Noodles & Co (NDLS) 2013 Q2 法說會逐字稿

Welcome to today's Noodles & Company second quarter 2013 earnings conference call. All participants are now in a listen-only mode. After the presenters' remarks, there will be a question-and-answer session. As a reminder, this call is being recorded. On the call today is Kevin Reddy, Chairman and Chief Executive Officer; Keith Kinsey, President and Chief Operating Officer; and Dave Boennighausen, Chief Financial Officer. And now I'd like to turn the call over to Mr. Dave Boennighausen. Please go ahead, sir.

Thank you, Jamie. Good afternoon to everyone, and welcome to our second quarter 2013 earnings call. Let me start by going over a few regulatory matters.

I'd like to note that during our opening remarks and responses to your questions, we may make forward-looking statements regarding future events or the future financial performance of the Company. Any such items, including targeted results for 2013 and details related to our future performance, should be considered forward-looking statements within the meaning of the Private Litigation Securities Reform Act of 1995. Such statements are only projections, and actual events or results could differ materially from those projections due to a number of risks and uncertainties. I refer you to the documents the Company files with the Securities and Exchange Commission, specifically the Company's final prospectus for its initial public offering which was filed June 28, 2013. This document contains and identifies important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

Now I'd like to turn it over to Kevin.

Thanks, Dave. Hello, everyone. Since this is our first earnings call as a new public company, I thought I would take the opportunity to briefly introduce you to Noodles & Company, and then we'll provide some commentary on our performance, current initiatives and strategy. For those of you who are not as familiar with Noodles, at the end of quarter 2, we operated 348 restaurants around the United States that offer a globally inspired menu including a wide variety of high-quality cooked-to-order dishes, including noodles, pasta, soups, salads and sandwiches which are served on china by our friendly team members. While we believe our wide variety is one of our strong attributes, we also offer our customers great value with a per-person spend of approximately $8 without any tipping. Our globally inspired flavors and differentiated dining experience have resonated with our guests and have resulted in a long track record of strong growth through a combination of new restaurant openings and comparable restaurant sales increases, while maintaining stable gross margins despite minimum price increases, all of which are allowing us to stay true to our principle of quality food at a price we believe is attractive to our guests.

Now let me turn to our financial results. We're very pleased with the results from the second quarter. Our teams continue to create a dining experience we are proud of in our restaurants, resulting in our 15th consecutive quarter and 29 out of 30 quarters of positive comparable restaurant sales growth. As we look at our second quarter results for sales, total revenue increased 18% on the strength of new restaurant openings as well as an increase in company-owned comparable restaurant sales of 4.7%. We reported net income of $68,000 for the quarter; however, when adjusted to reflect expenses and changes to our cost structure associated with our IPO, quarterly adjusted net income was $4 million, an increase of 36% over last year. And this increase in our adjusted net income was the result of benefits throughout the P&L from increased revenue, and contribution to leverage achieved on our fixed costs, and Dave will discuss our financial results a little more at length on this call.

Now, as many of you know, earlier this year, we introduced new Your World Kitchen positioning and made corresponding enhancements in our merchandising and internal signage to reflect that positioning. This simple statement of Your World Kitchen reinforces our commitment to really good food, served by genuine nice people, in a friendly, welcoming environment. And we believe that Noodles & Company offers a completely unique dining experience in a fast casual space, as we are the only national chain that brings together cuisines from throughout the globe to provide a world of flavors under one roof. Our new internal signage and merchandising includes an easier to understand, visually exciting menu board as well as vehicles to communicate our positioning of Your World Kitchen. It was implemented in all of our company restaurants by the end of the first quarter and in our full franchise system during the second quarter.

Again, we are very pleased with the results from this merchandising, as both our guests and team members continue to comment on how enticing the dishes on our menu board look, how much easier it is to understand our menu, and how hungry it makes people feel. We believe that our performance in the second quarter is partially a reflection of that connection. Perhaps more importantly, it effectively broadens the appeal of the brand in our new markets while reinforcing our menu's ability to satisfy multiple meal occasions and choices in mature markets. We believe these are benefits that will have a long lasting impact on the brand and assist in building AUVs. One of the core tenets of Noodles & Company is our commitment to using fresh, high-quality ingredients which we built upon in the second quarter through a limited time offering lineup centered around fresh asparagus. This LTO included a green pesto sauté, a springtime flat bread and a wonderfully presented asparagus side with bacon and feta.

As asparagus season has ended, this commitment to fresh ingredients is now represented in our restaurants through a transition of our garden pesto sauté dish to fresh corn. That's in season now, and we bring in fresh corn multiple times a week, and our teams shuck it each morning in the restaurants. Another aspect of the garden pesto sauté which we feel great about is the dish incorporates a gluten-free fusilli noodle that can be substituted into any entree. It is a platform which we feel will resonate with the rapidly growing population that identifies themselves as gluten intolerant and a large population that simply wants to reduce the amount of gluten in their diet. Our gluten-free option is just another example of the brand's ability to put choice in our guests' hands. We continually see our guests' appreciation and interest level surrounding new menu news, whether it is the naturally raised pork that was introduced last fall or the asparagus LTO in the second quarter.

This coming fall, we'll be introducing an LTO that I'm particularly excited about. It is one of the most requested dishes we've had over the years, and it is featuring an Alfredo sauce. In October, we're going to introduce a Parmesan Alfredo entree featuring a Montamore cheese that is really outstanding, and it tastes great and has a wonderful story with it. In addition to the Parmesan Alfredo, we're going to include a flat bread offering and a unique kind of twist on the Asian side of the menu. This LTO is going to be a great representation of one of the key tenets of the brand, and that is Noodles & Company's menu is built on a collection of timeless dishes from around the world, whether it is spicy to savory or light to healthy, we've got favorites for both kids to adults.

While we continue to innovate on the culinary side to give our guests greater opportunity in dining choices, we've also implemented systems to make it easier for them to use and interact with us and order from us. During the second quarter, we completed the launch of a revamped electric ordering platform. It's easy to use, it's intuitive, and it includes a variety of ordering vehicles from ordering online, mobile, the iPhone, Droid, as well as Facebook applications. One of the unique capabilities of this platform is its ability to help throughout our ordering, offering more flexibility to balance the orders throughout our revenue period to enhance our throughput and cater to our guests' busy schedules. With our success in the second quarter is continued evidence of our potential to develop a category of one in the eating and drinking out space. We are committed to increasing shareholder value through consistent, reliable growth, while positioning the brand for the long term relevancy of our guests. And now I want to turn it over to Keith to discuss some of the operations initiatives and new restaurant development.

Thank you, Kevin. As Kevin mentioned, the team in the field did an excellent job bringing Your World Kitchen to life within the restaurants in the second quarter. And just as we continue to raise the ball on the culinary offerings, we are committed to advancing the dining experience through our outstanding people and operations as well. The team is in various stages of several operational initiatives, including improving the design and flow of our kitchen in order to enhance throughput, as well as our leverage in our strength in the dinner day part. While lunch and dinner are currently at about 50% of our sales each, we feel we are uniquely positioned to excel at dinner.

Aside from the great variety of our menu offerings, a world of flavors under one roof, we also offer an enhanced service model compared to many of our competitors, preparing each dish to order and delivering them to their table on real china. All of this, as Kevin said, without the need to tip. During the third quarter, we anticipate expanding the tests we currently have in several of our restaurants to further enhance our service levels in the dinner day part. On the throughput side, the operations team continues to work on optimizing our labor deployment in our restaurants. We find that we continue to have opportunities to ensure that the proper number of registers are being utilized, an important part of executing throughput at a high level, particularly during that busy lunch rush. Currently we are testing various deployment scenarios to maximize throughput while maintaining our standards for high-quality made-to-order foods and dishes.

Turning to development, we are very pleased with the team's progress in maintaining the solid pipeline for the future, while balancing out our restaurant openings more evenly throughout the year. During the second quarter, we opened 11 additional new company restaurants and two franchise locations. Net of one unit which we closed in January at lease end due to that center redevelopment, and also our desire for future relocation, as of July 2, 2013, we have opened 19 company restaurants and two franchise locations, which has put us in a well position to achieve our development plan for 2013. As you may recall from our S1, the final one we filed, net of one closure, we had anticipated opening between 38 and 42 company restaurants in 2013. We now anticipate that we will complete the year at the high end of that range between 40 and 42 new company restaurants, which represents a unit growth of 14% to 15% over last year. While we have a pretty nice balance in the remaining 21 to 23 openings between quarter 3 and quarter 4, we do anticipate several openings in the last couple weeks of the quarter, of quarter 3, implying an increased pre-opening expense without realizing much of the revenue benefit until quarter 4.

While we continue to anticipate six to eight new franchise locations as well for the full year 2013, we are particularly excited that we have recently opened franchise restaurants in both New Jersey and Long Island. And in the next six to nine months, we anticipate opening company restaurants in the markets of San Francisco, Houston and Orlando. Orlando will be our first entry into the Florida market. Both on the operations and development foundations, we are in a place to continue our targeted growth into 2014 and beyond, and build shareholder value. With that, I will now turn the call over to Dave.

Thank you, Keith. As Ken and Keith mentioned, we are pleased about our second quarter of financial results. Our restaurants continue to create dining experience we are proud of while increasing shareholder value by driving profitability. Overall revenue growth increased 18.2% in the quarter to $89.2 million, and year-to-date sales are $170.5 million, a 17.3% increase over the same time frame in 2012. Our comparable restaurant sales were up 4.4% system wide in the second quarter, with company owned restaurants up 4.7% and franchise restaurants up 2.3%, respectively. Average sales in our company owned have now increased to $1.184 million on a trailing 12-month basis. Our company-owned quarterly comp was driven by an increase in traffic of 2.4%, and an increase of per person spend of 2.3%. The quarterly traffic comp did include the benefit of approximately 80 basis points due to one additional operating day this quarter compared to the second quarter of 2012.

Turning to the increase in per person spend of 2.3%, roughly three quarters of that increase was due to an increase in menu prices that rolled out last July along with the internal signage and menu redesign that Kevin discussed, with the balance of the increase coming from the success and increased attachment associated with our limited time offering. Of note, we rolled over a modest price increase in the beginning of the third quarter and are currently running price of roughly 1%. We do not anticipate any further menu price increases in the third quarter; however, we do anticipate a modest incremental price increase in the fourth quarter. Restaurant level margin for the quarter was 21.3%, an increase of 40 basis points from last year. This increase was primarily the result of lower food costs. Our food costs in the second quarter of 26.1% was 60 basis points lower than the second quarter of 2012, as a result of modest food inflation offset by the aforementioned price increase in the asparagus LTO. Relative to quarter 2 results, we do there to be slightly more food inflation during the balance of the year, and we will also lose the benefit of the asparagus LTO, which we feel helped our second quarter food costs by approximately 10 basis points.

Labor percentage increased to 29.8% in the second quarter of 2013 from 29.7% in the second quarter of 2012. This was the result of wage inflation and the impact of new restaurants offset by sales leverage. Our newer restaurants typically open with low double-digit contribution margins before ramping up, with the majority of the investment on the P&L side occurring in labor. We expect the balance of the year's labor percentage to be similar to that of quarter 2, as the maturing of our non-comp base restaurants are offset by seasonally lower sales. Both operating costs and occupancy costs for the quarter were roughly flat with the prior year as leverage on comparable base restaurant sales offset inflation as well as dilutive impact of the increased number of new restaurants. For the balance of the year, we expect both operating costs and occupancy costs to increase modestly as a percentage of revenue compared with quarter 2 due to seasonally lower sales.

General and administrative costs increased to 14.2% in Q2 of 2013 from 8.2% of revenue in Q2 of 2012. However, this increase was primarily due to $5.7 million in IPO-related expenses, including $3.2 million of stock-based compensation related to accelerated or immediate vesting of outstanding stock options as well as $2.5 million in transaction bonuses or payments to management and our equity sponsors. Excluding these expenses, G&A costs decreased 40 basis points to 7.8% from the prior year. We anticipate similar G&A expense as a percentage of revenue for the balance of the year. For the full year 2013, as ell as the balance of the year, we expect an average tax rate of between 38% and 40%. Due to the accounting treatment of certain transaction costs as discrete items that are deductible from net income, combined with our lower net income base in the second quarter, our effective tax rate for the first two quarters was 31.2%.

Finally, as Kevin mentioned, our adjusted net income for the second quarter was $4 million or $0.13 per diluted share. Adjusted net income reflects the impact of debt repayment, other IPO and public company-related expenses and other special items. For a reconciliation of our reported to adjusted net income, please refer to the reconciliation table included in our Q2 earnings release. As a result of our initial public offering, we were able to raise approximately $100 million in net proceeds after underwriter discounts and commissions and estimated offering expenses. This allowed us to repay all but $200,000 of our outstanding debt as of July 2, 2013. And as of the same date, the Company had $600,000 on hand in cash and cash equivalents.

Our surviving credit facility has maturity in summer of 2017 and total availability of nearly $45 million. Due to the amortization of debt fees, modest debt ongoing, and commitment fees, we anticipate interest expense of roughly $200,000 per quarter for the balance of the year. The strength of our operations, combined with the health of our capital structure has us well positioned to continue our strategy of building high-performing restaurants and investing in initiatives that will drive guest loyalty and shareholder value in the years to come. It also gives us confidence in our ability to meet the guidance that was discussed in our earnings release.

For the full year of 2013, we currently anticipate adjusted diluted net income per share between $0.39 and $0.41. This reflects an increase of between 26% and 32% over 2012. Our guidance is based in part on the following assumptions for fiscal year 2013. As Keith mentioned, 40 to 42 new company owned restaurant openings net of one closure in the first quarter of 2013, six to eight new franchise restaurant openings, comparable restaurant sales growth for the year of approximately 3%, an effective full year tax rate of approximately 39.2%, capital expenditures of between $44 million and $48 million, and annual weighted average diluted adjusted shares outstanding of 30.3 million to 30.7 million. I'd now like to hand it back to Kevin for some closing remarks.

Thanks, Dave. Again, we really appreciate your willingness to join in on the call and your interest in the Company. And for those of you that we are fortunate enough to serve in our restaurants each week, we really appreciate your patronage and support as a guest. I'm going to close our prepared remarks by saying that I remain confident and determined in our belief and expectations over the long term. Noodles & Company's continued track record of quality growth in comparable restaurant sales and margins, combined with the unique sustainable runway of new unit growth, remains one of the best opportunities in the restaurant space. Our management team remains focused and disciplined on the deployment of initiatives to increase top line sales and improve margins, while supporting our passionate team members in bringing the Noodles & Company dining experience to life for each and every guest. And with that, I now want to turn it over to any questions you may have. So if the operator would please open the lines, thank you.

(Operator Instructions)

The first question comes John Glass from Morgan Stanley.

Hi, good afternoon, everyone. Relating to just your comp guidance as you think about the back half of the year, 3% for the full year seems conservative given where you are year-to-date, particularly the comp in the second quarter. So can you -- any texture around that in terms of being conservative? I know you have a little less pricing in the back half. Has July been more challenging as it has been for other restaurants? Any way we can frame why 3% is -- how you view 3% in terms of the context of the first half?

Sure, John, this is Dave. I'll start out and give Kevin some thoughts on the Company's performance, but I'll start with the macro perspective. One way we evaluate our comp performance is through Black Box, which we feel is pretty representative of what the industry is doing as a whole. We've maintained our differential with the industry over the past couple months when we look at black box, we've actually increased that gap a bit. That said, when we look at those results as well as our own, there does seem to be consumer headwinds and a little bit of a general slowdown in the industry, particularly in the first part of this quarter.

Yes, John, this is Kevin. I would echo that. As I look at quarter 3 and similar to other concepts, we did see a slight deceleration in comparable restaurant sales trends early in July. We think that's partially due to just the subtle shift of July 4 from a Wednesday to a Thursday, which changed a little bit of those weekend holiday patterns. But the other thing for us, is there was a lot of extreme heat in the upper Midwest and Mid-Atlantic, and we have a lot of percentage of restaurants that are located there. Since then, our comp trends have accelerated again, and they're approaching some normalized rates in Q2. And while we maintain the guidance that outlined in our earnings release, which is approximately 3% for the second half of the year, we do think that's influenced by modest price increase. The fall LTO really not starting until the end of the quarter, and some of the initiatives taking root, just the timing of that, we expect that we'll have an increased momentum, actually, in Q4 from Q3, but we think the prudent guidance is to stay with the 3%.

That is very helpful. And then just one other question. Can you talk about the year two experience in restaurants that have had the Your World Kitchen menu boards and positioning in [polenta]? I think you're lapping that now if I'm not mistaken. Is there enough data to talk about how those stores do in year two?

Sure, John, this is Dave. So we actually began testing of the Your World Kitchen merchandising, for those of you not familiar, in June of last year, in the Raleigh market. It is still pretty early, but we're very pleased with what the recent performance is of that market. It is only a handful of restaurants, so it is a little bit early. We don't start overlapping some of the larger markets going into Your World Kitchen merchandising until December, really.

Got you. Thank you very much.

John, I'll just add something on the consumer side of that. What I have found encouraging in both the research from our team and from the guests, is that how they think about the brand has really been different. They really get the broader appeal. They think about different use occasions. So the flavor profiles, the fact that we have this limited but focused line of soups, salads and sandwiches is a much greater awareness of that. So what I think is compelling, and which will take time to change habits -- and we're all kind of creatures of habit, we go in and order our favorites. What I'm really encouraged by is that I believe it will continue to increase trial and experimentation, which builds upon our strength of a world of flavors under one roof.

That's great. Thank you.

The next question comes from David Tarantino from Robert W. Baird.

Hi, good afternoon. My question is really about the new store productivity, and just wondering if you can comment on the productivity you're seeing on some of the recent openings and what the contribution in the second quarter looked like relative to your expectations.

Hey, Dave, this is Keith. And what we're seeing is, it is pretty consistent with what we talked about during the road show relative to the newer markets, are a little bit less as far as some of the new openings, but in that range of the 85% and we're seeing that consistently. I think the difference that you might see is what that mix might be of new openings in new markets versus existing markets, where you'll bring that balance up to that 90% that we talked about during the road show, but we're seeing that pretty consistently so far in Q2.

Yes, we've had a few openings -- Dave again -- that we're particularly excited about. We did have one that set a new record with over $10,000 per day from one of our franchise markets and a couple of others that came really close to it. Especially the most recent openings, it is really looking solid.

As Keith mentioned, it really becomes kind of a mix issue a little bit, because what we mentioned and guided to, the newer markets, and as you begin to fill in some of the mature markets, yes, that 85% instead of 90%. But the returns are there and the new markets have a little more volatility, but it is encouraging because we've had some really exciting strong openings, and then we've had the typical pattern with some other new markets. So I think it's about the same.

Great. And then perhaps could you just maybe give an update on the pipeline for the openings as you look further out into 2014? I assume you're already working on real estate. How is it looking at this stage?

Yes, David, this is Keith, again. We just had a meeting about that two hours ago, Kevin, myself and the development team. We feel pretty good about what we're doing in 2014. I think if you would talk to any real estate people, the market is tightening up some, but we're far enough ahead of that curve for '14 that we feel pretty good about the numbers. Again, that we talked about during the road show. And our ability to come to spread that across not only the geographies, but also we feel good about where they'll balance themselves out as far as during the calendar year of 2014.

Great. Thank you very much.

You're welcome.

The next question comes from Michael Lasser from UBS.

Good afternoon, thanks a lot for taking my question, and congrats on becoming a publicly traded company. Couple of questions -- first, some of the choppiness in July, presumably that was more traffic-related and less so on the ticket side?

Hi, Michael, this is Dave. Yes, from the traffic side, actually we were relatively consistent, a little bit less volatility there. As we said, we did overlap some price, so we're now currently only running about 1%. We were running 1.6%, or 1.8%, somewhere in that neighborhood. As Kevin mentioned, a lot of it was really those first few weeks, and we've seen some acceleration back to the same normalized traffic patterns you saw in Q2.

Okay. My second question is on some of your learnings from the limited time offers, what are you learning about the consumers' willingness to accept menu enhancements, and maybe menu extensions from you, and how are you going to apply those lessons moving forward?

I think what we're finding is that the platform and flexibility that we have, particularly versus other fast casual restaurants, is a pretty compelling offering for us, because we introduce our limited time offerings generally with an entree. Our flat bread format has turned out to be really compelling, it is a nice shareable dish, flat bread is trendy and hot right now. So we're able to take a seasonal or enticing ingredient that is compelling and people want to try, and place it into different product formats. And so what we're learning is that, something we always knew, is that diets, preferences, what people are hungry for at different times of the day, sometimes they're preferred in an appetizer or an entree, and that our flexibility with our menu to meet those different needs is compelling, and we're getting trial not always on the same item, but through a variety of ways, and it is encouraging. We're getting great feedback around quality and freshness, because we can offer it and provide it in a variety of different formats.

I think the other piece is -- this is Keith. Kevin is spot-on with all those pieces, and what culminates it for us is a competitive advantage, is our ability that we really cook in our restaurants. And that flexibility with those elements and our ability to produce and develop these items that are fresh and we can make to order, I think really is one of the competitive advantages that we can really take advantage of and do take advantage of with these LTOs.

My last question is, you discussed briefly the test of the service enhancement on the dinner day part, can you just provide a little more detail on that? Thank you very much.

This is Kevin, and I'll let Keith jump in. I really like it. I'm pleased with what we're seeing, because it puts an operational focus on dinner, and I believe that's an opportunity for us, particularly positioned against other fast casuals and taking market share from casual dining. The nuances of it really being people-driven, helping folks discern how to interact, communicate, have purposeful interaction, we have been patient and slow with. Maybe a little too slow -- I'll admit that. We have that internal debate. You could tell I'm losing that debate a little bit. But I have a lot of confidence in it. I'm pleased with what we're seeing. I think it is critical to our long-term positioning and long-term growth, and you're going to see us probably step up that pace from an incredibly slow rollout to a little more disciplined expansion of that.

Yes, everything Kevin said, I'd echo everything that he just stated.

Okay. Best of luck.

The next question comes from Joseph Buckley from Bank of America.

Thank you. Hey, just to follow up on that question, what are you doing differently at dinner in terms of service enhancement?

Joe, this is Keith. What we're doing is really having a focus on -- if you think about the guests and that dinner experience and you think about the willingness to take a little bit longer at that day part, you're kind of entertaining your family or that person you're meeting or that date night kind of before the movie. What we're doing is really teaching our team to take advantage of that second glass of wine, or talking about that appetizer, or talking about some desserts, enhanced desserts that we're rolling out along with this new service enhancement project that we're doing, and really teaching our team.

Our team, as Kevin talked about, are friendly people. And what we're doing is just elevating that a little bit more to talk about some of the other options at that dinner day part that they can take part of, like that second glass of wine, or that beer, or that appetizer, or that dessert, and teaching the team that as they're going through, and as Kevin said, with a purpose, to talk to that guest and follow up. And when you're taking that bowl away -- hey, would you like a cup of coffee tonight or would you like a little bit of dessert, or would you like a second beer before you go tonight? And really teaching that part of service kind of interaction, and that's what makes it different.

This is Kevin. The consumer needs and behaviors are different at different day parts. And we I think have to continue to challenge ourselves on how we position the brand from a day part segmentation standpoint. We are -- our DNA is built to do this. We should be able to do it better than most, and this is an area where the guests will choose and opt in to some of the new offerings, stay a little longer, and spend more money. And where we have put this in restaurants, we have seen that come to life.

And the beauty of that, to Kevin's point, is that they do it at their own discretion. It is something they opt into and have choice and feel good about.

(Operator Instructions)

The next question comes from Nicole Miller from Piper Jaffray.

Thanks, good afternoon. Could you talk a little bit about how catering may have added to the comp and how you're growing that right now and how that might evolve? And specifically what kind of investments you might have to make in assets and people?

Hey, Nicole, this is Keith. Right now it is only a small part of what we do, and right now we do it through your program called the Square Bowl, which really is an opportunity for us to feed anywhere from four to six people to up to about 50, on that high end. What really the investment for us is going to be, Nicole, is really on getting the right packaging so we can make sure that our food will carry the way it does in the square bowl. So a lot of it is entered around that piece.

Our marketing team, Dan and the team are putting some good materials together so we can talk about it, get the guests to understand it, really understand how great of a catering program we can have and how well several of our dishes carry, and fulfill that need around catering. So a lot of it is around that piece of just getting those elements out there and having our teams talk about it. Where that goes from a standpoint of having specific people go out and build a catering business, that's -- we're not that far yet, but I think just internally at the restaurant level and talking to go our guests and identifying those opportunities, I think we have some upside there, once we get the package in and the marketing materials to go with it.

On the franchise side, can you talk a little bit about the franchisees you have right now, how long they have been with you, and then if you signed up any new franchisees and any contractual growth obligations they may have?

Nicole, this is Keith. I think the beauty of where we are at now, following us, we have a lot of kind of the spread between longer-term franchisees that were kind of here probably six or seven years ago, and the team and what they've done and helped build a brand. And then we've got a group that's just come on probably in the last anywhere from 12 to 6 months, and as I'll call them, the legacy franchisees have done very well. They've built their volumes, built their restaurants, continued to build out their ADAs. The second group that's just starting to get on board, the Long Island opening was the Doherty group. That was one of the newer ones

We just had one open in New Jersey. We had one open in west Hartford. We have a couple down going to open in the Boston market, and also in the Philadelphia market. Those are the newer groups that are coming on board that you'll start to see them build into the restaurant growth on the franchise side. And those numbers are pretty substantial if you look at them collectively on what their ADAs are, area development agreements are, and how many restaurants they will be building into the future. What I don't think it is going to change is, we've always talked about and talked about on the road show, we're still going to be significantly company operated restaurants even with that growth that they're going to have on their side. As far as new franchisees entering into the system, we don't have any right now.

Nicole, we do have folks in the pipeline that JB is talking to, but nothing that we want to announce as new entities. As Keith said, there is a material -- the ones that we've recently signed and in particular that have opened restaurants, these are large organizations with a lot of experience in the restaurant space that have a sizeable commitment in their ADA.

Yes.

And I think that there is -- there is a possibility that that could potentially be upside for us.

Thank you for the color. I appreciate it.

You're welcome.

The next question comes from Andy Barish from Jefferies.

Hey, guys, I was wondering if you can give us a little color on the better than expected comp, maybe if there was a demonstrable difference between lunch or dinner, or the asparagus really pulled through more than you expected, and just continuing on the vein of questions on the LTOs. The fall LTO, I think that's a new one or it sounds like, the Parmesan Alfredo. How did that test relative to something you had before like asparagus and then brought back?

This is Dave. I'll start off talking about Q2 and turn it over to Kevin to talk about the fall LTO. Asparagus definitely was a benefit, but I think what is particularly powerful about that platform is its ability to expand the attachment rates. When we look at the flat bread, we look at the gluten-free noodles, those are items that are -- while they were part of a limited time offering, it is really a platform that we can kind of carry on forward. So that is much more of a long-term benefit than the LTO on its own. Overall it was just a very consistent quarter from kind of week-to-week and then even by day part by market. There wasn't a ton of volatility that we saw, a little bit of slowdown into the tail end of June and early July that we talked about earlier, but overall pretty consistent.

On the Alfredo dish, the majority of our testing was internal, a lot with our team and through culinary taste panels here at the office. We didn't put it in restaurants, and primarily because it far and away month in and month out for years is our most requested dish. It is a dish that our guests want us to have and kind of expect us to have. So we have an extremely high degree of confidence that it's going to be widely accepted and ordered and create some trade-up. And I think that as we typically try to do in culinary is to try to create our own unique spin on an ordinary dish to make it a little nicer and a little better than everybody else's.

You had mentioned the Montamore cheese that we're going to use on it. It really is a sweet, creamy, and slightly fruity cheese that gives it a unique wonderful flavor, and the taste is phenomenal. And for those that kind of like Italy and just the romance they put around everything, it is actually named after the Dolomite mountains from this little town of Sartori in Italy where it's from, which in the whole town, the rumor of the whole mountain is about romance and falling in love with Italy. Maybe they're talking about the romance and falling in love with our Alfredo dish. But really it is spectacular.

Thanks, guys.

The next question comes from Nick Setyan from Wedbush Securities.

Hi, this is Colin Radke in for Nick. In terms of company and franchise mix, how do you think about development going forward? Are there markets you see as more favorable in terms of franchising, your thought process as far as company and franchise development goes? Any commentary around that would be great.

What we shared during the road show is still our belief today, and that is that our -- we believe that we'll be predominantly a company operated market that we believe franchising and having the strong, passionate, provocative franchisees to help grow the brand is important. We have this barbell strategy with them, and that is potentially some smaller markets that are more remote where there is a lot of windshield time between getting to them, are very good for franchise models. Someone who lives in that town and provides that local owner entrepreneur. So in some of those cases where we can't gain economies of scale and they're difficult restaurants to run from human capital, we'll continue to franchise those markets, and I will tell you those small markets are phenomenal, they do extremely well for us.

On the other end of the barbell, some of the larger markets there are opportunities to carve up those cities and a significant number of restaurants to be built there into quadrants and allow more than one ownership entity, and in some of those, we'll share with franchisees and company markets, and we'll create ADAs where there is a good convenience line and we butt up against each other to fill in contiguous trading areas.

Great. Thanks a lot.

At this time, I'm showing no further questions. I would now like to turn the call back over to management for closing remarks.

I kind of closed with the prepared remarks with what I really believe and want to leave you with, and that is our management team, myself included, have a deep confidence and belief in the brand and our ability to continue to build Noodles & Company into an enduring quality brand over time, and we are diligently focused on that and excited in getting up every day and doing that. So, again, we're pleased with our first quarter, getting out of the box, and very pleased with everyone's commitment and time and that you put in on our behalf. So thank you very much.

Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may now disconnect. Have a good day.