Why Shares of Noodles & Co Slipped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Noodles & Co  (NASDAQ: NDLS  ) were looking overcooked today, falling as much as 15% and finishing down 14% after coming up short in its quarterly earnings report.

So what: Sales growth at the fast-casual restaurant chain was well below expectations as revenue grew just 10% to $89.5 million against estimates at $102.9 million. Like many other retailers, the company said bad weather affected sales growth as CEO Kevin Reddy noted weather was particularly severe in Noodles' densest markets. Same-store sales fell 1.6% as a reflection of the headwinds mentioned above, and the company's per-share profit of $0.06 missed estimates by a penny. 

Now what: The investment thesis for Noodles has always been about its long-term growth potential as the company expects to open as many 3,000 locations from a current count of just under 400. Store openings remain on track as management expects to grow the store base 16% this year, and it sees same-store sales of 2.5% to 3%. Still, I'm skeptical the market will support that many Noodles locations with organic sales growing essentially at the pace of GDP. For now, I'd give Noodles a pass on the last quarter because of the unusually poor weather, but investors should expect comps to bounce back strongly if the company's steep valuation is going to hold.

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  • Report this Comment On May 01, 2014, at 12:58 PM, FrankoJames wrote:

    After that CMG spinoff, I think now is time for MCD and/or ARCO to bid on this long-term potential winner. Fool on... P.S. I will never own shares of this company directly...

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11/24/2014 3:59 PM
NDLS $24.17 Up +0.66 +2.81%
Noodles & Company CAPS Rating: *

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