Good afternoon, and welcome to today's Noodles & Company's Fourth Quarter 2024 Earnings Conference Call. All participants are now in a listen-only mode. After the presenters' remarks, there will be a question and answer session. As a reminder, this call is being recorded.

I would now like to introduce Noodles & Company's Chief Financial Officer, Mike Hynes. Thank you, and good afternoon, everyone. Welcome to our fourth quarter 2024 earnings call. Here with me this afternoon is Drew Madsen, our Chief Executive Officer. I'd like to start by going over a few regulatory matters. During the call, we may make forward-looking statements regarding future events or the future financial performance of the company. Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are only projections, and actual events or results could differ from those projections due to a number of risks and uncertainties, including those referred to in this afternoon's news release and the cautionary statement in the company's annual report on Form 10-K and subsequent filings with the SEC. During the call, we will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our fourth quarter 2024 earnings release. To the extent that the company provides guidance, it does so only on a non-GAAP basis and does not provide reconciliations of forward-looking non-GAAP measures. Quantitative reconciling information for these measures is unavailable without unreasonable efforts. With that, I would like to turn the call over to Drew Madsen, our Chief Executive Officer.

Thanks, Mike, and good afternoon, everyone. We were encouraged by the significant improvement in our sales during the fourth quarter compared to the third quarter and year to date, especially since it was driven by greatly improved traffic. As previously announced, system-wide comparable sales increased 0.8%, and traffic was nearly flat at -0.1%. Our improved comp sales trajectory was driven by a number of factors, including the rollout of three new menu items supported with increased media and a new commercial called "Come Taste the Start of Something Great." Renewed momentum in our third-party delivery channel and promotional offers that we ran during the first two months of the quarter. We were especially pleased to see the strongest comp sales performance during the last four weeks of the fourth quarter after our promotional activity had ended. We are also very excited to share that the improving sales trends we experienced during the fourth quarter of 2024 have accelerated in the first quarter of 2025. Through the first eight weeks of Q1, we've delivered comp sales growth over 3%, including positive traffic. We've also exceeded the fast-casual benchmark on comp sales and traffic each of the last four months. The sustained improvement in our sales trends demonstrates to us that the execution of our previously announced five strategic priorities has started to gain traction. Let me take just a minute and highlight a few of the key dynamics driving our Q1 sales results to date. Creating a foundation of operations excellence remains our top priority. Building this foundation demands that we be brilliant with the basics of staffing, training, and consistently executing the standards that will make us a better competitive alternative. Our restaurant teams have done a great job continuing to make meaningful progress in all three areas, and most…

Thank you, Drew. In the fourth quarter, our total revenue decreased 2% compared to last year to $121.8 million. System-wide comp restaurant sales during the fourth quarter increased 0.8%, including an increase of 0.5% at company-owned restaurants and an increase of 1.9% at franchise restaurants. Company comp traffic during the fourth quarter decreased 0.1%, and average check increased 0.6%, with effective pricing of 1.3% during the quarter. Company average unit volumes in the fourth quarter were $1.31 million. Turning to profitability, cost in the fourth quarter was 27.2% of sales, a 180 basis point increase from last year. Our fourth quarter pricing benefit was offset by heavier discounting in the quarter, inflation, and mix shift. Labor costs for the fourth quarter were 32.3% of sales, which was up 30 basis points to the prior year, primarily driven by traffic deleverage and discounting. Hourly wage inflation was 2.2% versus the prior year, which was largely offset by pricing. Occupancy costs were slightly lower versus the prior year, at $11.4 million compared to $11.6 million in 2023, due to thirteen restaurant closures in 2024. Other restaurant operating costs increased by 130 basis points in the fourth quarter to 19.7%. The increase in other restaurant operating costs was primarily driven by a combination of higher third-party delivery fees from higher third-party delivery channel sales and higher marketing expenses. Our restaurant-level contribution margin was 11.2%, down from 14.7% in the fourth quarter of 2023. G&A for the fourth quarter was $11.3 million compared to $13.9 million in 2023, primarily due to lower severance and executive transition costs and lower stock compensation expense in 2024. Net loss for the fourth quarter was $9.7 million or a loss of $0.21 per diluted share compared to a net loss of $6.1 million or a loss of $0.14…

Thanks, Mike. It is an exciting time for Noodles as the improvements we have seen through 2024 set the stage for a transformational 2025. Our comp momentum to start the year sets a strong foundation for our brand relaunch as we work to become more relevant to what today's consumer is looking for. We know the strengths of our brand, and we are leaning into them. With what we have planned over the coming months, we will leave no doubt that we know noodles. Thank you for your time today. Operator, please open the lines for Q&A.

Thank you. We will now be conducting a question and answer session. If you would like to, you may press star two if you would like to remove your question from the queue. Please go ahead.

Hey, guys. Good afternoon. Wondering what areas you're kind of seeing the most movement in on the guest satisfaction scores that you noted, you know, kind of starting out 2025, Drew, and how you know, how that's, you know, kind of informing some of the upcoming decisions.

Yeah. The main things that we've seen are significant improvements in the areas that are most directly related to driving traffic growth. So we know when we've studied this, that overall satisfaction improvements lead to traffic growth, and taste of food, in particular, drives overall satisfaction. So we've been focused a great deal on overall satisfaction, taste of food, and accuracy. In particular, all of those have shown significant improvement in addition to value because we're delivering more of what today's customer wants.

Got it. And then Mike, any help on it sounds like same-store sales are gonna start out around three-ish for the current quarter and then, obviously, the new menu stuff is kind of ramping here late in the quarter and then in Q2. How should we think about kind of getting to the mid-single digits for the full year?

Sure. And like you said, first quarter we're tracking it over 3%, which is a great start before our menu rollout. As we go into the second quarter, just not a huge impact, but we do have an Easter shift that will help the first quarter and hurt the second quarter by about fifty basis points. The second quarter was our toughest comp or is going to be our toughest comp. That's when we had Steak Stroganoff and some really strong sales last year. So we're anticipating that most of the benefit or outsized portion of the benefit to get to mid-single-digit same-store sales growth will come in Q3 and Q4.

Okay. Very helpful. Thanks.

The next question is from Jake Bartlett from Truist Securities. Please go ahead.

Great. Thanks for taking the question. My first is kind of a nitpicky question, maybe a follow-up question as well, but it has to do with the current trends. I think over 3%, obviously, very strong, and you made the comment that February and the weather had a negative impact. How much, if you can maybe quantify, kind of where comps were in the last three weeks. I just want to make sure I understand where they need to kind of improve back to. And then also your confidence that it was weather. I know that's been the case for competitors, but I think most are also acknowledging that there's a macro environment that's a little bit worse than we thought it might be a month ago. So, you know, how can you how are you parsing out weather and then maybe what is the kind of the actual state of same-store sales currently?

Sure. We don't want to get into a month-by-month breakout, but just as a reminder, January of last year was tough weather for us, and we saw, like, everybody has seen some tough weather in February this year. I would say we feel strongly that the 3% plus 3% we're seeing in Q1 is a sustainable number. It's not something that's being impacted or aided on a permanent basis by weather. So if we look at the non-weather weeks, the plus 3% is pretty representative of how the quarter is going.

Great. And then, you know, and also 2025 is going to be an interesting year with such a big change to the operations and the menu. One part of the question is what the impact on margins is going to be in the near term, in the next quarter or two, as well as for the year. And you quantified, I think, 100 basis points of food cost related to the menu rollout. It also sounded like you're going to be doubling advertising, doubling marketing as you there's training that you're investing in before and after. What is the all-in on the kind of the abnormal impact of the rollout on the margins?

Yeah. And I'll take the marketing side of it first. We are significantly increasing our marketing investment this year during the launch for a few months, for several months, compared to the prior year just to make sure everyone knows what a big change we've made, how excited we are about it, what a difference it's going to make in the guest experience. But for the full year, the increase in marketing investment is more modest. We're really able to increase our spending a great deal early on by shifting spending that in 2024 was more related to testing, more related to spending with the Culinary Edge, with concept testing, with central location testing, that we aren't having to do this year. We're putting a lot of that into the launch of the menu to drive awareness and drive people into our restaurants. But for the full year, it is up, but it's more modest.

Okay. And the individual hundred sorry. Yeah. So far.

Yeah. Just going to address the other items. We talked about the hundred basis point investment in food cost. We guided a margin between 12.5% and 14%, which shows the mid-single-digit comp sales growth overcoming that investment and achieving flat to growing margin year over year. The other investments on an annual basis don't come close to the hundred basis point food investment and are not substantial when you look at it on a full-year basis.

Got it. And just to understand the hundred basis points in food investment, is that permanent, meaning you're investing in quality in the menu, and that's going to remain? Or is this something that has to do with the rollout and it's kind of more temporary, maybe with some, I don't know, related marketing and giveaways or something like that that would change your, you know, impact COGS? Or is this a permanent kind of investment in the quality of the food?

Yeah. No. The vast majority of that is a permanent investment in the quality of the food, and we believe it's a tremendous investment because we've seen such a big improvement in guest satisfaction across the things that we think are most important to building loyalty and building the business. So it is a permanent investment, and we think it's going to be a tremendous one to build excitement, to build guest satisfaction, to build our business going forward in a very sustainable way.

Okay. Great. I appreciate it. Thank you.

This concludes the question and answer session and today's conference call. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.