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Bear of the Day: Noodles & Company (NDLS)

·3 min read

Noodles & Company (NDLS) has pivoted to digital sales during the coronavirus pandemic. This Zacks Rank #5 (Strong Sell) is seeing improvement to start 2021 but earnings estimates have recently weakened.

Noodles & Company operates more than 450 restaurants around the United States that serves noodle dishes.

An Earnings Miss in Q4

On Feb 25, Noodles & Company reported its fourth quarter results and missed on the Zacks Consensus Estimate, reporting a loss of $0.04 versus the Zacks Consensus of $0.03.

Revenue fell 5.9% to $107.2 million from $113.9 million.

Comparable restaurant sales, the key metric for restaurants, fell 4.7% system-wide, with it falling 4.2% for company-owned restaurants and falling 7.9% for franchise restaurants.

There were green shoots in the quarter, however.

It introduced low-carb Cauliflower Gnocchi which boosted the quarter.

Digital sales soared 128% in the quarter as orders moved online and accounted for 62% of all sales in the quarter.

Recent months have been difficult for restaurants as the resurgence of COVID has resulted in new restaurant restrictions.

Yet, the company said that it had seen nice momentum in the comp sales to start the first quarter of 2021.

Outlook for the First Quarter of 2021

Due to COVID uncertainties, Noodles & Company did not give full year 2021 guidance.

But some companies are feeling more confident of giving some outlook about the current quarter, including Noodles & Company.

Noodles & Company expects first quarter comparable restaurant sales in the mid-to-high single digits.

It will also open between 10 to 15 new restaurants, systemwide, in 2021.

Earnings Estimates Cut in the Last Week

1 estimate was cut in the last week after the earnings report, pushing down the 2021 Zacks Consensus Estimate to $0.27 from $0.29 60 days ago.

However, that's a big improvement from 2020 when the company lost $0.29.

That's earnings growth of 193%.

Shares at 2-Year Highs

Noodles & Company shares have turned around from the initial coronavirus sell-off in March 2020 and are now at 2-year highs.

Shares aren't cheap, with a forward P/E of 34.6.

The restaurant companies are still being challenged by the coronavirus, even as the vaccine is being rolled out.

There are no Zacks Rank #1 (Strong Buy) restaurant stocks right now.

There's only 1 Zacks Rank #2 (Buy) restaurant stock and it is Jack in the Box (JACK).

With the shares at new highs, it might be time for investors interested in Noodles & Company to stay on the sidelines waiting for a pullback and improvement in the earnings estimates.

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