10-Q: Noodles & Company Reports Wider Losses, Nasdaq Warning

Noodles & Company reported a significant increase in net loss and operating loss for the second quarter and year-to-date 2025, alongside a Nasdaq non-compliance notice regarding its minimum bid price.

Summary

• Total revenue decreased by $0.9 million (0.7%) to $126.4 million in Q2 2025 compared to Q2 2024, primarily due to restaurant closures, partially offset by comparable sales and new restaurant revenue.
• Net loss increased by $3.9 million (28.8%) to $(17.6) million in Q2 2025 and by $6.8 million (34.6%) to $(26.6) million for the first two quarters of 2025.
• Loss from operations increased by $3.3 million (28.3%) to $(14.8) million in Q2 2025 and by $5.6 million (35.6%) to $(21.2) million for the first two quarters of 2025.
• Adjusted EBITDA decreased to $6.0 million in Q2 2025 from $9.2 million in Q2 2024, and to $8.4 million YTD 2025 from $14.7 million YTD 2024.
• System-wide comparable restaurant sales increased 1.5% in Q2 2025 and 2.9% for the first two quarters of 2025, compared to a 1.3% increase and a 2.2% decrease in the respective prior periods.
• Cost of sales as a percentage of restaurant revenue increased to 26.5% in Q2 2025 (from 24.7% in Q2 2024) and to 26.6% YTD 2025 (from 24.8% YTD 2024), driven by menu investments, mix shifts, and inflation.
• Labor costs as a percentage of restaurant revenue increased to 31.7% in Q2 2025 (from 31.2% in Q2 2024) and to 32.1% YTD 2025 (from 31.7% YTD 2024), due to wage inflation and increased labor hours for new menu rollout.
• Restaurant impairments, closure costs, and asset disposals increased to $13.7 million in Q2 2025 and $14.9 million YTD 2025.
• The company closed 9 company-owned restaurants in the first two quarters of 2025 and anticipates closing an additional 19 to 23 restaurants in 2025.
• Drew Madsen resigned from employment effective August 31, 2025, but will remain on the Board of Directors until the 2027 annual meeting.
• Joseph Christina was promoted to President and Chief Executive Officer, effective August 31, 2025, and received a restricted stock unit grant for 250,000 shares.
• Received a Nasdaq notice of non-compliance on June 24, 2025, for failing to meet the minimum $1.00 bid price requirement, with 180 calendar days to regain compliance.
• Cash and cash equivalents increased to $2.3 million as of July 1, 2025, from $1.1 million as of December 31, 2024.
• Outstanding indebtedness under the A&R Credit Agreement was $108.3 million as of July 1, 2025, with $13.7 million available for future borrowings.
• The company was in compliance with all debt covenants as of July 1, 2025, but covenants become more stringent in Q4 2025 and beyond.

Sentiment

Score: 3

Explanation: The company's financial performance significantly deteriorated, with substantial increases in net and operating losses, and a sharp decline in Adjusted EBITDA and restaurant contribution margin. The Nasdaq non-compliance notice adds a layer of regulatory and market risk. While comparable sales showed some improvement, it was overshadowed by rising costs and ongoing restaurant closures. The increasingly stringent debt covenants further limit financial flexibility, indicating significant challenges ahead.

Positives

• System-wide comparable restaurant sales increased 1.5% in Q2 2025 and 2.9% for the first two quarters of 2025, indicating improved sales performance in existing restaurants.
• Company-owned average unit volumes (AUVs) increased by 2.3% in Q2 2025 and 3.6% for the first two quarters of 2025.
• Cash and cash equivalents increased to $2.3 million as of July 1, 2025, from $1.1 million at the end of 2024.
• General and administrative expenses decreased by $1.2 million (8.6%) in Q2 2025 and $1.4 million (5.2%) YTD 2025, reflecting lower stock-based compensation, legal expenses, and incentive pay.
• Pre-opening expenses significantly decreased by 87.0% in Q2 2025 and 77.3% YTD 2025 due to fewer new restaurant openings.
• Wage inflation has stabilized to less than 3%, partially mitigating labor cost pressures.
• The company successfully launched a comprehensive menu upgrade in March, supported by increased marketing and a new brand strategy.
• The company was in compliance with all debt covenants as of July 1, 2025.

Negatives

• Net loss significantly increased by 28.8% in Q2 2025 and 34.6% for the first two quarters of 2025.
• Loss from operations increased by 28.3% in Q2 2025 and 35.6% for the first two quarters of 2025.
• Adjusted EBITDA decreased by 34.6% in Q2 2025 and 42.7% for the first two quarters of 2025.
• Restaurant contribution margin declined from 15.5% to 12.8% in Q2 2025 and from 14.4% to 11.6% YTD 2025.
• Cost of sales as a percentage of restaurant revenue increased by 1.8 percentage points in both Q2 and YTD 2025, primarily due to menu investments, mix shifts, and inflation.
• Labor costs as a percentage of restaurant revenue increased by 0.5 percentage points in Q2 2025 and 0.4 percentage points YTD 2025, driven by wage inflation and new menu rollout labor hours.
• Other restaurant operating costs as a percentage of restaurant revenue increased by 0.5 percentage points in Q2 2025 and 1.0 percentage points YTD 2025, due to higher delivery fees and increased marketing spend.
• Restaurant impairments, closure costs, and asset disposals increased by $1.6 million (13.2%) in Q2 2025 and $1.7 million (12.5%) YTD 2025.
• Interest expense, net, increased by 37.9% in Q2 2025 and 35.8% YTD 2025, due to higher average debt balances and interest rates.
• The company closed 9 company-owned restaurants in the first two quarters of 2025 and anticipates closing an additional 19 to 23 restaurants in 2025, indicating ongoing portfolio optimization challenges.
• Received a Nasdaq notice of non-compliance on June 24, 2025, for failing to meet the minimum $1.00 bid price requirement, raising concerns about continued listing.

Risks

• Failure to regain compliance with Nasdaq's minimum bid price requirement ($1.00 per share) could lead to delisting, making it harder for stockholders to sell shares and reducing the ability to raise additional capital.
• Indebtedness and credit facility covenants become more stringent, with the Consolidated Total Lease Adjusted Leverage Ratio stepping down and the Minimum Consolidated Fixed Charge Coverage Ratio stepping up, increasing the risk of non-compliance.
• Difficulty in extending or refinancing the A&R Credit Agreement, which matures in 2027, on reasonable terms.
• Potential need for additional liquidity in the future, which may be difficult or impossible to obtain, especially if not in compliance with debt covenants.
• Future issuances of equity or convertible debt securities could result in significant dilution for existing stockholders.
• Any new debt financing may involve higher interest rates and restrictive covenants, limiting financial and operational flexibility.
• Exposure to commodity price volatility (food costs, labor costs, energy costs, construction materials) due to external factors like weather, market conditions, and trade tariffs.
• Inflationary pressures are anticipated to continue affecting operating costs, potentially impacting profitability if menu prices cannot be adjusted sufficiently without affecting customer behavior.
• Near-term sales growth remains constrained by macroeconomic uncertainty and current consumer sentiment.
• New menu items may have higher costs, impacting cost of sales.
• Increased usage of third-party delivery services leads to higher delivery fees.

Future Outlook

The company plans to continue launching new menu items, including lower-priced value offerings, to address macroeconomic uncertainty and consumer sentiment. It anticipates closing an additional 19 to 23 restaurants in 2025 as part of portfolio optimization. Capital expenditures for fiscal year 2025 are estimated to be $12.0 million to $13.0 million, with the remainder focused on existing restaurant reinvestment and technology. The company expects to remain in compliance with its debt covenants for the next twelve months, despite their increasing stringency. No material income tax expense or benefit is anticipated for the remainder of fiscal 2025 due to a valuation allowance, with an estimated annual effective tax rate between (1.0%) and (0%).

Management Comments

• "Near-term sales growth remains constrained by macroeconomic uncertainty and current consumer sentiment."
• "We have responded with a comprehensive menu upgrade that we introduced in March along with increased marketing support and a new brand strategy."
• "We plan to continue launching new menu items, including lower priced value offerings."
• "We continue to monitor commodity inflation and throughout periods of volatility, we will continue to work with our suppliers to identify ongoing supply chain efficiencies, including adding additional suppliers as necessary."
• "We expect tariffs may impact our operations in certain areas, such as food and beverage costs, construction and equipment costs and other restaurant operating costs, for the remainder of fiscal 2025."
• "Wage inflation has stabilized to less than 3%."
• "We continue to analyze our restaurant portfolio and expect to close certain restaurants that are either generating low or negative cash flows, at or are approaching the expiration of their leases or in trade areas that are not as well positioned for current consumer trends."
• "We believe that we will have sufficient sources of cash to meet our liquidity needs and capital resource requirements for at least the next twelve months, through currently available cash and cash equivalents, availability under our revolving credit facility and cash flows from operations."
• "We were in compliance with our covenants as of July 1, 2025, and expect to continue to be in compliance for the next twelve months."

Industry Context

The company operates within the fast-casual restaurant segment, facing industry-wide challenges such as macroeconomic uncertainty, fluctuating consumer sentiment, and rising labor and commodity costs. The increasing reliance on third-party delivery services and associated fees is also a common trend impacting restaurant operating costs. The company's efforts to introduce new menu items, including value offerings, and optimize its restaurant portfolio reflect broader industry strategies to adapt to changing consumer preferences and economic conditions.

Management Changes

Corporate Governance

Legal Proceedings

• The company is currently not a party to any material legal proceedings.
• The company is subject to proceedings, lawsuits, and claims in the normal course of business, but believes an unfavorable outcome with respect to these matters is remote or a potential range of loss is not material to its consolidated financial statements.

Related Party Transactions

• The filing details employment agreements and equity grants for executives (Drew Madsen, Joseph Christina) which are considered related party transactions in the normal course of business for executive compensation.

Stakeholder Impact

• **Shareholders:** Face increased financial risk due to wider losses, declining profitability metrics, and the Nasdaq non-compliance notice. Potential for dilution from future capital raises. The CEO transition introduces leadership change, which could be positive long-term but adds near-term uncertainty.
• **Employees:** The CEO transition impacts leadership. Ongoing restaurant closures (9 in H1 2025, 19-23 more anticipated) suggest potential job reductions. Wage inflation has stabilized, which could be a positive for existing staff.
• **Customers:** May benefit from new menu upgrades and planned lower-priced value offerings, but macroeconomic uncertainty and consumer sentiment continue to constrain sales.
• **Suppliers:** The company's focus on supply chain efficiencies and working with suppliers to mitigate commodity inflation indicates ongoing partnership and potential for negotiation.
• **Creditors:** The company is in compliance with debt covenants, but the increasing stringency of these covenants and higher interest rates on debt indicate a more constrained financial environment and increased scrutiny from lenders.

Next Steps

• Continue launching new menu items, including lower-priced value offerings.
• Monitor commodity inflation and work with suppliers to identify supply chain efficiencies.
• Anticipate closing an additional 19 to 23 restaurants in 2025.
• Monitor the closing bid price of common stock and consider all options, including a reverse stock split, to regain Nasdaq compliance.
• Evaluate the impact of the 'One Big Beautiful Bill Act' tax provisions on consolidated financial statements.
• Evaluate the impact of ASU No. 2024-03 on consolidated financial statements and related disclosures.
• Joseph Christina will assume the role of President and Chief Executive Officer effective August 31, 2025.
• Drew Madsen will continue to serve as a member of the Board of Directors until the annual meeting of stockholders in 2027.

Key Dates

Recommendation

The company's financial results for Q2 and YTD 2025 show a significant deterioration, with net loss and operating loss widening substantially, and Adjusted EBITDA declining sharply. The restaurant contribution margin also decreased, indicating operational inefficiencies. The Nasdaq non-compliance notice regarding the minimum bid price adds a critical regulatory risk, potentially impacting liquidity and access to capital. While comparable sales showed a modest increase, this is overshadowed by rising costs, increased restaurant impairments, and planned further closures. The increasingly stringent debt covenants further limit financial flexibility. These factors collectively present a highly challenging outlook, suggesting that the stock carries significant downside risk for investors.

Keywords

Restaurant Industry, Fast Casual, SEC Filing, 10-Q, Financial Performance, Net Loss, Comparable Sales, Restaurant Closures, Nasdaq Compliance, Debt Covenants, Management Change, Equity Awards, Commodity Prices, Inflation, Noodles & Company