How does Noodles & Company determine impairment expense for its restaurants?

According to the 2025 Franchise Disclosure Document, Noodles & Company determines impairment expense by assessing the expected future cash flows of its company-owned restaurants, based on recent results and specific market factors. This assessment is conducted by the management team. The impairment expense is classified as a Level 3 fair value measure. This means its value is determined by comparing the carrying value of the restaurant assets to the estimated fair market value of the restaurant assets at resale value.

In 2024, Noodles & Company recorded fixed asset impairment on sixteen restaurants and wrote down lease related assets on seven restaurants. The company performed a detailed review of significantly underperforming restaurants in 2024 and based on this review, recorded impairments on certain restaurants that they believed had fair market values below their net book values. Additionally, the Company wrote-off its lease related assets on two previously closed restaurants after determining abandonment of its lease on the retail space. In 2023, the Company recognized an impairment charge related to the fixed assets on two restaurants and a writedown of its lease related assets on four restaurants. In 2022, the Company impaired the fixed assets on four restaurants and the lease related assets on two restaurants. All periods include ongoing equipment costs for restaurants previously impaired.

For a prospective franchisee, understanding how Noodles & Company assesses and accounts for impairment is crucial. Restaurant impairments and closure costs in all periods presented above include amounts related to restaurants previously impaired or closed. This gives insight into the financial health and operational performance of specific locations. It also highlights the importance of location selection and market conditions in determining the success and longevity of a Noodles & Company restaurant. Franchisees should inquire about the factors that could lead to impairment and how Noodles & Company supports franchisees facing financial difficulties to avoid such outcomes.

The auditor's perspective, as detailed in the FDD, emphasizes the subjective judgment involved in evaluating expected restaurant revenues and future cash flows. This subjectivity, influenced by market conditions, can significantly impact impairment analyses. Franchisees should be aware of these subjective elements and how they might affect the valuation of their investment over time. The auditor's procedures, including comparing estimated revenue trends to historical results and evaluating current trends, provide a degree of scrutiny, but the inherent uncertainty remains a factor to consider.