negative reviews. The bad reviews pushed Kennedy to rework the entire menu and the restaurant’s operations.

By late 1996, Kennedy had turned the business around by implementing a new, fresher menu and hiring more experienced staff.

Noodles & Company grew over the next few years and franchising began in 2003. By the end of 2007, the restaurant had over 140 locations. Noodles & Company continued to expand and had 339 units by 2013.

A few years prior, in 2010, a majority interest in Noodles & Company was acquired by an investment group led by Catterton Partners. In the summer of 2013, the company went public and by the next day, Noodles & Company’s stock price had doubled.

Although Noodles & Company had a lot of success at the time it went public, a few years later, in 2015, the company announced that it would be closing several locations. By the end of the year, the company closed 16 units in various cities and Noodles & Company pulled out of the Central Texas area completely.

Today, Noodles & Company has nearly 500 units across the United States and one location in Canada.

Leadership Changes

In late July, Kevin Reddy stepped down as CEO of Noodles & Company after a string of disappointing quarters. Reddy also stepped down as Chairman of the Board. Prior to his departure, Reddy had been CEO for a decade. Reddy is also credited with helping the chain grow from 100 units to nearly 500 during his time with the company.

CFO Dave Boennighausen has stepped in as interim CEO until a replacement can be found. Robert Hartnett, who most recently was CEO of Houlihan’s Restaurants Inc., was named as Reddy’s replacement on the Board of Directors.

Just before Reddy announced his departure, Noodles & Company welcomed Victor R. Heutz as the new COO. Heutz has held several executive positions in the restaurant industry. Prior to coming to Noodles & Company, Heutz held the position of Vice President of US Franchise Operations at Buffalo Wild Wings. Heutz also served as Vice President of Operations, Mid-Atlantic region at Starbucks Corporation from 2009 to 2015 and was Vice President of Franchise Operations, Eastern USA for Cold Stone Creamery from 2005 to 2009.

Noodles & Company to Close Underperforming Restaurants

In the third quarter of 2016, Noodles & Company announced that it was considering closing underperforming locations amidst continued weak sales and the search for a new CEO. The company stated that the bottom 10 percent of its restaurants had negative cash flow of $2.6 million in the third quarter.

Noodles & Company says that it is looking at several other options to turn sales around at these underperforming locations before turning to closures. The company is looking to re-franchise certain markets to local operators stating that “[they] may be better equipped to develop these respective markets.” Additionally, the company said that it would cut back on marketing efforts in low performing markets and slow openings of new locations.

However, Noodles & Company does have plans to open 10 to 15 locations in 2017 in “low-risk markets with strong brand awareness and proven success.”

At the time of the statement, Noodles & Company said that it did not know when it would be closing and re-franchising locations.

Never Ranked on Entrepreneur’s Franchise 500

Although Noodles & Company has nearly 500 units, almost all of those locations are company-owned. In fact, only 70 Noodles & Company locations are franchised. Due to a lack of focus on franchising, Noodles & Company has never ranked on Entrepreneur’s annual Franchise 500 list.

Section II – Estimated Costs

  • Please click here for detailed estimates of Noodles & Company franchise costs, based on Item 7 of the company’s 2016 FDD (updated).

Section III – Financial Performance Representations (Item 19, 2016 FDD) and Analysis

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