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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,
expectations
17 Sep 14 03:21:13
@Imkhristinecruz NO. fried noodles is HURTHURT 💔💔😤😤😭😭💦💦👅
Ken Moritsugu
17 Sep 14 03:21:07
RT @japantimes: Afuri: classic noodles with a twist of citrus http://t.co/dbrXpSs3qJ http://t.co/dlxmLLemtI
Taylor Trotman
17 Sep 14 03:20:46
Got given two multipacks of crisps and an extra super noodles for free by mistake in my online shop, it's the small things in life 💪
PK
17 Sep 14 03:20:44
RT @jonnysun: *jesus givs u bread* this is my body *jesus givs u wine* this is my blood *jesus puts ur hand in soggy noodles* and these r m…
Narendra Modi
17 Sep 14 03:20:28
Glad to know that Shi Zinping ji has bought Dhokla flavoured noodles for me.
What Da Pho
17 Sep 14 03:20:15
Pho "Vietnamese beef noodles soup" available here @KingstonMarkets http://t.co/ZF6lqOOQKO
Model Jenny (18+)
17 Sep 14 03:20:12
Join me for Noodles anyone? @FitAsFuckGirls @HotAsiansDaily @BestBritModels @HotGirlsOfTwitt @erotic_pic http://t.co/tHIg8cSUPg
Wellbein Borja
17 Sep 14 03:19:54
:'( .. Noodles please? or Pancit canton... But I can't cook. K.
expectations
17 Sep 14 03:19:36
RT @Imkhristinecruz: fried noodles is harthart 😂
Lake Charles Local
17 Sep 14 03:19:14
Up-to-Minute #JobSearch Dining Room Manager - Lillie's Noodles at Landry's (Lake Charles, LA) Find this Job&More: http://t.co/dlnBry0YDS
TRANSSIB REISEN
17 Sep 14 03:18:55
RT @OceanBlueEyes11: Simply Asia Singapore Street Noodles Review - Bubblews http://t.co/9mYY3Wnkrl via @GoBubblews
THANKS BOO
17 Sep 14 03:18:29
잡채 볶음. Goguma noodles!! @ Cafe by the Quad http://t.co/tM2MA0dtLt
hood rat
17 Sep 14 03:18:18
I want Thai chicken and noodles from Wings right now
北雷绩
17 Sep 14 03:18:01
Congrats! Kaya pala napakain ka ng noodles @HeeZZinPang 😋😋 #MAMACITA6thWin #MAMACITAALLKILL
Noodlefish
17 Sep 14 03:17:38
@liamchad I'll probably be at my desk 'til midnight. All work and no play makes Noodles a bad #watchnerd
Amy's Kitchen UK
17 Sep 14 03:17:31
@kbearsmall Yes, they are our own homemade - gluten free rice noodles. Do let us know your feedback once you have tried it :)
Hanna & Ni
17 Sep 14 03:17:19
RT @Gorgxous_: Asians just can't live without rice. After all the noodles, and western food, we sure do crave for rice after that.
♥Daddys Little Girl♥
17 Sep 14 03:17:18
Shrimp rama noodles for lunch hehe #seafood #vines
♡Geneee♡
17 Sep 14 03:17:15
RT @XN_39: smexy noodles with genez 😊 @geneeexx_ http://t.co/dtf7QNZDDI
Noodles Soup Pasta
17 Sep 14 03:17:06
Lets go to Popipop Noodles Soup, enjoy maximum deliciousness :9
Morgan Cabrera
17 Sep 14 03:16:55
RT @jonnysun: *jesus givs u bread* this is my body *jesus givs u wine* this is my blood *jesus puts ur hand in soggy noodles* and these r m…
Tyler Bauer
17 Sep 14 03:16:49
RT @jonnysun: *jesus givs u bread* this is my body *jesus givs u wine* this is my blood *jesus puts ur hand in soggy noodles* and these r m…
FrancoisFranceschini
17 Sep 14 03:16:39
RT @ChinaRealTime: Xi Jinping implores Chinese tourists to stop eating so many instant noodles while overseas http://t.co/oXQCyf72Ms
IAINTNOTx71
17 Sep 14 03:16:28
Beef noodles is love .....❤️
JUSTxAxTEASE
17 Sep 14 03:16:27
Little Weebs enjoying some noodles http://t.co/PJrhNM7Lo6
steven cheong
17 Sep 14 03:16:26
RT @stompsingapore: Mum works multiple jobs, eats only instant noodles to give son best chance at success http://t.co/TKhqtorrow
ARIKE MARTINS
17 Sep 14 03:16:13
RT @cuteface00: Noodles nii"@Horlarhwumii: Noods or nudes?"@drizzyjekky:Only if u 2 can let me have some Noods@LilBetsyMusa: @Mz_VSwags: Lo…
TAYA™
17 Sep 14 03:15:55
Nakakatuwa naman. Binuhos ko lahat sa cup noodles yung tubig yun pala maligamgam na. Yun crunchy spicy seafood ang labas. Nomnom. 😂🍜
Ika Suria Yulinda
17 Sep 14 03:15:41
Hahahaha (with @InaNihaya and @retnoasri at Top Noodles Express) — https://t.co/ESf4I6NLUB
北雷绩
17 Sep 14 03:15:36
@HeeZZinPang sige mang inggit ka pa ng noodles 😢😭
RIP KATA & RIPMARCUS
17 Sep 14 03:15:17
Up eat some noodles 🍴🍝
Next Lap
17 Sep 14 03:15:14
Nature and Noodles in Penang- http://t.co/oQtGXond1i You'll fall in love with this place! #Travel #Penang #ttot http://t.co/LWMePJSlAd
♥Better Pikin♥
17 Sep 14 03:15:06
RT @cuteface00: Noodles nii"@Horlarhwumii: Noods or nudes?"@drizzyjekky:Only if u 2 can let me have some Noods@LilBetsyMusa: @Mz_VSwags: Lo…
Beige Flounder ツ
17 Sep 14 03:15:00
eating hongkong style noodles
Afke.
17 Sep 14 03:14:52
mn noodles is iets te pittig..
Sofia Tolentino
17 Sep 14 03:14:18
half of my body consists of coffee, instant noodles, and hate for you.
Average Life Goals
17 Sep 14 03:14:11
Wheel of Fortune just ended. Now i'm boiling some water, about to make some noodles. #EveryDayIsABlessing
The NewZ
17 Sep 14 03:14:09
Phantom Gourmet: Noodles & Company #Boston http://t.co/fnTeeS2HNP
juke main loser
17 Sep 14 03:14:05
RT @cobainudes: les noodles et sushi ça fait un bail
Water empress
17 Sep 14 03:13:50
RT @cuteface00: Noodles nii"@Horlarhwumii: Noods or nudes?"@drizzyjekky:Only if u 2 can let me have some Noods@LilBetsyMusa: @Mz_VSwags: Lo…
queen of rats
17 Sep 14 03:13:35
@officialcazlet @robbeka haha I'm like ooh stir fry. Jar of sauce, frozen veg, noodles and tofu.
se hau
17 Sep 14 03:13:16
RT @ChinaRealTime: Xi Jinping implores Chinese tourists to stop eating so many instant noodles while overseas http://t.co/oXQCyf72Ms
ѕнαиαяєα➰➰
17 Sep 14 03:12:56
RT @NudeGameHeavy: Somebody jazzed the fuck outta these ramen noodles. http://t.co/Ma8U2rQKFQ
Marcos Martínez
17 Sep 14 03:12:55
@crisarguile son noodles de arroz con calamares y unas especias que no reconozco...rico!
diabpartner.de
17 Sep 14 03:12:06
Rezept-Empfehlung: Vitanu-Noodles mit Beefsteak, http://t.co/jRwrWCf4CS
Borgo dei Sapori
17 Sep 14 03:11:54
Elke Vogelsang è una fotografa professionista, ma è anche la padrona di Noodles, Scout e Loli, che si lasciano... http://t.co/WlvyOILE02
41N5
17 Sep 14 03:11:41
@imogen_norwood is it bad I'm excited to live off of super noodles, beans, bread and soup?!😂
V
17 Sep 14 03:11:41
Noodles nii"@Horlarhwumii: Noods or nudes?"@drizzyjekky:Only if u 2 can let me have some Noods@LilBetsyMusa: @Mz_VSwags: Love at first sight
tonY
17 Sep 14 03:11:31
My student loan finally decides to come in, i can eat summit other than noodles now
Roonil Wazlib
17 Sep 14 03:11:30
RT @averagelifegoal: Wheel of Fortune just ended. Now i'm boiling some water, about to make some noodles. #EveryDayIsABlessing
				
				
By  +Follow June 27, 2013 11:53AM
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