First, though, the good news. NDLS reported EPS of $0.04, in-line with the consensus expectations and doubling from the year ago period. Adjusted EBITDA also improved by 9.5% year/year to $10.4 mln, and restaurant contribution margin increased 80 basis points to 16.4%. The increase here was mainly driven by improved leverage on higher average unit volumes.
Over the past several quarters, NDLS has been shuttering under-performing restaurants, which has had a positive impact on its margins and bottom line performance. Specifically, in 1Q17, the company closed 55 restaurants, and in 3Q18, NDLS shut down 3 more. The closing of these restaurants has had a negative effect on total revenue, of course, which had declined on a year/year basis for five quarters in a row before posting a positive figure last quarter (+4%).
NDLS followed that up with another positive mark, with Q3 revenue up 2% to $116.7 mln, beating the $114.8 mln consensus. While the overall revenue growth isn't impressive, its comparable restaurant sales performance is looking pretty good at +5.5% for the quarter. This followed a +5.4% number last quarter, a vast improvement over Q1's -0.2% performance and from 4Q17's -0.9% figure. In the earnings press release this morning, management credited the launch of its new zucchini noodle offering in May as a meaningful contributor to these improved results. Overall, NDLS is clearly trending in the right direction in terms of comps.
In addition to the solid Q3 results, NDLS also raised its FY18 guidance. For EPS, it increased its outlook to $0.01-$0.04 from $0.00-$0.03, with revenue of $457-$460 mln compared to its prior outlook of $440-$450 mln. Furthermore, it nudged its comparable restaurant sales outlook higher to 3.5-4.0% from 2.5-3.5%.
Investors may be asking, given these improved financial results and the brightened outlook, why is the stock getting pummeled today? As we noted above, NDLS also announced another secondary offering -- this time, an 8.75 million share offering of common stock by selling shareholders, as they look to cash in on the stock's 180%+ rise achieved over the course of the past year.
The problem is, this is the fourth secondary offering over the past several months. Back on July 26, NDLS announced an 8.5 mln offering by selling shareholders, preceded by a 2.5 mln offering a couple days before that, and a 5.0 mln share offering in May. While these aren't huge offerings, it's important to keep in mind that the float on NDLS is quite thin at just 24 mln shares, so even smaller offerings like these can rock the boat.
But from a pure fundamental perspective, NDLS seems to be heading in the right direction thanks to its continued execution of its turnaround plan.