Bear of the Day: Noodles & Company (NDLS) - Bear of the Day


After a hot IPO in 2013, Noodles & Company ( NDLS ) is showing the growing pains of being a public company. This Zacks Rank #5 (Strong Sell) recently gave 2014 guidance which disappointed the Street.

Noodles & Company operates in the "fast-casual" restaurant sector. It operates 380 restaurants in 29 states and the District of Columbia. The fast-casual restaurants have been a hot niche of the restaurant industry.

Duh, It's the Weather

Noodles & Company reported preliminary sales data well ahead of its Feb 26 earnings date so the comparable restaurant sales gain of 3.9% was priced in.

But it was the 2014 guidance that spooked investors and analysts.

And like a lot of companies that have exposure to the Midwest and the Northeast, it was all about the weather.

"Looking ahead to 2014, we have faced an unusual amount of severe winter weather during the first quarter to date. Nearly 80% of our restaurants are located in areas severely impacted by atypical weather, including the Mid-Atlantic, Upper Midwest and Rocky Mountain West," said Kevin Reddy, Chairman and Chief Executive Officer.

"In fact, over 30% of our operating days thus far have seen either measurable precipitation or temperatures at least twenty degrees below normal."

"As a result, in the first quarter we anticipate a roughly 300 to 350 bps negative impact to revenue and $0.03 impact to diluted earnings per share. Still, we remain confident that we can deliver on our 25% annual adjusted diluted earnings per share growth goal for 2014," he added.

Estimates Lowered for 2014

Expectations have been high coming out of the IPO. It didn't take much to knock the shares back.

Since Feb 26, 5 estimates have been lowered for 2014 pushing down the Zacks Consensus to $0.51 from $0.55 just 90 days ago.

It is still a growth story, however. Earnings are expected to grow 26.7% in 2014 and another 27.8% in 2015.

Shares Decline

Shares have fallen 18% over the last 6 months and are well off their IPO high.

But that doesn't mean that Noodles & Company is now a deal.

Shares are still expensive, trading with a nose-bleed forward P/E of 73. If you must buy a stock in the restaurant industry, take a look at juggernaut Chipotle Mexican Grill ( CMG ) instead. It's a Zacks Rank #2 (Buy) stock and its valuation is a little more reasonable at 45x.

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Tracey Ryniec is the Value Stock Strategist for She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec .

CHIPOTLE MEXICN (CMG): Free Stock Analysis Report

NOODLES & CO (NDLS): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: CMG , NDLS

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