Noodles & Company Is No ShopHouse Southeast Asian Kitchen, Let Alone the Next Chipotle

Noodles & Company has bigger problems than just the weather if it wants to be the next Chipotle Mexican Grill.

May 2, 2014 at 5:00PM

The first quarter for Noodles & Company (NASDAQ:NDLS) was disappointing to say the least. Mr. Market didn't take too kindly to the report, and shares of Noodles & Company dropped more than 13%. Noodles & Company reported a 1.6% drop in comparable sales. The company blamed the weather for the weak sales. The weather, however, wasn't a factor for Chipotle Mexican Grill (NYSE:CMG); Chipotle's comparable sales grew 13.4%.

With every Fool looking for the next hot restaurant concept, what does this mean for Noodles & Company and its chances of becoming the next Chipotle?

First-quarter results
The biggest highlight of the quarter was that net income increased 56%. However, it only increased from $900,000 to $1.4 million. Earnings per share of $0.05 were in-line with expectations, but revenue came in lower than expectations. Total revenue increased slightly more than 10% to $89.5 million from $81.3 million last year. The increase in sales came from the opening of new restaurants, not from an increase in sales at previous locations. This is a bad sign, as investors want to see growth coming from both.


Source: Noodles & Company

Outlook for the rest of the year
Management is still expecting to achieve its goals for 2014 and anticipates the rest of the year offsetting the weak first quarter. Noodles & Company plans to open 42 to 50 new company-owned restaurants and 10 to 15 new franchised locations this year. Comparable sales are expected to rebound and grow 2.5% to 3% for all of 2014. The company is targeting 25% in earnings-per-share growth.

The concept and menu are appealing, but questions remain
When Noodles & Company first opened back in 1995, the early reviews were not favorable. After making some changes and hiring a new chef, the company developed the current menu and has been adding items along the way. Today, customers can get noodles dishes from around the world as well as soups, salads, sandwiches, and flatbreads.

Noodles Company Mac And Cheese


This is where I see the problem for Noodles & Company. When I go into a Noodles & Company restaurant, I'm not sure what I'm there for. The company has made the menu too large and gone too far from its core concept focused around noodles. And besides soups, salads, and sandwiches, there is Wisconsin Mac & Cheese next to Japanese Pan Noodles. I'm not quite sure how these two items end up next to one another besides having some form of noodles as an ingredient. Noodles & Company wants to serve noodles from around the world, but I think the company should take a more focused approach with its menu.

Chipotle is not making that mistake with ShopHouse
Chipotle knows that what makes a successful fast-casual concept is a focused menu with fresh ingredients. This has been the hallmark of Chipotle's success. It has perfected the "keep it simple" strategy that has made the chain as successful as it is today.

Chipotle is following the same game plan with its new concept, ShopHouse Southeast Asian Kitchen. ShopHouse takes its inspiration from the streets of Southeast Asia. On these streets, customers can get fresh rice or noodle bowls with marinated meats, spices, herbs, and vegetables in a variety of unique and flavorful combinations.


Source: ShopHouse Southeast Asian Kitchen

At ShopHouse, the format is similar to a Chipotle Mexican Grill. Customers start with a bowl, and then they add what they want from directly in front of them. They choose either rice, noodles, or salad and then add their choice of meats or tofu, vegetables, sauces, and garnishes, and there's even coconut rice and mango parfait for dessert.



So far, there are only six ShopHouse locations, and Chipotle is not disclosing sales numbers for the restaurants. However, Chipotle Chairman Steve Ells did say on the company's earnings call that he is pleased with the numbers and that the early read reminds him of what he saw in the early days of Chipotle Mexican Grill. Any comparison to Chipotle's early days by the man who built Chipotle Mexican Grill to what it is today is certainly a positive sign.

How do shares compare?


Market Cap


Forward P/E


Noodles & Company





Chipotle Mexican Grill





Source: Yahoo! Finance

Foolish final thoughts
It's tough to own shares of Noodles & Company while they are trading at 136 times this year's earnings and 51 times next year's earnings and the company is posting weak internal sales growth. The company looks to have a bigger problem than the weather--its menu is not resonating with its customers.

The restaurant chain lacks an identity. Chipotle doesn't have that problem, and neither does ShopHouse Southeast Asian Kitchen. Until Noodles & Company can post strong comparable-sales growth in the high-single or low-double digits like Chipotle, its shares will remain weak, and investors are better off looking elsewhere for the next Chipotle. Or better yet, just stick with Chipotle.

Will this stock be your next multi-bagger?
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers