Noodles & Company Q2 FY2026 earnings call

• Core Business Performance and Strategic Progress
  • This quarter marks one of Noodles and Company's strongest performances since going public, with accelerated progress that exceeded management's own expectations.
  • Restaurant-level margins expanded over 400 basis points YoY to over 17%, the highest margin level in five years.
  • Comparable restaurant sales have been positive and accelerating for 18 consecutive months, and have outperformed the Fast Casual Black Box Index for 12 consecutive months.
  • Portfolio optimization (closing low-performing restaurants near higher-performing locations) has delivered stronger results than initially estimated: an average of one-third of closed restaurant sales transfer to nearby locations, boosting average unit volume and margins for remaining locations, with the majority of total sales growth coming from core operational improvements rather than just sales transfer.
  • Through the first half of 2026, adjusted EBITDA has more than doubled compared to the same period in 2025.

Noodles and Company reports only one core operating segment of fast casual noodle restaurant operations, with the following Q2 2026 financial performance:

• Total revenue: $127 million, a $600,000 increase year-over-year (YoY). The growth from strong comparable sales was mostly offset by restaurant closures from the company's portfolio optimization plan.
• System-wide comparable restaurant sales: +10.3% YoY; 11.4% YoY growth at company-owned restaurants, 5.5% YoY growth at franchise restaurants.
• Company-owned comparable restaurant traffic: +7.6% YoY, with average check growth of 3.8% (including 2.1% effective price increases).
• Company-owned average unit volume: $1.57 million, a 15.9% YoY increase.
• Restaurant contribution margin: 17.2% of sales, up 440 basis points YoY from 12.8%.
• Cost of sales: 24.9% of sales, down 160 basis points YoY, with overall food cost inflation of 0.7% YoY.
• Labor costs: 29.4% of sales, down 230 basis points YoY, with hourly wage inflation of 1.6% YoY.
• Occupancy costs: $10.2 million, down from $11.4 million YoY due to reduced company-owned restaurant count.
• Other restaurant operating costs: 20.3% of sales, up 60 basis points YoY driven by higher third-party delivery fees, partially offset by lower marketing spend.
• G&A: $13.9 million, up from $12.4 million YoY, driven by higher incentive-based compensation.
• Net loss: $4 million (67 cents per diluted share), down from a net loss of $17.6 million ($3.04 per diluted share) YoY. The 2026 Q2 net loss includes a $4.8 million non-cash impairment charge for planned restaurant closures.
• Adjusted EBITDA: $10.8 million, up 79% YoY from $6 million.
• Capital expenditures: $1.5 million, down from $3.4 million YoY.

• Management has raised full year 2026 guidance to reflect stronger-than-expected operational and financial performance:
  • Total revenue: $485 million to $500 million, with comparable restaurant sales growth projected between 8% and 11%.
  • Restaurant contribution margin: 16% to 17%.
  • G&A: $51 million to $54 million, including $2.5 million to $3 million in stock-based compensation.
  • Depreciation and amortization: $24 million to $25 million.
  • Interest expense: $10 million to $11 million.
  • Adjusted EBITDA: $34 million to $38 million.
  • Capital expenditures: $9 million to $10 million.
  • The company expects 1 new franchise restaurant opening, 30 to 35 company-owned restaurant closures, and 5 franchise restaurant closures.
  • The company expects to remain free cash flow positive, reduce full-year 2026 debt by approximately $10 million (including $4.8 million reduction year-to-date through Q2), and end the year with a debt-to-adjusted EBITDA ratio at or below 3x, a substantial improvement in financial strength from 2025.

No specific risks or operational failures were discussed explicitly in the prepared remarks, other than the standard legal disclosure that forward-looking statements are projections and actual results could differ materially due to unknown risks and uncertainties.

Q: What is the long-term plan for the new successful Asian-inspired and ramen menu innovation, and could these become permanent menu items instead of just limited-time offerings? How does this half's innovation pipeline compare to last year's? / A: Noodles has a formal testing process and 18-month innovation pipeline that includes both potential LTO and permanent items. Multiple ramen offerings will launch in Q4 2026, and management has not yet decided if any will be made permanent. This year's innovation pipeline is much stronger than last year's, and management is confident the Q4 ramen launch will establish Noodles as a competitive destination for ramen outperforming last year's smaller launch.\n\nQ: How large is Noodles' loyalty member base, how often are Boost Weeks (targeted loyalty events) run in 2026 compared to prior years, and is this a more frequently used tool now? / A: Loyalty program sales currently account for ~25% of total company sales, while total digital sales account for ~60% of sales. Noodles began leaning into Boost Weeks in the second half of 2025, and 2026 will have more Boost Weeks than prior years, as the events drive strong engagement with rewards members and align with the company's disciplined growth strategy.\n\nQ: Why was there a large 600 basis point gap between company-owned and franchise comparable sales growth this quarter? / A: The spread comes from high variability in franchise performance across different markets, and the franchise segment is a small share of the overall system, so minor performance fluctuations create large visible spreads. Some franchise groups are actually outperforming the company-owned average, and management sees overall good health across the entire system.