Share price of Noodles & Company ( NDLS ) plunged approximately 26% in aftermarket trading after the company announced disappointing fourth quarter 2014 results missing the Zacks Consensus Estimate for both earnings and revenues. It also stated that year-to-date comps were modestly lower than expected.
Meanwhile, this noodles and pasta maker company lowered its growth expectation for earnings for 2015. This further dented investors' confidence.
Earnings & Revenues Miss
Adjusted fourth-quarter 2014 earnings of 13 cents per share missed the Zacks Consensus Estimate of 14 cents by a penny. However, adjusted earnings were up 18% year over year due to year over year improvement in revenues.
In the reported quarter, the restaurant chain's total revenue increased 18.7% year over year to $108.5 million. However, revenues missed the Zacks Consensus Estimate of $110 million by approximately 1%. Comps remained sluggish during the quarter compared to the previous quarters due to a negative traffic trend.
Comps Slow Down
System-wide comps in the quarter increased 1.3% that compared unfavorably with 1.7% comps growth in the prior quarter and 3.9% growth in the year-ago quarter. The sluggish comps reflect a negative traffic trend in the reported quarter.
Comps at company-owned units grew 0.3%, worse than 1.6% growth in the prior quarter and 4.3% comps growth in the year-ago quarter. Noodles & Company witnessed 1.5% comps growth at franchised-operated units during the quarter that compared unfavorably with 2% comps growth in the previous quarter but came in line with the year-ago growth rate. .
Restaurant contribution margin decreased 100 basis points to 20% in the fourth quarter of 2014. The decline reflects increased marketing and promotional costs, labor cost, and other operating costs.
Full Year Results
Earnings in 2014 came in at 38 cents per share, down 2.1% year over year and also missed the Zacks Consensus Estimate of 40 cents by 5%. Revenues were $403.7 million, up 15.1% year. However, it missed the consensus mark of $405.0 million by 0.3%.
Lowered 2015 Earnings Guidance
Adjusted earnings per share are expected to grow 20% in 2015, at the lower end of the previous expectation of 20%-25% growth. Noodles & Company intends to increase its advertising spending in the upcoming months to build brand awareness. The company expects commodity inflation in the range of approximately 1.5% to 2% during 2015 owing to an increase in the price of durum wheat which hikes the cost of pasta.
Comps growth is expected in the range of 2.5%-4%. Additionally, restaurant level contribution margin is expected in the range of 19% to 19.5%. Noodles & Company expects unit growth of 12%-14% in 2015.
First Quarter 2015 Guidance
The company expects earnings per share growth in the first quarter to be only flat to modestly positive compared to the prior year. However, it expects it to increase in the rest of the year when it begins to reap the benefits of its sales growth initiatives.
Other Stock to Consider
Noodles & Company presently has a Zacks Rank #2 (Buy). Other stocks that can be considered in the restaurant industry include Dave & Buster's Entertainment, Inc. ( PLAY ), Jack in the Box Inc. ( JACK ) and Ignite Restaurant Group, Inc. ( IRG ). All these stocks sport a Zacks Rank #1 (Strong Buy).