Noodles & Company (NASDAQ:NDLS) Earnings Report
Shares of Noodles & Company jumped over 8% after delivering their earnings report and the momentum has carried through today. . While the earnings per share figures came in slightly below expectations—the company turned in a loss of $0.02 per share, as compared to an expected loss of $0.01 using non-GAAP EPS figures—revenue made up for the loss. The company brought in $109.58 million total, which represented a beat against expectations of $104.12 million. It also represents a beat in the first quarter of 2020, which came in at $100.3 million total.
It got better from there; comparable restaurant sales were up 10.7% against the same time last year, and included not only a 10.5% gain at locations owned by the company directly but also an 11.7% increase from franchisees. Leading the way in causes behind the store gains were digital orders; those were up better than double against this time last year. At last report, growth in digital orders was 110%. New restaurant openings also helped out, with more locations being opened, on average, than normal despite restaurant closures both related to and unrelated to Covid-19 restrictions.
Look for even more Noodles & Company locations to open up in the near-term as well; starting in 2022, reports note, the company wants to expand a minimum of 7% annually, though it's specifically targeting a growth rate of 10%. Ultimately, there are currently around 450 Noodles & Company outlets, and the company plans to triple that, with a particular focus on franchising. Given that 85% of Noodles & Company restaurants are currently company-owned, it's not surprising the company is paying close attention to franchising efforts.
What Are Financial Analysts Saying about Noodles & Company?
Financial analysts have held a “buy” consensus around Noodles & Company for the last two years, though in recent months there have been signs the company is trending to the bearish.
A year ago, the company had three “buy” ratings to its credit. Starting in November, however, that slipped a bit as the three “buy” ratings were joined by a “hold”. Today, we're at two “buy” and one “hold”.
The price target is in a fairly narrow range, with a current high of $14 and a low of $8 producing an average of $10.33 per share. With Noodles & Company currently trading at $12.96 as of this writing, the average price target suggests downside risk, but the latest price target revisions suggest stale targets are in play here.
Better yet, the recent developments for Noodles & Company have been overwhelmingly positive. Back in March, Piper Sandler upgraded from “neutral” to “overweight”. Just today, BMO Capital Markets upgraded the price target from $12 to $14 per share, that new analyst high point.
Three Reasons Why You Should Buy In on Noodles & Company
All of that is good news, so let's sum up with three reasons to buy in on Noodles & Company's recent run that's testing all the old price targets.
Bad news resistant. Granted, more Covid-related lockdowns seem unlikely, but even if they occur, Noodles & Company can work regardless. Its primary stock in trade is highly portable, works great with to-go options as well as food delivery operations like DoorDash (NYSE:DASH), and is beloved by the consumer. This helps ensure survival through the economic downturn, pandemic lockdown, or nearly any other bit of bad news that could hit a restaurant.
A consumer passion for noodles. Further, noodles have been a comfort food staple for decades. BBC Future was calling noodles comfort food back in 2016, and anecdotally, it goes a lot farther back than that. The odds of noodles falling out of favor with the consumer are catastrophically low, and even in a downturn, noodles are commonly cheap and filling enough to be viable in recessionary periods. Already we're seeing average unit volumes up, dine-in traffic increasing, and digital orders still at record levels, suggesting people want noodles.
A backstopped bottom line. An aggressive expansion strategy is likely to work well in Noodles & Company's favor; we've already seen the impact of previous expansions, and all else being equal, adding more restaurant locations is likely to add to that bottom line further. With the number of outlets looking to triple, and the company poised to take a lot less personal risk by focusing on franchisee expansions, margins are likely to improve as well as the expansion will take a lot less of the company's capital to achieve.
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