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Noodles & Company (NASDAQ:NDLS) is scheduled for a $75 million IPO on Friday, June 28, 2013. Noodles has a market cap of $312.2 million. The stock is set to be priced in the $13.00-$15.00 range.

The company, which opened its first location in 1995, offers food from around the world. This includes Asian, Mediterranean, and American dishes.

Companies within the same sector that are already public include Chipotle (NYSE:CMG) and Panera Bread (NASDAQ:PNRA).

Information and insights that follow were derived from the following filing that the company made with the SEC:

Amended S1

Noodles says it is in the fast casual segment of the restaurant industry. It has higher prices than traditional fast food places like McDonald's (NYSE:MCD), which offers sandwiches for as low as $1.00. Noodles is able to compete with these traditional fast food places and other fast casual restaurants due to the variety of dishes and the service it offers. Noodles delivers food to your table, which one would expect of a more expensive full-service restaurant. No tip is expected of the customer.

In recent years, the fast casual segment has grown faster than the overall industry, though there is no guarantee that this trend will continue. Noodles' profit margin of 20.3% is very competitive for the restaurant industry.

Noodles says that a person spends approximately $8.00 at its restaurant. Fast Casual puts the cost of the typical meal at fast casual restaurants in the $8.00-$15.00 range.

While the company does franchise, the majority of its restaurants are company-owned. At the end of fiscal year 2012, only 51 of 327 total restaurants were franchised. Franchises only accounted for 1% of revenue in the last three fiscal years. Noodles plans to open 38-42 company-owned restaurants and 6-8 franchises in 2013.

The customer base is loyal, with approximately 40% of customers visiting at least once a month. Noodles was named Top 10 "Most Loved" food and beverage brands in social media by DigitalCoco and Top Social Media Brands and Top Social Consumer Sentiment by Restaurant Social Media Index. Both were based on comments made by customers on social media.

Earnings growth is positive. Over the past four years, EPS has grown from $0.04 to $0.22 for an annualized growth rate of 112.5%. Growth has slowed in recent years as you can see below.

Fiscal Year2009201020112012
EPS (in USD)0.040.100.160.22
% Growth in EPS over prior yearN/A1506037.5

Noodles intends to grow to 2,500 restaurants over the next 15-20 years based on current growth rates.

It is concerning that a large portion of the proceeds from this IPO is going towards paying off debts instead of fueling company growth. Noodles plans to use $66.0 million of the $77.5 million expected net proceeds to pay down debt. This is unnecessary considering the maturity date is August 1, 2017. The remaining proceeds will be used for working capital and other corporate expenses.

Noodles has no intention to pay dividends. Instead, earnings will be used to finance development and expansion.

An important thing to take into consideration when evaluating restaurants is consumer sentiment. Restaurants must keep customers happy to ensure repeat customers and free advertising through word of mouth.

Noodles unfortunately has issues providing a consistent experience across its restaurants as shown by the many mixed reviews that can be found online. Certain Noodles locations have mostly negative reviews, while others have mostly positive reviews, so this is not a fundamental issue with Noodles. How Noodles handles this consistency issue will decide its future.

Conclusion

The huge growth opportunity for Noodles & Company can't be ignored. It occupies a unique position within the restaurant industry. Noodles' customers are loyal and it has a solid plan for expansion. However, I am concerned about Noodles' ability to provide a consistent experience across its restaurants.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long BWLD.

Source: Noodles & Co.: An IPO With Growth Potential