Noodles & Co. gets an activist

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Photograph courtesy of Noodles & Co.

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Investment firm Tenzing Global Management revealed on Friday that it has an activist investment in fast-casual chain Noodles & Co.

Tenzing, who is based in San Francisco, owns 5% of shares in Noodles, which have climbed more than 6% in morning trading on the news. Tenzing has been buying shares for six weeks.

In his activist brief, the investor said he could discuss various issues with other shareholders or management. Tenzing said he could discuss ideas that lead to “an extraordinary corporate transaction” or “other board or management changes.”

In other words, Tenzing plans to discuss potentially significant changes at Broomfield, Colorado-based Noodles.

Activist investors typically target companies they see as undervalued and in need of major change. They’ve kept restaurant executives busy lately, as we saw this week when Outback Steakhouse owner Bloomin ‘Brands made a number of changes to the management and board of directors as he is preparing for a battle with his activist Jana Partners.

Activist investors recently targeted Potbelly, Fiesta Restaurant Group, Dave & Buster’s and Red Robin. But just about all publicly traded restaurant companies have been the target of activist investors in recent years, especially small businesses.

Noodles are a potentially interesting target. Shares of the company have skyrocketed so far this year: Shares have risen nearly 60% and 55% ahead of the opening of markets and today’s events. These events also included a buy note from Maxim Group, which said the benefits of “the trendy menu evolution and restructuring activities of Noodles are underestimated”.

Indeed, the company’s stock boom so far this year has brought its valuation into more respectable territory: its enterprise value is 11.5 times earnings before interest, taxes, depreciation and amortization, or EBITDA. , according to financial services website Sentieo.

It’s a relatively rare event for Noodles, who hasn’t traded above $ 10 a share – outside of a few months in 2018 – since 2016.

The noodles have certainly gone through a lot of changes. He is focusing more on serving takeaway customers, for example, after years of focusing on his restaurant experience at a time when trends were moving in the other direction.

He’s also hopped both feet on the low-carb bandwagon, first with zucchini-based “Zoodles” and now with cauliflower-based “Caulifloodles”. (What’s next, the turnip noodles called “Toodles”?)

The company has also closed nearly 80 units since 2016 and reshuffled management after receiving an investment from private equity firm L Catterton.

Noodles’ same-store sales have grown for six straight quarters in the last three months of 2019, having fallen for 11 straight quarters before that, and also haven’t soared in previous quarters. Margins improve in the process.

The company is targeting unit growth again but is keeping its plans relatively modest, with a “disciplined” approach, and plans to reach just over 1,000 locations and unit growth of 5% in 2021. The company currently has 458 units, most of them. operated by the company.

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