Noodles & Company

Good afternoon and welcome to today's Noodles and Company first quarter 2020 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 will now introduce Noodles and Company's chief financial officer, Ken Wick. The floor is yours, Ken.

Thank you, and good afternoon, everyone. Welcome to our first quarter 2020 earnings call. Here with me this afternoon is Dave Benninghausen, our Chief Executive Officer. I'd like to start by going over a few regulatory matters. 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 details relating to our future performance, 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 materially from those projections due to a number of risks and uncertainties. The safe harbor statement in this afternoon's news release and the cautionary statement in the company's annual report on Form 10-K for its 2019 fiscal year and subsequent filings with the SEC are considered a part of this conference call, including the portions of each that set forth the risks and uncertainties related to the company's forward-looking statements. I refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on Form 10-K for its 2019 fiscal year and subsequent filings we have made. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. 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 or 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 first quarter 2020 earnings release and our supplemental information. Now I'd like to turn it over to Dave Benighausen, our Chief Executive Officer.

Thanks, Ken, and good afternoon, everyone. During today's call, we will be briefly discussing our first quarter results, but the primary focus of our time together is will be the impact the COVID-19 pandemic has had on our business, our response thus far, and our strategy moving forward. 2020 was off to a great start on the strength of the company's operational, culinary, and off-premise initiatives. With comparable sales growth system-wide of 5.5% during the first 10 weeks of Q1, including positive traffic, we felt comfortable that the company was on track for another strong year of meaningful top-line and earnings expansion. Of course, that all changed with the onset of the COVID-19 pandemic. Comparable sales during the last three fiscal weeks of Q1 fell 46.3% system-wide, resulting in a comparable sales decline of 7.2% system-wide for the first quarter. At its lowest point, our comparable sales declined 55% at company-owned restaurants during the last week of March. Since then, we've been pleased with the consistent sequential improvement in the trajectory of the business as our comparable sales decline improved to 36.1% during the past three fiscal weeks and 33.6% during the most recent fiscal week ending yesterday, May 5th. Entering this crisis, our initiatives and investments have resulted in a strong off-premise business which accounted for over 60% of sales during the first 10 weeks of Q1. Our food travels extremely well and our guests are already accustomed to seamlessly ordering through our digital channels to enjoy the variety and value in our menu regardless of where they were dining. We've been able to leverage that strength as well as build upon it with our recent initiatives resulting in the consistent improvement we have seen during the last few weeks. I also believe we are positioning the brand to be stronger over the long term. I'll outline some of these initiatives later on in the call. Since Noodles & Company's first restaurant opened in 1995, our mission has been to always nourish and inspire every team member, guest, and community we serve. Never has that mission been more important than it is today. I'm immensely proud of and grateful to our teams for their continuous commitment to provide made-to-order healthy meals to guests throughout our communities. Our teams have shown an incredible and an unwavering amount of care and love for each other and our guests. Whether those guests are healthcare workers on the front lines fighting this pandemic who are providing free meals through our new family meal program or those guests that are families celebrating milestones such as birthdays or graduations virtually online. In my 16 years at this company, I have never been prouder to be a part of such a great team or as proud to be part of the restaurant industry. Of course, in those 16 years, we've never encountered anything like this current pandemic. As the severity of the crisis became apparent, we altered our strategy to focus on three key areas. First, ensuring the health and safety of our team members and guests. Second, increasing accessibility and convenience for our guests. And third, providing value to the variety inherent in our menu. Our first priority, of course, has been to protect our team and our guests. We were one of the first national chains to shift to an off-premise only model, and very early on began executing enhanced quality assurance practices at all locations, increasing the cadence of our cleaning procedures, the frequency of mandatory hand washing, and thoroughly disinfecting all surface areas at regular intervals. We introduced an emergency sick leave policy covering up to 14 days of sick pay for team members, and we have been extraordinarily diligent in enforcing our strict illness policy to prohibit team members showing symptoms from working. Additionally, we've been providing face coverings for all team members and are in the process of installing plexiglass shields at our cashier stations, and we have purchased infrared thermometers to allow our teams to perform temperature checks at the start of every shift. These actions have been taken to ensure a safe and healthy environment for all of our team members and guests. And as dining rooms eventually reopen, they will be supplemented with measures to facilitate social distancing and ensure the safety of guests dining with us. Our second strategic priority has been to increase accessibility and convenience for our guests. As I noted earlier, we are fortunate that we entered this crisis with a strong off-premise business. bolstered by the launch last fall of our new app and online ordering systems, which have enabled a seamless way for guests to enjoy the brand. Our investments in technology have allowed us to execute quickly on key initiatives to address the current pandemic. We've been able to offer easy-to-use curbside service to our guests at over 350 locations. Additionally, in late March, we introduced direct delivery through our digital channels, again making it easier for guests to access and engage with the brand. Finally, in conjunction with the launch of direct delivery, we expanded our partnership nationally with Uber Eats, adding to our existing national presence with DoorDash. The expansion of delivery and introduction of curbside has further strengthened our off-premise capabilities and our off-premise sales today in absolute dollars are higher than they were before the crisis. Our third strategic priority has been offering value to our guests during this uncertain time to the variety that's inherent in our menu. In order to maintain our disciplined approach towards testing of brand new items, we have shifted our culinary strategy for 2020 to leverage all of the great options that are already available at Noodles & Company. In early April, we introduced family meals, which allow guests to cultivate connection, company, and comfort. Guests can choose from one of four family meals, and each meal comes with two sides, ensuring there's plenty to eat for every member of the family with some leftover for lunch the next day. At $40, our family meals serve four people for less than if they were ordered individually. These affordable family meals showcase the great variety in our menu, with favorites from kids to adults, healthy to indulgent, and comfortable to adventurous. Additionally, with each family meal purchased, the company is donating a regular-sized entree to healthcare workers on the front lines. The success of the family meal has been facilitated by our increasing ability to target and engage with our guests through our rewards program, which has grown to over 3 million members since its launch last fall. We plan to continue enhancing the guest experience by evolving our menu to accommodate dietary preferences and broadening how guests use our digital channels to get the noodles they love from the comfort of their own homes. Well, our strategies over the past several weeks, again, safety, convenience, and value, have allowed us to navigate the current environment from a sales perspective. We've also taken significant steps to improve the overall financial health of the organization. I'll now turn it over to Ken to discuss some of these actions in more detail.