Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Noodles & Co. (NASDAQ:NDLS)
Q4 2020 Earnings Call
Feb 25, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon and welcome to today's Noodles & Company's fourth-quarter 2020 earnings conference call. [Operator instructions] As a reminder this call is being recorded. I would now like to introduce Noodles & Company's chief financial officer, Carl Lukach. You may begin.

Carl Lukach -- Chief Financial Officer

Thank you, and good afternoon, everyone. Welcome to our fourth-quarter 2020 earnings call. Here with me this afternoon is Dave Boennighausen, our chief executive officer. I'd like to start by going over a few regulatory matters.

During our opening remarks and in response to your questions, we may make forward-looking statements regarding future events or the future financial performance of the company. Any such items including details related to our future performance should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are only projections and actual events or results could differ materially from those projections due to a number of risks and uncertainties. The Safe Harbor statement in its afternoon news release and the cautionary statement in the company's Annual Report on Form 10-K for its 2019 fiscal year and subsequent filings with the SEC, are considered a part of this conference call, including the portion of these that set forth the risks and uncertainties related to the company's forward-looking statements.

I refer you to the document the company filed from time to time with the Securities and Exchange Commission, specifically, the company's Annual Report on Form 10-K for its 2019 fiscal year and subsequent filings we have made. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. During the call, we will discuss non-GAAP measures, which we believe can be useful in evaluating the companies operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.

A reconciliation of these measures to the most directly comparable GAAP measures is available in our fourth-quarter 2020 earnings release and our supplemental information. Now I would like to turn it over to Dave Boennighausen, our chief executive officer.

Dave Boennighausen -- Chief Executive Officer

Thanks, Carl, and good afternoon, everyone. Before we begin, I'd like to welcome Carl, who joins us as CFO to the Noodles family. Carl is already proving to be a key addition to our strong leadership team, as we continue to advance our strategic roadmap and accelerated growth objectives. Turning to the business, 2020 would you like any other and I will be forever grateful to our team members and partners for their unwavering commitment to nurse and inspire the team member and guests in the community we serve, which has allowed the brand to navigate the COVID pandemic and position ourselves to thrive in the years to come.

During the COVID pandemic, our team has risen to the challenge. Placing paramount importance on the safety of our guests and fellow team members, while proving the resiliency of the [Inaudible]. Our average unit volumes continue to recover well after the initial onset of the pandemic, even with many of our restaurants unable to open their dining rooms until just recently. I want to mention that while we will continue to report our 2021 comparable restaurant sales versus 2020, we will also be providing a comparison of average unit volumes relative to 2019, beginning with our Q1 earnings call.

We believe this provides more informative view into our performance as COVID abates and we make progress toward our accelerated growth objectives. Our comparable restaurant sales relative to 2020 remain modestly negative, thus far, in 2021. I'm happy to report that both our comparable restaurant sales growth and our average unit volume sales have improved relative to Q4. Our new restaurants opened during the past two years continue to be our best performing class in history, with both averaging in volumes and restaurant level margins, above company average and performance supporting our objective for normalized cash-on-cash returns of at least 30%.

Our economic model remains strong as we've been able to mitigate much of the added pressures from the COVID pandemic, with essentially no cash burn. To capitalize our balance sheet strength, this year we did continue to modestly invest in high return projects, including the new restaurant openings and our digital platform, while maintaining net debt in line with prior year. Our guest metrics continue to improve across all channels of our business. With our sustained focus on relevant culinary innovation, consistency, and speed, served by some of the friendliest, most talented teams in the country.

Finally and most importantly, our people-oriented strategy, including the introduction of several industry-leading benefits to support our team has resulted in the servant leadership culture that supports each other, as well as, our guests, resulting in turnover and tenure metrics well ahead of industry benchmarks. I'm convinced that this strength will serve as a touchstone for allowing the branch to reach its tremendous growth potential. While we look back at 2020 and recognize how challenging it was for those in the restaurant industry and beyond, both professionally and personally. I also believe the more we remember 2020, as a year in which for Noodles & Company, we cemented our brand with our team members and guests, and created a springboard for our future success.

Noodles & Company is uniquely positioned to win in today's environment. The variety inherent in our menu has been and will continue to be a meaningful strength of the brand, as we offer favorites to kids to adults, healthy to indulgent, and flavors both familiar and new. Aside from the great variety in our menu, unlike many of our competitors, our food for health is extremely well. And given our relatively low price point and strong speed of service, Noodles is particularly well suited to take advantage of the increased need for convenience from today's consumer.

The strength of support of our digital capabilities, which we continue to enhance to make it easier for guests to access and engage with the brand. While we still face an external environment that poses some near-term uncertainty, today I'd like to focus my remarks on our vision to achieve the following accelerated growth objectives. Firstly, annual systemwide unit growth of at least 7% annually, beginning in 2022 and quickly reaching at least 10% annually, on a path to at least 1,500 units nationwide. Second, average unit volumes of the $1,450,000 million for 2024.

And finally, restaurant level margin of 20% by 2024. To meet these objectives, we remain focused on three main strategies. The first is the continued differentiation of our concept to appeal to a broad range of lifestyle, convenience, and dietary needs. Second, activating our brand, particularly, through our digital assets and marketing strategy.

And third, accelerating unit growth to take advantage of an operating model, we feel is ideally situated for a post-COVID world. I'd like to start with our ongoing success in executing a disciplined strategy of culinary innovation that is on trend, resonates with guests, and builds brand, love, and loyalty. As we discussed in the past, our 2018 introduction is the key to Noodles, allowed the brand to meet the needs of guests desiring lower carb alternatives. And we believe meaningful upside still exists for our zucchini noodle platform.

Building off of the successes of the zucchini noodle introduction, a few weeks ago, we became the first national fast casual chain to introduce Cauliflower Gnocchi to our menu. A Cauliflower Gnocchi is gluten-free and contains only half of the carbs of our traditional pasta, all the while providing the full taste and texture of traditional gnocchi. We've been very pleased with the early results and feedback from this launch. As the Cauliflower Gnocchi reinforces the concepts ability to meet the varied dietary preferences of our guests and give them more reasons to visit Noodles & Company.

We're also excited by the results from our current test of total [Inaudible] and ravioli in select markets. These test dishes offer a fresh take on some of our guests' favorites, such as our three cheese tortellini with specialty ingredients like caramelized onions and a blend of ricotta, mozzarella, and Parmesan cheeses. For years, a stuffed pasta has been the most requested item from our guests and we're incredibly encouraged by our test initial results. From a volume perspective, so far they've surpassed results from every culinary test we've launched in 17 years that I've been with Noodles & Company.

We plan to use the next few months to optimize these dishes. Our operating procedures and our marketing mix and anticipate launching the best-performing items from the test, later this summer. As we continue to further differentiate the brand for today's environment, I'd like to discuss our second strategy to drive average unit volumes to $1,450,000 million is focused on activating the brand, particularly, through our digital capabilities and improved marketing effectiveness. During the COVID pandemic, we've learned -- we've been heavily into our digital strengths which are particularly relevant for our core demograph, which is younger and tends to be more digitally savvy.

During the fourth quarter, digital sales 128% versus prior year and accounted for 62% of our total sales. Even as dining room restrictions have recently loosened and many of our markets, with over 90% of our restaurants now offering in-restaurant dining, digital sales continue to contribute roughly 65% of our total sales year-to-date. During the quarter, our dining rooms were only partially open for dine-in service. Over the past few weeks, we've now reopened nearly 90% of our dining rooms and we begun seeing early signs of outperformance in the restaurants with higher dining mix.

More specifically, our restaurants which currently have an above average mix of sales coming from dine-in are performing between 4% and 6% better in comparable restaurant sales year-to-date versus those with a lower-than-average dine-in mix. This gives us further confidence that a meaningful portion of dining guests are going to be incremental sales, and importantly, that much of the digital sales growth we've seen will prove to be long-standing. During the last several months, we've continued to elevate our digital properties, including the launch of group ordering, as well as, adding convenience for our guests, by further reducing friction in our curbside experience. As we strengthen our digital assets, we're reaping the benefits of increased stay-in and guest spends in our rewards program which has grown to 3.6 million members.

Although we still believe we're in the early innings of utilizing the data to create more personalized, targeted engagement with our guest, we've already seen an 18% improvement in the cost per acquisition for our marketing spend, as well as, significant improvement in our email open rates and overall social media engagement. We are excited at the opportunity to further harvest these insights and compromise our marketing spend on a path to $1,450,000 million AUVs. Next, I'd like to touch on our delivery strategy which drove 35.5% of our sales in the fourth quarter of 2020. We continue to see great upside and opportunity in the delivery occasion, particularly, as it relates to introducing the brand to new guests in markets where we may not have as much brand awareness.

Last quarter if you remember, we spoke about the success we're seeing in Northern California and Arizona as it relates to their delivery program. Results in those markets continue to be strong, but the benefit of delivery holds even when looking at the system as a whole. During the fourth quarter, company restaurants that have delivery sales next of greater than 30%, performed a full 18% better in comparable restaurant sales than those below 30%, giving us further confidence in the accretive nature of delivery. With our increase in delivery sales, of course, there comes with that an increased pressure to the P&L through delivery fees.

During the fourth quarter, delivery fee cost was 5.7% of sales, an increase of 370 basis points versus prior year. To offset these pressures, Noodles included an additional 5% price premium to third-party delivery orders in early December. Additionally, we've adjusted our labor model to account for the reduction in orders coming in restaurants. As a reminder, we don't currently incorporate a price premium for delivery orders made directly through our own digital properties.

We'll continue to optimize guest orders into our own channels, which bring with that an improved guest engagement, as well as, more cost. The ability to use technology to activate the brand, increase awareness in our newer trade areas and our less saturated markets, gives us even more confidence in our third strategy which is to accelerate unit growth. Earlier, I noted our vision to ultimately operate at least 1,500 restaurants domestically. Supported by at least 7% systemwide unit growth in 2022, thereafter, quickly reaching an annual growth rate of at least 10%.

Our new restaurants continue to be our best performing class in the history of the company. And during the fourth quarter, despite the ongoing impact of the COVID pandemic, as we mentioned, these nine restaurants average annualized volumes need to be above the company with cash flow to support the target of at least 30% cash-on-cash return. As we discussed in the past, many of these restaurants, include our order ahead drive to pickup window, which is instrumental in the increased need for speed and convenience from today's consumer. Our new restaurants also operate in the lower square footage footprint with a more efficient seating layout, which is perfectly suited for today's environment.

The success of our new restaurants, coupled with the resiliency that the brand evidenced in 2020, gives us great confidence in our ability to accelerate growth, not just in company markets, but also within our franchise community as well. We recently announced our initiative to franchise selected markets in the South and Southwest. And while we're in the early stages of rebuilding our new franchisee pipeline, we're encouraged by the initial response, as our branch positioning improvement in unit economic model and digital strengths are attractive for prospective franchisees. Our franchisee initiative additionally will be supported by our upcoming test of ghost kitchens.

We anticipate opening two company-owned ghost kitchens during the second quarter of 2021. One will be located in a dense residential area of Chicago, given its low cost and quick access to a trade area with great brand awareness. Meanwhile, our second location will be in San Jose, which affords us the opportunity to introduce the brand to a newer market, again, in the low cost and efficient manner, which will potentially also be, particularly attractive for new franchisees. In the current environment, while it's difficult to reliably anticipate exactly how the recent disruption toward the timing and availability of real estate, as well as, franchise signings, we do feel well-positioned to take advantage of additional opportunities as they arise.

We are again extremely excited at the unit growth opportunity ahead of us. For each of our three strategies, continued differentiation of our unique brand strengths, activating the brand through our digital and marketing channels, and accelerating unit growth. The importance of our team cannot be overstated. During the past few years and through the pandemic, we have continuously invested in building our people and culture as a competitive strength.

Our management turnover has improved from 41% to 27% in the last two years alone. While our total team member turnover has improved 31 percentage points and is now meaningfully below industry average, we have built a dedicated robust pipeline of future leaders with great tenure and knowledge of the newest brand, who will be instrumental in helping us achieve our targeted goals for 2024. With the roll out of vaccines and the progress the country is making in reducing the impact of the virus, I am cautiously optimistic that the environment will normalize at some point this year, but we certainly recognize that we're not completely through the pandemic. I have never been prouder of our team nor more excited what the future will bring.

With that, I'd like to turn it over to Carl to walk through our financials.

Carl Lukach -- Chief Financial Officer

Thank you, Dave, and good afternoon, everyone. As Dave mentioned above, we are pleased with our fourth-quarter performance in light of challenging market conditions related to a resurgence of COVID-19 volatility. During the quarter, total revenue decreased to 5.9% to $107.2 million, of which half of the decline was related to temporary COVID-related restaurant closure dates for health and safety. As we begin to lapse closure-related activity, these temporary impacts are expected to abate.

Our average unit volume which normalized foreclosures were $1.15 million during the quarter and represents a 2.6% year-over-year decline from prior year. And as Dave mentioned, we have been encouraged, thus far, in January and February, with our trends relative to fourth quarter of 2020. From a comparable restaurant sales perspective, we saw 4.7% decrease systemwide during the fourth quarter, including a 4.2% decrease for company-owned restaurants and a 7.9% decrease for franchise restaurants. In January, we saw sequential improvement and posted a 1% comparable restaurant decline relative to 2020, which represent a positive two-year stacked comp of 2.4%.

We currently anticipate that our first-quarter comp will be in the positive mid to high single-digits, as we begin to lapse the initial impact of the COVID pandemic. On a restaurant contribution basis, our restaurant level margins were 13.6% the fourth quarter, compared to 17.2% last year. Sales deleverage represented more than half or 210 basis points of the decline. For the remainder of the margin variance, efficiencies made to our labor model throughout the year, did not fully offset the increase we saw in delivery fees, which increased 370 basis points versus prior year.

As Dave touched on, delivery remains an important channel for us, which drives brand awareness and overall sales and profitability. But we will continue to optimize the margin impact of delivery to our labor model and price optimization, as we did in fourth quarter. Reviewing these margin drivers in a bit more detail. For the fourth quarter, our cost of goods sold was 25.2%, this represents only a modest increase from last year, despite a many -- meaningful increase in our off-premise packaging costs.

As we continue to drive strict management of commodity price inflation and optimize our promotional activity around discounts, we also saw some increase in waste during the fourth quarter given temporary closures. So as the closures improved into the new year, we expect to show some modest improvement in cost of goods sold. For fourth quarter, labor with 32.1% of sales, a 50-basis-point improvement from last year, despite offset in both wage inflation and sales deleverage. This improvement was primarily driven by the labor model efficiencies realized through our kitchen of the future initiative, which was initiated in 2018 and has been targeting a long-term reduction of 10 hours of labor per restaurant per day.

We are pleased with the overall result of this initiative, and thus far, in the past two years, have achieved approximately seven hours of labor savings per restaurant per day from our systems, including five hours that were realized during 2020. In 2020, we executed several staffing initiatives, including reducing the front of house team, optimizing our food prep assembly, and dynamically modifying schedules based on real-time sales forecasts. For the quarter, this five-hour labor reduction, represented a 200-basis-point improvement to our overall labor as a percentage of sales. As we look to future labor efficiencies, we continue to research and test new kitchen equipment.

This year, we plan to roll out steamers in all of our restaurants, which we began testing last year. Our tests have performed very well, not only in the reduction of cook times and the improvement of overall labor hours, but guest feedback has also been positive on overall taste of food. Next week, we will begin the phase national rollout of steamers into restaurants and expect to complete the roll out for our entire restaurant base by the end of the year. Based on tests, we estimate that an additional two hours of labor will be reduced as a result of the steamer roll out which will ultimately result in an additional 80- to 100-basis-point benefit to our labor expense on a run rate basis upon completion.

Other operating costs for the quarter were 18.4%, a 400-basis-point increase from last year due primarily to higher delivery fees in the quarter. As Dave mentioned, to help improve the economics on its premium access point, we implemented an additional 5% pricing premium to our menu solely through that third-party channel, which brings the total third-party pricing premium to 15%. While the benefits of fourth quarter was minimal, assuming delivery failed to hold as a percentage of sales, we expect that the action will have an ongoing 60- to 70-basis-point benefit to our overall restaurant level margin. G&A for the quarter was $11.5 million, a 4% increase over last year.

This increase is related to continued marketing investment within our digital channel, which was critical for our business and with nearly a fully off-premise business model during the quarter. These digital investments include a frictionless curbside pickup enhancement on our Noodles app and the ongoing investment in our loyalty program to drive guest engagement. For 2021, we anticipate a modest increase to G&A dollars relative to 2020, as efficiencies gained through our organizational review during the COVID pandemic are offset by our investment to support our unit growth strategy, as well as, a more normalized incentive compensation. Our adjusted net loss which excludes the impact of impairments, divestitures, and closure costs was $1.6 million or $0.04 loss per diluted share, compared to an adjusted net income of $3 million or $0.07 earnings per diluted share.

The uncertainty of COVID continues to make it difficult to provide our typical full-year 2021 guidance. However, we are optimistic heading into the year based on our brand fundamentals and an early read on the year-to-date performance. As I mentioned previously, we anticipate the first-quarter same-store sales in the positive, mid to high single-digits. Additionally, we continue to anticipate 10 to 15 new restaurant openings systemwide in 2021, including eight to eleven new company restaurants.

We expect full-year capital expenditure to be $20 million to $24 million. Finally, I would like to note that we have completed a thorough overview of our unit portfolio, as it relates to expected long-term consumer trends. We are very confident that outside of a small number of exceptions, our real estate portfolio is overall well-positioned, although we do anticipate roughly five closures during the first quarter. These sites are primarily ones that are approaching their lease end or are heavily reliant on office or government generators that we feel will be hampered in the long-term.

Turning to the balance sheet. We feel very good about our current liquidity position. At year end, we had cash and cash equivalent of $7.8 million and a net debt balance of approximately $36 million. Our current debt levels are in line with our balance sheet last year prior to the pandemic and reflect a nearly zero cash burn.

During 2020, our capital investment spend was approximately $12 million, which as Dave points out, was primarily on new restaurant openings and our digital platform. We anticipate that we will produce positive free cash flow during 2021 and our ability to maintain strong liquidity through the pandemic has positioned us to maintain the flexibility to meet our growth objectives in the years to come. Before I turn it back over to Dave for final remarks, I wanted to express my gratitude to the Noodles family for welcoming me into the business this year. This is a fantastic team with tremendous passion for our guests.

I'm energized by the strategic plan Dave presented and committed to working alongside with him and the entire Noodles team to achieve our accelerated growth objectives. With that, I'll turn it back over to Dave.

Dave Boennighausen -- Chief Executive Officer

Thanks, Carl. As I noted in my earlier remarks, while 2020 was a challenging year throughout the industry for so many of us personally and professionally, we do feel the resiliency of the brand and the progress made on culinary, marketing, and operational initiatives have positioned Noodles & Company to be a clear winner in the post-COVID environment. There will likely be some volatility ahead over the next few months. However, we are more confident than ever at our ability to meaningfully accelerate unit growth, both through company and franchise locations, as well as, execute a strategy that results in meaningful expansion in both our average unit volumes and restaurant level margin.

Before we open the call to questions, I would like to reiterate my thanks to our teams throughout the country. I continue to be humbled at the opportunity to work with them and look forward to taking the next step of our journey together. With that, John, could you please open the lines for Q&A.

Questions & Answers:


Operator

[Operator instructions] First question is coming from the line of Andrew Strelzik from BMO.

Unknown speaker

Hey, guys, it's actually Dan on for Andrew today. Thanks for taking the questions. You know, you put it -- you put out that release last week talking about your growth plans and the Southern and Southwestern markets, and the growth will be coming from company-operated locations. Some is coming from franchisees, I know the same is true, obviously, for 2021 as you had released today.

So, I guess my question is just, how are you thinking about franchise growth and the lever for the business longer-term? Where do you see that franchisee mix settling over time as you get closer to that ultimate 1,500 unit goal? And maybe near-term, what is the franchisee demand look like right now in terms of the desire to open new locations, expand footprints, what have you?

Dave Boennighausen -- Chief Executive Officer

Yeah, sure, there's a lot to unpack there, Dan. But, you know, I would talk -- we are extremely excited about the franchise opportunity. We have got the brand and a great place, people in a great place, the economics in a great place that we feel accelerating growth there on so many markets, where we do not have Noodles & Company yet, that we think it will just be a larger and larger part of our future. Realistically, in the short-term, we do expect that most of the growth will come from the company side as we develop that franchise pipeline.

It's probably a bit too early to say what that ultimate mix will shake out at. But we do feel that you will see us move in a direction where franchise would be a larger part of the organization. And, Dan, the question about the existing franchisees, they have done extremely well, very proud of how they've navigated the COVID pandemic. So you will also see some growth that comes from our existing franchisees as they continue to build out their ideas.

Unknown speaker

Got it. No, I appreciate that color. And then just maybe shifting gears a little bit, you know, you guys have, obviously, laid out a pretty robust growth plan here which is exciting. I appreciate the commentary you gave on G&A for this year.

We're just kind of -- and thinking about that that line longer-term, is there any additional color you can add and maybe just the pacing of that in terms of supporting the business through this acceleration in growth. Maybe just some more color on what some of these specific areas you might look at in terms of adding investment that might impact that line. And just as we're thinking about kind of the longer-term progression in the next few years, how we should think about that looking forward?

Dave Boennighausen -- Chief Executive Officer

I think we feel very comfortable, Dan, with the current structure of the organization. We feel about the final elements of a leadership team with Carl's hiring, as well as, John Ramsay, our head of franchise sales, who came -- came on board late last year, as well as, two real estate directors that are already having some great success in building out the company pipeline. So, again, given the volatility and what you're seeing throughout the environment, that's early to say what is that ultimate cadence would look like from a G&A growth perspective, but we certainly feel that the structure as it sits today is well situated to have nice leverage on that line item consistently year over year, after the pandemic subsides.

Unknown speaker

Got it. That's all for me. I appreciate you taking the questions.

Operator

Next question is coming from the line of Joshua Long from Piper Sandler.

Joshua Long -- Piper Sandler -- Analyst

Great. Thanks for taking the question. Excited to hear about the unit growth in fiscal '21 and then in '22 and beyond. To a certain extent, a nice continuation and building from conversations we've been having over the prior quarters.

But just curious, if you could talk about the real estate pipeline. How that's set up now? I know, Carl, mentioned that you've done a thorough review and feel good with where that's set up. But just, as you guys transition back into growth mode, if you can talk about some of the pushes and pulls there, and the team that's in place and how you're going to be able to execute that going forward?

Dave Boennighausen -- Chief Executive Officer

Yeah. We have always thought that there's three triggers, Josh, that have to be in place for you to accelerate unit growth. First, is certainly the concept and the brand itself and how well it resonates with guests to which we feel the resiliency of the brand. You know, really has been proven and evidenced through the COVID pandemic.

The second is the people structure. When we look back in the past of times, where it was a success or a failure, and when you looked at the postmortem on where you could've done better. It's often on the people front and our people metrics are some of the best in the industry right now. So we have a pipeline that is excited and ready to go from the growth perspective.

Third and most important, is the economic model itself. As we said, the most recent class of restaurants, and including a couple of that have opened on the franchise side, are the best performing in the history of the company. So we feel like we have all three of those levers really in place. The pipeline for 2021 and beyond is coming together very well.

We will be primarily infill of existing markets, as well as, new growth in some of the really hot on-trend developing markets that have really been shining through the pandemic such as the Arizona market. So it'll be relatively low risk primarily infill from the company perspective. We will have a new market that opens on the franchise side here in South Carolina in a few months. So we're excited to bring that new partner on board as well.

But ultimately, we feel the pipeline is in great shape pragmatically, given how COVID impacted some of the development timelines that will be a bit of a backloaded nature to the pipeline in 2021. But overall availability of real estate looks good and the concept itself is just really well-positioned. So we're all feeling very excited about the pipeline ahead.

Joshua Long -- Piper Sandler -- Analyst

Great. Thank you for that. And then thinking about the longer-term targets that you offered, specifically, that $1,450,000 million AUV. Excited to hear about that and curious, what you can share.

I imagine there's still a lot to be debuted and work through there, but if you think about kind of the composition of your sales now or maybe in historical period and then looking forward to that achieving and then moving past that $1,450,000 million targets. What does the, either the Noodles experience, the structure, or the kind of the composition of that revenue base look like and just how we should be thinking about that going forward?

Dave Boennighausen -- Chief Executive Officer

Sure. I mean, we talked about 65% of our sales year-to-date is currently coming from digital. And as a reminder, we already had a very strong off-premise, very strong digital program even entering the pandemic. What we are seeing and we as we talked about on the call, is that for those trade areas, those markets where people are starting to return to habits.

I mean, we're not we're not naïve so we know that nothing will necessarily normalize. There will be differences in the new environment and it will be, we believe, heavily off-premise, heavily digital. We feel we're really well-positioned and those restaurants that are situated in areas where you're starting to see more normality, they're performing meaningfully above the balance of the company. So we are seeing that that digital growth looks like it's going to be meaningfully long standing and talking about those newer markets that are gaining brand awareness and we've seen an acceleration in their performance.

And the typical trajectory that we had ultimately expected for those markets, it's really been accelerated through the pandemic. So as things do become more normal, we expect we will benefit from the brand awareness that has been gained through the last twelve months. And those digital sales, we think is a significant part of that will be long-standing, and not to mention, we are very excited about the culinary innovation. I think this is probably our best year culinary innovation we've got on tap that we've had in a long time.

So we have the Cauliflower Gnocchi and the Tortellini, we're seeing really nice results from both of those. And so we think all the levers, in terms of the menu itself and the culinary innovation, continued marketing effectiveness, and progress we're making along all of those fronts, and then just continued operational execution which anybody that's been in the restaurant space for a long time will tell you the most correlated thing with why a restaurant performs better than another is going to be tenured manager. And we're very excited with what we're seeing there, so the makeup overall would be probably more digital heavy and probably a bit more in some of the new items we're introducing, but we feel very well-positioned.

Joshua Long -- Piper Sandler -- Analyst

Great. Thank you.

Operator

Next up is Andy Barish from Jefferies.

Andy Barish -- Jefferies -- Analyst

Hey, guys, a couple. Just following up on, excuse me, on Josh there. The CAGR to get from current AUVs to $1,450 million is about 6% annually. We know -- we know the unit growth is going to ramp up, but is that primarily same-store sales and a little bit of high -- higher new unit average volumes? Or how should we kind of think about that progression from today to to the end of '24?

Dave Boennighausen -- Chief Executive Officer

Yeah. I think mathematically, Andy, it will be more from the comparable restaurant sales growth and AUV growth of our existing fleet. The new restaurants are performing extremely well, so they will be -- we certainly will be accretive to that overall unit volume. But until you start reaching that 10% type annual unit growth, which we will get to in reasonably short order, but until you get to those levels, the new restaurants, just mathematically, don't have as much impact as that current restaurant sales aspect will.

But I think, the performance that we're seeing, figures you'll see in 2020 and into this year, and some of that performance I alluded to with Josh, gives us pretty good confidence that we're positioned in a post-COVID world to have a significant acceleration on the AUV -- for the existing fleet.

Andy Barish -- Jefferies -- Analyst

OK. And for the new stores just, I know it's early in the ramp, but the recent success, historically, new stores opened at a -- you know, a fairly noticeable discount to the system average. Do you expect that to narrow or actually slip and potentially see some classes that are at or above the system average?

Dave Boennighausen -- Chief Executive Officer

We expect that it will continue to be above the system average like we're seeing in this most recent class. And one of the main reasons outside of that is the order ahead drive through window. It has been such a hit with our guests, such an easy execution for our teams. It gives -- it gives our guests just a new way to access the brands.

You combine that with the fact that, we've gotten sharper and better with our overall real estate selection process and just the brand itself is sitting on so many better cylinders from people, operational, execution, marketing perspective. I think all -- all the other levers we need to see in place to expect that we'll have strong performance in the new restaurants are there.

Andy Barish -- Jefferies -- Analyst

OK. And then just kind of tracking again on the longer-term margin outlook. You know, sort of north about 100 to 150 a year of restaurant level improvement. As you list a couple of items in the release, supply chain, you know, ops and back of the house equipment.

Obviously, sales leverage is going to help a lot, but is there a logic in terms of order of magnitude in that listing of some of the other margin improvement opportunities? Or how should we kind of think about those those three big buckets?

Dave Boennighausen -- Chief Executive Officer

Yeah. I want Carl to give a bit of texture on this one as well, but I'll start off by saying, I think we feel the progress we've made on our prime cost. When we look at our cost of goods sold, as well as, a lot of the efficiencies we gain in labor which we still think there's room to go there. And really give us a lot of confidence and as we build those AUVs having a very fair percentage of that go down to the bottom line.

So I think the leverage that we're going to be able to achieve, we feel very confident in. But for some of the more detail, I think Carl could probably add a little bit of texture.

Carl Lukach -- Chief Financial Officer

You know, the field leverage is going to be a big driver there. When you look at the other buckets like labor and cost of goods sold. So labor, we were referred to the 200 bps of labor efficiencies that we got from the five-hour labor of reduction that was a bit hidden in the margin. So when sales leverage becomes a factor here, that's going to really illuminate and continue to drive the labor efficiencies.

And as we mentioned, there's more to come, so we have another two hours that we're bringing out of the system this year, which should be around 80 to 100 additional basis because labor is going to be a material driver on that -- on that roadmap as well. From the cost of goods sold perspective, really there's consolidation among vendors. As we think about some of our major products within sauces, within proteins, so this consolidation will help drive efficiency on pricing, efficiency on redundancy within our system, and we think it's going to offset continued costs. And it's going to, in turn, help and impact any inflationary pressures that we can see on cost of goods sold or on labor.

Andy Barish -- Jefferies -- Analyst

Thanks. I appreciate the color.

Operator

[Operator instructions] Next up is Todd Brooks from C.L. King and Associates Hey good afternoon guys.

Todd Brooks -- C.L. King and Associates -- Analyst

Hey, good afternoon, guys. A couple of questions for you. One, and thanks for the for the long-term kind of framework for what you think the company is going to become. If I remember correctly, there's a fairly big spread in performance within the Noodle store base.

Could you maybe comment on, is there -- is there a percentage of the existing base that's already North of those $1,450,000 million AUVs and if so, is the margin structure already there above the 20% goal for that subset of stores?

Dave Boennighausen -- Chief Executive Officer

The answer to both is yes and that there's a significant percentage of restaurants that are above the main 450 and the margin structure certainly North of 20%. One thing we've disclosed in the past is that, top 10% of restaurants pre-COVID average about $1,670,000 million in average in the [Inaudible]. So we know that there's a significant opportunity from just a capacity perspective and brand acceptance perspective to reach those targets. I think one aspect, Todd, of the last 12 months that's been particularly exciting is, to your point, historically, there has been a bit of dispersion within our overall portfolio from a volume perspective.

The largest factor in what has driven a larger-volume market versus one that's not has been brand awareness. And what the benefit we're seeing through the COVID pandemic and I'll use Phoenix again as an example, is that is a market that was typically on a pre-COVID environment on the way up and is gaining acceptance and is getting improved average unit volumes, but we're still reasonably below the company. Now, it is one of the two or three large highest volume markets for us on an average-in-volume perspective. So what this COVID had done -- has done, and certainly again, recognize that it's been painful and tough for the industry, but it has really accelerated that major -- you know, if you'd say, one of the benefits of those long-term is our differentiation.

It also makes it difficult to really gain awareness in the new market that's been proven to be able to be accelerated versus the pre-COVID world. So I think it's exciting that, not only do we have a good amount of our restaurants that are already above those targets, particularly, in a more normal environment, but additionally, we're seeing the dispersion between restaurants from the brand awareness perspective really narrow.

Todd Brooks -- C.L. King and Associates -- Analyst

That's great. Very helpful. Thanks, Dave. And then just one of a block and tackling type question.

When you look at the the corporate unit growth for this year, give a sense, I know it can change with COVID and such, but with the five closures in Q1. Do you have a rough idea of how the new openings are going to flow cadence-wise through fiscal '21?

Dave Boennighausen -- Chief Executive Officer

Sure. We have a couple that are already under construction or pretty far along in construction that will open up here in Q2. We expect a couple more in Q3 and then the balance of the company restaurants will be in that fourth quarter of the year.

Todd Brooks -- C.L. King and Associates -- Analyst

That's great. Thanks, Carl. Take care, guys.

Operator

We don't have any questions at this time. I'll turn it back to the Noodles management.

Dave Boennighausen -- Chief Executive Officer

Thanks, John. Just wanted to again appreciate everybody's time for joining us today. I'm very excited to lay out these accelerated growth objectives. I'm very proud of our team in terms of how we've positioned ourselves to succeed in the post-COVID environment, and really look forward to sharing our progress in the quarters and years to come.

We're very excited for [Inaudible], and thank you again.

Operator

[Operator signoff]

Duration: 47 minutes

Call participants:

Carl Lukach -- Chief Financial Officer

Dave Boennighausen -- Chief Executive Officer

Unknown speaker

Joshua Long -- Piper Sandler -- Analyst

Andy Barish -- Jefferies -- Analyst

Todd Brooks -- C.L. King and Associates -- Analyst

More NDLS analysis

All earnings call transcripts

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.