Must-know: Noodles and Company’s liquidity and capex
Must-know: An overview of Noodles and Company (Part 7 of 11)
Liquidity and capital resources
Noodles & Company’s (or NDLS) main liquidity and cash flow sources are operating cash flows and borrowings on their revolving line of credit. The company uses these cash sources to fund capital expenditures for new restaurant openings, reinvest in existing restaurants, invest in infrastructure and information technology, and maintain working capital.
As of July 1, 2014, cash and cash equivalents stood at $710,000—compared to $618,000 recorded as of July 2, 2013.
Capital expenditures
For fiscal year 2014, NDLS estimates capital expenditures to be in the range of ~$50–$55 million. This is excluding the acquisition of 16 franchise restaurants for $13.6 million. The capital expenditures are related to the anticipated opening of 45–50 restaurants in 2014, construction on restaurants to be opened in early 2015, and normal maintenance-related capital expenditures on existing restaurants.
Opening new restaurants requires a lot of capital. According to the company’s 2013 annual report, NDLS spent $819,000 in development and construction costs per new restaurant. In the same report, the company’s CEO targeted annual earnings growth of 25%. In actual terms, the company reported a percentage growth in net income.
Associated risks
Industry analysts comment that the fixed construction and operating cost of new stores, combined with weak traffic at those same stores, could put NDLS in a cash flow bind.
NDLS is in a tighter financial position than its peers—Panera Bread Company (PNRA), Chipotle Mexican Grill (CMG), Popeye’s Louisiana Kitchen (PLKI), and Papa John’s International Inc. (PZZA). With a higher ratio, companies can cover capital expenditures in a better manner.
Usually, more established chains have steadier cash flows. It isn’t unusual for NDLS to score lower than PNRA or CMG. However, if Noodles’ profitability doesn’t improve, its construction costs may be financed by debt.
The PowerShares Dynamic Leisure and Entertainment (PEJ) and the PowerShares Dynamic Food & Beverage (or PBJ) are the broader industry metrics.
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