How does Noodles & Company recognize revenue from its company-owned restaurants?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
Revenue consists of sales from restaurant operations and franchise royalties and fees. Revenue from the operation of companyowned restaurants is recognized when sales occur. The Company reports revenue net of sales and use taxes collected from customers and remitted to governmental taxing authorities.
Gift Cards
The Company sells gift cards which do not have an expiration date, and it does not deduct non-usage fees from outstanding gift card balances. The Company recognizes revenue from gift cards when the gift card is redeemed by the customer or the Company determines the likelihood of the gift card being redeemed by the customer is remote ("gift card breakage"). The determination of the gift card breakage rate is based upon Company-specific historical redemption patterns. The Company has determined that approximately 15% of gift cards will not be redeemed, which is recognized ratably over the estimated redemption period of the gift card, approximately 24 months.
Loyalty Program
The Company operates the Noodles Rewards program, which is primarily a spend-based loyalty program. With each purchase, Noodles Rewards members earn loyalty points that can be redeemed for rewards, including free products. Using an estimate of the value of reward redemptions, we defer revenue associated with points earned, net of estimated points that will not be redeemed. Points generally expire after six months. Revenue is recognized in a future period when the reward points are redeemed.
Source: Item 22 — CONTRACTS (FDD pages 98–99)
What This Means (2025 FDD)
According to Noodles & Company's 2025 Franchise Disclosure Document, revenue from company-owned restaurant operations is recognized when sales occur. This means that Noodles & Company records the revenue at the point of sale when a customer purchases a meal or other items at one of their company-owned restaurants. The company reports its revenue net of sales and use taxes, which are collected from customers and then remitted to governmental taxing authorities.
Noodles & Company also utilizes gift cards and a loyalty program, which have specific revenue recognition methods. Revenue from gift cards is recognized either when the card is redeemed by a customer or when the company determines that the likelihood of redemption is remote, known as 'gift card breakage.' The company estimates that approximately 15% of gift cards will not be redeemed and recognizes this breakage ratably over an estimated redemption period of 24 months. For the Noodles Rewards program, revenue associated with points earned is deferred, net of estimated points that will not be redeemed, and is recognized when the reward points are actually redeemed by customers.
For a prospective franchisee, understanding these revenue recognition policies is crucial as it provides insight into how Noodles & Company manages and reports its sales and liabilities related to customer programs. While franchisees do not directly manage the revenue of company-owned stores, this information gives them a clearer picture of the financial operations and strategies of the overall Noodles & Company business model. Franchisees should focus on how their own revenue from franchise royalties is calculated, which is based on a percentage of their restaurant revenues and recognized in the period the sales occur.