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Why Noodles & Co. Is Still Down

By Andrew Marder – Jan 15, 2014 at 9:20AM

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Noodles & Co. is having difficulty with its competition and its long-term growth plans, and not convincing consumers that it's the place to be.

Last year when Noodles & Co. (NDLS 1.56%) hit the stock market, it jumped up to around $45 right out of the gates, up from an IPO price of $18. Through October, the stock bumped along at $45 as investors waited for the company to release its third-quarter results in early November. That didn't go so well. The stock is now trading at $36. What comes next? Can Noodles & Co. get back on top?

Plans for 2014
Yesterday, Noodles & Co. presented at the ICR XChange conference, where it laid out its plans for 2014 and beyond. The most important prediction that the brand spoke about was the size of the U.S. potential for its stores. According to Noodles & Co., the U.S. can sustain more than 2,500 locations; right now, it operates 368 stores. For some comparison, Chipotle (CMG 1.33%) currently operates a little more than 1,500 restaurants.

Noodles & Co. also said that it was planning on growing its total units by 12% to 13% every year. So look for the 2,500th store to open up sometime during 2029. Good year.

Looking to the shorter term, Noodles & Co. is hoping to lay the foundation for the long road ahead. For the fourth quarter, that means growing comparable sales at 3.9% over last year. Chipotle grew its third-quarter comparable sales by 6.2%.

To get a bit more traction, Noodles & Co. is planning to expand its dinner options by adding more locations that have full dessert, coffee, and tea offerings. Right now, just over 50 locations have the full dinner setup. The company is also hoping to expand its catering business -- that's a move that's been successful for competitors like Panera (PNRA).

Noodles & Co. for the long haul
The biggest challenge for Noodles & Co. is that it's not growing individual locations at the same rate that fast-casual competitors have managed. While lagging behind Chipotle, Noodles & Co. isn't having trouble keeping up with Panera. The sandwich-cafe chain only managed a 1.3% increase in comparable sales in its last reported quarter.

The problem is at the macro level, where the decline of pasta consumption in the U.S. is evident. American spending on pasta is now growing at less than 2% per year, according to analysts. While the Atkins fad has come and gone, the lingering decrease in pasta consumption has left its mark on the American food landscape.

In order to move beyond the carb stigma, Noodles & Co. needs to find a way to focus on its other options. Salads and Asian dishes, which often avoid the carb branding, may offer Noodles & Co. another path to success. For now, the company is still struggling to figure out where it fits in the fast-casual landscape, and for investors, that may mean another year of flagging sales and mediocre returns.

Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill and Panera Bread. 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.

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