Noodles (NDLS)

Casual restaurant chain Noodles & Company (NASDAQ:NDLS) reported Q3 CY2025 results topping the market’s revenue expectations, but sales were flat year on year at $122.1 million. The company’s full-year revenue guidance of $493.5 million at the midpoint came in 0.8% above analysts’ estimates. Its non-GAAP loss of $0.10 per share was in line with analysts’ consensus estimates.

Company Overview

Offering pasta, mac and cheese, pad thai, and more, Noodles & Company (NASDAQ:NDLS) is a casual restaurant chain that serves all manner of noodles from around the world.

Modern fast food is a relatively newer category representing a middle ground between traditional fast food and sit-down restaurants. These establishments feature an expanded menu selection priced above traditional fast food options, often incorporating fresher and cleaner ingredients to serve customers prioritizing quality. These eateries are capitalizing on the perception that your drive-through burger and fries joint is detrimental to your health because of inferior ingredients.

Competitors offering convenient and casual dining options include Potbelly (NASDAQ:PBPB), Chipotle (NYSE:CMG), Sweetgreen (NYSE:SG), and Shake Shack (NYSE:SHAK).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $494.1 million in revenue over the past 12 months, Noodles is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

As you can see below, Noodles’s 1.1% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was weak as it didn’t open many new restaurants.

This quarter, Noodles’s $122.1 million of revenue was flat year on year but beat Wall Street’s estimates by 1.9%.

We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates.

Number of Restaurants

The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.

Noodles listed 435 locations in the latest quarter and has kept its restaurant count flat over the last two years while other restaurant businesses have opted for growth.

When a chain doesn’t open many new restaurants, it usually means there’s stable demand for its meals and it’s focused on improving operational efficiency to increase profitability.

Same-Store Sales

A company's restaurant base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales provides a deeper understanding of this issue because it measures organic growth at restaurants open for at least a year.

Noodles’s demand within its existing dining locations has barely increased over the last two years as its same-store sales were flat. This performance isn’t ideal, and we’d be skeptical if Noodles starts opening new restaurants to artificially boost revenue growth.

In the latest quarter, Noodles’s same-store sales rose 4% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.

We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate pricing power and differentiation, whether it be the dining experience or quality and taste of food.

Noodles has bad unit economics for a restaurant company, signaling it operates in a competitive market and has little room for error if demand unexpectedly falls. As you can see below, it averaged a 14.8% gross margin over the last two years. That means Noodles paid its suppliers a lot of money ($85.25 for every $100 in revenue) to run its business.

Noodles produced a 14.9% gross profit margin in Q3, in line with the same quarter last year. On a wider time horizon, Noodles’s full-year margin has been trending down over the past 12 months, decreasing by 2.1 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as ingredients and transportation expenses).

The restaurant business is tough to succeed in because of its unpredictability, whether it be employees not showing up for work, sudden changes in consumer preferences, or the cost of ingredients skyrocketing thanks to supply shortages.Noodles has been a victim of these challenges over the last two years, and its high expenses have contributed to an average operating margin of negative 2.3%.

Looking at the trend in its profitability, Noodles’s operating margin decreased by 2.1 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Noodles’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q3, Noodles generated a negative 5.2% operating margin. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Noodles, its EPS declined by 37.5% annually over the last six years while its revenue grew by 1.1%. This tells us the company became less profitable on a per-share basis as it expanded.

In Q3, Noodles reported adjusted EPS of negative $0.10, up from negative $0.12 in the same quarter last year. This print beat analysts’ estimates by 4.8%. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Noodles historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.4%, lower than the typical cost of capital (how much it costs to raise money) for restaurant companies.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Noodles’s $108.2 million of debt exceeds the $4.7 million of cash on its balance sheet. Furthermore, its 5× net-debt-to-EBITDA ratio (based on its EBITDA of $18.93 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Noodles could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Noodles can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We were impressed by how significantly Noodles blew past analysts’ EBITDA expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 10.6% to $0.74 immediately after reporting.

Updated: November 15, 2025 at 9:44 PM EST

When considering an investment in Noodles, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We see the value of companies helping consumers, but in the case of Noodles, we’re out. For starters, its revenue growth was weak over the last six years. On top of that, Noodles’s brand caters to a niche market, and its declining EPS over the last six years makes it a less attractive asset to the public markets.

Noodles’s EV-to-EBITDA ratio based on the next 12 months is 4.6x. This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $1.75 on the company (compared to the current share price of $0.71).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.