Noodles & Company (NDLS) Q4 2013 Earnings Report, Transcript and Summary

Good afternoon, and welcome to today's Noodles & Company Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I will now introduce Noodles & Company's Chief Financial Officer, Dave Boennighausen.

Thank you, Jamie. Good afternoon, everyone, and welcome to our fourth quarter 2013 earnings call. Here with me this afternoon are Kevin Reddy, our Chairman and Chief Executive Officer; and Keith Kinsey, our President and COO. Let me start by going over a few regulatory matters. I'd like to note that during our opening remarks and in response to your questions, we may make forward-looking statements regarding future events or the future financial performance of the company. Any such items, including targeted results for 2014 and details relating to our future performance, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are only projections, and actual events or results could differ materially from those projections due to a number of risks and uncertainties. I refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's final prospectus dated December 5, 2013, for its public offering in December. This document contains and identifies important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Now I'd like to turn it over to Kevin.

Thanks, Dave, and good afternoon, everybody. 2013 was an important year for Noodles & Company as we continued our long track record of exceptional growth while bringing our Your World positioning -- our Your World Kitchen positioning to life within our restaurants. As we announced in January, our revenues were $91.5 million in the fourth quarter, a 17.4% increase, with company comparable restaurant sales of 4.3%. That was our 18th consecutive quarter of positive comp sales. For the full year, revenues grew 16.8% to almost $351 million with company comparable sales of 3.4%. This revenue growth led to adjusted diluted earnings per share of $0.11 for the fourth quarter, an increase of nearly 60% and $0.40 for the full year, an increase of over 25%. Noodles & Company's success throughout the year was driven by our compelling value proposition with an elevated level of service and a globally inspired menu, all helping to create a Category of One in the restaurant space. I'd like to take a few moments to remind everyone of the long-term projections that we had discussed during our 2013 initial public offering and follow-on. We anticipate delivering, on an annual basis, 12% to 13% unit growth with 2.5% to 3% comparable restaurant sales and 30 to 50 basis points of adjusted EBITDA margin leverage. We believe that we are in the early phases of a growth story that will result in 2,500 restaurants domestically, supporting our long-term expectations of 25% adjusted EPS growth. We were able to surpass these metrics in 2013, and I remain very confident that we have the initiatives and more importantly, the people in place to achieve these results in 2014 and beyond. Turning to 2014 thus far, weather has certainly had a significant impact on our results during the early part of the year, and we think it's important to put this into context, particularly given our geographic footprint. This had been one of the toughest winters in recent memory in many parts of the country, and almost 80% of our restaurants are located in the areas that have been hit particularly hard, such as the Upper Midwest, Rocky Mountains and Mid-Atlantic. And Dave will discuss the impact further on the call to help those of you that need that information. I do want to stress, however, our focus is on building the business and overcoming the challenges of weather or any macroeconomic factors. That said, the fundamentals of our business remain strong, as evidenced by the performance we saw in the fourth quarter and during the few periods of normal weather thus far in 2014. Consequently, we believe that in 2014, we will still be able to achieve our growth targets of 2.5% to 3% comparable restaurant sales and approximately 25% EPS growth. As we look at 2014, we have 3 primary areas of focus: one is to capitalize on our strength in the dinner daypart; the second is introducing a catering offering throughout the system; and last, but not least, continuing to improve in the areas of throughput, operational efficiency and hospitality. Our dinner daypart initiative is currently in 48 restaurants or roughly 13% of the system. As we've discussed in the past, we believe Noodles & Company is uniquely positioned to succeed in the dinner daypart due to the variety of our menu offerings and our elevated level of service relative to many fast casual brands. On top of that, we feel particularly well positioned with our value proposition relative to the very large category of casual dining. Our initiatives surrounding the dinner daypart plays to the strength -- plays to our strength, really, by adding increased purpose to our team's presence in the dining room, complemented by our focused line of appetizers, desserts, coffee and tea, as well as enhanced beer and wine offerings. In the restaurants where we have implemented this initiative thus far, we have seen very nice results, not just in the dinner daypart and in our sales of new items, but actually in an increase in sales relative to the system in all dayparts. I think that's a result which indicates we are positively increasing frequency and broadening how guests utilize Noodles & Company. Since this initiative requires some initial labor investment and a strong focus on training the nuances of hospitality, we will continue to be measured in our rollout. We will incorporate them into almost all of our new restaurants and up to about half of our restaurants company-wide by the end of 2014. Since our dinner initiatives are truly unique in supporting our positioning as a Category of One, we anticipate their contributions to be meaningful over the long term. Turning to catering. Our coloring and operations teams have done an outstanding job developing a platform that meets our guests' desires for variety without adding stress to restaurant operations. While we already have a great offering in Square Bowls for serving smaller groups and for home meal replacement, we believe there's a significant demand for a more formal catering program for larger sizes that also better replicates the dining experience one receives in our restaurants. Catering is currently in test in a handful of our restaurants in Colorado, and the feedback has been very positive from our guests and as importantly, our operations teams. We will remain disciplined in our testing and will not expand nationwide until we are confident we have the right offering and the catering does not negatively impact throughput. Having said that, we're currently on track and expect to phase in catering beginning in the second and third quarters of 2014 in up to 75% of our system. Finally, I would like to discuss our throughput initiatives. Our restaurants currently average between 5 and 6 minutes from when a guest begins ordering to delivering a customized, made-to-order dish to your table, a time frame which allows us to be successful in a variety of environments and is well within the expectations of most guests. Still, we feel it's important to consistently work on increasing throughput, and we'll remain focused on it in 2014 and beyond. Some of the opportunities to enhance throughput include improved cash register and preview board utilization; capitalizing on our strong online ordering platform; refining our labor deployment models and continued evaluation of our cooking equipment and methodologies. Noodles & Company has a long runway of expansion and reliable track record of outsized net income growth and consistent comparable restaurant sales growth. Our results in 2013 and our expectations for 2014, despite the significant weather hiccups earlier this year, are continued evidence of the strength of the brand and its relevance with today's discerning consumer. Now I'd like to turn it over to Keith to give an overview of our very strong pipeline and restaurant development.

Thanks, Kevin. As Kevin mentioned, our restaurant pipeline continues to get stronger every day, and the team is now turning its attention to solidifying the pipeline for 2015. During the fourth quarter, we opened 12 restaurants systemwide, including 8 company and 4 franchise locations. This resulted in 42 net new company openings for the full year and 11 franchise restaurants. As of the end of 2013, the company operated 380 restaurants systemwide, including 318 company-owned restaurants and 62 franchise locations. As Kevin mentioned, for the full year 2014, we are anticipating unit rate growth of between 14% and 17%, comprised of 42 to 50 company openings and 10 to 15 franchise. You'll notice a modestly higher growth rate on a percentage basis for our franchise partners for 2014. As you know, in the past 2 years, we have developed partnerships with outstanding groups from large markets such as Long Island, New Jersey, Boston and Philadelphia. As these partners begin to build out their territories, we expect a slightly higher growth rate for the franchised area of the business for the next few years. The franchise comparable restaurant sales growth has lagged behind the company's in recent quarters. This is particular primarily due to their small base and particular exposure to the weather-impacted areas. Our partners continue to deliver an exceptional dining experience. And based on the strength of their openings, AUV growth has actually been at a faster rate than their comp growth. As we've discussed in the past, although we have made tremendous progress in balancing out our company openings amongst the quarters, during 2013, we had a substantial number of restaurants that opened up at the end of each quarter. In the fourth quarter, our 8 company openings averaged less than 1 month of operations, resulting in much of the expense related to preopening and labor investment with little of the revenue. While we've had similar -- while we will have a similar backload in the first quarter of 2014, we anticipate a smoother opening schedule for the balance of the year. Now I'd like to discuss the performance we are seeing at our new restaurants. We continue to be very pleased with the guest reaction, and our team's focused on bringing these restaurants to maturity. They continue to match our historical trends of AUVs at roughly 80% to 90% of the company average despite significant weather challenges. Nearly 90% of our units built in the last 2 years have been in markets Kevin mentioned that have been seeing unprecedented weather. 35% of those openings were in the Mid-Atlantic alone. Consequently, in the near term, we were at the lower end of our maturity curve, resulting in some dilution to our AUV growth and restaurant level margins. As weather normalizes, these restaurants mature, we do expect the guest -- gap between AUV growth and comp to shrink over time. We anticipate net development costs of roughly $750,000 to $775,000 for 2014, slightly higher than some of our past years due to modest inflation, as well as an increased number of openings in higher urban locations. Of our openings for 2014, we anticipate 55% to 60% of our locations to be in mature markets, with much of our immature market growth being in some of our best performing comp markets such as California. During the first half of the year, we will begin opening restaurants in San Francisco and Orlando, as well as in the franchise market of Lexington, Kentucky. And later on in the year, we expect openings in franchise markets in Boston and Philadelphia. Being in the early phrase -- phase of our overall growth story, these openings will be tremendous opportunities to increase our overall brand awareness in several large metropolitan areas, and we look forward to introducing the concept to guests in these markets. We are particularly excited as we enter these new markets with all of our elements of Your World Kitchen positioning, restaurant design that the teams have been working on over the past couple of years. We feel that these changes better articulate to our guest the brand, and we have seen promising results in our most recent new market openings. Noodles & Company has had a long track record of high growth yet disciplined. And the foundation remains in place to maintain that level of growth for many years into the future. Now I'd like to turn it over to Dave.

Thanks, Keith. First, just to clarify, AUVs for our most recent openings is closer to 85% to 90%. I think Keith accidentally said 80% to 90%. So very consistent with our historical trends. For the fourth quarter of 2013, we reported adjusted net income of $3.5 million, a 66% increase over adjusted net income in the fourth quarter of 2012. This equates to adjusted earnings per share diluted of $0.11. For full year 2013, the chain delivered adjusted net income of $12.1 million, a 30.9% increase, and this equates to adjusted diluted earnings per share of $0.40. During the fourth quarter, net income was adjusted for expenses related to our follow-on offering in December, as well as a noncash write-off for debt fees related to the refinancing of our credit facility. For the full year as well as prior year figures, we've incorporated adjustments related to normalizing expenses and changes in our capital structure due to both the initial public offering last June and the follow-on last December. The team continued its excellent track record of delivering growth in the fourth quarter and full year 2013. Our total revenue was up 17.4% in the fourth quarter as we saw an increase in company-owned sales and franchise revenue due to a larger number of restaurants, as well as an increase in comparable restaurant sales. For the full year, total revenue increased 16.8% to $350.9 million. Our comparable restaurant sales were up 3.9% systemwide in the fourth quarter with company-owned restaurants up 4.3%, and franchise restaurants up 1.5%, respectively. For the full year, systemwide comps were up 3%, comprised of 3.4% company comparable restaurant sales and 0.6% franchise comps. Turning to our company-owned comp of 4.3%. There are a few moving parts in the makeup of that number. There was an 80-basis-point benefit due to favorable holiday shifts that resulted in that additional operating day in Q4, which was more than offset by approximately 110 basis points of negative impact from weather, particularly during the first 2 weeks of December. The balance of the comp included traffic growth, 2.5% of price and some modest mix shift. As we look at 2014, we are in the process of overlapping a small price increase from last year's rollout of new merchandising. We anticipate price of approximately 2.2% for Q1 of 2014 before settling in at 1.75% as we enter Q2. We have not determined if there will be any incremental pricing for the balance of the year. On the holiday shift. Our fiscal year ends the Tuesday closest to December 31. Consequently, the New Year's holiday shifted from Q4 of 2012 to Q1 of 2014, resulting in a benefit to Q4 2013's comp. For Q1 of 2014, the shift's going to be offset by a shift in Easter from Q1 of 2013 to Q2 of this year. So altogether, a nominal impact to Q1 of 2014, but a net loss operating day in Q2 of 2014 that will negatively impact Q2's comp by 80 to 100 basis points. As Kevin mentioned, we continue to anticipate full year 2014 comparable restaurant sales growth of 2.5% to 3% despite some significant weather impact in Q1, which I'll discuss in a little bit. Our comp comparisons will be easiest during the third quarter of the year and more difficult as we compare with the second and fourth quarters of 2013. Now turning back to the fourth quarter of 2013. Restaurant level margins declined 30 basis points from the prior year to 21.0% as increases in operating expenses were only partially offset by reduced labor costs. Food costs were 27.0% for the quarter, an increase of 30 basis points from prior year, as the price increase rolled out in Q4 only partially offset the dramatic increase in shrimp prices. For the full year, food cost declined 10 basis points to 26.5%. We anticipate food costs to be similar for the full year of 2014 with a 1% to 1.5% increase in raw ingredient costs, as well as increased promotional activity hitting the COGS line, which will be offset by the modest price increase we will carry year-over-year. Of the 1% to 1.5% increase in ingredient costs, the majority will come from increases in shrimp, as well as our beverage costs. We do expect there to be more pressure on the COGS line during the first quarter with gentle easing for the balance of the year as the impact of shrimp wanes and we reach more seasonably favorable time frames. Labor costs for the quarter were 29.4%, a 100-basis-point decline versus the prior year due primarily to a decrease in severe health insurance claims. For the full year, labor costs declined 10 basis points to 30.0%. Operating costs increased 70 basis points year-over-year to 12.3% in the fourth quarter. The increase was due primarily to printing cost related to our limited-time offering, as well as higher utility costs during the cold month of December. Marketing costs were approximately 1% in 2013, and we expect a similar figure in 2014. Of note, marketing costs were modestly higher in the first quarter of 2013 at roughly 1.4% of sales as we tested median select markets, which believe boosted comparable sales by approximately 0.5% during that quarter. Occupancy costs were 10.3% of sales in the fourth quarter compared to 9.9% the prior year. The increase was due to the dilutive impact of the percentage of new restaurants in our population. General and administrative costs were 8.8% in the fourth quarter, a decrease of 100 basis points. This decrease was primarily the result of leverage on fixed costs, as well as reduced marketing expense compared with Q4 of 2012, offset by costs incurred as a result of our December follow-on offerings. We expect G&A as a percentage of revenue to be between 8% and 8.5% for the full year 2014, as leverage on fixed costs is expected to be partially offset by our bi-annual all-manager conference in August. This expectation includes stock compensation of roughly $1 million to $1.5 million based on our current stock price and anticipated option grants. During the fourth quarter, we also completed a refinancing of our credit facility, which extends the agreement and contains more favorable borrowing rates. With the refinancing, we have noncash debt extinguishment write-off of $579,000. As of the end of Q4, the company has $6.3 million in debt outstanding on our credit facility. Our 2013 effective tax rate was 41.7%, which was higher than our typical tax rate due to the charge related to expenses from our December follow-on offering. We expect our 2014 tax rate to be between 39% and 40%. Now that we've gone through Q4, I'd like to provide some thoughts about the impact of weather on recent results. Typically, it's our policy not to give quarterly guidance. But in this case, it was such an unusual event that it's worth noting. While it is impossible to project what the weather will look like during the balance of the quarter, if we assume somewhat more normal patterns in March, we anticipate an approximate 300- to 350-basis-point impact to top line sales for the full first quarter, resulting in roughly flat comparable restaurant sales and approximately $0.03 impact to earnings per share. As you are aware and some of you have studied, we have more geographic exposure to weather than nearly any other national restaurant concept. 39% of our company restaurants are located in the Upper Midwest states of Illinois, Iowa, Wisconsin and Minnesota. 20% are located in Colorado and Utah, and 19% are located in the Mid-Atlantic. So all told, almost 80% of our company units are located in many of the areas that have seen some of the worst winter weather in decades. The weather has been such an unusual event. Over 30% of our operating days thus far in Q1 have been impacted by measurable rain or snow, or temperatures at least 20 degrees below market's [ph] norm. Unfortunately, the first quarter is already our lowest-volume quarter from a seasonal perspective. And as such, our ability to mitigate the impact of weather throughout the P&L is less than it is in other times throughout the year. Moreover, the cold weather is causing significant increases in utility expenses, as well as maintenance in our restaurants. That said, when we analyze our sales data by market, we are seeing that we've been able to maintain the momentum from Q4, both in our markets that are not as affected by weather, as well as during the days of more normal weather in the balance of the country. So fundamentally, we feel that excluding weather, trends remain as strong as we saw in the fourth quarter, giving us confidence we can continue to hit our target of 2.5% to 3% comp growth for the full year and approximately 25% growth in adjusted diluted earnings per share. Despite the temporary impact of weather, we maintain our confidence in the fundamental strength of the concept. Noodles & Company has a track record of one of the strongest unit and earnings growth profiles in the industry, and we are excited of building on this success over the years to come. I'd now like to turn it over to Kevin for some closing remarks.

I'd like to close our prepared remarks with a perspective that builds upon our past while looking towards the future. For many years, Noodles & Company has delivered best-in-class results for high-growth concepts. We continue to do this during the competitive, maturing of the fast casual space and in one of the most challenging macroeconomic times in recent memory. Despite this or may be actually because of it, our focus has never been better in the following areas: improving execution in the guest experience within our restaurants; developing on-trend and relevant consumer innovation; and thoughtfully expanding the brand, almost 7x our current size towards 2,500 restaurants in the U.S. As we continue to deliver on these expectations, while generating our long-term earnings growth of 25% annually, Noodles & Company will be one of the enduring restaurant brands of the next decade. I want to thank you for your time, and I now want to open the lines for Q&A.

[Operator Instructions] The first question comes from David Palmer from RBC Capital Markets.

I'm sure you're getting a lot of questions on weather. But -- so I'll just go a different direction and that is on marketing. One of the things about your brand that I think is true that with discovery of your menu, discovery of your brand in new markets is a big opportunity. You already have pretty good mobile ordering interface, in my opinion, and you have the Noodlegram, but I'm wondering how are you thinking about getting the message out about and getting trial up on when you have something new in a certain quarter and just getting people to walk around the menu and then also just walk in the door when you come into new markets. Is that -- could we see an evolution be more of a revolution in 2014 or one of these quarters in terms of how you communicate to consumers?

David, this is Kevin. And if Keith or Dave want to chime in, please feel free. A couple of things we're doing, the first is actually during construction. As you know, we get very prominent sites. We have a distinct effort, and we're getting some good results in getting the signage up early to create intrigue during construction. So as people are passing through a trading area, see our locations sooner. We also when we have the opportunity to put barricades up and brand those barricades with great food photography, shots of the inside, we're doing that as well. We are deploying greater effort with our social media and using our database of guests, not just within a marketplace, but outside the marketplace because so many folks have a pretty good friends list and relatives that live in other markets, where net -- where we think it makes sense, where we'll do a little bit more with direct mail. And we are, clearly during our training periods, adding back some extra opportunities to tie in key generators close to the actual location to do mock lunches, mock dinners for -- so as we're training more teams, we're introducing to more and more of the generators that we expect to get that will build sales. So I think we're doing -- deploying greater efforts faster and then have more specific follow-up plans as we get near the end of the 30-day, 60-day, 90-day to expand both reach and frequency. But it is an opportunity for us. But again, we're cautious not to spend money that we don't get a great return on, because I think one of the strengths of the brand is that we have such exceptional food and we have a consistent loyalty in building the brand without overspending in marketing. So...

Yes. 2 things I'd mentioned is -- Keith talked about it a little bit, is we feel so good about what the brand looks like now as we enter new markets, and the Your World Kitchen merchandising, adding the dinner daypart initiatives. And we're already seeing some of those results in our openings in Houston and in Long Island. And speaking like the restaurant in Houston, another example of something that we can utilize now that you really couldn't use 5 to 10 years ago is the targeted nature of social media. You can take a Pandora and literally have them with a restaurant in the Woodlands in Houston and have it targeted within a mile or so of that particular restaurant. And that's something that's unique, and I think we'll continue to leverage as we go forward.

I think the last piece on that too, David, is really going after -- and particularly in new markets, getting people to sign up for our Noodlegram. And using that as really building the base of the guests and getting that data early so that as we open that restaurant, we can keep them in communication. We can talk about the foods. We can ask them to come back in. And I think having that database and getting that into the thousands really helps us continue to build the brand and educate them on what we're all about.

Yes. And we also have -- because of the Noodlegram program and the data that we have is so impactful in terms of capture rate, we have a lot of tactics to increase that database.

The next question comes from Jake Bartlett from Morgan Stanley.

I just had a question on the comp guidance. Looking at flat comps for the first quarter and then second quarter being impacted by the calendar day shift, it looks like the back half was really implying about a 4%, maybe even more than a 4% comp. And if you could just talk about the reasons why you're confident in that -- is it due to the rollout of catering, for instance, or some of the other factors that are going into play that give you some confidence of pretty strong guidance there?

Sure, Jake. Appreciate the question. Yes, well, first of all, there's a couple of things to keep in mind. As we go into Q2, Q3, Q4, first of all, you have the comparisons get a little bit softer, particularly in that third quarter. And then you're also going to have more restaurants that are in the comp base, as well as just our higher volume from a seasonality perspective. So that's one component, but what also gives us a lot of confidence, looking at the 2.5% to 3%, is how we finished Q4 and what the trends have been during that small time frame where we've had decent weather thus far in Q1. It really has been an unorthodox amount of weather that we received in Q1. So once we start normalizing that out and looking at the run rate, yes, it's certainly going to be a little bit higher than the 2.5% to 3% for the balance of the year, but we feel -- we still feel pretty good about it.

Okay. And then just one question on the development guidance. It was, I guess, wider than the original guidance from '13 or maybe that was just because you're closer at the end of the year when you gave it. But is there -- are there any other factors just, for instance, the franchise being 10 to 15 and the company is pretty wide range? Anything happening with the ability to find sites or making you kind of want a wider kind of window there?

No, great question. This is Keith. What it is, is I think we've talked about it before and it still continues into what we're seeing in 2014. We have the pipeline. We've built the pipeline, but we're dealing with, in a lot of cases, smaller landlords who are doing 2 and 3 types of kind of tenant developments. And those have a little bit more kind of volatility. We definitely have enough to hit those within that range. But with those types of tenants -- or landlords being more heavily in our pipeline, it puts a little bit more volatility into that exact number. So we put a little bit wider range there. On the franchise side, as you look at some of those bigger cities and bigger markets, again there's a little bit more of a longer process there. We feel very comfortable as we look at the -- where we're at with them and their ADAs that they'll definitely fall within that range. But again, working with those bigger cities, there's a little bit more of a flex in that time line.

Yes, and it's so early in the year that we do, Jake, have to have a somewhat wide range, just because while we have lots of restaurants that are either opened or in the phase of construction, you're still talking about permitting, you're still talking about some of those nits and nats [ph] that occur along the way that we just don't have as much control over. And as we get farther on into the year, we'll be able to narrow that range down a little bit.

The next question comes from Jonathan Pong from Robert W. Baird. Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division: Dave, maybe just, first, a clarification about Q4. It was helpful color that you gave on the relative -- or the 2 comps impacts that somewhat offset each other with the calendar and the weather impact. When you net those 2 together, was there any impact on the earnings in Q4?

No, pretty minimal because the day that we added in Q4, it was not necessarily the highest-volume day and same thing with the weather from December. So net, it's pretty much a wash. Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then just another question back on the unit development targets for '14. I know the question was just asked about the range that was given. But when I look at the percent growth for company and franchise, it seems a little bit higher than the last update you gave a few months ago. So could you talk about maybe your confidence in hitting those and what you're seeing to give you the confidence to raise those ranges a little bit?

I think it really goes back to lot of what we've been focusing in on the company side, really looking at the pipeline, developing up restaurants. So that as some of these go into the next year and fall into 2015 and particularly that we have enough to hit those higher -- or hit within those ranges. And I think that's the piece that gives us the confidence to hit those higher numbers and also balance out between the company and the franchise the number of openings. With the franchise now beginning to get some of the momentum in those bigger markets as we talked about, they are definitely going to help us add to the number of restaurants we're going to be opening.

Yes. Jonathan, this is Kevin. We have -- we clearly have increased the number of trading areas that we are looking at on an ongoing basis to adjust for a marketplace, where you might have development slip a little bit. But what gives us a tremendous amount of confidence is the detailed way in which we track the progress of a deal through its life cycle. We start with the trading areas under investigation. We look very closely at the -- where we are in LOIs, letters of -- the letters of intent through having a deal signed, the leases done, looking at where we stand in permitting. So we have a very good visibility to the numbers of restaurants that I think we can deliver in any given year. They sometimes move from quarter to quarter because of things we don't control. But we have the strongest pipeline we have ever had in the years I've been here, and we have one hell of a team. So I feel good that we can be north of our long-term guidance and deliver it. Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division: Okay, very helpful. Then just one last one for me, Dave, one more clarification. I think you -- I think that you mentioned in your prepared remarks -- mentioned about increased promotional activity when you were discussing the cost of sales outlook. Could you just clarify did I hear that right? And maybe what is that, that you're referring to?

Sure. Every company does it a little bit differently, but when it comes to the discounting components of local relationship marketing, where we're going off to the offices or we're doing some kind of targeted communication, that discount we actually have the food cost hit the COGS line. We know some concepts treat that a little bit differently and might have it hit in a different place in the P&L. But particularly in that first quarter, as we were doing some Super Bowl promotions and utilizing our online ordering, we were a little -- we are going to be a little bit higher than that remark -- or in that place.

The next question comes from Keith Siegner from UBS.

I had -- I wanted to follow up on the throughput operational efficiencies. Kevin, that's really helpful how you went through the number of minutes for the experience, some of the strategic initiatives you have in place. I mean, if we step back and compare the current system to, say, the 150 peak per hour transactions, how do you quantify how big this opportunity is? Is it -- looking at those peak stores is it a number of minutes reduction? Is it just more people helping, more people get through at the same time? How do you measure or think about that opportunity longer term?

We have tried to analyze it, really, by trading area and type of restaurant. And so it's tough to put an average or median on the system, Keith. But I will tell you there's -- when I think about where we are today in our restaurants that are running more optimally [ph], they can -- for a fully cooked, made-to-order customizable dish, we're extremely fast and -- and that's one reason why we have so few competitors doing what we do. Those numbers can rival some of the better McDonald's drive-through cars per hour, as well as get close to the strong throughput hours of other fast casual players. So I think what we're expecting and what we're starting to see is we're knocking the lines down quicker. And I think once we, in our new markets, our guests get accustomed the menu, we can help get them to reduce the order-taking time. That will speed up our ability to deliver dishes and it shortens the line and will build confidence so that in those peak periods, particularly in Central Business District, people can step in with an 18-, 20-foot queue and feel comfortable they're going to be out in a very fast time frame, enjoy their meal and get back to work. So we're -- I don't know that -- we're not really putting numbers on the system of what we think we can gain from it, but we know there's upside opportunity to keep building those lines because we're starting to knock them down and have a couple of minutes during some high revenue periods where that line is half of what it is, and we can just build that more transactions per hour.

Yes, one thing that's encouraging and one reason why we haven't spent a ton of time quantifying it is we're not hitting capacity as it stands. Our highest-volume restaurants are still breaking throughput records. They're still growing at a very nice rate, similar, if not better, than the company. So we're not necessarily hitting that threshold where we're hitting a max, if you will. I think as we have more urban locations and we continue to raise those volumes, that's where we'll start looking at it a little closer to see how much does 10 seconds equal in terms of potential from sales volume.

I think the other piece, too, is just utilizing the online ordering system, particularly in urban settings because that also lets us to -- allow us to use the equipment in the back of the restaurant at times where we have opportunity to get people through the line and also get those online orders out, as people can skip the line and go to different register.

[Operator Instructions] The next question comes from Jeffrey Bernstein from Barclays.

Great. A couple of questions just, first, in terms of key sales drivers. It seemed like catering is a big opportunity. I think you mentioned in your prepared remarks that it's only in a handful today and you're doing somewhat of a measured approach. But at the same time, 75% of the system -- it sounds like over the next 6 months. So it still seems like the rollout is going full speed. Obviously, the tests must have gone well. So I'm just wondering what color you can give us from the tests whether it's -- what kind of sales lift you get or the mix or average check or how the margin differential compares -- just some metrics to support it, obviously, what seems to be optimism around the rollout.

Yes, we certainly are optimistic, Jeff, about the potential of catering. We'll certainly be providing a little bit more texture as we get further on. The reality is this first phase of testing has been more operational in nature. Everybody knows on this call that catering is not incredibly simple to execute and it is imperative to us that we make sure that we're doing it in a way that does not impact the guests in the restaurant and that our restaurant teams can execute at a very high level, so that's been the focus. As we make sure we iron out those last little details, then we'll be able to go out with full marketing and start seeing some more results. So we'll share more to come, but unfortunately, so far it's been really more of an operational test than anything else.

I think what we are learning though is that there is a demand for it. That average order is north of about 2 -- north of $200 typically when it comes in. And we now have I think we're close to having a systemic solution to a variety of meal occasions. You have the individual meals whether they're eaten in or taken to go, our Square Bowls for smaller group families, home meal replacement and now we're going to have a catering offering that I think speaks to the strengths of the brand. The global flavors, the variety, the ability to have healthy to indulgent choices. So I think it's -- we actually have a catering program that will support and help people understand the brand, as well as build sales, and I think that's an important combination.

And when those catering orders come in, I mean, obviously, that's a pretty big order, north of $200, does that just come in to the main line of the restaurant? We've heard peers talk about how that can cause logjams, because now you're stealing the server away from the customers that are in front of them or is there some sort of call center for that?

Yes, that's certainly we're working through as we refine this test. And we're going to be utilizing different technologies. We actually think our online ordering platform is going to be stronger for this than maybe some other concepts we've been able to execute. We're still refining that, but we are trying to take the pressure away from the restaurant that's for certain.

Right now, our whole position is as we test it is to have them come in 24 hours before the time they'd like to do it. And that allows us to actually utilize the restaurant in the morning when we don't have that retail sales coming in. So right now, that's what we've been educating the guest on. And so far, they've been very happy to use our catering that way.

Got it. And then just the throughput initiative you talked about. I'm just wondering if you can give an update in terms of that -- these preview menus. I'm wondering what kind of time savings you're seeing there or I think you mentioned something about cooking equipment changes or what -- what might that entail that might help us speed [ph] the service.

It's been roughly about 10 to 12 seconds that we've been able to shave off the overall experience. And that's a combination of the preview boards, as well as just better cash register utilization in our restaurants.

Yes, there's clearly a functional benefit. And the qualitative benefit is we all want to feel good about our choices as consumers. So the nice thing is it takes pressure off of somebody when they're making the order at the cash register. It's giving -- it's moving that to the preview board, where our teams can really help educate about the brand, our food choices. So we can get a deeper connection and explain the concept better. And then when folks get up there, they order quicker. They don't feel the pressure of someone waiting behind them. So I think there's the qualitative experience benefit, as well as the functional benefit, which translates to higher transactions and throughput.

Got it. And then just lastly, Dave, just to clarify a couple things you mentioned about the '14. The unit openings, I know you said you're not going to skew to as late in the quarter, but do you have any numbers in terms of how you think it'll -- the openings will pace quarter-by-quarter? And similar to earnings growth, I know you said what seems to be a very small first quarter. If you're going to lose a few pennies, you're going to see down growth in the first quarter. Should we assume it's fairly evenly distributed, I guess north of 25% over the rest of the year is there any other unusual things that we should think about?

It should be pretty even through the balance of the year, Q3 to Q4. I will say, as you look at our Q1 of 2013, we did have that media. So we should still actually end up with a pretty solid earnings per share growth for quarter one. In terms of the openings, it will be a little bit lighter in Q1 and then pretty evenly balanced Q2 through Q4. I can give you a little bit of texture into how Q1 is shaping up. We're probably looking at somewhere between 45 and 50 operating weeks from somewhere between 9 and 11 restaurants. And then from there, it'll be a much of more even balance for the balance of the year.

Got it. But still some solid earnings growth in the first quarter despite that $0.03 hit.

Correct.

The next question comes from Nicole Miller from Piper Jaffray.

Two quick ones. I know there -- it doesn't sound like there's so many normal days right now, but how are you -- can you tell us from a comp perspective, where are you seeing the growth? Is it at peak periods? I'm trying to get a sense of what's going on from a daypart perspective or is it most of the comps coming from extending into dinner and some of those enhanced service initiatives that you've been working on?

So in terms of growth, to call it by daypart, it's actually been pretty consistent across the board. In the restaurants that we have, the dinner daypart initiative is a little bit higher than dinner, but that's still pretty small percentage of the population at the moment. So the growth has been pretty even by day and by daypart.

Okay. And then this is kind of weird question, but I'm going to ask it anyway. Just sitting here and really reflecting on the fact that you actually cook your food and on the really bad weather days that kind of string together for a number of reasons, you actually have food waste because you can't just throw it in the freezer. Do you think that for that reason, your first quarter impact is maybe more pronounced or am I stretching it?

It's not stretching it at all. It's actually [ph] a great point, we don't hold over food. We make sure that we're delivering the freshest ingredients we can to our guests. With that said, our team is do a really good job of looking at our historical patterns, taking good note of what the weather is going to look like, and they adjust their deliveries accordingly. We get produce deliveries multiple times a week. So they're able to just in a pretty good manner. At the same time, there is a little bit more waste during that time frame.

Yes, Nicole, it's Kevin. The only thing I would add to that is that our intention -- we prep fresh ingredients per revenue period. So the really good news is we don't have high completed waste. We will - might have some raw ingredient waste, but because our -- we serve fresh ingredients, customizable, we really do minimize the larger types of waste and focus on just making sure the ingredients are in great shape and fresh.

Yes, this is Keith, too, Nicole. Our ops team is so on to what's going on. They'll have calls early in the morning. They'll talk about the restaurants and talk about the weather. They talk about what they think the impact is going to be on different restaurants, who is going to be able to get to some of the restaurants. So I think one of the things that the team, because of our experience, really utilize a lot of different facets to make sure we minimize waste, but we definitely do have [indiscernible]

Okay. I just think, it's just -- I appreciate the color because it speaks to the complexity, and you can't just throw it in the freezer and close the door and go home and watch it snow. So I appreciate the color.

Yes, especially without a freezer.

At this time, I'm showing no further questions. I would now like to turn the call back over to the management team for closing remarks.

Well, I think we delivered the closing remarks prior to starting the Q&A. So with no one else in the queue and being on approximately about an hour at this point, I would just like to, on behalf of the Noodles management team, just thank everyone for your time and being engaged and appreciate that and have a great week. Bye.

Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.