Dave Boennighausen - CFO Kevin Reddy - CEO and Chairman Keith Kinsey - President and COO.

Jeffrey Bernstein - Barclays David Tarantino - Robert W. Baird Joseph Buckley - Bank of America Merrill Lynch Nicole Miller Regan - Piper Jaffray Andy Barish - Jefferies & Co. John Glass - Morgan Stanley Andrew Strelzik - BMO Capital Markets David Palmer - RBC Capital Markets Colin Radke - Wedbush Securities.

Good afternoon and welcome to today's Noodles & Company Fourth Quarter 2014 Earnings Conference Call. All participants are now in a listen-only mode. After the presenters’ remarks there will be a question-and-answer session. As a reminder this call is being recorded. I’ll now introduce Noodles & Company’s Chief Financial Officer, Dave Boennighausen. .

Thank you, Liz. Thank you and good afternoon everyone and welcome to our fourth quarter 2014 earnings call. Here with me this afternoon are Kevin Reddy, our Chairman, Chief Executive Officer; and Keith Kensey, our President, Chief Operating Officer. Let me start by going over a few regulatory matters.

I’d like to note that during our opening remarks and in response to your questions we may make forward-looking statements regarding future events or the future financial performance for the company.

Any such items, including targeted results for 2015 and details relating to our future performance should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements are only projections and actual events or results could differ materially from those projections due to a number of risks and uncertainties. I refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company’s annual report on Form 10-K for its 2013 fiscal year.

This document contains and identifies important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Now I’d like to turn the call over to Kevin. .

Thanks Dave and good afternoon everyone. During the second half of 2014, and entering into 2015, our focus at Noodles & Company has been to position the brand to return to the top-tier growth metrics that has defined the company over the past seven years.

We have made progress in many of those key initiatives, which helped us return to positive earnings-per-share growth and increased momentum in two-year comparative sales growth during the fourth quarter.

We completed Q4, 2014 with 1.3% comparable restaurant sales and given that we had one of the stronger fourth quarters in the restaurant space during 2013 we increased our two-year comparable sales momentum to 5.6% for the quarter for company-owned restaurants or 4.8% when adjusting for an extra operating day in Q4 of 2013 due to the fiscal holiday shift.

As we enter 2015 I am pleased with the progress that we are making in several key areas. But also recognize that we are still in the early to middle stages of our work surrounding brand awareness and the communication of our culinary strengths to our guests.

One of the biggest opportunities that we have been working on is confronting the challenges of lower brand awareness nationally and especially in many of our newer markets with less than 15 restaurants.

As we have discussed in the past, the strongest variable that differentiates our best performing restaurants has been consumer awareness and restaurant density. In fact, our more established markets, which are located throughout the country, average 15% to 20% higher average unit volumes than our newer and more developing markets.

Also of note, our newer and developing markets share metrics similar to/or better than what our established markets had achieved during this time in their own development cycle. Over the past few years we have seen the gap between our media spend and those of our largest competitors grow substantially.

And with that we have recognized a significant opportunity and need to increase marketing activities. To that end, we began investing resources during the last quarter of 2014 and into 2015 to establish a thoughtful foundation for an increase in spend and earned impressions.

We invested in important research surrounding our brand as well as the onboarding of a new marketing agency. Over the years we have partnered with outstanding organizations to help, develop creative and our Your World Kitchen identity but we had not engaged a full-scale integrated advertising agency to help bring the brand to life for our customers.

We believe strongly that local relationship marketing that ingrains our restaurants within our communities is still the best way to build long-term loyalty.

But we also understand that it is imperative to have a focused digital and traditional media strategy to support these efforts by creating top of mind awareness and articulating the brand to new and existing guests alike. We know we are being significantly outspent by our major competitors and don't expect that to change in the near to midterm.

Having said that, we can and will become a scrappy fighter while targeting increased spend in specific markets. Again we are approaching our work by increased marketing in a disciplined manner.

We intentionally spent modestly in marketing during the past several months to allow our new agency, which is Barkley out of Kansas City to dive deeply into the Noodles & Company story.

The team has already been active in supporting our social, media and digital efforts and we anticipate activity on a larger scale towards the end of Q2 and more heavily in the back half of the year. Dave will discuss the anticipated investments at greater depth later on this call.

Another initiative that we feel is important in building brand awareness is catering which has been active in all of our restaurants as of the end of August 2014. Our catering performance of 1% of sales in Q4 was in line with our expectations and importantly we continue to validate the ease of execution for our operations teams and the guests.

I am pleased with the progress of our catering initiative given that it has been generally supported solely through the local connections developed by our restaurant teams.

The catering initiative will receive more marketing support as we move forward in 2015 and we continue to believe it has the opportunity to be a steady, consistent contributor to top line sales over the years to come.

While the team is working to build brand awareness outside our four walls, we also recognize the need to better articulate our brand positioning and elements of our story inside our restaurants.

Keith will discuss in more depth but from its beginning Noodles & Company has had a strong commitment to quality ingredients that are relevant to a continually evolving consumer expectation.

While this commitment has been steadfast; we have not always effectively communicated these stories, including our many natural and organic offerings, the family-owned businesses, that we have supported over the years and supported us, and the real cooking that is done inside our restaurants to prepare every dish to order.

Over the next several months we plan on streamlining some of our communication within the four walls to better tell these stories. Another strength of the brand that we feel has not been fully capitalized on is our ability to provide choice within our menu.

While we have been recognized for the health of our core menu by several leading national publications our real cooking also allows us to customize any dish to the particular diet of our guest. Still, for those less familiar with the brand, they are not -- they may not be fully aware of the flexibility, which we look to more clearly communicate.

I am pleased with the progress that we have made over the past several months. The fourth quarter saw an increase in two-year sales momentum, improvement in our restaurant level margins performance, and the return to positive EPS growth. Moreover, our restaurants continue to perform at a high level, which Keith will discuss shortly.

While there is still plenty of opportunity, I'm confident that the team is properly focused on the right initiatives to help us return to our long track record of consistent unit, comparable restaurant sales and earnings growth expectations.

Over the years, Noodles & Company has invested in building a national infrastructure and has had proven success in markets from coast-to-coast. We believe this has laid a solid foundation to support double-digit unit growth for the foreseeable future.

To give us an update on our development efforts and supply chain initiatives, I would now like to turn it over to Keith Kinsey, our President and Chief Operating Officer. .

Thanks, Kevin. 2014 was an incredibly strong year for our restaurant development. We opened 13 company restaurants in the fourth quarter completing the year with 49 company openings or a 15% growth over our year-end 2013 restaurant count. We also opened one additional franchise location finishing the year with 10 franchise openings.

During the fourth quarter we completed the acquisition of three franchise locations in the State of New Jersey.

Our franchise partner in New Jersey has done an excellent job opening these three locations but given the broad geography of the territory, combined with our upcoming entry into an adjoining market of Westchester County, we both thought it was an opportune time to capitalize on our company's resources to help accelerate the overall growth in the market.

With this transaction we finished 2014 with 439 total restaurants system-wide an increase of 16% over the year-end 2013. Of those 439 restaurants, 386 are company owned and 53 are franchise operated. Our new restaurants continue to perform at a high level.

And our company non-comparable based restaurants maintained their sales level rate at about 88% of the company average, consistent with our performance in Q3 of 2014, which was our highest in nearly two years. The pipeline for 2015 continues to look strong. And we still anticipate approximately 12% to 14% unit growth this year.

It is important to note that we have already opened 10 company restaurants thus far in 2015 with all those openings occurring in the first five weeks of the quarter. Although this added some incremental pressure to the pre-opening line during the fourth quarter of 2014, it positions us well to have a strong balanced pipeline for 2015.

Our 2015 development will be skewed a bit more towards new in developing markets compared to 2014. And while this traditionally results in increased short-term dilution, it should provide a more solid base for comparable sales growth as brand awareness grows in our developing markets.

New markets for 2015 include Oklahoma, Phoenix, Upstate New York, and our first entry into international, a location in Toronto, Canada. Our first Toronto location is slated to open this summer and we’ll be in the incredibly dense [indiscernible] center. Toronto shares many characteristics with markets that we are already in successfully.

However, we will be very disciplined in our approach to Canada. Our immediate focus is to open and operate TD center as a solid brand building foundation for further development in the Toronto market. 2015 will also include several openings in coastal markets in California as well as Florida.

We have made a couple of operational changes to improve throughput in our San Francisco locations and we plan to take these learnings to our other markets during the next several months. As Dave noted in the past, we have historically witnessed a modest same-store sales tailwind as our new comparable-based restaurants move towards maturity.

During the first half of 2014, the softness that we were seeing the mid-Atlantic caused that company pattern to deviate.

I'm pleased to report that in the fourth quarter, we saw a return to our normal historical patterns as our classes of 2012 and 2013 collectively ran comparable restaurant sales approximately 200 basis points above the balance of the company. This bodes well as we look to return to our long-term target comparable restaurant sales growth system-wide.

Shifting gears to our supply chain initiatives. During our most recent call we discussed the testing of naturally raised antibiotic free chicken in our Colorado restaurants. A commitment to high quality healthy ingredients has always been a core tenet of Noodles & Company.

Just a few of the great things we already do include, 100% of our in-house cooking coming from cage free eggs, our naturally raised vegetarian fed antibody report, the use of rBGH3 cream, our guarantee tea, milk and tofu offerings, and a commitment to partnering with dedicated family-owned suppliers for much of our sauces and cheeses.

Testing antibody free chicken is another step in a long line of improvements to meet the desires of our guests for pure and wholesome ingredients. And we expect to roll it out selectively to additional markets during the upcoming months.

Still, as Kevin mentioned, while this commitment to high quality ingredients has always been core to our DNA, significant opportunity exists for us to better communicate these stories to our guest both inside and outside the four walls of our restaurants.

An important initiative for 2015 and beyond is to streamline and more effectively utilize our merchandising within the restaurants as well as invest in telling stories to a broader audience in the markets. Now I'd like to turn the call over to Dave to discuss at more length our financial performance during the fourth quarter. .

Thanks, Keith. Revenue in the fourth quarter increased 19% versus prior-year to $108.5 million due to an increase in the number of restaurants including our acquisition of 19 franchise locations during the second half of 2014 as well as a modest increase in comparable restaurant sales. For the full-year, revenue increased 15% to $403.7 million.

For the fourth quarter of 2014, we reported adjusted net income of $3.9 million, a 9% increase over prior year and 81% above the fourth quarter of 2012. In the fourth quarter, comparable restaurant sales grew 1.3% for company-owned restaurants, 1.5% for franchise restaurants and 1.3% system-wide.

Our two year company-owned comp sales growth of 4.8% when adjusting for holiday shift and a benefit that we received in Q4 of 2013 reflects a sequential 80 basis point improvement from the third quarter of 2014.

Comparable restaurant sales thus far in 2015 through yesterday extended 1.1% system-wide including 1% for company-owned restaurants and 2.6% for franchise restaurants.

While our comparable sales growth is modestly below our expectations thus far in 2015, of note, we have not yet executed any traditional media spend and our promotional activity has been approximately 35% less than it was during the same timeframe last year.

As our investment in marketing increases in future quarters, we continue to anticipate full-year 2015 comparable restaurant sales growth between 2.5% and 4% system-wide. We anticipate our adjusted diluted earnings per share growth to be approximately 20%. Our restaurant level margin of 20% in the fourth quarter was 100 basis points below prior-year.

However, as a reminder, our third quarter in 2014 saw 230 basis point year-over-year decline in contribution margin so Q4 included a substantial improvement relative to trends from the prior quarter. Our cost of goods sold at 26.8% in the fourth quarter with a 20 basis point improvement relative to Q4 of 2013.

We anticipate approximately 1.5% to 2% of commodity inflation during 2015, primarily due to increases in the durum wheat market that affects the cost of our pasta. This increase of 1.5% to 2% is modestly lower than our projections a few months ago as the durum wheat market has begun to normalize.

We are currently fully booked for durum through Q2 and 50% in the back half of the year. In the fourth quarter labor costs increased 50 basis points versus prior year due to the dilutive impact of our immature restaurants as well as the smaller increase in the frequency and severity of our health insurance claims.

As a reminder, our health plan functions on the July to June plan year and we anticipate 30 to 50 basis points of labor pressures beginning in the third quarter of 2015 due to the implementation of the Affordable Care Act. As Keith mentioned our new restaurants continue to meet our glide path expectations.

However as we have discussed the non-comp base in the short-term will continue to have dilutive impact on our restaurant P&L. During the fourth quarter, this dilutive impact resulted in a 40 basis point increase as a percentage of sales in our operating and occupancy cost line items which increased to 12.7% and 10.7% respectively.

We anticipate this dilutive impact to continue through the first half of 2015 before we return to a more historical growth rate and overlap the acquisition of our previously franchised location in Indiana and New Jersey. Marketing spend for the fourth quarter was 0.9% of sales, flat with Q4 of 2013.

As Kevin mentioned, we anticipate investing in incremental marketing through the balance of this year. Consequently, while marketing expense will remain somewhat muted during the current quarter and much of Q2, we anticipate an increase in marketing spend to between 1.5% and 2% of sales during the final two quarters of this year.

General and administrative expenses of 7.9% was 90 basis points below Q4 of 2013. We completed the full year with G&A expenses of 7.8% of revenue, which is roughly 60 basis points below the prior year when adjusting for non-recurring IPO related expenses that were incurred in 2013.

We anticipate the G&A as a percentage of sales will be roughly flat in 2015 versus 2014 as leverage on increased revenue is offset by our investment in supporting our new markets as well is our marketing initiatives as well as an increase in the incentive and increase in incentive compensation.

Our fourth quarter of 2014 include a write-off of $490,000 due to obsolete inventory related to dissolving of relationship we had with an overseas vendor we are working with to provide furniture and fixtures for our restaurants.

Our tax rate of approximately 33% for the quarter and 38.4% for the full year reflects the renewal of the work opportunity tax credits and utilization of a 34% federal statutory tax rate. We previously anticipated a 35% federal tax rate would apply to 2014.

We do anticipate that the company will again be subject to the 34% federal tax rate for the 2015 year due to the utilization of remaining net operating losses. However, as the work opportunity tax credit has not yet been extended into 2015, we do believe the tax rate to be approximately 39% for this year.

As of the end of 2014 the company had $27.5 million in debt outstanding on our credit facility and cash on hand of $1.9 million. After a challenging start to 2014 the company made many strides during the year that were reflected in our fourth quarter results.

In Q4 we returned to positive earnings per shares growth led by momentum in our tier comparable sales, improvement in our restaurant level margins and a solid performance of our new restaurants. As mentioned earlier, for 2015, we anticipate 12% to 14% unit growth and 2.5% to 4% comparable sales growth.

Although we will incur incremental expense in 2015 due to elevated durum wheat prices, the implementation of the Affordable Care Act and support of our marketing investments, we project returning to earnings per share growth of approximately 20% in 2015.

We do anticipate Q1 earnings per share to be only flat to modestly positive relative to prior-year before increasing through the balance of the year as we receive a benefit of increased support from our sales growth initiatives. I would now like to turn it over to Kevin for final remarks before we go to Q&A. .

Thank you. We have seen improvements in our operating results as well as key fundamental metrics, we are clearly aware that we have continued work to do, which we are intensely focused on.

Despite an improved environment for retail restaurant companies it remains very competitive and it's imperative that we continue to improve as we pursue our long-term growth strategy. I'm confident that our team is focused on this mission. And I am pleased with the commitment toward the execution of our initiatives.

We have built a solid infrastructure at Noodles & Company with regard to development, operations, and supply chain which has us positioned for continued growth throughout the country. In 2015, we now have for the first time, an accomplished full-service advertising agency to work with our talented internal team.

I am very encouraged with this -- with the early work in progress and critical thinking that I’m seeing. And that gives me confidence as we drive the business forward in the years ahead. Thank you for your time. And Liz, if we can open the lines for Q&A. .

Certainly. [Operator Instructions]. Our first question comes from the line of Jeffrey Bernstein with Barclays. Your line is now open. .

Two questions. One just on the comp, I guess through the fourth quarter and thus far in the first quarter, it seems like the industry is seeing more of a -- an acceleration most recently. I'm just wondering if there's any reason why you might not see the benefit whether it’s from using gas or a favorable year-over-year weather comparison.

Obviously the consumer seems to be getting better.

I know you mentioned maybe the lack of media and promotional spend, and I was just wondering if there’s any other reason or anything unique that would keep you from seeing that acceleration at least over the first month and a half or so?.

Yes, Jeff this is Kevin and Keith and Dave can jump in if they would like to add something. I think the biggest factor -- and you're correct, we expected to be running at a higher rate right now. I think the biggest factor is that as we pull back on the promotional spend Dave mentioned it's about 35%, through the quarter to-date.

Two days in particular that we were -- two days in particular are over 100 basis points of that. That promotional spend and we had pretty aggressive promos going last year at both Super Bowl and the divisional playoff day. Those account for probably 100, 120 basis points that we lost against those two days, because we didn't run anything against them.

.

I think, weather is tough to tell. I expected we’d get a better lift. That one’s tough to analyze. I think there’s some indication that where we would expect to be up we are, where we get hit a little but more, we see some softness, but not in a material way.

I think the other thing that we own that’s influencing it, besides pure promotional spend, that work we see inside the local trading areas is not as strong as it needs to be. I'm pleased with our operating performance inside the four walls and our operating metrics.

We need to do a better job and more aggressive job getting outside the four walls and that’s taking longer than I expected. I think that's part of the other difference. .

Got it.

And then the other question was just on throughput or speed of service, I guess, anyhow you want to look at it, but it would seem like in terms of quality and offering and experience and what not that you guys are closer to more like casual dining with everything prepared from scratch relative to some of your best casual peers that are so much closer to quick service with the food kind of made ahead of time.

And it seems to make your food more appealing presumably, but I'm just wondering, if there’s any opportunity to improve whether it’s be the service or cook times to improve throughput whether there is something like to be done ahead of time, so as to speed up that four plus minute I believe cook time.

I think you mentioned about San Francisco was doing something to improve throughput.

So any thoughts in terms of how you might get more people through the line and make it a little bit more turnkey rather than everything prepared from scratch?.

Yes, this is Keith, and there’s couple things that we are working on. One from a standpoint of what we are doing in the back of the house and the restaurant and speeding up how it gets through kind of the backside, the cook side of the restaurant.

And we’ve got a couple of initiatives that we've done and have tweaked from San Francisco and as we talked about earlier, we will begin rolling that kind of a system out to the rest of the company over the next several months. The other piece I think is as we talked about it in prior calls is just the whole thing with online ordering.

Because we can cook that ahead of time, because our packaging is solid, because our food holds very well, it really allows us to have somebody very easily order their favorite, pay for it online, skip the entire line, go pick it up and equalize anybody else as far as speed of service. So we are attacking it from two ways.

One for the personal line and doing that through both the ordering process and also the back of the house speeding up that cook time, but also I think the one that we really got to get that person who is really in a hurry to have them order through our online application. .

Are you sharing with the San Francisco back of the house initiatives you will be rolling out to the rest of the system or not yet?.

Not yet. .

Understood. .

This is Kevin. One of the things that you brought it up and I think it was insightful and relevant, we do have a strength perception wise from our guests about the -- we serve a customized made to order meal. And that's a benefit that we need to exploit more.

For those people that aren't familiar with the brand or higher users they don't realize how fast we can perform at lunch. So we might have to be more deliberate in attacking that opportunity.

Because we can perform well there but the perception of the guest that doesn't know us and hasn't gone through lunch a number of times doesn’t realize how quickly we can prepare a customized made to order dish. So it's an opportunity for us as well as a strength. .

Thank you. .

Our next question comes from the line of David Tarantino with Robert Baird. Your line is now open. .

Hi, good afternoon. I wanted to come back to the question on the quarter to-date comps and just ask, I guess it's surprising that the business isn’t strengthening along with the rest of the industry, and I guess is there anything -- I know you mentioned that the marketing spending or the media support is part of that.

But it seems like there might be more to the story.

Is there anything you are seeing in your guest metrics or consumer feedback that would suggest something maybe more fundamental to the brand that's not working as well as it has been historically?.

Hi, David. Actually we just completed a fair amount of research, which is quite encouraging in terms of guest feedback on operations metrics, food, perception of the brand.

The one thing that still continues to jump out at us is when you think about the two big questions around that center around brand awareness and why wouldn't you come more often, the first question is not enough restaurants. And then second one is, they don't see any of our advertising.

So those really are the two main factors, which I think we’re addressing in our real estate pipeline as well as the work we’re conducting with the agency. So nothing that jumps out from a -- meeting a consumer need say.

There is an opportunity around awareness levels; there is a gap in difference between a more regular guests and a less frequent guest around freshness and quality. Our guests that are in our restaurants clearly rate us very high on that. They recognize and see all the fresh produce and ingredients that Keith talked about.

The less frequent unaware guest doesn't know that. So that is something that we’re working on it. It's not a fundamental thing the brand doesn't have. It is fundamental connections we have to make. So I think that’s really what came of the research on a call [ph] standpoint. .

Got it. And then, I guess the guidance for the year assumes that you do see a pretty meaningful pickup even though the comparisons aren't quite as easy going forward.

So I guess, could you just talk about your overall confidence level and being able to move the needle even as the comparisons get a little bit more challenging as the year goes on?.

Hi, David, this is Dave. I’ll speak on that one. Actually, I think we have quite a bit of confidence in those numbers. When you look at the comparisons, to your point they get a little bit more challenging but actually that doesn't occur until the third or fourth quarter.

The poor weather we saw in winter of last year actually affected the second half of Q1 last year more so than even the first half of Q1 which we just overlapped. So from the comparison perspective, I don't think it necessarily gets too much more challenging at least not until Q3 or Q4.

More importantly, as Kevin mentioned there has been so little promotional activity that we have been doing thus far this year as we have allowed Barkley and done this research to get our foundation for building the advertising and marketing investments, that there has not been as much air support as we typically would have and I think we have a lot of confidence in what we are seeing from the research, from the initial work that we are seeing out of the agency that we have pretty good confidence that, that will start supporting things as well as catering.

Catering will be a higher seasonal activity during Q2 and then through the balance of the year. The first few weeks in January certainly are the highs for catering sales. .

Great. Thank you very much. .

Our next question comes from the line of Joseph Buckley with Bank of America. Your line is now open. .

Thank you.

Just on the same-store sales in the fourth quarter, given the kind of our catering being 1% of sales, is it safe to assume that 1% of the comp was catering and then could you talk about the check in traffic components of kind of the core store business?.

Sure I will speak to that Joe. Price was over about 2% through Q4. Catering was about 1% in all signs from our research says that, that was for the most part incremental sales. So pricing of 2%, 1% on catering, that's 3%, so there was modestly negative traffic during Q4.

Notably, actually what you saw was what we had expected which would be, you had a much more challenging comparison in Q4 versus Q3, and we needed to get that catering let to overcome that comparison, which we did. .

Okay. And then two more if I can. Just the decision to cut back on promotions so drastically and Kevin you mentioned the Super Bowl Sunday and divisional playoff days. Given that catering is so new to you that would seem like strange to not do promotions with the new catering capabilities.

So I think if you can just talk about the decision to cut it back so much, and I want you to share exactly what you meant by down 100% on those two days?.

I will clarify that. We were down -- I think that just the difference on those two days alone were 100 basis points to 120 basis points. The decision to not run on top of them a similar promotion really was about discounting, not wanting to be heavy in that regard.

We did expect a little better tailwind from weather, but the catering programs around Super Bowls tend to be more a Square Bowl offerings not big 30, 40, people parties as well. So the strength of our program last year was really a focus on Square Bowls not catering. So there is a slightly different use occasion there.

So -- and that's why we didn't do it is to give -- we also believe that the monies we are going to invest in promotion and media spend, social digital this year we want -- we really want to have those focused and aligned with the brand positioning work and then how we would spend that in markets that I think a lot of great work is going on now.

Which is something that gives me confidence going into the year is to not potentially spend it in an area that is primarily discounting and not really supportive of the message that we’re going to drive home the rest of the year. .

Okay. And maybe just one more if I could.

David, I think you were talking about the margin dilution from the stores not in the comp base, and I wasn't quite sure why that was as high as it was if the gap to the AUVs had narrowed, and then why it would abate after the first half?.

Yeah. A large part of that is just the number or percentage of units that we have in the system, Joe that are immature were at the time, we talked about on the last earnings call, well that percentage is higher than it’s been historically, especially we've had 16% growth rate over the last couple of years in just organic company unit growth.

Bringing into play that 19 franchise – previously franchised restaurants that were a little bit below company average, so ultimately being dilutive as well. So typically we've been able to overcome margin dilution, because you have the balance of the restaurants that are continuing to mature.

In Q4 you had the impact of not just the amount of organic growth we've had but also an additional 19 restaurants that were coming in a little on the dilutive side. .

Joe, this is Kevin. The other factor that influences that maturity curve is where those restaurants are located. So the percentage of restaurants that we continue to build that aren't necessarily in our core markets, they don't yet have economies of scale to the same degree as our mature markets, particularly in food cost and labor.

So they are building that as we develop those markets and fill them in, the economies of scale get much better. And that's why we have the glide path that we do. So partly impacted by mix of geography. .

Okay, thank you. .

Your next question comes from the line of Nicole Miller with Piper Jaffray. Your line is now open. .

Thank you, good afternoon. You said 2% price for the fourth quarter.

How much price are you running on in January or 1Q please?.

2% as well, Nicole. .

Okay.

And for the stores you talked about this year opening, how many are signed leases or under LOI?.

We are pretty much -- Nicole this is Keith. We are pretty much getting we’re like 47 of those are at least for this year. So we feel comfortable that we will be able to hit the target that we've talked about in the past. .

I'm sorry, what was that number? What was that figure?.

47 right now as far as leased for 2015. .

Which is ahead of where we were at the same….

Yes, last year. So we've got some that are very close to then being signed. We feel comfortable with the range that we have given. .

Okay, thank you.

And advertising campaigns, can you put that in terms of percentage of sales and how that relates to guidance? Just wondering how much dollars or percentage of sales is in there in guidance?.

Yes. So we talked from the spend side to be about 1.5% to 2% of sales during the final two quarters of 2015, the majority of that being true advertising. Historically, Nicole, when we talked about that 0.5% to 1% of sales that we’ve spent over time that's really been support of our local relationship marketing.

From a true traditional advertising perspective, between outdoor radio, digital, as well as TV we've never been much of a player. And in 2014, the most recent data I saw we were well south of a $1 million, while a lot of our major competitors were at high multiples towards that.

So we will be investing more certainly as we go into especially the second two quarters of this year. From the guidance perspective we have incorporated that into our expectations for full year earnings per share.

Some of the activities that we will be looking at is reallocating some of the local relationship marketing funding that we have in the past particularly on that promotional line. Some of the stuff we have been doing in the trenches with discounting will now be allocated more towards the investment into media. .

And just so I am clear, it's still the 0.1% to 1% in the first half of the year and then it’s incremental 1.5% to 2% or 1.5% to 2% in total in the back half of the year?.

The expectation is 1.5% to 2%, however what will be different about the final two quarters of 2015 is it will be primarily media. .

Okay, TV. .

Not TV. But today like outdoor radio, I mean, to be candid, we are still -- Barkley is still putting the finishing touches on the work they’re doing and we haven't completely decided what Q4 would look like from a media perspective. .

Okay, got it. Thanks a lot, I appreciate it. .

[Operator Instructions]. Our next question comes from the line of Andy Barish with Jefferies. Your line is now open. .

Hey guys. I’m wondering if you took out the high end of the EPS, the old high-end of the EPS guidance range, $0.20 to $0.25, now at $0.20.

So, what’s – what are the items, sort of, in order that are accounting for that diminution of growth versus prior?.

Really Andy, it comes down to Q1 was a little bit softer than we expected thus far. .

Okay.

And the marketing change and increase was originally expected in your thoughts?.

Primarily, yes Andy. I do think that to the extent that we see some of the success that we hoped to see from it we’ll continue to reevaluate that. .

Okay. Thanks. .

Our next question comes from the line of John Glass with Morgan Stanley. Your line is open. .

Thank you.

A couple questions, one is what is the message you hope to communicate with this new campaign? I mean, a couple years ago, I think it was a re-branding, or new branding around your old kitchen, and is that going to stay in place or are you just going to hoping to raise the awareness, or do you reposition the message around that? And I know you said this is now a true media spend in the back half that you haven't done it traditionally.

I thought you did do some outdoor and radio in the past.

How efficient has that been or how instant has that been in driving sales when you have used it if I remember correctly?.

I'll touch on the second part of your question first. When we have done it we've been fairly successful with it, particularly in markets where we have some good brand awareness. People recognize, it gets them to think about us more in the decision set in households that visit frequency.

So we've been pretty pleased with that and we’re also fairly pleased when we do use some old school tactics of direct mail and talking in and interacting with our guest through our E-Club. So we still think those will be components that are used as we go forward.

When it relates to the brand positioning and how much of that spend and what we will do with the investment in equity we have and Your World Kitchen that positioning, it’s actually one of the things that we asked Barkley’s to really take a deep dive into, do we have the right brand positioning? What’s the best way to activate that so that we can create the right meaning of it? The early work and I don't want to presuppose where they're going to come out, they are still working on that and they're going to be providing that to us in the near future.

But I think the early work is that there is good high level meaning in Your World Kitchen, in what we want guests to understand and think about when they hear those three words is fairly strong. But there is a need to sharpen -- to create really a sharper visionary response from the guest with that. So they may come back with something different.

I think they like that and what we are hearing from our guests where we have it on our buildings, and it's -- and we have more visible branding of it is fairly positive. So I think that's a good early read. .

I would also add to that John, when Keith mentioned it quite a bit during his section, our ingredient store is a very good one. And we think it competes very well in the marketplace and resonates with guests.

Our research shows, and it dilates a lot of our internal thoughts but there is opportunity in making those connections that we haven't done and that’s not necessarily incumbent upon a significant media spend, that’s taking the opportunity to look at all of our merchandising within our restaurants, looking at how we are using social media, how we are using our email database and doing a better job articulating those phenomenal parts of our story.

We recognize that is just as big of an opportunity as investment in media. .

Yeah and I think the other piece to that I like about Barkley is that they have their full services Kevin talked about in his piece because I think they will connect all those different elements.

In the past we’d have different pieces but never had a group that really pulled all those elements together and I think that's what we're really looking for to with Barkley. .

Okay. .

Now one last comment, you know, I think the opportunity in the ingredient story, fresh and quality is going to help us across a lot of occasions. That's an important consumer need and expectation in this space.

We also -- I think after doing some early brainstorming and work on how to widen the gap and strengthen our -- how well we are received and compete in the occasion with friends, with families, with kids. We do very well there both at lunch and dinner with groups. We have a lot of equity in the concept of our bowls.

So I think you’re going to see and that’s some of the early insights that we have. And going beyond that might be too premature. But there are some very good opportunities coming out of the early critical thinking. .

And just one I guess, related question, how do you think about entering more sort of heavier year of new market development in 2015.

Doesn’t that exacerbate the problem of brand awareness a little bit, maybe it’s a hindsight question where maybe you didn't think these issues were present when you were developing the plans for 2015 or do you think they're not connected? I mean, we think filling in more markets would satisfy the problem that you think customers think that there's a lack of convenience, if you will, for the brand?.

Yeah, I do believe that continuing to fill in the less dense markets will help us. I mean, not all those deals were going to be contiguous trading areas. But they will help increase awareness as people move through the trading areas of where they live, workshop, recreate. So I don't think it exacerbates it.

It won't help it if we were only building in mature markets with high brand awareness. It will help as we build in markets that have low brand awareness and low density.

The challenge that gets created is probably not in consumer brand awareness but just more growth in smaller markets requires you to work with newer younger teams, where you don’t have quite as big a bench of people. So that becomes really the focus is people in development. .

Yes. And the other piece still is just when you look at some of those markets that we talked about is just that balance of getting more of a kind of the off-season, you're looking at the Oklahomas, you're looking at more penetration in Florida, continuation in California.

So, we’ll get some of that seasonal offset that we've always seen historically have in so many northern markets. .

Yes, I think -- I do think it's a fair question, John.

I will point out that one thing that does increase our confidence is the new markets that we ventured over the last couple of years we've been very happy with whether they be in the Bay Area, Orlando, the franchise location in Long Island, we've been pretty happy with the overall kitchen positioning, some of the aspects we've done around the dinner service, have resonated well there.

But your point is taken. .

Thank you. .

Our next question comes from the line of Andrew Strelzik with BMO Capital Markets. Your line is now open. .

Hey, good afternoon, everyone. So I just wanted to ask you again about the restaurant margins, obviously for the last several years in a row they have been down and 100 basis points in the fourth quarter.

So given that it's going to be a heavier year of new market development and you're going to be increasing that ad spending in the back half of the year, as some of that dilution theoretically would be going away, is it really just a smaller number of new units in the base that’s going to generate the improvement? And what gives you the confidence, I guess if you could just say again, and where would we expect to see that in the P&L?.

Sure. When you look -- it does answer your question Andrew, when you look at our overall population of restaurants, we’ve built 49 restaurants, we acquired 19 restaurants, so there were 68 additional units in this year of 2015. Combined on top -- I'm sorry 2014, combined on top of those 68 restaurants, in 2013 we had about 16% unit growth.

Historically our run rate has been 12% to 13%. We have great opportunities from a real estate perspective, very strong pipeline. We will be going back towards that more historical 12% to 13% unit growth. Just the large pocket of new restaurants from a percentage of our overall base is somewhat exacerbated right now. It is higher than it’s ever been.

That will start going away and what you will end up seeing is that the percentage of restaurants that are new and dilutive to margins get offset by a larger percentage that's actually building the momentum going along the maturity path as Keith mentioned, we are seeing the right trend line there.

We are seeing historical numbers that we haven't seen in prior years, which is that the newer restaurants come into the base at a faster rate than the rest of the company. They end up getting much more margin leverage. We are starting to see that come to fruition.

We are still in that pot of not overlapping yet the acquisition of those 19 restaurants some of that higher growth. As we overlap that I think you'll start seeing the margins come back to the direction we would -- that we have seen in prior years before we had a little bit faster growth rate. .

Okay that's helpful, thank you. .

Our next question comes from the line of David Palmer with RBC. Your line is now open. .

Good afternoon, guys.

How much do you anticipate Noodles ultimately boosting food value, ingredient quality, you mentioned the antibiotic free chicken move and the moved to that, is this -- do you anticipate that this would be the first step in a series of upgrades or do you think most of this is it’s going to be about messaging the quality that you do have on the menu?.

Yeah, great question. I really believe it's what we have already. I mean, if you talk about the way we do the fresh produce five days a week and we cut it twice a day inside the restaurant.

You talk about the difference whether it's gluten-free, whether it’s GMO free, whether it’s the organic elements within our restaurants, I think it just goes back to telling the story.

There are some things we can continue to look at, we always do improve but I do think based off of some of the stuff we’ve seen initially from this research we have the elements there.

We just got to make sure we articulate them and talk to them not only from the standpoint of the messaging within the restaurant, but also our team newly understands them and is able to articulate them because that's where the real credibility comes when you drive that story to our guest. .

We will continue to improve the supply chain where it makes sense, but we have a great story to tell already. And we just need to tell and connect it. .

Yes. .

And just related to your marketing around catering, and the comment that you are talking about earlier, there are certain markets that you clearly have greater density and many of those who have comped higher than with the exception perhaps the D.C. area you have comped higher in some of these greater density higher brand awareness markets.

Do you anticipate the marketing around catering later in the year, is that to be -- to drive perhaps higher levels of same-store sales in the markets where you have the density to support the billboards? How do not orphan some of your lower density markets with this marketing? Thanks.

I think it's a good question and it's one we’re studying right now is how do you best invest the dollars. Obviously, in the bigger markets, I think we can get a bigger bang for the buck with what we do.

However there are still some things we're doing on the other side of that barbell so to speak, and that is addition of some local relationship marketing teams, some tour guides as we call them internally that are going to help supplement, getting outside the four walls in our restaurant. And that’s not going to be a heavy media based effort.

It will be a strong traditional community relations effort. So we'll target the generators, the businesses, athletic organizations, schools that can participate in catering. So I think you're going to see a couple different levers that we use. .

One other thing Dave when it comes to actually effectively marketing to those smaller markets, one reason we chose Barkley as an agency and one reason that we were impressed by them, from a social media perspective and their ability to engage guests and get them emotionally vested in the brands, we saw the work that they had done with Wingstop and some others, and it is an absolute strength of theirs.

And so you're not just talking about the traditional media of outdoor radio, which we recognize doesn't have economies of scale in our markets. We think that this is -- we have the right partner that’s allowing us. They will give us support in those newer and developing markets as well from the social side. .

Yes. In addition to social, I would say if you look at their work on Sonic as well as Wingstop and DQ, one of the impressive things about that organization is how well they talk to the internal team as well as external team.

And in those smaller markets we’ll still rely heavily on bringing the brand to life, through our own brand ambassadors and I think they do an outstanding job of internal education and motivation as well as external. .

Thank you. .

Our next question comes from the line of Nick Setyan with Wedbush Securities. Your line is now open. .

Hi, this is Colin Radke on for Nick. Just a question on COGS. I think previously you were expecting flat COGS year-over-year in 2015.

Given the lower expected COG inflation should we now expect some leverage there and is that going to be affected at all by the rollout of antibiotic free chicken and then maybe if there is any impact on your pricing plans for 2015? Thanks. .

Sure, let's actually address antibiotic free chicken first. As Keith mentioned, it is in Colorado right now. We are looking to selectively add it to future markets through the course of the year. With it there is a very modest price increase probably associated with it.

Nothing terribly substantial, certainly we’ll talk to it as we go along and make those decisions.

From the overall COGS perspective that is the one line item when you look at a year-over-year basis where we aren’t seeing as much pressure, certainly not from the dilutive impact of the mature restaurants nor do have legislation or anything along those lines.

So we do think there is potential to get a little bit of leverage year-over-year on the cost of goods sold line. .

Great. Thanks. And then just very quickly with catering now kind of rolled out, are there any plans to kind of focus more on the enhanced dinner service initiatives and is there any benefit associated with that contemplated in your comp guidance? Thanks. .

Yeah, I think that's a good question. We still have work to do in catering that we're going to stay focused on in the first part of the year because we wanted to exceed our expectations not fall within it. So we are still focused on that.

We do see and believe that our dinner day part opportunities and the opportunity to build on our strength that we have in that meal location with families is going to be improved with hospitality and plus. So we will gradually move back to that before the end of the year. .

Thank you very much. .

And I'm showing no further questions on the phone lines at this time. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day..