Noodles & Company

11/13/2026 | Press release | Distributed by Public on 11/13/2026 08:12

Quarterly Report for Quarter Ending September 29, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Noodles & Company is a Delaware corporation that was organized in 2002. Noodles & Company and its subsidiaries are sometimes referred to as "we," "us," "our" and the "Company" in this report. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for our fiscal year ended December 30, 2025. We operate on a 52- or 53-week fiscal year ending on the Tuesday closest to December 31. Our fiscal quarters each contain 13 operating weeks, with the exception of the fourth quarter of a 53-week fiscal year, which contains 14 operating weeks. Fiscal years 2026 and 2025 contain 52 weeks.
Cautionary Note Regarding Forward-Looking Statements
In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties such as the number of restaurants we intend to open, projected capital expenditures and estimates of our effective tax rates. In some cases, you can identify forward-looking statements by terms such as "may," "might," "will," "objective," "intend," "should," "could," "can," "would," "expect," "believe," "design," "estimate," "predict," "potential," "plan" or the negative of these terms and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on currently available operating, financial and competitive information. Examples of forward-looking statements include all matters that are not historical facts, such as statements regarding expectations with respect to projected capital expenditures and our financial results, condition, liquidity needs and available financing sources. Our actual results may differ materially from those anticipated in these forward-looking statements due to reasons including, but not limited to, uncertainties as to the availability, suitability, structure, terms, and timing of any strategic transaction resulting from the strategic review and whether any such transaction will be completed, the impact of any such strategic transaction on Noodles & Company, and whether the strategic benefits of any such strategic transaction can be achieved; current performance trends and our expectations for future performance; our ability to repay, refinance or obtain new financing on acceptable terms, if at all, and comply with our covenants under the A&R Credit Agreement on or before maturity, the impact on our operations, liquidity and financial condition of the need to obtain such refinancing on a timely basis; our ability to sustain our overall growth, including, our digital sales growth; our ability to effectively optimize our restaurant portfolio including closures; our ability to achieve and maintain increases in comparable restaurant sales and to successfully execute our business strategy, including operational strategies to improve the performance of our restaurant portfolio; the success of our brand strategy and marketing efforts, including our ability to successfully introduce new menu items, including limited time offerings and the success of our promotions; our pricing strategies; economic conditions, including inflation, an economic recession, an elevated interest rate environment, tariffs and trade restrictions and any impact of government shutdowns on overall economic conditions and consumer spending; price and availability of commodities and other supply chain challenges; our ability to adequately staff our restaurants; changes in labor costs; our ability to maintain compliance with requirements for continued listing on the Nasdaq Global Select Market; other conditions beyond our control such as domestic or global conflicts, wars, terrorist activity, weather, natural disasters, disease outbreaks, epidemics or pandemics impacting our customers or food supplies; and consumer reaction to industry related public health issues and health pandemics, including perceptions of food safety and those discussed in "Special Note Regarding Forward-Looking Statements" and "Risk Factors" as filed in our Annual Report on Form 10-K for our fiscal year ended December 30, 2025 and under Item 5. Risk Factors below.
Recent Trends, Risks and Uncertainties
Reverse Stock Split. On February 18, 2026, the amendment to our Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") took effect to implement the Reverse Stock Split of our issued and outstanding shares of Class A common stock, par value $0.01 per share, at a ratio of 1-for-8.
No fractional shares were issued as a result of the Reverse Stock Split and it did not impact the par value of our common stock. Neither the Reverse Stock Split nor the related amendment to the Certificate of Incorporation had any impact on the number of shares of common stock or preferred stock we are authorized to issue under the Certificate of Incorporation or the number of issued and outstanding shares of our preferred stock (of which there are currently none).
All shares of common stock, stock-based compensation awards and per share amounts for the prior periods included in the Consolidated Financial Statements and applicable notes of this 10-Q and elsewhere in this 10-Q have been adjusted retroactively to reflect the effect of the Reverse Stock Split and related amendment to the Certificate of Incorporation.
Strategic Review. On September 3, 2025, we announced that our Board of Directors had initiated a review of strategic alternatives in order to explore ways to maximize stockholder value. The review includes a range of potential strategic alternatives, including a refinancing of existing indebtedness prior to maturity, refranchising or sale of all or part of the business, and/or other strategic or financial transactions. Such review remains in process. The Third Amendment to our A&R Credit Agreement entered into on November 12, 2026 extends the maturity date to November 30, 2027, but provides financial incentives for early repayment.
Revenue. In the third quarter, we saw significant increases in comparable restaurant sales which were offset by a decline in revenue related to permanent company-owned closures and a decline in franchise revenue from franchise restaurant closures over the last twelve months. System-wide comparable restaurant sales increased 9.5% in the third quarter of 2026 compared to the same period of 2025, comprised of a 10.7% increase at company-owned restaurants and a 4.9% increase at franchise-owned restaurants. Our comparable restaurant sales continue to be positively aided by menu innovation including the recent successful permanent menu additions and limited time offerings and the benefit of sales transferring from restaurants that we closed to our nearby restaurants.
Cost of Sales. Our third quarter 2026 cost of sales benefited from an increase in menu prices and reduced food waste related to new menu items, which offset the impact of inflation. We continue to monitor commodity inflation and, throughout periods of volatility, we will continue to work with our suppliers to identify ongoing supply chain efficiencies, including adding additional suppliers as necessary.
We have evaluated and will continue to evaluate the impact of import laws and tariffs, including the potential for any refunds, on our operations as some of our food items are imported from India, Mexico and other countries. As of September 29, 2026, there was no material impact on our business, financial condition, results of operations or cash flows. However, we expect tariffs may impact our operations in certain areas, such as food and beverage costs, construction and equipment costs and other restaurant operating costs, for the remainder of fiscal 2026. We will continue to utilize fixed price contracts for certain key items to mitigate risk.
Labor Costs. Similar to much of the restaurant industry, our base labor costs have risen in recent years. We have been able to partially mitigate the impact of these market factors through a continued focus on maximizing efficiencies of labor hour usage per restaurant and wage inflation has stabilized to less than 3%. As a percentage of restaurant sales, labor costs continue to benefit from sales leverage including the benefit of sales transferring from restaurants that have closed to our nearby restaurants.
Other Restaurant Operating Costs. We have incurred, and expect to continue to incur, increased third-party delivery fees due to significant increased usage of third-party delivery services resulting in a higher mix of third party delivery sales. As a percentage of restaurant sales, other restaurant operating costs continue to benefit from sales leverage including the benefit of sales transferring from restaurants that have closed to our nearby restaurants.
Restaurant Development. We did not open any new company-owned restaurants in the first three quarters of 2026 and do not plan to open any company-owned restaurants in 2026. We had one new franchise-related opening in the third quarter of 2026. As of September 29, 2026, we had 306 company-owned restaurants and 77 franchise restaurants in 31 states.
Impairments and Certain Restaurant Closures. We impaired fixed assets related to 11 restaurants in the first three quarters of 2026 primarily related to closure decisions on underperforming restaurants. In the first three quarters of 2026, we wrote down lease-related assets for 23 restaurants. We permanently closed 34 company-owned restaurants in the first three quarters of 2026 and we anticipate closing an additional two restaurants in 2026. We continue to analyze our restaurant portfolio and expect to close certain restaurants that are either generating low or negative cash flows, approaching the expiration of their leases, in trade areas that are not as well positioned for current consumer trends and/or there is a potential for a significant amount of sales transfer to nearby restaurants given strong off premise sales.
Key Measures We Use to Evaluate Our Performance
To evaluate the performance of our business, we utilize a variety of financial and performance measures. These key measures include revenue, comparable restaurant sales, average unit volumes ("AUVs"), restaurant contribution, restaurant contribution margin, EBITDA and adjusted EBITDA. Restaurant contribution, restaurant contribution margin, EBITDA and adjusted EBITDA are non-GAAP financial measures.
Revenue
Revenue includes both restaurant revenue and franchise royalties and fees. Restaurant revenue represents sales of food and beverages in company-owned restaurants. Several factors affect our restaurant revenue in any period, including the number of restaurants in operation and per-restaurant sales. Franchise royalties and fees represent royalty income and initial franchise fees. While we expect that the majority of our revenue and net income growth will be driven by company-owned restaurants, our franchise restaurants remain an important factor impacting our revenue and financial performance.
Seasonal factors cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically lower in the first and fourth quarters, due to reduced winter and holiday traffic, and is typically higher in the second and third quarters. As a result of these factors, our quarterly operating results and comparable restaurant sales may fluctuate.
Comparable Restaurant Sales
Comparable restaurant sales refer to year-over-year sales comparisons for the comparable restaurant base. We define the comparable restaurant base to include restaurants open for at least 18 full periods. This measure highlights the performance of existing restaurants, as the impact of new restaurant openings is excluded. Changes in comparable restaurant sales are generated by changes in traffic, which we calculate as the number of entrées sold, and changes in per-person spend, calculated as sales divided by traffic. Per-person spend can be influenced by changes in menu prices and the mix and number of items sold per person.
Measuring our comparable restaurant sales allows us to evaluate the performance of our existing restaurant base. Various factors impact comparable restaurant sales, including, but not limited to:
•introduction of new and seasonal menu items and limited time offerings;
•consumer recognition of our brand and our ability to respond to changing consumer preferences;
•overall economic trends, particularly those related to consumer spending;
•our ability to operate restaurants effectively and efficiently to meet consumer expectations;
•pricing and perceived value;
•the number of restaurant transactions, per-person spend and average check amount;
•marketing and promotional efforts;
•abnormal weather patterns;
•food safety and foodborne illness concerns;
•the impact of health pandemics;
•local and national competition;
•trade area dynamics;
•tariffs or trade restrictions; and
•opening and closing restaurants in the vicinity of other restaurant locations.
Consistent with common industry practice, we present comparable restaurant sales on a calendar-adjusted basis that aligns current year sales weeks with comparable periods in the prior year, regardless of whether they belong to the same fiscal period or not. Comparable restaurant sales is only one measure of how we evaluate our performance.
Average Unit Volumes
AUVs consist of the average annualized sales of all company-owned restaurants for a given time period. AUVs are calculated by dividing restaurant revenue by the number of operating days within each time period and multiplying by the number of operating days we have in a typical year. This measurement allows management to assess changes in consumer traffic and per person spending patterns at our restaurants. In addition to the factors that impact comparable restaurant sales, AUVs can be further impacted by effective real estate site selection and maturity and trends within new markets.
Restaurant Contribution and Restaurant Contribution Margin
Restaurant contribution represents restaurant revenue less restaurant operating costs which are cost of sales, labor, occupancy and other restaurant operating costs. Restaurant contribution margin represents restaurant contribution as a percentage of restaurant revenue. We expect restaurant contribution to increase in proportion to the number of new restaurants we open, our comparable restaurant sales growth and cost reduction initiatives.
We believe that restaurant contribution and restaurant contribution margin are important tools for investors and other interested parties because they are widely-used metrics within the restaurant industry to evaluate restaurant-level productivity, efficiency and performance. We also use restaurant contribution and restaurant contribution margin as metrics to evaluate the profitability of incremental sales at our restaurants, restaurant performance across periods and restaurant financial performance compared with competitors. Restaurant contribution and restaurant contribution margin are supplemental measures of the operating performance of our restaurants and are not reflective of the underlying performance of our business because corporate-level expenses are excluded from these measures.
EBITDA and Adjusted EBITDA
We define EBITDA as net income (loss) before net interest expense, provision (benefit) for income taxes and depreciation and amortization. We define adjusted EBITDA as net income (loss) before net interest expense, provision (benefit) for income taxes, depreciation and amortization, restaurant impairments, loss on disposal of assets, net lease exit costs (benefits), severance, executive transition costs, corporate transaction costs and stock-based compensation.
We believe that EBITDA and adjusted EBITDA provide clear pictures of our operating results by eliminating certain non-recurring and non-cash expenses that may vary widely from period to period and are not reflective of the underlying business performance.
The presentation of restaurant contribution, restaurant contribution margin, EBITDA and adjusted EBITDA, which may not be comparable to similarly titled financial measures used by other companies, is not intended to be considered in isolation or as a substitute for, or to be superior to, the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. We believe that they provide useful information to management and investors about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making.
Results of Operations
The following table presents a reconciliation of net loss to EBITDA and adjusted EBITDA:
Fiscal Quarter Ended
Three Fiscal Quarters Ended
September 29,
2026 		September 30,
2025 		September 29,
2026 		September 30,
2025
(in thousands, unaudited)
Net loss $ (2,146) $ (9,151) $ (9,514) $ (35,760)
Depreciation and amortization 5,672 6,604 17,553 20,833
Interest expense, net 2,288 2,827 7,276 8,227
Provision for income taxes 3 5 30 49
EBITDA $ 5,817 $ 285 $ 15,345 $ (6,651)
Restaurant impairments(1)
1,219 5,326 8,727 17,813
Loss on disposal of assets 482 698 1,554 2,461
Lease exit (benefits) costs, net (124) (1,278) (2,585) (2,156)
Severance, executive transition costs and corporate transaction costs 823 334 1,669 800
Stock-based compensation expense 509 1,133 2,439 2,651
Adjusted EBITDA $ 8,726 $ 6,498 $ 27,149 $ 14,918
_____________________
(1)Restaurant impairments in all periods presented above include amounts related to restaurants previously impaired. See Note 7, Restaurant Impairments, Closure Costs and Asset Disposals.
The following table presents a reconciliation of income (loss) from operations to restaurant contribution:
Fiscal Quarter Ended Three Fiscal Quarters Ended
September 29,
2026 		September 30,
2025 		September 29,
2026 		September 30,
2025
Income (loss) from operations $ 145 $ (6,319) $ (2,208) $ (27,484)
Less: Franchising royalties and fees, and other 2,363 2,507 6,945 7,627
Plus: General and administrative 13,583 12,272 39,954 37,486
Depreciation and amortization 5,672 6,604 17,553 20,833
Pre-opening - 6 - 226
Restaurant impairments, closure costs and asset disposals 2,748 5,681 11,009 20,625
Restaurant contribution $ 19,785 $ 15,737 $ 59,363 $ 44,059
Restaurant contribution margin 16.7 % 13.2 % 16.3 % 12.1 %
Restaurant Openings, Closures and Relocations
The following table shows restaurants opened or closed during the periods indicated:
Fiscal Quarter Ended Three Fiscal Quarters Ended
September 29,
2026 		September 30,
2025 		September 29,
2026 		September 30,
2025
Company-Owned Restaurant Activity
Beginning of period 318 364 340 371
Openings - - - 2
Closures (12) (15) (34) (24)
Restaurants at end of period 306 349 306 349
Franchise Restaurant Activity
Beginning of period 78 89 83 92
Openings 1 - 1 -
Closures (2) (3) (7) (6)
Restaurants at end of period 77 86 77 86
Total restaurants 383 435 383 435
Statement of Operations as a Percentage of Revenue
The following table summarizes key components of our results of operations for the periods indicated as a percentage of our total revenue, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant revenue.
Fiscal Quarter Ended Three Fiscal Quarters Ended
September 29,
2026 		September 30,
2025 		September 29,
2026 		September 30,
2025
(unaudited)
Revenue:
Restaurant revenue 98.0 % 97.9 % 98.1 % 98.0 %
Franchising royalties and fees, and other 2.0 % 2.1 % 1.9 % 2.0 %
Total revenue 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses:
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Cost of sales 24.8 % 25.7 % 25.0 % 26.3 %
Labor 29.5 % 31.4 % 29.6 % 31.9 %
Occupancy 8.2 % 9.3 % 8.3 % 9.3 %
Other restaurant operating costs 20.8 % 20.5 % 20.8 % 20.5 %
General and administrative 11.2 % 10.1 % 10.7 % 10.1 %
Depreciation and amortization 4.7 % 5.4 % 4.7 % 5.6 %
Pre-opening - % - % - % 0.1 %
Restaurant impairments, closure costs and asset disposals 2.3 % 4.7 % 3.0 % 5.5 %
Total costs and expenses 99.9 % 105.2 % 100.6 % 107.4 %
Income (loss) from operations 0.1 % (5.2) % (0.6) % (7.4) %
Interest expense, net 1.9 % 2.3 % 2.0 % 2.2 %
Loss before income taxes (1.8) % (7.5) % (2.6) % (9.6) %
Provision for income taxes - % - % - % - %
Net loss (1.8) % (7.5) % (2.6) % (9.6) %
Third Quarter Ended September 29, 2026 Compared to Third Quarter Ended September 30, 2025
The table below presents our unaudited operating results for the third quarters of 2026 and 2025, and the related quarter-over-quarter changes.
Fiscal Quarter Ended Increase / (Decrease)
September 29,
2026 		September 30,
2025 		$ %
(in thousands, unaudited)
Revenue:
Restaurant revenue $ 118,509 $ 119,579 $ (1,070) (0.9) %
Franchising royalties and fees, and other 2,363 2,507 (144) (5.7) %
Total revenue 120,872 122,086 (1,214) (1.0) %
Costs and expenses:
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Cost of sales 29,347 30,709 (1,362) (4.4) %
Labor 34,908 37,499 (2,591) (6.9) %
Occupancy 9,773 11,076 (1,303) (11.8) %
Other restaurant operating costs 24,696 24,558 138 0.6 %
General and administrative 13,583 12,272 1,311 10.7 %
Depreciation and amortization 5,672 6,604 (932) (14.1) %
Pre-opening - 6 (6) (100.0) %
Restaurant impairments, closure costs and asset disposals 2,748 5,681 (2,933) (51.6) %
Total costs and expenses 120,727 128,405 (7,678) (6.0) %
Income (loss) from operations 145 (6,319) 6,464 102.3 %
Interest expense, net 2,288 2,827 (539) (19.1) %
Loss before taxes (2,143) (9,146) 7,003 76.6 %
Provision for income taxes 3 5 (2) (40.0) %
Net loss $ (2,146) $ (9,151) $ 7,005 76.5 %
Company-owned:
Average unit volume $ 1,545 $ 1,341 $ 204 15.2 %
Comparable restaurant sales 10.7 % 4.0 %
Revenue
Total revenue decreased by $1.2 million, or 1.0%, to $120.9 million in the third quarter of 2026 compared to $122.1 million in the third quarter of 2025. During the third quarter of 2026, significant increases in comparable restaurant sales were offset by a decline in revenue related to 45 permanent company-owned closures and a decline in franchise revenue from 10 franchise restaurant closures over the last twelve months. Average unit volumes increased 15.2% to $1.55 million in the third quarter of 2026 compared to $1.34 million in the third quarter of 2025 primarily due to increases in same store sales, the closure of underperforming restaurants and the transfer of a significant portion of the sales from closed restaurants to nearby locations. System-wide comparable restaurant sales increased 9.5% in the third quarter of 2026 compared to the same period of 2025, comprised of a 10.7% increase at company-owned restaurants and a 4.9% increase at franchise-owned restaurants.
Cost of Sales
Cost of sales decreased by $1.4 million, or 4.4%, in the third quarter of 2026 compared to the same period of 2025. As a percentage of restaurant revenue, cost of sales decreased to 24.8% in the third quarter of 2026 compared to 25.7% in the third quarter of 2025, primarily due to a 0.6% benefit from menu price, a 0.3% benefit from menu mix shifts and a 0.3% benefit from reduced food waste, partially offset by a 0.3% impact from inflation.
Labor Costs
Labor costs decreased by $2.6 million, or 6.9%, in the third quarter of 2026 compared to the same period of 2025. As a percentage of restaurant revenue, labor costs decreased to 29.5% in the third quarter of 2026 compared to 31.4% in the third quarter of 2025, primarily due to a 1.6% benefit from sales volume leverage and a 0.5% benefit from menu price, partially offset by a 0.4% impact from wage inflation.
Occupancy Costs
Occupancy costs decreased by $1.3 million or 11.8% in the third quarter of 2026 compared to the third quarter of 2025, primarily due to permanent restaurant closures. As a percentage of restaurant revenue, occupancy costs decreased to 8.2% in the third quarter of 2026 compared to 9.3% in the third quarter of 2025, primarily due to sales leverage.
Other Restaurant Operating Costs
Other restaurant operating costs increased by $0.1 million, or 0.6%, in the third quarter of 2026 compared to the third quarter of 2025. As a percentage of restaurant revenue, other restaurant operating costs increased to 20.8% in the third quarter of 2026 compared to 20.5% in the third quarter of 2025, primarily due to a 0.7% impact from an increase in delivery fees from higher third-party delivery sales, partially offset by a 0.2% benefit from sales leverage and a 0.2% impact from lower repairs and maintenance spend.
General and Administrative Expense
General and administrative expense increased by $1.3 million, or 10.7%, in the third quarter of 2026 compared to the third quarter of 2025, primarily due to increases in incentive-based compensation as a result of improved Company performance, as well as an increase in corporate transaction costs. As a percentage of revenue, general and administrative expense increased to 11.2% in the third quarter of 2026 from 10.1% in the third quarter of 2025.
Depreciation and Amortization
Depreciation and amortization decreased by $0.9 million, or 14.1%, in the third quarter of 2026 compared to the third quarter of 2025, primarily due to restaurant closures since the third quarter of 2025.
Restaurant Impairments, Closure Costs and Asset Disposals
Restaurant impairments, closure costs and asset disposals decreased $2.9 million to $2.7 million in the third quarter of 2026 compared to $5.7 million the third quarter of 2025. We did not record any fixed asset impairment charges in the third quarter of 2026. In the third quarter of 2026, we wrote down lease related assets on seven restaurants. In the third quarter of 2025, we recorded fixed asset impairment on nine restaurants and we wrote down lease related assets on nine restaurants.
Interest Expense, Net
Interest expense, net decreased $0.5 million in the third quarter of 2026 compared to the third quarter of 2025, primarily due to lower average interest rates and lower average debt balances in the third quarter of 2026 as compared to the third quarter of 2025. Lower average debt balances are due to paying down approximately $9.2 million in 2026.
Provision for Income Taxes
The effective tax rate for the third quarter of 2026 and for the third quarter of 2025 reflect the impact of the previously recorded valuation allowance. The primary components of the provision for income tax (for both quarters) are related to state tax and the change in our valuation allowance. For the remainder of fiscal 2026, we do not anticipate material income tax expense or benefit as a result of the valuation allowance recorded. We will maintain a valuation allowance against deferred tax assets until there is sufficient evidence to support a full or partial reversal. The reversal of a previously recorded valuation allowance will generally result in a benefit from income tax.
Three Quarters Ended September 29, 2026 Compared to Three Quarters Ended September 30, 2025
The table below presents our unaudited operating results for the first three quarters of 2026 and 2025, and the related period-over-period changes.
Three Fiscal Quarters Ended Increase / (Decrease)
September 29,
2026 		September 30,
2025 		$ %
(in thousands, except percentages)
Revenue:
Restaurant revenue $ 364,750 $ 364,686 $ 64 - %
Franchising royalties and fees, and other 6,945 7,627 (682) (8.9) %
Total revenue 371,695 372,313 (618) (0.2) %
Costs and expenses:
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Cost of sales 91,259 95,862 (4,603) (4.8) %
Labor 108,056 116,174 (8,118) (7.0) %
Occupancy 30,292 33,963 (3,671) (10.8) %
Other restaurant operating costs 75,780 74,628 1,152 1.5 %
General and administrative 39,954 37,486 2,468 6.6 %
Depreciation and amortization 17,553 20,833 (3,280) (15.7) %
Pre-opening - 226 (226) (100.0) %
Restaurant impairments, closure costs and asset disposals 11,009 20,625 (9,616) (46.6) %
Total costs and expenses 373,903 399,797 (25,894) (6.5) %
Loss from operations (2,208) (27,484) 25,276 92.0 %
Interest expense, net 7,276 8,227 (951) (11.6) %
Loss before taxes (9,484) (35,711) 26,227 73.4 %
Provision for income taxes 30 49 (19) (38.8) %
Net loss $ (9,514) $ (35,760) $ 26,246 73.4 %
Company-owned:
Average unit volumes $ 1,534 $ 1,336 $ 198 14.8 %
Comparable restaurant sales 10.5 % 3.3 %
Revenue
Total revenue decreased by $0.6 million, or 0.2%, in the first three quarters of 2026 to $371.7 million compared to $372.3 million in the same period of 2025. Increases in company comparable restaurant sales were offset by a decline in revenue related to 45 permanent company-owned closures and a decline in franchise revenue from 10 franchise restaurant closures over the last twelve months. Average unit volumes increased 14.8% to $1.53 million in the first three quarters of 2026 compared to $1.34 million in the first three quarters of 2025 primarily due to increases in same store sales, the closure of underperforming restaurants and the transfer of a significant portion of the sales from closed restaurants to nearby locations. Comparable restaurant sales increased 9.7% system-wide in the first three quarters of 2026 compared to the first three quarters of 2025, comprised of a 10.5% increase at company-owned restaurants and a 6.1% increase at franchise-owned restaurants.
Cost of Sales
Cost of sales decreased by $4.6 million, or 4.8%, in the first three quarters of 2026 compared to the same period of 2025. As a percentage of restaurant revenue, cost of sales decreased to 25.0% in the first three quarters of 2026 compared to 26.3% in the first three quarters of 2025, primarily due to a 0.6% benefit from lower food waste and a 0.6% benefit from menu price.
Labor Costs
Labor costs decreased by $8.1 million, or 7.0%, in the first three quarters of 2026 compared to the same period of 2025. As a percentage of restaurant revenue, labor costs decreased to 29.6% in the first three quarters of 2026 compared to 31.9% in the first three quarters of 2025, primarily due to a 1.6% benefit from sales leverage, a 0.7% benefit from menu price and a 0.4% benefit from labor efficiencies, partially offset by 0.5% of wage inflation.
Occupancy Costs
Occupancy costs decreased by $3.7 million, or 10.8%, in the first three quarters of 2026 compared to the first three quarters of 2025, primarily due to permanent restaurant closures. As a percentage of restaurant revenue, occupancy costs decreased to 8.3% in the first three quarters of 2026 compared to 9.3% in the first three quarters of 2025, primarily due to sales leverage.
Other Restaurant Operating Costs
Other restaurant operating costs increased by $1.2 million, or 1.5%, in the first three quarters of 2026 compared to the first three quarters of 2025. As a percentage of restaurant revenue, other restaurant operating costs increased to 20.8% in the first three quarters of 2026 compared to 20.5% in the first three quarters of 2025, primarily due to 0.6% impact from higher delivery fees driven by higher delivery sales, partially offset by 0.3% of sales leverage.
General and Administrative Expense
General and administrative expense increased by $2.5 million, or 6.6%, in the first three quarters of 2026 compared to the first three quarters of 2025, primarily due to higher incentive-based compensation as a result of improved Company performance, as well as an increase in corporate transaction costs, partially offset by lower wages and professional fees. As a percentage of revenue, general and administrative expense increased to 10.7% in the first three quarters of 2026 from 10.1% in the first three quarters of 2025.
Depreciation and Amortization
Depreciation and amortization decreased by $3.3 million, or 15.7%, in the first three quarters of 2026 compared to the first three quarters of 2025, primarily due to restaurant closures.
Restaurant Impairments, Closure Costs and Asset Disposals
Restaurant impairments, closure costs and asset disposals decreased $9.6 million to $11.0 million in the first three quarters of 2026 compared to the first three quarters of 2025. We recorded fixed asset impairment on 11 restaurants and wrote down lease related assets on 23 restaurants in the first three quarters of 2026. We recorded fixed asset impairment on 24 restaurants and wrote down lease related assets on 20 restaurants in the first three quarters of 2025.
Interest Expense1
Interest expense decreased by $1.0 million in the first three quarters of 2026 compared to the same period of 2025. The decrease was primarily due to lower average interest rates and lower average debt balances in the first three quarters of 2026 compared to the first three quarters of 2025. Lower average debt balances are due to paying down approximately $9.2 million in 2026.
Provision for Income Taxes
The effective tax rate for the first three quarters of 2026 and for the first three quarters of 2025 reflect the impact of the previously recorded valuation allowance. The primary components of the provision for income tax (for all quarters) are related to state tax and the change in our valuation allowance. For the remainder of fiscal 2026, we do not anticipate material income tax expense or benefit as a result of the valuation allowance recorded. We will maintain a valuation allowance against deferred tax assets until there is sufficient evidence to support a full or partial reversal. The reversal of a previously recorded valuation allowance will generally result in a benefit from income tax. We estimate the annual effective tax rate for 2026 to be between (1.0%) and (0%).
Liquidity and Capital Resources
Summary of Cash Flows
We have historically used cash and our revolving credit facility under our A&R Credit Agreement to fund capital expenditures for new restaurant openings, reinvest in our existing restaurants, invest in infrastructure and information technology and maintain working capital. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day, or in the case of credit or debit card transactions, within several days of the related sale, and we typically have up to 30 days to pay our vendors.
On November 12, 2026, the Company and the Loan Parties entered into the Third Amendment to the A&R Credit Agreement to extend the maturity date from July 27, 2027 to November 30, 2027, reduce the aggregate amount of the facility to $120.0 million, phase out the availability of letters of credit and increase the cost of borrowing including if amounts remain outstanding after January 29, 2027.
The Company will require new financing and/or other sources of capital to repay or a waiver or agreement with its current lenders to extend or refinance the facility on or before maturity as discussed further below under "Liquidity" and Part II - Item 5. Risk Factors.
Cash flows from operating, investing and financing activities are shown in the following table (in thousands):
Three Fiscal Quarters Ended
September 29,
2026 		September 30,
2025
Net cash provided by operating activities $ 17,185 $ 8,357
Net cash used in investing activities (6,348) (10,055)
Net cash (used in) provided by financing activities (10,570) 5,243
Net increase in cash and cash equivalents $ 267 $ 3,545
Operating Activities
Net cash provided by operating activities was $17.2 million in the first three quarters of 2026 compared to net cash provided by operating activities of $8.4 million in the first three quarters of 2025. The increase in operating cash flow resulted primarily from a decrease in net loss as adjusted for non cash items including depreciation and impairments, as well as changes in working capital related to the timing of accounts payable, payroll and accrued liabilities.
Investing Activities
Net cash used in investing activities decreased $3.7 million to $6.3 million in the first three quarters of 2026 from $10.1 million in the first three quarters of 2025. This decrease was primarily due to the absence of capital expenditures for new restaurant development in 2026 and lower spending on certain technology projects.
Financing Activities
Net cash used in financing activities was $10.6 million in the first three quarters of 2026, compared to net cash provided by financing of $5.2 million in the first three quarters of 2025. The change from the first three quarters of 2025 was primarily due to payments on our revolving credit facility in 2026 versus borrowings on our revolving credit facility during 2025.
Capital Resources
Material Cash Requirements. Our short-term obligations consist primarily of certain lease and other contractual commitments related to our operations, normal recurring operating expenses, working capital needs, new store development, capital improvements and maintenance of our restaurants, regular interest payments on our debt obligations and certain non-recurring expenditures.
Our long-term obligations consist primarily of certain lease and other contractual commitments related to our operations and payment of our outstanding debt obligations, including our debt under our A&R Credit Agreement, which will need to be refinanced and/or replaced by other sources of capital or extended on or before maturity. We are obligated under non-cancelable
leases for our restaurants, administrative offices and equipment. In addition, when we have a target for new store development this will require capital for such year, which is expected to be funded by currently available cash and cash equivalents, cash flows from operations and our revolving credit facility. Our capital expenditure requirements are primarily dependent upon the pace of our real estate development program and any resulting new restaurant openings, costs for maintenance and remodeling of our existing restaurants as well as information technology expenses and other general corporate capital expenditures. We currently do not plan to open any company-owned restaurants in 2026.
We estimate capital expenditures will be approximately $8.5 million to $9.5 million for fiscal year 2026, including $2.0 million to $3.0 million for the remainder of the year, primarily for the reinvestment in existing restaurants and investments in technology. We expect such capital expenditures to be funded by currently available cash and cash equivalents, cash flows from operations and if necessary, undrawn capacity under our revolving credit line.
Current Resources. Our operations have not historically required significant working capital and, like many restaurant companies, we operate with negative working capital. Restaurant sales are primarily paid for in cash or by credit or debit card, and restaurant operations do not require significant inventories or receivables. In addition, we receive trade credit for the purchase of food, beverages and supplies, therefore reducing the need for incremental working capital to support growth.
Liquidity. As of September 29, 2026 and December 30, 2025, we had a cash balance of $1.5 million. The amount available for future borrowings under our A&R Credit Agreement (defined below) was $21.2 million as of September 29, 2026. We believe that our current cash and cash equivalents, the expected cash flows from company-owned restaurant operations, the expected franchise fees and royalties and available borrowings under the revolving credit facility under our A&R Credit Agreement will be sufficient to fund our cash requirements for working capital needs and capital improvements and maintenance of existing restaurants for twelve months from the date of this report.
On November 12, 2026, we entered into the Third Amendment to the A&R Credit Agreement to extend the maturity date to November 30, 2027, and increase the cost of borrowing including if amounts remain outstanding after January 29, 2027, among other changes described under "Credit Facility" below. We will require new financing and/or other sources of capital or a waiver or agreement with our current lenders to extend or refinance the facility on or before maturity. We were in compliance with our covenants under the A&R Credit Agreement as of September 29, 2026, and expect to continue to be in compliance for twelve months from the date of this report. These covenants, unless waived, include having an unqualified report from our auditors with respect to our audited annual financial statements, which will next be required by the March 29, 2027 deadline for reporting our fiscal year 2026 results.
The Company continues to review its options with respect to such debt obligation in connection with its review of strategic alternatives. In addition, since early 2025, we have experienced sustained quarter-over-quarter improvement in sales, margins and debt repayment, and significantly exceeded industry comparisons in sales in traffic trends. We believe that these improved trends in business performance, particularly if such trends continue, will enhance our ability to address our debt maturity; however, there is no assurance that the Company will obtain such financing, and/or other sources of capital or an extension refinancing or waiver on a timely basis. See - Item 5. Risk Factors.
Credit Facility
On July 27, 2022, we amended and restated our Credit Agreement by entering into the A&R Credit Agreement with each other Loan Party thereto, each lender from time to time party thereto, and U.S. Bank National Association, as Administrative Agent, L/C Issuer and Swing Line Lender. The A&R Credit Agreement is secured by a pledge of stock of substantially all of the Company's subsidiaries and a lien on substantially all of the personal property assets of the Company and its subsidiaries.
Among other things, the A&R Credit Agreement: set the cost of borrowing at SOFR plus a margin of 1.50% to 2.50% per annum, based upon the consolidated total lease-adjusted leverage ratio. The A&R Credit Agreement was subsequently amended on December 21, 2023 and on October 29, 2024, the Company entered into the Second Amendment. Among the modifications, the Second Amendment: (i) increased the maximum applicable rate ranges (A) with respect to SOFR loans, from 1.75% - 3.00% to 1.75% - 3.75% per annum and (B) with respect to base rate loans, from 0.75% - 2.00% to 0.75% - 2.75% per annum, in each case as determined by the Consolidated Total Lease Adjusted Leverage Ratio (as defined in the A&R Credit Agreement), (ii) conditioned the use of the general restricted payment basket on satisfaction of a Consolidated Total Lease Adjusted Leverage Ratio (as defined in the A&R Credit Agreement) of less than or equal to 4.00 to 1.00 and a Consolidated Fixed Charge Coverage Ratio (as defined in the A&R Credit Agreement) of greater than or equal to 1.25 to 1.00, (iii) restricted entry into new lease agreements so long as the Consolidated Total Lease Adjusted Leverage Ratio (as defined in the A&R Credit Agreement) in Section 7.11(a) of the A&R Credit Agreement is greater than or equal to 4.50 to 1.00, (iv) increased the Consolidated Total Lease Adjusted Leverage Ratio (as defined in the A&R Credit Agreement) in Section 7.11(a) of the A&R
Credit Agreement to be no greater than (1) 4.75 to 1.00 for the fiscal quarters ending September 29, 2026 and December 29, 2026 and (2) 4.50 to 1.00 for the fiscal quarter ended March 30, 2027 and thereafter and (v) amended the Consolidated Fixed Charge Coverage Ratio (as defined in the A&R Credit Agreement) in Section 7.11(b) of the A&R Credit Agreement to be no less than (1) 1.25 to 1.00 for the fiscal quarter ending June 30, 2026 and thereafter.
On November 12, 2026, we entered into the Third Amendment to (i) extend the maturity date from July 27, 2027 to November 30, 2027, (ii) reduce the aggregate amount of the facility to $120.0 million, (iii) provide that all outstanding letters of credit issued under the A&R Credit Agreement will not be renewed upon expiration and that, upon the earlier of repayment of the revolving credit facility or January 29, 2027, we will deliver cash collateral to the Administrative Agent in an amount equal to 105% of the stated amount of the outstanding letters of credit until their expiration, and (iv) establish the cost of borrowing through January 29, 2027 at SOFR plus 3.25% with respect to SOFR loans and the Base Rate plus 2.25% with respect to base rate loans and, on and after January 30, 2027, at SOFR plus 7.00% for all loans (with SOFR subject to a floor of 3.00%). In addition, we paid an extension fee plus administrative fees and, if all obligations under the A&R Credit Agreement have not been paid in full by January 29, 2027, we will pay the Loan Parties a fee of $1,250,000.
As of September 29, 2026, we had $101.0 million of indebtedness under the credit facility (excluding $0.7 million of unamortized debt issuance costs) and $2.8 million of letters of credit outstanding under our A&R Credit Agreement.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements or obligations as of September 29, 2026.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by the application of our accounting policies. Our significant accounting policies are described in our Annual Report on Form 10-K for the year ended December 30, 2025. Critical accounting estimates are those that require application of management's most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially different amounts would be reported using different assumptions. Our critical accounting estimates are identified and described in our annual consolidated financial statements and the related notes included in our Annual Report on Form 10-K for our fiscal year ended December 30, 2025.
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