In a move to modify its financial structure, Noodles & Company, a fast-casual restaurant chain, has amended its credit agreement, as disclosed in a recent SEC filing. The company, known for its variety of noodle dishes and pasta, entered into a second amendment to its existing credit agreement on Tuesday.
The amendment, which involves U.S. Bank National Association as the Administrative Agent, L/C Issuer, and Swing Line Lender, introduces several key changes. Notably, it raises the maximum applicable interest rate ranges for both SOFR and base rate loans. The rates for SOFR loans have increased from a range of 1.75% - 3.00% to 1.75% - 3.75% per annum, while base rate loans have seen an increase from 0.75% - 2.00% to 0.75% - 2.75% per annum.
Additionally, the amendment imposes new conditions on the use of the general restricted payment basket, which now requires a Consolidated Total Lease Adjusted Leverage Ratio of less than or equal to 4.00 to 1.00 and a Consolidated Fixed Charge Coverage Ratio of greater than or equal to 1.25 to 1.00. The company is also restricted from entering new lease agreements if the Consolidated Total Lease Adjusted Leverage Ratio exceeds 4.50 to 1.00.
Furthermore, the amendment adjusts the Consolidated Total Lease Adjusted Leverage Ratio to not exceed 5.50 to 1.00 for the fiscal quarter ending on October 1, 2024, through September 30, 2025, with a gradual decrease to 4.50 to 1.00 per annum by the fiscal quarter ending March 30, 2027. The Consolidated Fixed Charge Coverage Ratio is also modified to not be less than 1.05 to 1.00 for the same initial fiscal period, eventually increasing to 1.25 to 1.00 for the fiscal quarter ending June 30, 2026, and thereafter.
In other recent news, Noodles & Company has seen steady growth in its second quarter of 2024, with a 2% increase in same-store sales and a 1.8% rise in total revenue, totaling $127.4 million. However, the company has revised its full-year guidance and plans to close 10 to 15 underperforming restaurants by the end of the year, a decision not factored into their original projections. The revised full-year revenue is now expected to range between $495 million and $505 million.
In addition to these developments, the company's Chief Operating Officer, Brad West, has announced his retirement plan, set to take effect on June 30, 2025. West will remain in his current role until a successor is appointed, after which he will serve as Chief of Staff to the CEO until his retirement.
In a bid to drive future growth, Noodles & Company is focusing on digital channels and loyalty programs, alongside introducing new menu items. Cost reduction efforts, including headcount reduction and supply chain savings, are projected to result in savings of over $5 million in 2024. Despite the planned closures, the company is optimistic about its positioning for long-term growth and plans to open 10 new company-owned restaurants and three new franchise restaurants in 2024.
InvestingPro Insights
Noodles & Company's recent credit agreement amendment reflects the company's efforts to manage its financial structure amidst challenging conditions. According to InvestingPro data, the company's market capitalization stands at $54.08 million USD, with a revenue of $500.92 million USD for the last twelve months as of Q2 2024. However, the company's financial health appears to be under pressure.
InvestingPro Tips highlight that Noodles & Company operates with a significant debt burden and is quickly burning through cash. This aligns with the company's need to amend its credit agreement, potentially to secure more favorable terms or additional flexibility. The tip that "short term obligations exceed liquid assets" further underscores the importance of this financial restructuring.
Additionally, the InvestingPro data shows a revenue growth decline of 3.13% over the last twelve months, which may explain the company's need to adjust its financial strategies. The stock's performance has also been concerning, with a 62.54% year-to-date price decline and a 43% drop over the past year.
These insights provide context to the credit agreement amendment, suggesting that Noodles & Company is taking steps to address its financial challenges. For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips for Noodles & Company, providing a deeper understanding of the company's financial position and market performance.
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