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RBC Capital Markets, LLC
David Palmer (Analyst)
(212) 905-5998
david.palmer@rbccm.com
Eric Gonzalez (Associate)
(212) 905-5970
eric.gonzalez@rbccm.com
Jack Kindregan, CFA
(Associate)
(212) 618-7716
jack.kindregan@rbccm.com
Sector Perform
NASDAQ: NDLS; USD 20.05
Price Target USD 21.00 39.00
WHAT'S INSIDE
Rating/Risk Change Price Target Change
In-Depth Report Est. Change
Preview News Analysis
Scenario Analysis*
Downside
Scenario
15.00
25%
Current
Price
20.05
Price
Target
21.00
5%
Upside
Scenario
27.00
35%
*Implied Total Returns
Key Statistics
Shares O/S (MM): 31.1
Dividend: 0.00
Market Cap (MM): 624
Yield: 0.0%
Priced at 10:55 a.m. ET
RBC Estimates
FY Dec 2012A 2013A 2014E 2015E
Revenue 300.4 350.9 401.1 471.2
Prev. 408.3 474.4
EPS, Ops Diluted 0.31 0.40 0.40 0.51
Prev. 0.50 0.68
P/E 64.7x 50.1x 50.1x 39.3x
Revenue Q1 Q2 Q3 Q4
2013 81.3A 89.2A 88.9A 91.5A
2014 89.5A 99.5A 103.4E 108.8E
Prev. 103.4E 106.8E 108.6E
2015 108.9E 119.1E 120.1E 123.0E
Prev. 106.7E 121.6E 122.1E 124.0E
EPS, Ops Diluted
2013 0.05A 0.13A 0.11A 0.11A
2014 0.05A 0.12A 0.10E 0.14E
Prev. 0.13E 0.16E 0.16E
2015 0.07E 0.15E 0.15E 0.15E
Prev. 0.09E 0.20E 0.20E 0.18E
All values in USD unless otherwise noted.
August 14, 2014
Noodles & Company
Family troubles
Our view: Our lower estimates and price target assume EPS growth will be
well below the companys long-term algorithm near term, but rebounding
to 25% EPS growth in 2015.
Key points:
Lowering price target and EPS estimates: Following 2Q results, we are
lowering our one-year price target from $39 to $21 to reflect a more
modest growth premium for Noodles stock and a re-rating of high
growth / fast casual (ex-Chipotle) peers. In addition, we are trimming our
2014 and 2015 EPS estimates from $0.50 and $0.68 to $0.40 (+0% YOY)
and $0.51 (+25% YOY), respectively. Our new estimates assume that EPS
growth will be well below the companys long-term algorithm near term,
but rebounding to 25% EPS growth in 2015. We are now forecasting flat
EPS growth in 2014. However, we expect growth to accelerate through
2H due to increased advertising spend and a greater contribution from
catering. Our new $21 target equates to 41x our 2015e EPS estimate.
However, we envision three scenarios (see page 2) with downside and
upside scenarios equal to $15 and $27 per share, respectively.
SSS growth should reaccelerate in 2H14: The 2Q system-wide sales
decline of -0.7% (vs RBCe 0.6% and consensus 1.1%) was primarily
attributable to weakness in the mid-Atlantic region as well as slowing in
sales from family business(each contributing roughly 1-1.5pp of shortfall).
We believe SSS growth should accelerate in 2H14 due to 1) positive
momentum out of 2Q (+1.3% QTD), 2) additional marketing spend to drive
trial, 3) the full rollout of catering at company owned stores later this
month, and 4) new limited-time offerings coming in October. Catering is
expected to deliver an additional 1-1.5% to top line growth in 4Q14.
One of several family-oriented concepts getting squeezed: Through the
first decade of this century, family-oriented chains like Olive Garden,
Panera Bread, and McDonalds gained share. These concepts broadened
menus to appeal to families (eliminating veto) and took pricing at or
above peer levels. These strategies created significant value as these
chains currently have some of the highest AUV's in restaurants. With
traffic trends at these concepts negative, how much of the problem is the
food (e.g. renovation and more protein/fresh needed), pricing (e.g. new
value tiers needed), reduced impact of TV advertising (e.g. need for digital
strategies), or operations?
Several reasons to believe Noodles can return to 25%+ earnings growth:
These include: 1) solid unit economics across a variety of geographies,
trade areas, and real-estate types; 2) a track record of consistent
SSS growth; 3) strong management team with experience at Chipotle,
McDonalds, and Yum! Brands; 4) a highly differentiated concept; 5) less
exposure to rising proteins prices, and 6) the possibility of more than a
decade of double-digit unit growth ahead.
Priced as of prior trading day's market close, EST (unless otherwise noted).
For Required Conflicts Disclosures, see Page 5.
Target/Upside/Downside Scenarios
Exhibit 1: Noodles & Company
8m
6m
4m
2m
J J A S O N
2013
D J F M A M J J
2014
A
UPSIDE
27.00
TARGET
21.00
CURRENT
20.05
DOWNSIDE
15.00
Aug 2015
53
48
43
38
33
28
23
18
59 Weeks 27JUN13 - 13AUG14
NDLS Rel. S&P 500 COMPOSITE MA 40 weeks
Source: Bloomberg and RBC Capital Markets estimates for Upside/Downside/Target
Target price/ base case
Our base case assumes that Noodles can return to is long
term growth algorithm (2.5-3.5% SSS growth and 25%+ EPS
growth) in 2015, driven by increase marketing efforts, the
rollout of catering, easier comparisons, and the corresponding
flow-through to earnings. Our price target of $21 equates to
41x our 2015E EPS estimate of $0.51 (+25% YOY) and 33x our
2016E EPS estimate of $0.64 (+26% YOY). Our target multiple
equates to a 1.6x PE-growth ratio, which we feel would be
appropriate for a 25% EPS grower following a set-back year.
Upside scenario
Our upside case calls for a sustained recovery in comp growth
as marketing begins to work and catering provide a ~2pt lift
to SSS growth. As sales growth returns, so too will a multiple
more in line with a high growth restaurant concept. Our $27
upside case equates to 46x 2015E EPS estimate of $0.59 (+31%
YOY), and 37x 2016E EPS of $0.73 (+25% YOY).
Downside scenario
Our downside case reflect a scenario with only modest
acceleration in SSS growth in 2H14 and 2015 and relatively low
flow through to earnings as a result of stepped up costs around
marketing and catering. Despite the acceleration in sales, we
believe the market will not award Noodles with a high multiple
compared to peers with more natural type of SSS growth. Our
$15 downside case equates to 33x our downside estimate of
$0.45 (+21% YOY) and 28x 2016E EPS of $0.54 (+19% YOY).
Investment summary
Noodles & Company is a differentiated fast casual concept
uniquely positioned to appeal to a broad audience. The
company's solid unit economics, consistent SSS growth, and
strong management team may turn Noodles into the next
great growth concept. However, the company's valuation
offers limited upside, in our view.
Many reasons to expect consistent, sustainable growth: We
see many reasons to feel confident in long-term EPS growth of
~25%. These include: 1) solid unit economics across a variety
of geographies, trade areas, and real-estate types; 2) a track
record of consistent SSS growth; 3) a strong management
team with experience at Chipotle, McDonalds and Yum!
Brands; 4) a highly differentiated concept; 5) a less protein-
centric food basket; and 6) the possibility of more than a
decade of double-digit unit growth ahead.
The upside case accelerating SSS growth as brand
awareness grows: There is reason to believe that Noodles' SSS
growth can accelerate as brand awareness grows and as in-
restaurant service initiatives begin to bear fruit. We believe
that Noodles' best SSS growth markets are its most heavily
penetrated Midwest markets, something that underscores the
upside as consumers discover this unique brand.
Plenty of reasons to keep an eye on Noodles: Under the
leadership of Kevin Reddy and Keith Kinsey, Noodles has
made important adjustments to its concept in recent years,
including: 1) simplified pricing; 2) menu boards with photos
of key entrees; and 3) the addition of service stations to
encourage add-ons. Unlike Chipotle, Noodles is evolving its
menu with seasonal food celebrations, new flavors, new food
types, and in-restaurant service changes (e.g., beverage bars
and catering).
Risks to our investment thesis
These include but not limited to: 1) high valuation; 2) food
safety and quality; 3) highly competitive hamburger segment;
3) food and labor inflation; and 4) spending pullback by the
higher-income consumer.
Noodles & Company
August 14, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 2
Valuation
Our Price Target of $21 equates to 41x our 2015E EPS estimate of $0.51 (+25% YOY) and 33x
our 2016E EPS estimate of $0.64 (+26% YOY). Our target multiple equates to a 1.6x PE-growth
ratio, which we feel would be appropriate for a 25% EPS grower following a set-back year.
Price target impediments
High valuation: Noodles current valuation is 45x that of the market. Such an elevated
valuation increases the stocks volatility. In the case of Noodles, its stock is particularly
sensitive to changes in SSS, unit growth, and investor perception surrounding the perceived
sustainability of its growth.
Food safety and quality: By many, Noodles' menu is perceived to be of higher quality relative
to traditional fast food restaurants. As such, any challenge to the perception of quality might
harm the companys reputation and value.
Food and labor inflation: While Noodles has the majority of its food costs locked in for the
current fiscal year, a rapid increase in the price of key commodities would affect the future
earnings growth. Similarly, wage increases, whether from statutory minimum wage increases
or voluntary, would affect store-level profitability.
Spending pullback by the higher-income consumer: Because Noodles customer mix is highly
skewed toward upper-income consumers, we believe the company is exposed to a unique set
of macro factors relative to its peers. That said, higher-income consumers have proved to be
the most resilient in maintaining their level of spending during the economic downturn.
Company description
Noodles & Company is a high-growth, fast-casual restaurant concept offering lunch and dinner
within a fast-growing segment of the industry. The first Noodles & Company restaurant opened
its doors in the Cherry Creek neighborhood of Denver, Colorado. Today, the company and its
franchisees operate almost 350 stores, which generated more than $350 million in system-
wide sales in 2012.
Noodles & Company
August 14, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 3
Noodles & Company $0.31 $0.05 $0.13 $0.11 $0.11 $0.40 $0.05 $0.12 $0.10 $0.14 $0.40 $0.07 $0.15 $0.14 $0.15 $0.51
Income Statement $0.31 $0.05 $0.13 $0.11 $0.11 $0.40 $0.05 $0.12 $0.10 $0.14 $0.40 $0.07 $0.15 $0.14 $0.15 $0.51
David Palmer $0.31 $0.05 $0.13 $0.11 $0.11 $0.40 $0.05 $0.12 $0.10 $0.14 $0.41 $0.07 $0.15 $0.14 $0.15 $0.51
RBC Capital Markets
Full Year Full Year Full Year Full Year
(in millions, except per share data) 2012 1Q13 2Q13 3Q13 4Q13 2013 1Q14 2Q14E 3Q14E 4Q14E 2014E 1Q15E 2Q15E 3Q15E 4Q15E 2015E
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
Income Statement
Restaurant sales 297.3 80.5 88.4 87.9 90.4 347.1 88.4 98.2 102.1 107.6 396.4 107.7 117.8 118.8 121.6 466.0
YOY Chg. 17.3% 16.4% 18.2% 15.1% 17.4% 16.8% 9.8% 11.1% 16.2% 19.0% 14.2% 21.8% 20.0% 16.3% 13.0% 17.6%
Franchising royalties and fees 3.1 0.762 0.877 1.072 1.072 3.8 1.071 1.262 1.2 1.2 4.8 1.2 1.3 1.3 1.4 5.2
YOY Chg. 21.0% 10.6% 19.0% 35.2% 15.8% 20.3% 40.6% 43.9% 13.1% 12.4% 25.6% 8.8% 1.0% 10.5% 16.9% 9.2%
Total revenue 300.4 81.3 89.2 88.9 91.5 350.9 89.5 99.5 103.4 108.8 401.1 108.9 119.1 120.1 123.0 471.2
YOY Chg. 17.3% 16.3% 18.2% 15.4% 17.4% 16.8% 10.1% 11.5% 16.2% 18.9% 14.3% 21.6% 19.8% 16.2% 13.1% 17.5%
Cost of sales (food) 79.0 21.3 23.1 23.1 24.4 91.9 23.8 26.3 27.5 28.5 106.2 29.3 31.9 32.2 32.5 125.9
YOY Chg. 18.9% 16.8% 15.8% 14.2% 18.4% 16.3% 12.0% 14.0% 18.7% 17.0% 15.5% 22.8% 21.0% 17.3% 14.0% 18.6%
% of Company restaurant sales 26.6% 26.5% 26.1% 26.3% 27.0% 26.5% 27.0% 26.8% 26.9% 26.5% 26.8% 27.2% 27.0% 27.1% 26.7% 27.0%
Margin change 37bp 11bp -54bp -21bp 24bp -10bp 51bp 67bp 57bp -45bp 31bp 22bp 22bp 23bp 23bp 23bp
Gross profit 218.3 59.2 65.3 64.7 66.0 255.2 64.6 71.9 74.7 79.1 290.2 78.4 86.0 86.6 89.1 340.1
YOY Chg. 16.7% 16.2% 19.1% 15.5% 17.0% 16.9% 9.1% 10.1% 15.4% 19.8% 13.7% 21.4% 19.6% 15.9% 12.7% 17.2%
% of Company restaurant sales 73.4% 73.5% 73.9% 73.7% 73.0% 73.5% 73.0% 73.2% 73.1% 73.5% 73.2% 72.8% 73.0% 72.9% 73.3% 73.0%
Margin change -37bp -11bp 54bp 21bp -24bp 10bp -51bp -67bp -57bp 45bp -31bp -22bp -22bp -23bp -23bp -23bp
Labor 89.4 24.8 26.3 26.3 26.6 104.0 27.2 29.3 30.5 31.3 118.3 32.8 34.9 35.3 35.4 138.3
YOY Chg. 18.5% 19.6% 18.5% 14.2% 13.4% 16.3% 9.5% 11.6% 15.7% 17.8% 13.7% 20.6% 18.8% 15.7% 13.0% 16.9%
% of Company restaurant sales 30.1% 30.8% 29.8% 30.0% 29.4% 30.0% 30.8% 29.9% 29.8% 29.1% 29.8% 30.4% 29.6% 29.7% 29.1% 29.7%
Margin change 31bp 85bp 8bp -24bp -103bp -12bp -9bp 12bp -15bp -30bp -12bp -30bp -29bp -15bp 0bp -17bp
Operating costs 36.4 11.1 10.6 11.3 11.1 44.1 12.2 12.2 13.5 13.5 51.4 14.7 14.5 15.6 15.3 60.1
YOY Chg. 5.0% 24.0% 17.0% 19.3% 24.5% 21.2% 10.2% 15.9% 19.2% 21.4% 16.7% 20.6% 18.8% 15.7% 13.0% 16.9%
% of Company restaurant sales 12.2% 13.8% 12.0% 12.9% 12.3% 12.7% 13.8% 12.5% 13.2% 12.5% 13.0% 13.7% 12.3% 13.1% 12.5% 12.9%
Margin change -143bp 85bp -12bp 45bp 70bp 46bp 4bp 51bp 33bp 25bp 28bp -14bp -12bp -7bp 0bp -7bp
Occupancy costs 29.3 8.4 8.6 8.9 9.3 35.2 9.9 10.2 10.6 11.4 42.1 12.0 12.3 12.4 13.0 49.8
YOY Chg. 16.3% 20.5% 18.3% 18.8% 22.1% 20.0% 18.0% 19.2% 19.8% 22.0% 19.8% 21.8% 20.0% 16.9% 14.2% 18.1%
% of Company restaurant sales 9.9% 10.4% 0.0% 10.1% 10.3% 10.1% 11.2% 10.4% 10.4% 10.6% 10.6% 11.2% 10.4% 10.5% 10.7% 10.7%
Margin change -8bp 36bp -972bp 31bp 40bp 27bp 77bp 1043bp 31bp 26bp 50bp 0bp 0bp 5bp 10bp 4bp
Total restaurant costs 234.1 65.6 68.5 69.7 71.4 275.2 73.1 78.1 82.0 84.7 318.0 88.8 93.6 95.5 96.2 374.1
YOY Chg. 16.1% 19.5% 17.3% 15.6% 17.9% 17.5% 11.5% 14.0% 17.8% 18.7% 15.6% 21.5% 19.7% 16.4% 13.5% 17.6%
Company restaurant margin 63.1 14.9 19.8 18.2 19.0 72.0 15.3 20.1 20.1 22.9 78.3 18.9 24.3 23.3 25.4 91.9
YOY Chg. 22.1% 4.2% 21.3% 13.5% 15.7% 14.0% 2.6% 1.2% 10.4% 20.4% 8.9% 23.3% 21.1% 15.9% 11.2% 17.3%
% of Company restaurant sales 21.2% 18.6% 22.4% 20.7% 21.0% 20.7% 17.3% 20.4% 19.7% 21.2% 19.8% 17.5% 20.6% 19.6% 20.9% 19.7%
Margin change 83bp -217bp 58bp -30bp -31bp -51bp -123bp -200bp -105bp 24bp -96bp 22bp 19bp -7bp -34bp -4bp
General and administrative 30.9 7.5 8.4 7.3 7.7 30.9 7.2 8.2 8.3 8.8 32.6 8.5 9.4 9.0 9.7 36.5
YOY Chg. 18.2% 0.5% 13.3% -4.8% -7.3% 0.2% -4.0% -2.0% 14.5% 14.2% 5.4% 17.0% 14.1% 7.7% 9.7% 11.9%
% of Company Revenue 10.3% 9.3% 9.4% 8.2% 8.4% 8.8% 8.1% 8.3% 8.1% 8.1% 8.1% 7.8% 7.9% 7.5% 7.9% 7.7%
Margin change -3bp -146bp -41bp -173bp -224bp -146bp -119bp -113bp -12bp -34bp -68bp -31bp -39bp -59bp -24bp -38bp
Restaurant pre-opening costs 3.1 0.9 0.8 1.2 0.9 3.8 1.1 1.0 1.1 1.3 4.6 1.3 1.1 1.2 1.4 5.0
YOY Chg. 35.2% 58.5% 30.3% 42.7% -18.3% 21.1% 20.8% 33.6% -5.6% 38.3% 19.5% 13.4% 11.8% 8.8% 6.3% 9.9%
% of Company restaurant sales 1.1% 1.1% 0.9% 1.3% 1.0% 1.1% 1.3% 1.0% 1.1% 1.2% 1.1% 1.2% 1.0% 1.0% 1.1% 1.1%
Margin change 14bp 30bp 8bp 26bp -45bp 4bp 11bp 18bp -25bp 17bp 5bp -9bp -7bp -7bp -7bp -7bp
Depreciation and amortization 16.7 4.8 5.0 5.2 5.6 20.6 5.6 5.9 6.2 6.7 24.5 6.7 6.9 7.1 7.5 28.3
YOY Chg. 15.3% 28.7% 22.8% 20.9% 21.8% 23.3% 16.9% 17.3% 18.9% 21.1% 18.6% 19.4% 17.7% 14.6% 11.9% 15.7%
% of Company restaurant sales 5.6% 6.0% 5.7% 6.0% 6.1% 5.9% 6.3% 6.0% 6.1% 6.2% 6.2% 6.2% 5.9% 6.0% 6.2% 6.1%
Margin change -10bp 57bp 22bp 28bp 22bp 32bp 38bp 32bp 14bp 11bp 23bp -12bp -12bp -9bp -6bp -10bp
Operating income 15.6 2.5 6.5 5.58 5.9 20.4 2.5 6.2 5.6 7.2 21.5 3.7 8.1 7.3 8.3 27.3
YOY Chg. 36.6% -23.9% 30.7% 38.5% 76.7% 31.2% -0.4% -5.2% 0.9% 23.5% 5.3% 48.9% 31.3% 29.6% 14.3% 27.1%
EBIT margin 5.2% 3.1% 7.4% 6.4% 6.5% 5.9% 2.8% 6.3% 5.5% 6.7% 5.4% 3.4% 6.9% 6.1% 6.8% 5.9%
Margin change 74bp -162bp 70bp 107bp 218bp 64bp -28bp -108bp -84bp 24bp -46bp 62bp 59bp 63bp 8bp 44bp
Interest expense -0.6 -0.1 -0.2 -0.1 0.0 -0.5 0.0 0.0 -0.2 -0.2 -0.4 -0.2 -0.2 -0.2 -0.2 -0.6
% of Avg. total debt
Income before taxes 14.9 2.3 6.3 5.4 5.8 19.9 2.4 6.1 5.5 7.1 21.1 3.5 7.9 7.1 8.1 26.7
Pre-tax margin 5.0% 2.9% 7.1% 6.1% 6.4% 5.7% 2.7% 6.2% 5.3% 6.5% 5.3% 3.2% 6.7% 5.9% 6.6% 5.7%
Income tax expense (benefit) 5.9 0.9 2.4 2.1 2.3 7.7 1.0 2.5 2.2 2.8 8.5 1.4 3.2 2.9 3.3 10.9
Tax rate 39.3% 39.2% 37.4% 39.2% 39.2% 38.6% 41.5% 40.3% 40.5% 40.0% 40.4% 41.0% 41.0% 41.0% 41.0% 41.0%
Net income (adjusted) 9.1 1.4 4.0 3.3 3.536 12.2 1.4 3.7 3.3 4.2 12.6 2.1 4.7 4.2 4.8 15.7
YOY Chg. -20.8% 41.4% 40.5% 67.3% 35.0% 0.6% -7.8% -1.7% 20.0% 2.9% 44.8% 27.8% 29.4% 12.7% 25.1%
EPS $0.31 $0.05 $0.13 $0.11 $0.11 $0.40 $0.05 $0.12 $0.10 $0.14 $0.40 $0.07 $0.15 $0.14 $0.15 $0.51
YOY Chg. -23.0% 37.0% 33.9% 60.5% 29.8% -2.0% -9.9% -1.7% 20.0% 1.8% 44.8% 27.8% 29.4% 12.7% 25.1%
Basic shares 29.6 29.7 29.6 29.7
Diluted shares (pro-forma) 30.3 30.4 31.1 31.1 30.7 31.1 31.1 31.1 31.1 31.1 31.1 31.1 31.1 31.1 31.1
EBITDA 32.3 7.3 11.5 10.818 11.4 41.0 8.1 12.1 11.9 14.0 45.9 10.4 15.0 14.4 15.8 55.6
Impairment and write-off charges 1.277 0.201 0.22 0.339 0.135 0.895 0.214 0.193 0.188 0.188 0.783 0.188 0.188 0.188 0.188 0.752
Management fees 1 0.25 1.05 0 0 1.3 0 0 0 0 0 0 0 0 0 0
Stock compensation expense 1.234 0.363 3.154 0.131 0.383 4.031 0.306 0.525 0.306 0.306 1.443 0.544 0.544 0.544 0.544 2.177
Source: Company documents; RBC Capital Markets estimates
Noodles & Company
August 14, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 4
Required disclosures
Conflicts disclosures
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated
by investment banking activities of the member companies of RBC Capital Markets and its affiliates.
Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in,
this report. To access current conflicts disclosures, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/
DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza,
29th Floor, South Tower, Toronto, Ontario M5J 2W7.
A member company of RBC Capital Markets or one of its affiliates managed or co-managed a public offering of securities for
Noodles & Company in the past 12 months.
A member company of RBC Capital Markets or one of its affiliates received compensation for investment banking services from
Noodles & Company in the past 12 months.
A member company of RBC Capital Markets or one of its affiliates expects to receive or intends to seek compensation for
investment banking services from Noodles & Company in the next three months.
RBC Capital Markets, LLC makes a market in the securities of Noodles & Company.
A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than
investment banking services from Noodles & Company during the past 12 months. During this time, a member company of RBC
Capital Markets or one of its affiliates provided non-securities services to Noodles & Company.
RBC Capital Markets is currently providing Noodles & Company with investment banking services.
RBC Capital Markets is currently providing Noodles & Company with non-securities services.
RBC Capital Markets has provided Noodles & Company with investment banking services in the past 12 months.
RBC Capital Markets has provided Noodles & Company with non-securities services in the past 12 months.
The author is employed by RBC Capital Markets, LLC, a securities broker-dealer with principal offices located in New York, USA.
Explanation of RBC Capital Markets Equity rating system
An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned
to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to
the analyst's sector average. Although RBC Capital Markets' ratings of Top Pick (TP)/Outperform (O), Sector Perform (SP), and
Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because
our ratings are determined on a relative basis.
Ratings
Top Pick (TP): Represents analyst's best idea in the sector; expected to provide significant absolute total return over 12 months
with a favorable risk-reward ratio.
Outperform (O): Expected to materially outperform sector average over 12 months.
Sector Perform (SP): Returns expected to be in line with sector average over 12 months.
Underperform (U): Returns expected to be materially below sector average over 12 months.
Risk Rating
As of March 31, 2013, RBC Capital Markets suspends its Average and Above Average risk ratings. The Speculative risk rating reflects
a security's lower level of financial or operating predictability, illiquid share trading volumes, high balance sheet leverage, or limited
operating history that result in a higher expectation of financial and/or stock price volatility.
Noodles & Company
August 14, 2014 David Palmer (212) 905-5998; david.palmer@rbccm.com 5
Distribution of ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories
- Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick(TP)/
Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively,
the meanings are not the same because our ratings are determined on a relative basis (as described below).
Distribution of ratings
RBC Capital Markets, Equity Research
As of 30-Jun-2014
Investment Banking
Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [Top Pick & Outperform] 845 53.24 299 35.38
HOLD [Sector Perform] 658 41.46 159 24.16
SELL [Underperform] 84 5.29 10 11.90

References to a Recommended List in the recommendation history chart may include one or more recommended lists or model
portfolios maintained by RBC Wealth Management or one of its affiliates. RBC Wealth Management recommended lists include
a former list called the Prime Opportunity List (RL 3), the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Large Cap
(RL 7), the Guided Portfolio: Dividend Growth (RL 8), the Guided Portfolio: Midcap 111 (RL 9), the Guided Portfolio: ADR (RL 10),
and the Guided Portfolio: Global Equity (U.S.) (RL 11). RBC Capital Markets recommended lists include the Strategy Focus List
and the Fundamental Equity Weightings (FEW) portfolios. The abbreviation 'RL On' means the date a security was placed on a
Recommended List. The abbreviation 'RL Off' means the date a security was removed from a Recommended List.
Equity valuation and risks
For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please
see the most recent company-specific research report at https://www.rbcinsight.com or send a request to RBC Capital Markets
Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.
Conflicts policy
RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request.
To access our current policy, clients should refer to
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https://www.rbccm.com/global/file-414164.pdf
or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South
Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.
Dissemination of research and short-term trade ideas
RBC Capital Markets endeavours to make all reasonable efforts to provide research simultaneously to all eligible clients, having
regard to local time zones in overseas jurisdictions. Subject to any applicable regulatory considerations, "eligible clients" may
include RBC Capital Markets institutional clients globally, the retail divisions of RBC Dominion Securities Inc. and RBC Capital
Markets LLC, and affiliates. RBC Capital Markets' equity research is posted to our proprietary websites to ensure eligible clients
receive coverage initiations and changes in rating, targets and opinions in a timely manner. Additional distribution may be done
by the sales personnel via email, fax or regular mail. Clients may also receive our research via third party vendors. Please contact
your investment advisor or institutional salesperson for more information regarding RBC Capital Markets research. RBC Capital
Markets also provides eligible clients with access to SPARC on its proprietary INSIGHT website. SPARC contains market color and
commentary, and may also contain Short-Term Trade Ideas regarding the securities of subject companies discussed in this or
other research reports. SPARC may be accessed via the following hyperlink: https://www.rbcinsight.com. A Short-Term Trade Idea
reflects the research analyst's directional view regarding the price of the security of a subject company in the coming days or weeks,
based on market and trading events. A Short-Term Trade Idea may differ from the price targets and/or recommendations in our
published research reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company,
as a result of the differing time horizons, methodologies and/or other factors. Thus, it is possible that the security of a subject
company that is considered a long-term 'Sector Perform' or even an 'Underperform' might be a short-term buying opportunity
as a result of temporary selling pressure in the market; conversely, the security of a subject company that is rated a long-term
'Outperform' could be considered susceptible to a short-term downward price correction. Short-Term Trade Ideas are not ratings,
nor are they part of any ratings system, and RBC Capital Markets generally does not intend, nor undertakes any obligation, to
maintain or update Short-Term Trade Ideas. Short-Term Trade Ideas discussed in SPARC may not be suitable for all investors and
have not been tailored to individual investor circumstances and objectives, and investors should make their own independent
decisions regarding any Short-Term Trade Ideas discussed therein.
Analyst certification
All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of
the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or
indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property and a service mark of MSCI Inc. (MSCI) and Standard & Poors Financial Services
LLC (S&P) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied
warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties
of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing,
in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special,
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RBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBC
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opinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and
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any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information
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Additional information is available on request.
To U.S. Residents:
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To Canadian Residents:
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Copyright RBC Capital Markets, LLC 2014 - Member SIPC
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