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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,
maria :c:
22 Oct 14 16:08:55
“@naomiasmatxo: Love how Kevin came all the way to my house because I wanted cup noodles 😭🍜”CUTE ONFG GOALS
jessica
22 Oct 14 16:08:48
I just want a friend to go have noodles with me😔
Sri ♕
22 Oct 14 16:08:45
RT @_pvm__: RT @Trilankaa: parents don't show me no love 😭 I eat noodles and fruit cup for dinner 😩😂😂 lmfaoo
Logan Thomas
22 Oct 14 16:08:44
ramen noodles for dinner because i desperately wish i was a freshman in the dorms help
Zhané
22 Oct 14 16:08:38
i want some noodles .. ill just wait until Will come to make it 💁
Abbey
22 Oct 14 16:08:32
RT @HammerFist3: I don't have a love interest in my life right now but I do have noodles . Lots of noodles
JT
22 Oct 14 16:08:25
This dick is on his 3rd trip to the salad bar. taking all the noodles out of the soup. Now he's bare handing muffins & eating them in line 😡
Baddie Jaz
22 Oct 14 16:08:24
With all the cup o noodles I've been eating lately, you'd never know how much I actually hate them
__saber
22 Oct 14 16:08:23
I'm starting to hate insta noodles this isn't good
Flour On My Face
22 Oct 14 16:08:09
Egg "Noodles" with Yellow Tomato Sauce, So long... http://t.co/Pe6aa6KEPv via @katethyme
Lindz
22 Oct 14 16:08:03
RT @HammerFist3: I don't have a love interest in my life right now but I do have noodles . Lots of noodles
✌✋
22 Oct 14 16:07:57
Eating ramen noodles with hot sauce 👌
Ani  ☯
22 Oct 14 16:07:54
RT @joebrooksmusic: Two words: Ramen Noodles.
Santi
22 Oct 14 16:07:35
Mr. Noodles are fucking delicious
Kerry Marie Marsh❤️
22 Oct 14 16:07:28
What are you currently addicted to? — Chicken noodles lol http://t.co/GGANr19oAk
Pauloma
22 Oct 14 16:07:26
RT @Trilankaa: parents don't show me no love 😭 I eat noodles and fruit cup for dinner 😩😂😂 lmfaoo
Ashleigh
22 Oct 14 16:07:20
parents don't show me no love I eat noodles and fruit cup for dinner
Aryan Ghanadan
22 Oct 14 16:07:20
RT @_munderpants_: If my twitter is noodles how do I cheesecake while I am spinach?
naomibae
22 Oct 14 16:07:18
Love how Kevin came all the way to my house because I wanted cup noodles 😭🍜
JamesEarlJackson
22 Oct 14 16:07:07
RT @PowerOfAhDolla: Nice yams @dancingsosleazy < 👀
Void (®)
22 Oct 14 16:07:05
Ramen noodles 😍😍
Sri ♕
22 Oct 14 16:06:52
parents don't show me no love 😭 I eat noodles and fruit cup for dinner 😩😂😂
oG 50. Cal
22 Oct 14 16:06:37
if you eat anything other than chicken flavored ramen noodles I don't trust you
Kate Burton
22 Oct 14 16:06:35
Garlic Chicken and roasted salmon with whole wheat egg noodles and a spinach salad 😍 #yummyyumyum #fitfam #fitchick http://t.co/KA8MuL1xhv
JamesEarlJackson
22 Oct 14 16:06:30
RT @CBS6: Man charged with DUI after falling asleep at McDonald's drive thru http://t.co/OiwF2m8nKE http://t.co/0KxJI4RfMS < smdh
Jasmine Delvalle
22 Oct 14 16:06:30
Cup noodles and naruto 😊
josh Muniz
22 Oct 14 16:06:13
Make me a millionaire and I'll still eat Raman noodles. #NeverForgetTheStruggle
Madeline.
22 Oct 14 16:06:09
RT @AverageGoal: In the kitchen dancing to Beyoncé with Raman noodles in the microwave. #EverydayIsABlessing
Yaz
22 Oct 14 16:06:08
Where's the cup of noodles 😒
x drughs x
22 Oct 14 16:06:08
RT @TheYoungHipster: WTF 😂 http://t.co/u25gxttc73
Chanell ✨
22 Oct 14 16:06:00
WOOHTER GOT ONE MORE FUCKING TIME TO NOT CALL ME BACK ! OR HE GONE BE EATING OODLES AND NOODLES TONIGHT SMOKING 50 ! 😂😤😒
peyyyy.
22 Oct 14 16:05:58
I make 💣ramen noodles.
Rebecca Jo Schoppet
22 Oct 14 16:05:50
What I had for dinner, last night! _kimberlysnyder's Asparagus Stir fry over Rice Noodles! Recipe… http://t.co/rudS7n4bzS
Ari
22 Oct 14 16:05:49
I just noticed my friends make some good ass cup noodles 😝
JamesEarlJackson
22 Oct 14 16:05:46
RT @VonHodges: Would u smash? “@NOODLES_BLAKKK Oomf ass phat asab but look lik a wild lizard in da face” < on a drink night yea
ѕavannaн
22 Oct 14 16:05:44
RT @shygasm: My legs are they made of noodles or bones? Cause I can't tell.
✖Harry ✖
22 Oct 14 16:05:35
RT @commonbandgirl: iphone 6 is like $900 fuck that that's like 6 years worth of ramen noodles smh wtf
Zhak
22 Oct 14 16:05:18
RT @itsWillyFerrell: He forgot to put the water in his noodles 😂 http://t.co/rJfJiWXGeV
MiaaGirrll✨
22 Oct 14 16:05:16
Noodles get hit , its his fault
le rosey
22 Oct 14 16:05:12
RT @HammerFist3: I don't have a love interest in my life right now but I do have noodles . Lots of noodles
Noodles Reacts
22 Oct 14 16:05:08
RT @ShadesOfAmanda: Apoyo la cuenta de @NoodlesReacts, tiene todo mi apoyo. Ya era hora de una cuenta parodia a semejante persona como ese …
Geri Healey
22 Oct 14 16:04:57
Kawaii noodles perler beads by materiagirl http://t.co/ujz8YkJNsc
Audra Myers ✨❤️
22 Oct 14 16:04:49
RT @AverageGoal: In the kitchen dancing to Beyoncé with Raman noodles in the microwave. #EverydayIsABlessing
⚓ DUCHESS NICOLE
22 Oct 14 16:04:40
Ang anghang nung korean noodles na uwi nila. Gatas please.
Cobe Bryant
22 Oct 14 16:04:35
RT @JohnScinoHS: came from ramen noodles, now it's only steak & shrimp...
Michaela Pomeroy
22 Oct 14 16:04:26
4 packets of ramen noodles and a bag of chips and I am still hungry...
IG - MARSHALLROBERTS
22 Oct 14 16:04:19
@isaacjoslyn took long to reply got noodles popin of ere
Christina Cameron
22 Oct 14 16:04:14
RT @AverageGoal: In the kitchen dancing to Beyoncé with Raman noodles in the microwave. #EverydayIsABlessing
Nicholas Corre
22 Oct 14 16:04:14
@victoriaserra41 don't think I've ever been more proud of anyone! Also jealous as would have loved both noodles and chicken #veggieproblems
A c i r e
22 Oct 14 16:04:13
RT @LiahM_: Craving noodles but I don't have anymore 😦
				
				
By  +Follow June 27, 2013 11:53AM
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