What happened
Shares of Noodles & Company(NASDAQ: NDLS), which operates a noodle-themed chain of restaurants, rose dramatically at the open of trading on April 28, gaining as much as 23% in the first few minutes of the day. The big news was the company's first-quarter 2022 earnings update, which hit the Street after the close on April 27.
So what
Sales at Noodles & Company rose 2.7% year over year in the first quarter of 2022, hitting $112.6 million. While not a huge increase, there are a couple of additional facts of interest here. First, the top line was impacted by coronavirus-related store closures in early 2022. That's likely to be a temporary setback. Second, the company franchised 15 company-owned locations. The sales from these restaurants don't actually hit Noodle & Company's results, just the fees it earns from the franchisees. The benefit is that it is much cheaper for a company to generate revenue from franchise deals than it is to run actual restaurants. And, even more important, same-store sales rose a healthy 6.4%, which suggests that there is still notable demand for the company's food.
Image source: Getty Images.
On the bottom line, Noodles & Company lost $0.14 per share. That was better than the $0.17 loss Wall Street was anticipating, but worse than the $0.04 loss in the first quarter of 2021. That said, the company is attempting to expand its business (it added seven new locations to its roughly 450 store count in the quarter), which simply costs money to do. More troubling, however, was inflation's impact on the restaurant chain, which decreased margins by around 3 percentage points. Higher costs are likely to be an ongoing issue. Still, a Wall Street beat is a beat and investors generally like that kind of news, particularly given the underlying strength on the same-store sales front.
Now what
After such a massive one-day gain, it looks like investors have very quickly priced in a lot of good news. And yet long-term growth investors might want to take a deeper dive into Noodles & Company stock. It could have a very bright future if management can continue to expand the restaurant footprint while maintaining same-store sales growth.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
