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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Jeremy Bowman

Fool since 2011. I write about consumer goods, the big picture, and whatever else piques my interest. Follow me on Twitter to see my latest articles, and for commentary on hot topics in retail and the broad market.

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9/1/2015 10:16 AM
NDLS $12.14 Up +0.22 +1.85%
Noodles & Company CAPS Rating: **