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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.

Results for Noodles, NDLS, fast casual,
Willis Dickfitinya
19 Apr 14 15:08:03
@StylinOnEm_ it gonna be my bday at your house again minus the noodles 😂
J U  D  E
19 Apr 14 15:07:52
RT @Rex_dray: Not Being Able To Cook Is Okay But If U're The Type That Adds Salt To Noodles, U Can't Even Make Heaven.
Danielle Alfaro
19 Apr 14 15:07:45
@noodles_tho omfg where?
Manaxoxo
19 Apr 14 15:07:40
I can Literally sit down in my room with Ramen noodles and Belgium chocolate and Starbucks and I would prob be set for life
Mark
19 Apr 14 15:07:29
@Sol_Noodles @GaryLineker @BBCMOTD I live in a population of English. Not a rat infested shithole like London. Come to the city of culture
Danielle Alfaro
19 Apr 14 15:07:10
@noodles_tho omg I might be going there right now
nigga noodles
19 Apr 14 15:07:10
Who's ready to get wild tonight
James Palmore
19 Apr 14 15:07:10
ramen noodles are life
Jordan #HDC
19 Apr 14 15:06:59
RT @_tazzyblood: Noodles are so good When you haven't ate em inna while !
Campbell.
19 Apr 14 15:06:58
“@gabidannunzio: @air_noodles i hate u” I know right? http://t.co/gmV0nyntoM
Diane Lazaro
19 Apr 14 15:06:45
cup noodles for breakfast haha
Carol Chin
19 Apr 14 15:06:44
Uhm I just got 2 shots and I can't feel my arm anymore is this what noodles feel like
Drace Vestell
19 Apr 14 15:06:42
@waifukou I'm probably just going to cook either ravioli or noodles LOL
beatriz loves niall
19 Apr 14 15:06:35
wait is this a noodles emoji 🍜
Shabazz Napier
19 Apr 14 15:06:32
@reiman_noodles youve never seen me ball
Curry
19 Apr 14 15:06:29
In other news, I was too lazy to boil water separately so I tried using the coffee maker's hot water to boil my cup noodles.
Astianna Likely
19 Apr 14 15:06:20
Bouta make me some noodles
ハンバーグラーメン
19 Apr 14 15:06:16
学校でも遊びでもさっさと行けよ!!!!!!!! 行ってこいよ!!!!!!!!
Jonathan Rogers
19 Apr 14 15:06:12
“@Kyndallllx: "Why does his hair look like Ramen noodles? Like how do you even make it go like that?" http://t.co/1zW7BtqPdj”😂😂😂
✌️
19 Apr 14 15:06:10
I swear Ashley ass can't cook no fucking noodles that is the most easy thing to cook 😂😂😂😂
Jess™
19 Apr 14 15:06:05
Someone just dropped some lasagna noodles and it ruined my day.
Millaaaaaa ✨
19 Apr 14 15:05:42
Salisbury steak , egg noodles & corn !!! I really love that meal
danika
19 Apr 14 15:05:42
RT @crissyswaggyboo: just because you can put water in a cup if cup a noodles does not make you wifey material
BritishBeaniesx
19 Apr 14 15:05:34
RT @Ellie__Spence: Chicken noodles are my life 💕
gabi
19 Apr 14 15:05:29
@air_noodles i hate u
Dayton Potter
19 Apr 14 15:05:27
I just made the best Thai Chicken Noodles of all time. #ChefPotter #ReadyForCollege #RamenNoodlesStillMyShitTho
Oluolo II
19 Apr 14 15:05:18
No. "@Hennnit: As a GIRL if you cook NOODLES and it gets Burnt even by MISTAKE...please forget about MARRIAGE for now"
Gab.
19 Apr 14 15:05:09
@LukeMesko sike 😂
Todd McQueen (Dude™)
19 Apr 14 15:05:08
With a Cup-O-Noodles, a good test of will is being able to wait until you've drank *all* the broth before you start pounding the noodles.
T.Timee
19 Apr 14 15:05:05
Noodles are so good When you haven't ate em inna while !
† p i m p †
19 Apr 14 15:04:51
i really really want some noodles and hot sauce right now . omg . ❤🔥👌🍵🍴
sarahlydia
19 Apr 14 15:04:45
I'm left to babysit the cousins and for lunch they get mr.noodles and dr. Pepper while they play minecraft #winning
D-Rae Davis
19 Apr 14 15:04:43
I'm finna warm up some noodles .
Hannah
19 Apr 14 15:04:39
Spinach noodles and tofu 😋
Melissa
19 Apr 14 15:04:38
Noodles & Company 👌
Kitty ✌
19 Apr 14 15:04:34
RT @Sempiternal182: Ramen noodles & Bands
Gladys Fernandez
19 Apr 14 15:04:23
I need to cut down on the cup of noodles 😁🍜
Shabazz Napier
19 Apr 14 15:04:14
@reiman_noodles I ball like him
Your Name.
19 Apr 14 15:04:12
Left me in the house , wait with no food & I've only ate some noodles today !
Insanely Profane
19 Apr 14 15:04:11
@ianthenoodle oh shit my bad noodles old boy...apparently it was blurry by a puddle of mudd
19 Apr 14 15:04:10
@PointlessBlog #AskPointlessBlog noodles or spaghetti?
Daniela Rodriguez
19 Apr 14 15:04:09
RT @WalkingDead_AMC: Noodles with Nicotero. More on #NormanReedus: http://t.co/NzaJMQUh9a via @wwwbigbaldhead http://t.co/mC1eSJFYWK
Natty
19 Apr 14 15:03:56
RT @Rex_dray: Not Being Able To Cook Is Okay But If U're The Type That Adds Salt To Noodles, U Can't Even Make Heaven.
この英語どうしてこうなったw
19 Apr 14 15:03:55
パイをぶつけた件に関しては申し訳なく思っていますが、焼きそばパン買って来いや。 英文:I'm sorry for throwing a pie to you, but buy a fried noodles roll.
ig: longlivemyles
19 Apr 14 15:03:48
RT @TAlleyOopBox: Always gotta eat a pack of noodles atleast once a month to humble yourself..
Home Life Ideas
19 Apr 14 15:03:45
Everyone like a dish full of comfort every now an then. It won't get better than this TUNA NOODLES PEAS AND CHEESE. http://t.co/Dh1eENOmCk
Aaron Norris
19 Apr 14 15:03:25
RT @gracehelbig: Thinking more & more about my stripper name & am srsly torn between "cold noodles" & "dirt sponge."
The Dreaming
19 Apr 14 15:03:26
@GaryFallon2 @tlightly1 Rice is a foolish, very water intensive. But Noodles, now that's progressive thinking. http://t.co/Tw48CqZwZX
.créme de la créme™
19 Apr 14 15:03:23
RT @TAlleyOopBox: Always gotta eat a pack of noodles atleast once a month to humble yourself..
Gabriel Chavez
19 Apr 14 15:03:15
Legs feel like noodles. #legday #assToGrass
				
				
By  +Follow June 27, 2013 11:53AM
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