Noodles & Company

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 Hines.

Thank you and good afternoon, everyone. Welcome to our fourth quarter 2024 earnings call. Here with me this afternoon is Drew Mattson, 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. in 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 or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable gap 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-gap basis and does not provide reconciliations of forward-looking non-gap measures. Quantitative reconciling information for these measures is unavailable without unreasonable efforts. With that, I would like to turn the call over to Drew Mattson, 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 minus 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 have 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 importantly, our guests have noticed. In January, we achieved our largest single month increase in overall guest satisfaction. And as a result, have now eliminated almost 80% of our gap to the fast casual industry average over the past 12 months. Our second priority is to stimulate more guest desire for noodles through a combination of compelling limited time offerings and a comprehensive menu transformation. Our current limited time offering, Steak Stroganoff, is really resonating with our guests, with menu preference remaining consistently strong since we brought it back in mid-January. The premium price point this dish commands has also helped to build, check, and maintain margin while we simultaneously reduced discounting well below prior year levels. Additionally, momentum from our three new menu items introduced last October has carried over into the first quarter as we prepare for the most substantial portion of our menu transformation in March. The final Q1 dynamic to emphasize is our renewed strength in third party delivery. We are back to double digit traffic growth in this important channel, driven by a revised pricing and promotion strategy. Overall, we're very pleased with our comp strength to start the year. This is despite the weather challenges that the industry has faced in February and that we were no exception to. Now let's talk about our continued menu transformation plans for the first quarter. As discussed previously, over the last 18 months, we approached this menu transformation with equal amounts of innovation and discipline. Phase one involved concept testing to identify the most compelling ideas for both new and improved dishes. During phase two, we placed the new and improved dishes developed in partnership with the Culinary Edge in a central location test with both current noodles customers and non-users to ensure their satisfaction with each dish exceeded the average on our current menu. During phase three, we placed the best new and improved dishes in the test locations in three markets to assess real-world guest satisfaction operational feasibility, and any potential financial implications. The first three new dishes from this process were introduced in October and helped drive the improving Q4 2024 and Q1 2025 to date sales trends previously discussed. Next week, we will introduce nine new dishes, including five completely new dishes and four reimagined recipes for traditional favorites currently on the menu. In total, nearly two-thirds of the menu will be new or improved by the end of the second quarter, representing the single biggest culinary transformation in noodles' 30-year history. Test market results show a significant increase in guest satisfaction across all key dimensions, including overall satisfaction, taste of food, and value. In addition, we've been able to extend our reach by attracting new customers at the same time. To ensure our restaurants are prepared to execute this level of change with excellence, we have also transformed our training process. We added two weeks of additional hands-on training before this rollout and two weeks of additional training after the rollout, specifically to build confidence and competence in our frontline teams. New plateware will replace our existing black plastic packaging next week for dine-in guests to further elevate their experience. To support the menu launch, we plan significant public relations and earned media outreach starting next week. While I won't reveal all the specifics of our menu transformation on our call today in advance of our comprehensive media launch, I do want to give you two examples. The first example is mac and cheese, which is our signature category. Starting next week, we will feature a new mac and cheese menu section on our digital menu boards. Buffalo chicken ranch mac and cheese is one of the new dishes on this menu. It features elbow noodles and a creamy cheddar and jack cheese sauce with Parmesan crusted chicken topped with buffalo sauce, green onions, crispy onions, and a drizzle of ranch. This dish has a Taste of Food score that is 11 points higher than the dish it replaced and 15 points higher than our menu average overall. And nearly 40% more guests ordered the new Buffalo Chicken Ranch mac and cheese than the dish it replaced. This is part of a whole new mac and cheese lineup that we will be rolling out in March. The second example is basil pesto cavatappi, which is a fresh new take on one of the oldest and best-selling dishes on our menu. We knew we needed to be careful making changes to a dish that so many guests know and enjoy. But we also knew we couldn't settle for good. We need more dishes that are great. Our in-restaurant testing process gave us great feedback on the changes guests really like and the changes we should avoid. This led to multiple recipe revisions, leading to a significantly improved dish that both current guests and new guests will thoroughly enjoy. Specifically, we replaced Roma tomatoes with fire roasted tomatoes. We also replaced shredded Parmesan cheese with aged Parmesan for a deeper, nuttier flavor. We increased the signature basil pesto sauce by 60% and topped it with fresh herbs. The final dish I just described has a taste of food scored nine points above the current version. In addition, more than 20% of orders for this improved dish are from new guests, despite limited marketing support to build awareness. Our new menu does a much better job of delivering against what today's customer wants. And we've developed a new brand strategy and marketing plan to let them know about all the great changes they can enjoy. We believe we are the only restaurant chain of scale to offer a variety of expertly crafted noodle bowls across cuisine types. This is what we do, and we will do it better than anyone else. This is how we uniquely satisfy our guests' need for craveable comfort food, which leads to our new brand strategy, We Know Noodles. During the tease phase of our new menu marketing campaign, which is happening right now, We are building anticipation and generating buzz about what's coming next. This includes PR, influencer partnerships, social media teaser messaging, in-restaurant messaging on our digital menu boards, and a countdown clock on our website. During the launch phase, which starts next week, our goal is to make a bold introduction that captures attention and drives immediate engagement. This cross-channel approach involves paid media channels such as connected TV, Pinterest, digital out of home, and paid social. It will also incorporate a fresh new look to our in-restaurant messaging and two new launch commercials that tell the story of who we are as a brand and drive immediate visits to our restaurants. During the sustain phase that starts later in May, we will look to deepen engagement by reinforcing brand affinity through targeted storytelling and also drive repeat visits. To accomplish this, we will double our marketing investment versus last year over the next few months to ensure we elevate awareness and drive both current customers and new customers to our restaurants to delight in our new menu. Finally, we were excited to announce the addition of Joe Cristina as our President and Chief Operating Officer, who joined our team in late February. Joe will succeed Brad West, who announced his retirement last year after eight years with the brand. I especially want to thank Brad for his contributions to our upcoming brand relaunch and ensuring all our teams are ready to execute at a high level. As part of his new role, Joe will oversee operations and human resources and is our latest investment into the leadership of Noodles following the addition of Scott Davis as our Chief Concept Officer and Steve Kennedy as our Executive Vice President of Marketing last year. We are excited about the future of Noodles and believe we have the leadership team in place to drive the brand resurgence. With that, I'll turn it over to Mike now to review our fourth quarter results and 2025 guidance.