This Restaurant Company Proves There Is Money in Pasta

Many pasta focused Italian restaurant chains are having a tough time. Olive Garden of Darden Restaurants (NYSE: DRI  ) , Macaroni Grill of Ignite Restaurant Group (NASDAQ: IRG  ) , and others are seeing pullbacks in sales. Despite this tough environment, newcomer to the public scene Noodles & Company (NASDAQ: NDLS  ) seems to have the secret sauce that is bringing guests in the doors in increasing numbers.

Results
Noodles reported its third-quarter results on Nov. 6. Revenue jumped 15.4% to $88.9 million. Systemwide same-store sales climbed 2.1%. Adjusted net income shot up 44.6% to $3.3 million or $0.11 per share.

CEO Kevin Reddy stated that the excellent results were despite "a tepid consumer environment." He stated the company's success was due to investments in its brand. He pointed out their "long track record of strong, consistent growth."

Noodles is seeing an increase in both the number of guests who visit each restaurant and the average amount each guest spends. Reddy revealed that the fourth quarter is already showing strong early performance. The company guided for fourth quarter same-store sales growth of 3.75%-4.25% or roughly twice the pace of the third quarter.

Conference call
In the call, Noodles offered more color. It was the 16th quarter in a row of same-store sales growth. Noodles achieved this without any new marketing initiatives, discounts, or "limited time only" promotions that are common with other chains. This suggests that the brand is indeed the main driver of its success instead of gimmicks.

All of this gives management confidence that it can raise prices without sacrificing guest traffic or sales. The company began the quarter with 1.5%-2% in price increases, and it expects the total price increase for the fourth quarter to be 2.5%.

Competitors
Darden Restaurants owns and operates several restaurant concepts. It had its most recent quarterly report on Sept. 20. Revenue was up 6.1% and same-store sales were up 0.5%. However, the Olive Garden concept was much weaker than the rest of Darden Restaurants. Olive Garden saw overall sales dip by 0.4% and same-store sales dived 4%.

In the Darden Restaurants conference call, the company blamed a failed promotion in July for the weak performance as well as "weaker overall industry conditions ." CEO Clarence Otis also said it was a "surprisingly weak summer."

Ignite Restaurant Group owns three restaurant concepts: Joe's Crab Shack, Brick House Tavern+ Tap, and Macaroni Grill. Joe's saw a 3.3% increase in same-store sales, while Brick House Tavern saw a 4% increase. Both of these are considered excellent in the restaurant industry these days. However, Ignite Restaurant Group's Macaroni Grill saw a 2.7% decline.

Though this was an improvement from the 7.4% decline the quarter just prior, management revealed in the conference call that October was weaker on same-store sales. When pressed in the Q&A session, President Michael Dixon described the October same-store sales as "slightly high negative single digits." That sounds like back to the 7.4% range again. CEO Ray Blanchette warns, "Macaroni Grill remains viable but it's going to take some time to bear fruit."

Foolish final thoughts
Given the struggles other pasta joints are having, Noodles seems to have figured out the perfect recipe to success. It has achieved 16 quarters in a row of same-store sales growth despite the ups and downs of the economy. Look for this company to continue to outperform. As for the stock? Perhaps it needs to cool off a bit first. Noodles may be successful at raising prices, but with a forward P/E of 70, investors may want to be a bit stingy and wait before jumping in.

Speaking of growth areas...
This incredible tech stock is growing twice as fast as Google and Facebook, and more than three times as fast as Amazon.com and Apple. Watch our jaw-dropping investor alert video today to find out why The Motley Fool's chief technology officer is putting $117,238 of his own money on the table, and why he's so confident this will be a huge winner in 2013 and beyond. Just click here to watch!


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2746017, ~/Articles/ArticleHandler.aspx, 9/17/2014 9:39:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement