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IPO Report: Noodles (NDLS)

By  +Follow June 27, 2013 11:53AM
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Based in Broomfield, CO, Noodles (NDLS) scheduled a $76 million IPO with a market capitalization of $399 million, at a price range mid-point of $14 for Friday, June 28, 2013.

  • S-1 filed June 20, 2013
  • Manager, Joint Managers: Morgan; UBS
  • Co-Managers: BofA Merrill; Jefferies; Baird; Piper Jaffray

Summary

NDLS is a high growth, fast casual restaurant concept offering lunch and dinner within a fast growing segment of the restaurant industry.

However, it has a low after-tax profit margin: 1% for Q1 2013, 1.7% for calendar 2012. Q1 '13 revenue was up only 16% vs Q1 '12.

NDLS plans to grow its restaurant base in the range of only 10% next year.

Valuation

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing Q1 '13

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Noodles

$399

1.2

108.0

4.8

5.2

19%

P/E based on 2012 results, business is seasonal

76.7

     

Glossary

Valuation comparisons
Price-to-earnings: NDLS is the highest
Price-to-sales: NDLS is the lowest
Profit margin: NDLS is the lowest

 

Mrkt

Price /

Price /

Price /

Price /

Profit

comparing 2012 results because NDLS is seasonal

Cap

Sls

Erngs

BkVlue

TanBV

Margin %

Noodles

$399

1.3

76.7

4.8

5.2

1.7%

Chuy's Holdings (CHUY)

$654

3.8

118.9

7.2

15.2

3.2%

Panera Bread (PNRA)

$5,400

2.5

31.2

6.3

8.3

8.1%

Chipotle Mexican Grill (CMG)

$11,150

4.1

40.1

8.8

9.0

10.2%

NDLS has by far the lowest profit margin, which is a competitive disadvantage.

Conclusion

NDLS business model generates the lowest profit margin in vs the comparables. Revenue was up only 16% for Q1 '13 vs Q1 '12, and NDLS plans to open only 10%+ restaurants in the next year. NDLS has the highest P/E ratio vs the comparables.

Potential store expansion to 2500 in 15 to 20 years suckers in investors, even though NDLS's profit margin's are very low, in the range of 1.5%. Some institutions just want to participate in the sector. However, NDLS is no CHUY, which IPO'd last year at a different stage of growth and is up 192%.

Nevertheless, NDLS is a buy on the IPO mostly based on management's Chipolte background. To put the above conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced earlier:

Growth plans

"From 2004 to 2012, we increased the number of our total restaurants from 100 to 327, representing a CAGR of 16.0%. If we continue to grow at our current rate, we believe we have the opportunity to grow to 2,500 restaurants across the United States over the next 15-20 years."

Growth to 2,500 restaurants in the next 15-20 is a very dubious assumption.

It's easier to show percentage growth from a smaller base. For example, perhaps NDLS grew at a CAGR rate of 16 since 2004, but a year after its IPO it is planning on growing only 10%. Q.E.D.

Margin issue

In terms of after-tax profit margins, compared to other restaurant chains NDLS is not a very good operator.

Business

NDLS is a high growth, fast casual restaurant concept offering lunch and dinner within a fast growing segment of the restaurant industry.

Comparable restaurant sales increased by 5.4% system wide in 2012, which was comprised primarily of traffic growth and a 1.3% menu price increase.

Fast casual

NDLS operates in the fast casual segment of the restaurant industry. According to Technomic, in 2011 the 150 largest fast casual concepts grew sales by 8.4% to $21.5 billion, compared with 3.5% for the 500 overall largest restaurant chains in the United States.

Unique

NDLS believes it the only national fast casual restaurant concept offering a menu with a wide variety of noodle and pasta dishes, soups, salads and sandwiches inspired by global flavors.

Growth plan

In 2012, NDLS opened 39 company-owned restaurants and six franchise restaurants. In 2013, NDLA has or plans to open between 38 and 42 company-owned restaurants and between six and eight franchise restaurants.

Franchises

Although NDLS expects the majority of expansion to continue to be from company-owned restaurants, NDLS is strategically expanding the base of franchise restaurants, especially in markets NDLS does plan to enter in the short to medium term.

As of May 28, 2013, NDLS has 52 franchise units in 11 states operated by nine franchisees. Franchise partners plan to open between six and eight new restaurants in 2013.

"Grab a drink, have a seat and we will deliver your food to your table-all without the need to tip."

Restaurant investment model

NDLS's new restaurant investment model calls for a total cash investment of $725,000, net of tenant allowances. The current target cash-on-cash return on investments in restaurant development for a new company-owned restaurant is 30% in its third full-year of operations.

Company-owned restaurants that were open a full three years by January 1, 2013, achieved an average cash-on-cash return on investments made in restaurant development of 34.8% in their third full year of operations

Seasonality

Our revenue per restaurant is typically lower in the first and fourth quarters due to reduced winter and holiday traffic and higher in the second and third quarters.

5% Stockholders pre-IPO

Entities affiliated with Catterton Partners, 45%
Argentia Private Investments Inc., 45%

Use of proceeds

NDLS expects to net $67 million from its IPO. Proceeds are allocated to repay debt.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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Results for Noodles, NDLS, fast casual,
Jazz
27 Aug 14 01:52:40
“@CHlLDHOODRUINER: 😂😭 too accurate http://t.co/SvToV1c4C4” the real question is how the hell do you burn ramen noodles??
yiff meme
27 Aug 14 01:52:37
we got a pretty box for noodles
King Shagnam
27 Aug 14 01:52:37
@__pmt how tf you ain't got no milk? that's like having oodles with no noodles
Meg Griff
27 Aug 14 01:52:37
"@CHlLDHOODRUINER: 😂😭 too accurate http://t.co/DWAqkxDwq2" my only question is how fo you burn noodles?
Ankita Bandooni
27 Aug 14 01:52:25
RT @MaggiIndia: You have 6 more days to participate! Just send us your breakfast selfie to win a month long supply of MAGGI OATS noodles! #…
NJH
27 Aug 14 01:52:13
I want noodles
Ceasar
27 Aug 14 01:52:00
Don't feel like making noodles tho... so ima just lay here till I sleep. I'll eat when I wake lol
pika semi-memi-h.
27 Aug 14 01:51:57
my life revolves around maggie noodles dont touch me
ADAM CORTEZ THE DON
27 Aug 14 01:51:49
@THEPIZZAPOPO I EAT NOODLES WITH A FORK TOO!
£RÍQÄ♋️€RIÎQÅ
27 Aug 14 01:51:47
I want some noodles ... 😂
woof [mindy t]
27 Aug 14 01:51:46
rly craving those garlic noodles from gyuk*ku
Ida
27 Aug 14 01:51:41
This cup of noodles rn is LIFEE
ADAM CORTEZ THE DON
27 Aug 14 01:51:34
RT @THEPIZZAPOPO: @SwankKhan lol in the US you can eat noodles with a fork.
Angel Yap
27 Aug 14 01:51:20
So we tried noodles... #myboatnoodle #notkuchailama #jayaone #food #lunch #girls #beef #chicken… http://t.co/qEwHAfh3uC
D!VY@ M!SR@
27 Aug 14 01:51:15
RT @MaggiIndia: You have 6 more days to participate! Just send us your breakfast selfie to win a month long supply of MAGGI OATS noodles! #…
Bushra  ☪
27 Aug 14 01:51:13
I want some roman noodles. 😭
FJ
27 Aug 14 01:51:05
The must go and try boat noodles. 12THB 🍜👊 @ Victory Monument http://t.co/wVaAoGBC0O
brandon j.
27 Aug 14 01:50:48
@SwankKhan lol in the US you can eat noodles with a fork.
I AM HARDSTYLE
27 Aug 14 01:50:45
RT @audiofreqdj: Studio tip - stuck on a mix down? Pretend its a box of noodles and add salt + water and dried out vegetables. Great for e…
Elite Fitness Equip
27 Aug 14 01:50:31
RT @_sarahwilson_: Processed food is the issue! Women who eat instant noodles 68% more likely to get metabolic syndrome #IQSJERF http://t.c…
Ziying
27 Aug 14 01:50:27
Yay wanton noodles 😍😘
wei lynn
27 Aug 14 01:50:19
@Yihang_kong eat the beef noodles in Bangkok you won't regret it!!! And have a safe trip :D
Farhana
27 Aug 14 01:50:11
RT @MaggiIndia: You have 6 more days to participate! Just send us your breakfast selfie to win a month long supply of MAGGI OATS noodles! #…
Krystal Lemhouse
27 Aug 14 01:50:03
Whoever invented top ramen and cup of noodles is a gazillionaire
Maggi India
27 Aug 14 01:49:52
You have 6 more days to participate! Just send us your breakfast selfie to win a month long supply of MAGGI OATS noodles! #HealthIsEnjoyable
✨radish spirit✨
27 Aug 14 01:49:51
Right now I think my brain feels like the way raw uncooked cup noodles feel when you poor steaming hot water on them
L.Rod
27 Aug 14 01:49:40
RT @InJoshITrust: *Eating a cup of noodles* Somewhere in between, "Damn, this shit is delicious", and "Damn, I could do better".
Yen Guits
27 Aug 14 01:49:40
RT @thystone: “@FREEGUCCl: why does his hair look like burnt noodles tho http://t.co/E47N8IdYAA”
×SN50-SQUARED×
27 Aug 14 01:49:35
@halbaeutiful hi po. Hello po. Musta po ung noodles mo po. Char bored po ako
hungryDANNI
27 Aug 14 01:49:31
Eating noodles and feel like a fire breathing dragon with @_nxelle
Cassan
27 Aug 14 01:49:30
10 mins to tuition and I'm gulping down on instant noodles at home
Ivaylo.parvanov
27 Aug 14 01:48:38
Eating instant noodles <3
Chinchay
27 Aug 14 01:48:27
all i want ryt now is noodles
IThinkIAteBambi
27 Aug 14 01:48:22
@hbosh89 wallahi these quick made noodles comes in hand marat wallahi !
mZ_jAy®
27 Aug 14 01:48:19
u dieerrr ..smh @Da_Sweenyta : " @jhu_lya_nha : by dis tym?? @Da_Sweenyta : Noodles❤"your stomach loss?
AfricanQueen
27 Aug 14 01:47:55
RT @FREEGUCCl: why does his hair look like burnt noodles tho http://t.co/irj2TWa15M
タカナシ@コーラとオフスプとグリンゴの人
27 Aug 14 01:47:24
RT @PeteParada: Noodles onstage with @Pennywise ! http://t.co/oxHZXJ008p
Raven
27 Aug 14 01:47:23
RT @FREEGUCCl: why does his hair look like burnt noodles tho http://t.co/irj2TWa15M
darling
27 Aug 14 01:46:59
my bed smells of super noodles, thanks meg
ヌードルス
27 Aug 14 01:46:36
冷房いらなくなってきたな、でも電車、うるせーーよw
Certified Accountant
27 Aug 14 01:46:35
Hot water @Abnormal_pikin: Noodles @boobsDYNASTY: What's the hardest meal to prepare? #GottaLetYouGoByDamellaJean
THAT SOFT DUDE
27 Aug 14 01:46:15
Hope say my own dey sha? @bolufisher: WU. 2 minutes noodles.
(•͡.̮ •͡ ) bRyAnSki
27 Aug 14 01:46:02
I have cough and colds so I think I deserve a very hot soup and noodles after shift. Love this choice… http://t.co/JCn7ccVWbt
Fabian
27 Aug 14 01:45:43
RT @FREEGUCCl: why does his hair look like burnt noodles tho http://t.co/irj2TWa15M
k bay bay
27 Aug 14 01:45:33
This is legit the best noodles with eggs I have ever made lol
Es G. ❤
27 Aug 14 01:45:23
@PrincessOfDOOM_ Thanks, noodles <3 xD http://t.co/xsijOB5HP0
Noodle Slim
27 Aug 14 01:45:18
Other brands may put oats and soy in their shirataki noodles. We don't because we believe in eating healthy food!
Leeroy
27 Aug 14 01:45:17
I ate noodles for the first time in I don't know how long. I still love em
일라
27 Aug 14 01:44:59
@lnalxciv I want kimchi noodles
chichi
27 Aug 14 01:44:55
@deneshxn_ don't @ me when your hair looks like burnt raman noodles
				
				
By  +Follow June 27, 2013 11:53AM
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