Why Noodles & Company shares soared 23% at the open today

What happened

Shares of Noodles & Company (NDLS 16.24%), which operates a chain of noodle-themed restaurants, rose significantly when markets opened on April 28, gaining as much as 23% in the opening minutes of the day. The big news was the company’s first quarter 2022 earnings update, which hit the streets after the April 27 close.

So what

Noodles & Company sales increased 2.7% year over year in the first quarter of 2022, reaching $112.6 million. While not a huge increase, there are some additional interesting facts here. First, revenue was impacted by coronavirus-related store closures in early 2022. This will likely be a temporary setback. Second, the company has franchised 15 company-owned sites. Sales from these restaurants don’t actually affect Noodle & Company’s bottom line, just the fees it collects from franchisees. The upside is that it’s much cheaper for a business to generate revenue from franchise contracts than it is to run actual restaurants. And, more importantly, same-store sales were up 6.4%, suggesting there’s still noticeable demand for the company’s foods.

Image source: Getty Images.

In the end, Noodles & Company lost $0.14 per share. That was better than the $0.17 loss Wall Street had forecast, but worse than the $0.04 loss in the first quarter of 2021. That said, the company is trying to expand its business (it added seven new locations to its number of approximately 450 stores in the quarter), which simply costs money. More troubling, however, was the impact of inflation on the restaurant chain, which squeezed margins by about 3 percentage points. The higher costs are likely to be an ongoing problem. Still, a Wall Street beat is a beat, and investors generally like that kind of news, especially given the underlying strength on the same-store sales front.

Now what

After such a massive gain in one day, it seems investors have priced in a lot of good news very quickly. And yet, long-term growth investors might want to dive deeper into Noodles & Company stock. It could have a very bright future if management can continue to expand the restaurant’s footprint while maintaining same-store sales growth.

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