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Bear of the Day: Noodles & Co. (NDLS)

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Noodles & Company (NDLS - Free Report) is still navigating the coronavirus outbreaks 2 years into the pandemic. This Zacks Rank #5 (Strong Sell) is expected to see earnings fall in 2022 as Omicron and rising commodity costs pressure.

Noodles & Company operates 450 restaurants in the United States, serving noodle and pasta dishes from Wisconsin Mac & Cheese to good-for-you Zoodles.

A Big Miss in the Fourth Quarter of 2021

On Feb 23, Noodles & Company reported its fourth quarter results and missed on the Zacks Consensus by $0.13. It reported a loss of $0.05 versus the Zacks Consensus of $0.13.

Total revenue, however, rose 7.1% to $114.8 million from $107.2 million a year ago.

Comparable restaurant sales rose 11.2% system-wide, including company-owned restaurants rising 9.5% and a 20.8% gain for franchise restaurants compared to the prior year.

Digital sales were up, but only 1%, and accounted for 57.3% of sales.

However, the quarter was significantly impacted by the Delta variant outbreak.

"While underlying business fundamentals remained strong, fourth quarter results were impacted by staffing challenges, as well as the surge of the Delta COVID-19 variant in the Upper Midwest and Rocky Mountain regions, which contain a majority of our operations, particularly during November and into early December," said Dave Boennighausen.

"We estimate that the temporary closures and reduced operating hours associated with the Delta variant impacted our revenue by approximately $8.0 million during the fourth quarter. Importantly, as staffing improved and the Delta variant declined, system-wide comparable restaurant sales increased throughout the quarter, from 6.8% in October to 11.9% in November and 14.7% in December," he added.

Omicron Expected to Hit Q1

COVID continued to wreck havoc with the restaurant industry into 2022.

Noodles & Company acknowledged that Q1 would be hit by the Omicron wave. It also expected the first half of the year to be pressured due to commodity inflation but expects to quickly return to margin expansion.

But the analysts didn't like the near term uncertainty.

4 estimates were cut in the last 30 days for 2022, pushing the Zacks Consensus Estimate down to $0.13 from $0.53. This is earnings decline of 23.5% because Noodles & Company made $0.17 in 2021.

Analysts do expect a rebound in 2023, but 2 estimates were lowered for that year in the last month too, pushing the 2023 Zacks Consensus down to $0.58 from $0.70.

Shares Plunge in 2022

The restaurant stocks have been pressured in 2022 by Omicron and rising commodity costs. Noodles & Company shares have fallen 30% year-to-date and are down 47.8% over the last year.

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Image Source: Zacks Investment Research

Shares aren't cheap on a P/E basis either. It still trades at 45x.

Investors interested in the restaurant stocks like Noodles & Company might want to wait on the sidelines until later in the year when the commodity inflationary pressures are expected to ease.

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