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spk01: Good afternoon, and welcome to today's Noodles & Company third quarter 2022 earnings conference call. All participants are now in a listen-only mode. After the speaker's presentation, there will be a question and answer session. As a reminder, this call is being recorded. I would now like to hand the call over and introduce Noodles & Company's chief financial officer, Carl Lukasz. You may begin.
spk03: Thank you, and good afternoon, everyone. Welcome to our third quarter 2022 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 meetings 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 2021 fiscal year and subsequent filings with the SEC are considered a part of this conference call, including the portion of each that sets 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 2021 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 third quarter 2022 earnings release and our supplemental information. Now, I would like to turn it over to Dave Benninghausen, our Chief Executive Officer.
spk02: Thanks, Carl, and good afternoon, everyone. I'm excited to share with you today the momentum that we have seen in our sales trajectory, as well as our outlook concerning the state of today's cost environment relative to just a few months ago. I would like to start by sharing some of the highlights from our third quarter results, which were punctuated by accelerating sales trends through the quarter and improvements in some of our key input costs, notably chicken, that will manifest themselves in improved cost of goods sold during upcoming quarters. Importantly, we are finalizing a fixed cost contract for chicken for 2023 that we expect will yield approximately 200 basis points of savings relative to Q3 of this year. Our third quarter revenue of $129.4 million was above the high end of our guidance range, reflecting company comparable restaurant sales of 3.4% and nearly 17% growth in company average unit volumes relative to 2019. Company comparable restaurant sales, as well as our three-year average unit volume growth, accelerated through the quarter, including comparable restaurant sales of 6.8% during fiscal September. This trend has continued thus far during fiscal October, with comparable restaurant sales of 10.5% and three-year AUV growth of nearly 18% through the end of October. Of note, we expect comparable restaurant sales to moderate modestly through the quarter as we lapped the height of Delta variant-related closure activity last year. Still, we expect continued momentum in our three-year AUV growth and comparable restaurant sales to remain strong in the high single digits for the full fourth quarter. Our accelerated sales trends are a testament to the great value and extensive variety that we provide in Noodles & Company. With regard to value, we've been highlighting seven offerings for $7, featuring the entry-level price point for some of our most popular made-to-order dishes. We've received strong response from this messaging, showcasing our commitment to providing uncommon value to our guests in this challenging environment. We're also excited about the rollout of our plant-based protein alternative, Impossible Panko Chicken. which reinforces the company's ability to meet a wide variety of dietary preferences. While it's only been offered nationally for a few weeks, we're very pleased with the early response to Impossible Panko Chicken, which is resonating with both vegetarian guests in addition to more environmentally conscious younger generations. Finally, we continue to be thrilled with Linguini's broad appeal. Spurred by the fact that it has roughly half the net carbs and nearly 50% more protein, with the same taste and texture of a traditional wheat noodle. This proprietary first-of-its-kind offering has been a hit with our guests from day one, recently reaching its highest mix since launch and resulting in increased frequency from guests who have tried it. Additionally, we are excited to announce that we have commenced the implementation of digital menu boards across our system. We feel that digital menu boards are particularly meaningful for the Noodles & Company brand for several reasons. First, given our great variety, digital menu boards allow us to better communicate key features of our menu, such as the great health benefits of linguine. Second, with our increased strength and guest engagement, we'll have more flexibility in terms of communication that is more relevant for consumers, including the ability to change messaging based on trade area dynamics or day part. Third, digital menu boards allow us greater pricing flexibility. both in our ability to test various scenarios as well as in speed to market. Finally, as digital menu boards increase flexibility in all aspects of the organization, they also reduce costs associated with physical menu boards. As our digital presence inside the restaurants improves, we are also pleased with the digital sales that originate outside of our restaurants. Even as our in-restaurant dining continues to increase, Digital sales still accounted for nearly 50% of revenue during the third quarter, and our rewards program saw an increase in membership to 4.4 million members, 16% above prior year. Our strengthening rewards program continues to give us the ability to better personalize our communication with our guests, which has been supported by recent enhancements to our web and app interface to make it easier for guests to engage with the brand. Additionally, we've begun implementation of a comprehensive customer data platform to give us a more complete single view of our customers from a behavioral, transactional, and demographic perspective. Turning to restaurant-level margin. During the third quarter, our restaurant-level margin of 14.4%, which was impacted by continued inflation in the vast majority of our input costs. While CAR will address our margin trends in more detail, again, we are seeing significant declines in certain key ingredient costs, notably chicken. While the inflationary environment remains volatile, we are also beginning to see signs of stabilization across other key input areas as well. And we believe we are well positioned to expand margin meaningfully as we exit 2022 and enter 2023. Additionally, we've continued our work with a third-party industrial engineering firm on the Next Kitchen of the Future initiative, which in its prior iteration yielded significant labor efficiencies throughout the system. While it's too early to quantify what the potential opportunities will be, we're confident that with enhancements in equipment technology and revisiting our processes for a post-COVID world, we will find meaningful efficiency opportunities throughout the operating model. An improved margin profile will also enhance our strategy to accelerate our unit growth with a model that supports 30% plus cash on cash returns. We continue to be very pleased with the performance of our new restaurants, as well as the maturation of recent classes. We expect new restaurants to initially open at approximately 90% of company average and reach maturity in three years. Our recent openings continue to outperform that target, and restaurants that opened between 2019 and 2020 have reached maturity, with AUV of $1,450,000 quarter to date, above the company average. While the well-documented challenges of the development environment did cause us to pull back from certain restaurants in 2022 that we felt would compromise the discipline in our capital underwriting model, we have already opened more restaurants this year than we have in any year since 2016 and continue to expect 5% unit growth for the year. Moreover, the 2023 pipeline for company restaurants continues to be very strong, with the vast majority of our pipeline either already under lease or in final stages of lease negotiation. Although the company pipeline remains very robust, we have seen challenges in the current development environment as it relates to the signing of new franchisees. While interest remains high, economic uncertainty, the present inflationary environment, and rapidly rising lending rates have caused prospective franchisees to move more deliberately than our prior 2023 expectations assumed. As a result, while we remain confident in a 7% to 10% unit growth rate long term, we believe it is prudent for us to assume that the development and lending environment for franchisees will remain challenging. And consequently, we now anticipate unit growth system-wide of at least 7% in 2023, with the vast majority of those restaurants being company-owned. As the inflationary environment improves and ultimately the lending environment, we're confident that the brand will be well-positioned to accelerate franchise growth in the years to come. Finally, I'd like to make note of our incredible team members who are a large part of our accelerating momentum and an incredible representation of our brand's commitment to uncommon goodness. Staffing continues to be strong, and this past month we had two particularly special events concerning our general managers. First, we had our first all-manager meeting in four years, and I came away in awe at the energy, commitment, and talent of our general manager team. Second, a few weeks ago I was proud to welcome the inaugural class of 57 general managers into our GM Equity program. We believe strongly in the value creation opportunity at Noodles & Company, and we feel it is important to align that opportunity with the general managers in our restaurants who are so critical to achieving our objectives. These 57 general managers achieved strong financial and operational metrics over the past six months. And through this program, after three additional years at the company, they will have vested equity that could have a meaningful impact in their lives. While I'm immensely proud of these general managers who qualified for this inaugural class, I look forward to welcoming additional members in future classes who aspire to share in the value creation opportunity at Noodles & Company through this unique program. While it has been a challenging environment during the past 12 months, and inflationary programs persist, particularly in labor, We feel strongly that the brand is positioned well to expand profit meaningfully versus 2022. Our sales have accelerated, and our cost of goods sold should improve significantly relative to the pressures of this year. I look forward to sharing with you our progress and future calls, and we'll now turn it over to Carl to share some of our financial highlights.
spk03: Thank you, Dave, and good afternoon, everyone. I'm pleased to share our third quarter results. including the continued momentum in our average unit volumes and the progression towards a more favorable commodity environment. In terms of the financial highlights, comparable restaurant sales increased 2.1% system-wide, comprised of a 3.4% increase at company-owned restaurants and a 3.8% decrease at franchise restaurants. Our third quarter included our most challenging comparisons of the year, particularly at franchise locations. On a two-year stacked basis, third quarter company restaurant sales increased 18.7%, and franchise restaurant sales increased 17.2%, underlying the overall strength of both company and franchise momentum. As Dave noted, comparable sales growth during the fiscal October has accelerated to 10.5% at company restaurants and 4.8% at franchise restaurants. our third quarter revenue increased 3.4% to $129.4 million compared to last year, with meaningful growth from both comparable restaurant sales and new restaurants that have been open since the third quarter last year. This growth was partially offset from the January 2022 sale of our California locations, which reduced revenue by approximately $4.5 million and includes lost revenue net of royalty payments received. Underlying our revenue growth our company average unit volumes were $1.39 million for the quarter, a 16.8% increase versus pre-COVID levels in 2019. For the third quarter, restaurant contribution margin was 14.4%, a 370 basis point decrease relative to the third quarter of 2021. This decrease was primarily seen in cost of goods sold, which increased 300 basis points relative to the prior year to 28.1%. During the quarter, the cost of chicken remained the most material driver of inflation, as over 50% of our guests choose boneless, all-white meat chicken breast as an add-on to their noodle dishes. Chicken prices rose to unprecedented levels during the second quarter and continue to have a financial impact on our cost of goods sold throughout the third quarter as we move product through our distribution network. Over the past several months, we have been highly encouraged that chicken prices have declined materially. During the third quarter, we saw steady sequential improvement in our cost of goods sold, which we expect to continue throughout the fourth quarter. We currently anticipate fourth quarter COGS in the high 26% area. In addition, while our chicken contracts for the remainder of the year remain on floating rate prices, we are finalizing a full year 2023 fixed price contract for both our grilled and Parmesan chicken. At these fixed rate prices, we expect nearly a 200 basis point benefit heading into 2023 relative to our peak COGS margin in the third quarter this year. This gives us further confidence that we will be able to achieve COGS between 25 and 26% during 2023. Labor costs for the quarter were 30.8% of sales, which is 80 basis points above the third quarter last year. While our labor margins continue to benefit from the full annualized impact of the rollout of steamers, our wage inflation continues to remain elevated at nearly 12% year over year during the third quarter. While wage inflation is moderating somewhat, we anticipate elevated levels will continue throughout the fourth quarter. As a result, we expect our labor margins to increase approximately 50 to 60 basis points for the fourth quarter compared to the third quarter. The key drivers of the increase are continued industry-wide inflation, in addition to anticipated sales deleverage from normal seasonality in the fourth quarter, which contains three low-volume holiday weeks, Thanksgiving, Christmas, and New Year's. Other operating costs for the quarter were 17.9% of sales, compared to 17.5% last year. This increase was driven by an increase in utility costs, which is predominantly due to higher energy rates compared to prior year. During the fourth quarter, we anticipate other operating costs of around 18%, reflecting both elevated market utility rates as well as an expected increase in delivery sales and associated fees as we enter the winter months. Pricing during the third quarter remained just above 10%, and we expect to maintain pricing at these levels during the fourth quarter. We feel it's particularly encouraging to see the acceleration of sales growth during September and October, given we have not taken any core pricing since May. We are fortunate to maintain a strong value proposition with an attractive entry-level price point of around $7. We do not currently plan to take any further pricing on our core menu for the rest of the year, and we do feel that we retain pricing power in the event of further volatility in input cost. G&A for the third quarter was $11.6 million compared to $12.2 million last year, G&A includes non-cash stock-based compensation of $750,000 during the third quarter, compared to $1.2 million last year. For the fourth quarter, we anticipate G&A around $13.5 million to $14 million, which is inclusive of approximately $1 million of stock-based compensation. Our fourth quarter G&A forecast reflects an approximate $2 million increase relative to the third quarter, driven by employee-related costs. including an additional week of compensation and expense through the 53rd week fiscal year, which includes 14 weeks in the fourth quarter. G&A is also expected to be impacted by an increase in stock-based compensation related to the GM equity program that Dave highlighted, in addition to an investment in our new CDP platform and other technologies that we expect to have a positive long-term impact on our guest engagement capabilities. GABS net income for the third quarter was $800,000, or $0.02 per diluted share, compared to net income of $4.7 million last year, or $0.10 per diluted share. We also report net income on an adjusted basis, which adjusts for the impact of impairments, divestitures, and closures. Excluding these adjustments, our third quarter net income was $1.6 million, or $0.04 per diluted share, compared to net income of $5.3 million, or $0.12 per diluted share last year. We expect our effective tax rate to remain low at least through 2022, and we do not expect to be a cash taxpayer for the foreseeable future, given our sizable NOL and other tax credits of over $150 million. Turning to the balance sheet, at quarter end, we had cash and cash equivalents of $1.8 million and a total debt balance of approximately $37.9 million, representing just under $6 million of incremental debt relative to the second quarter, as we continue our accelerated unit growth development. Looking ahead, we anticipate total revenue in the fourth quarter to range between $133.5 and $136.5 million driven by high single-digit comparable company restaurant sales, low to mid-single-digit franchise comparable restaurant sales, and the impact of 2022's fiscal year containing 53 weeks. From a contribution margin perspective, we anticipate fourth quarter restaurant-level margins of 14.5% to 15%, reflecting improvement in our cost of goods sold, offset by our continued wage inflation impacting cost of labor, and a seasonally lower fourth quarter due to holiday timing. During the third quarter, we opened four new locations, three of which are company-owned and one franchise location. We continue to anticipate 5% unit growth versus prior year during 2022, which includes seven to nine openings during the fourth quarter. All of these restaurants have either opened this quarter or are under construction. For the full year, we continue to expect 30 to 33 million of capital expenditure, which includes approximately seven to 10 million during the fourth quarter, supporting our new unit growth and continued innovation of our website, mobile app, and digital capabilities. With that, I would like to turn the call back over to Dave for final remarks.
spk02: Thanks, Carl. With accelerating sales trends, an improving commodity environment, and a strong pipeline for new unit growth and attractive returns, we remain extremely confident in the earnings potential of Noodles & Company and our ability to ultimately be a premier growth story in the restaurant industry. Our brand has proven resilient in the face of a challenging economic environment Our innovation has resonated with guests, and our investments in technology and labor efficiency initiatives have the potential to yield tremendous upside to both the top and bottom line as we accelerate unit growth. Thank you for your time today, and please open the lines for Q&A.
spk01: Certainly. Ladies and gentlemen, if you do have a question at this time, please press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. One moment. And our first question will come from Joshua Long of Stevens. Your line is open.
spk04: Great. Thank you for taking the question. And apologies, the audio on my line got a little garbled there at the end. So if you repeated some of this or you already talked about this, just let me know and I can grab it on the transcript. But as we think about the trends through the third quarter, it sounded like you talked about some acceleration there and then into some particularly strong October trends. Could you provide some context there? I mean, what's driving that strong, particularly on the company side, those strong trends? And you talked about some moderation there, perhaps from some year-over-year comparisons. Any sort of context or color you could offer there as we think about that high single-digit guidance for the fourth Q period?
spk02: Sure. I think, Josh, what's particularly exciting is as we look at that sales trajectory, first off, the momentum we gained during the end of Q3. So as we talked about, north of 6% same-store sales. This was occurring despite price actually being less than it was at the beginning of the quarter. So even as we lapped some pricing, we were able to gain significant momentum exiting Q3. I think what's additionally exciting is we did start to lap some of the COVID-related closures, Delta-related closures of Q4, even as we lapped that that particular impact, we continue to see strengthening same-store sales as well as strengthening average volume growth versus 2019. So very steady, consistent growth. Certainly, there is an element there that has been related to overall price as well as lapping closures. But when we look at our gap relative to the industry from a three-year growth as well as from a same-store sales perspective, we feel very strongly that first, our value is resonating, as you see with the 747 offering. Second, our guest engagement just continues to improve from our rewards program to our digital sales continuing to be at 50%. And third, just our teams are executing well. We continue to see great operations metrics. Our employee metrics are some of the best in the industry. So we feel there's a lot of things clicking strong tailwinds that will allow us to continue to have that strong momentum. Now, as we have lapped the most significant closures, we do believe that there's potential for a bit of a moderating in the one-year same-store sales, and that's reflected in the guidance. But we do see three-year average unit volume growth normalizing for that impact to continue to strengthen through the quarter.
spk04: That's very helpful. Thank you. And shifting gears maybe to the input cost side, it seems like chicken was maybe persistently more inflationary than was expected. Could you provide additional color there on just how things, you know, shaped up? Understood that we had got some benefit heading into next year, but it seems like, at least from my notes, we might have expected to see some of that come, some of that materialize, that benefit materialize a little bit sooner. Is that right? And, you know, what kind of visibility do you have in terms of that, you know, cost trajectory now heading into the fourth quarter?
spk03: Sure. So for the third quarter, COGS, as you noted, were 28.1%, which was really what we imagined to be the peak of our COGS performance. And as we forecast for the fourth quarter, we're looking at the high 26% area. In terms of the third quarter performance specifically, It was generally in line with our expectations. We had thought about about 100, 150 basis points of chicken benefit, 100 coming from chicken strips. We are seeing that. That is, again, just moving the chicken through our distribution system. So we feel very confident that that benefit we are getting. The 50 basis points we talked about last quarter was from market pricing. And we're seeing that continue to drive forward sequentially throughout the quarter. but more predominantly and seen in the financials to the fourth quarter. So generally in line with our expectations, it was just moving the product through the distribution center.
spk02: Yeah, and I'd say the visibility as we look at the balance of this quarter as well as into 23 is extremely high. because now we're entering toward the chicken strips through the system, and then getting into a fixed-cost contract gives us that price assurity that from this most volatile ingredient, we're actually going to be considerably flavorable. So that 200 basis point rough impact that we expect to see as we go to 23, we feel there's very strong visibility to that.
spk04: Got it. That's helpful. And then maybe one last one for me before I pass it on. When we think about the digital menu boards, Seems exciting as an opportunity for both top and bottom line, as you mentioned. Can you talk about timing and then do you think about this maybe early on the impact from digital menu boards more so than not on one side of that, either sales driving or just the operational flexibility or efficiency that it offers? How do we think about that from a store level execution or maybe a consumer experience perspective?
spk02: Yeah, I think it's going to be particularly strong on the consumer perspective and allowing our marketing team to really capitalize on all the great guest insights that we've been able to glean and learn through our guest engagement ecosystem over the past couple of years. One important note with digital menu boards, it is so impactful for us primarily because extensive variety is a strength of our brand. So being able to communicate in a more flexible way with our guests based on day part, based on trade area dynamics, based on new introductions, being able to really talk about here's the 50% less cost. that carbs 50% more protein with linguine. This is particularly impactful for us. It gives us more flexibility across the board for messaging, communication, to testing, to pricing, you name it. There's a lot more flexibility that you get when you come into a digital menu board ecosystem. We expect this to be rolled out over the next six to nine months across all company restaurants. And we're extremely excited about it. For our brand in particular, we think digital menu boards can really allow us to capitalize and be an unlock on all that great guest engagement that we have within our ecosystem.
spk04: Very helpful. Thank you.
spk01: One moment. And our next question will come from Nicole Miller-Reagan of Piper Sandler. Nicole, your line is open.
spk00: Thank you. Good afternoon. Can you talk about the marketing spend in the period and what it was versus the prior year, either percentage or dollar terms, whatever you have?
spk03: Sure. From a spend perspective, it was 1.4% in the quarter, Nicole, and that compares to 1.3% last year, so relatively in line.
spk00: And when you think about the commentary around, you talked about value proposition, but also affordability and you gave some average check figures and whatnot. Can you also walk us through for the quarter, the 3.4% company comp, what are you rolling in terms of price and how does that roll into 4Q? Maybe a little on traffic and mix if you have it too.
spk03: Sure, so in terms of the third quarter, so price was just north of 10%, which is an area that we've been at for the second quarter as well. In terms of traffic, traffic was, you know, I'll let Dave talk a little bit more about the traffic piece, but traffic was still a headwind and offsetting some of that price increase. As we think about what we're lapping, in August, we did lap a 3% price increase last year. So as Dave pointed out earlier, we did see a step down in price sequentially throughout the quarter, which did give us more encouragement at the comp level we saw heading into September and October.
spk02: Yeah, I think from a mixed perspective, and I think this is a good sign of the value proposition, Nicole, typically when you see price increases, you would often see a menu mix become a negative shift as people trade less expensive. We're not seeing that. It's actually been negligible, if not a little bit positive. From a pure traffic perspective, it was modestly negative during Q3, but as you look at that October fiscal period, running at about 10% price, running also just north of 10% same-shore sales, you see we've definitely turned a corner in terms of some of the traffic trends. That has been the driver of the improvement that we've seen over the last few months has been improvements in the traffic line.
spk00: So when you put that all together, do you kind of think about a very, you know, lowest of low, however you slice and dice the pie of income cohorts, they're going to fall out anyway. I mean, really, if you took prices up, took prices down, they have energy problems, rent problems, you know, a list of problems. And then everyone else is willing to come, there's underlying demand and pay what they need to pay. Or is that too simplified?
spk02: It's not too simplified. I'll tell you what we're seeing. From Medium income and higher income cohorts, we've seen a significant increase in frequency. That's been extremely encouraging, is not only has that consumer, you know, been pretty stable through these inflationary challenges, they've actually increased their frequency with noodles and confidence. From the low-income consumer, I think there's no question that they're still facing the brunt from an inflationary perspective. You know, we see it in our guidance incorporating utilities. I mean, there is that element there. So the good news for us is that, especially as we leaned into that seven for seven, which which is our normal entry-level price point for those dishes, we saw that the resistance or, if you will, the impact from the low-income consumer was mitigated pretty meaningfully. They were able to see us vis-a-vis our competitors and see that this is one heck of a value. And so that's something we're going to continue to lean in for the next few months to be able to maintain as much of that consumer as possible. So long and short of it is middle income, high income consumer, we think is very, very, very, very solid relative to maybe people's expectations. For us specifically, we're seeing increases in frequency and we're being able to hold on to that lower income consumer, I think, better than we were, let's call it a few months ago.
spk00: Great. Thank you for that. I appreciate it.
spk01: Again, if you'd like to ask a question, please press star 11 on your telephone. Our next question will come from Andrew Strelzyk of BMO.
spk05: Hey, good afternoon. Great, thank you. I guess if I could start on the pricing side, my line also got a little jumbled there right when you were talking about the pricing dynamics. And so what it sounded like to me was no pricing since May, no incremental pricing since in 4Q and now you have, you know, an easing inflation environment on the horizon. So I guess, how are you thinking about, or what's the governor on pricing decisions moving forward into 23?
spk02: You know, I think the governor, certainly we feel very, very strongly about our value proposition. We feel there's dry powder, there's pricing power there, Andrew. The governor, if you will, is probably on those other inflationary items. We feel pretty comfortable where commodities are at. Aside from chicken, you're seeing during wheat come down. There is some increases in produce and other areas. But overall, commodities look extremely strong. That said, the labor environment, while it's stabilizing, it's not quite as high as it was. It's still pretty meaningful. You still see inflationary utilities in other areas. We want to see how that settles out a little bit. Again, this is one of those benefits of digital menu boards, though. We're going to be able to respond much more quickly and do much more testing as we see that inflationary environment, which regardless, I think we all agree that it's going to maintain volatility, that it might go up, it might go down. what the magnitude is, we don't know, but it will be volatile. And our ability to maintain that pricing power and then be able to act more quickly, I think is a great opportunity for our brand.
spk05: I guess so then should we think with those kind of cross currents on the different line items at the restaurant, should we think about kind of a normalized level of pricing or do you think you might need to still keep the foot on the gas pedal a little bit? I guess if you just put it all together, how should we think about that?
spk02: Yeah, I would tell you when you look at 2023 from a pure rollover perspective, assuming we don't have any incremental price to balance of this year, we will ultimately roll over a weighted average effective price increase of about 3.5%. So really what you're looking at is what would you go above and beyond that based on the existing environment? Again, we have not touched the core menu since May. So we certainly believe there's power and there's potential that we would raise prices a bit in 2023. Don't believe it would be near the levels that we saw in 2022.
spk05: Got it. Okay. And then the mixed commentary was certainly encouraging and just kind of the implications for the consumer receptivity to the brand. But I guess I'm just wondering about the $7 price point that you've been highlighting on the menu. I mean, what was the impact of that? Did you see migration there? And how does it inform or not inform, I guess, how you think about value or other similar types of things as you become a little bit more dynamic, I guess, with the digital menu boards going forward.
spk02: Yeah, I think one thing that's fascinating is you look at our digital sales, and again, about 50% of our sales being digital. When you go to the Noodles website to order, the seven for seven is one of the categories you can choose from. It quickly became the second most clicked upon category as people were beginning their order flow. Ultimately, interestingly enough, the mix did not change much. We did not see people have less add-ons. We saw them shift a bit towards those items, but not a lot. I think what it did in general, and keep in mind, the 7 for 7 includes some of our most popular dishes. So it's not that we're putting underperforming dishes that maybe don't resonate as well. Our entry-level price limit has always been around $7 for mac and cheese. So it's just reminding people that the core value of at Moodle as a company is extremely strong. So we're seeing great data there that actually, not as much you're seeing in mix, but just an overall halo and an overall reminder and reinforcement of that value proposition.
spk03: The one thing I'll add is the seven dishes excluded a protein attachment, but what we noticed from the guests is even though they clicked through that area of the website or the app, many of them customized their dish and did add a protein ultimately. So our protein mix, to Dave's point, remained fairly stable also, which was something we were keenly watching to see if the guest is going to change that attachment behavior.
spk05: I got it. Okay, great. Thanks for the color. I'll pass it on. Thanks.
spk01: Thank you. I'm showing no further questions. I would now like to turn the conference back to Dave for closing remarks.
spk02: Thank you, everybody. I know it's a very busy time in the earnings calendar season. I'll tell you that we feel just extremely excited as we look at the setup. as we enter 2023. The commodity environment, particularly chicken, is becoming significantly more favorable. We have great visibility into that. Our new restaurant's performing extraordinarily well. As you can see, the sales momentum, what we're seeing from the brand and how it's resonating with consumers, the resiliency has been extremely strong. Additionally, as we look at the strong innovation on tap from the digital menu boards we discussed to some of the labor efficiency models, we feel there's great opportunity to drive top and bottom line. I look forward to sharing with you all the progress we make in those steps over the course of the next year and over the course of the next quarters. Thank you very much.
spk01: Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.
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