It's been a painful two years for shareholders of Noodles (NDLS). The fast casual noodle restaurant is expanding like crazy, but doesn't seem to get any traction.
The stock acts like a soggy noodle, limping lower each quarter. The company came public June 28, 2013 at $36.75 and is now down about 50%. Can the company turn around or is there more pain to come?
Noodles last week reported a seemingly good fourth quarter and strong fiscal year. Total revenue of the fourth quarter rose 18.7% to $108.5 million and net income increased 46.9% to $3.5 million. Total revenue for the year increased 15.1% to $403.7 million. Net income increased 71.5% to $11.4 million. The company opened 59 new restaurant locations last year.
When you look underneath the numbers, however, it's evident the company has problems. For example, the company ended 2014 with a reported a system-wide same-store number of only 0.2%. That's it. The company is having trouble building traffic. A same-store sales number of 0.2% means customers are not returning. By contrast, Jack-in-the-Box (JACK), owned fast casual restaurant Qdoba, reported a same-store increase of 7.2% in the most recent quarter.
Noodles guided investors to expect a same-store number between 2.5% and 4% for fiscal 2015, but I don't think anyone believed the guidance. The company has added healthier menu items, like soups, salads and sandwiches, but it may be too late.
It's really difficult to turn around the customer experience when you operate a restaurant, especially in this environment. It is hard to get new customers when Qdoba and Chipotle (CMG) are knocking you around silly.
Because of the decline in gasoline prices, the best part of retail sales is the restaurant business. Americans are expected to save about $40 a week from lower gas prices. According to the Commerce Department, last month the restaurant sector saw an 11% increase in business.
I haven't been to Noodles, so I don't know whether it is the taste or if people consider the food unhealthy. Whatever is wrong, I know the company is missing out on lower gas prices.
Until Noodles can show a string of improved same-store sales, I would stay away from the stock.