SOURCE: Cosi, Inc.

August 07, 2008 16:00 ET

Cosi, Inc. Reports 2008 Second Quarter Results

DEERFIELD, IL--(Marketwire - August 7, 2008) - Cosi, Inc. (NASDAQ: COSI), the premium convenience restaurant company, today reported a net loss for the second quarter ended June 30, 2008 of $(1,729,000), or $(.04) per basic and diluted common share, compared with a net loss of $(7,401,000), or $(.19) per basic and diluted common share, for the 2007 second quarter, or a 77% reduction on a year-over-year basis. Excluding the effect of discontinued operations in both quarters, Cosi's net loss in the 2008 and 2007 second quarters was $(1,699,000), or $(.04) per share, and $(4,039,000), or $(.10) per share, respectively. Cosi reduced its operating loss in the second quarter of 2008 compared with the year-earlier period by approximately 59%, to $(1,724,000) from $(4,176,000).

Cosi's total revenues for the 2008 second quarter grew 3.6% to $36,723,000 from $35,448,000 in the 2007 second quarter.

"We made good progress during the second quarter across every aspect of our restaurant operations, particularly in light of the difficult consumer and inflationary environment," said James Hyatt, President and Chief Executive Officer. "We are comfortable that, even as we continue to drive further operational improvements, our operational practices are now ready to support profitable unit growth. It is a high priority of ours to assist our franchise partners in their site development efforts as they build out their territories, as well as to help them overcome the challenges of the credit markets."

2008 Second Quarter Financial Performance and Restaurant Economics

Cosi achieved the aforementioned 3.6% increase in second quarter revenues over the second quarter 2007, and reported a 2.3% increase in Company-owned comparable sales over the prior year's second quarter, due primarily to pricing increases as well as improved operational execution, which has enabled restaurants to achieve higher volumes during peak periods while earning high customer satisfaction ratings. Contributing to Cosi's total revenues were the Company's growth in franchise fees and royalties to $516,000 from $405,000 in the prior year's quarter and its growth in restaurant net sales to $36,207,000 from $35,043,000 in the second quarter 2007.

Due to operational and cost management improvements, Cosi was able to increase restaurant cash flow margin rate to 17.3% of restaurant net sales from 15.6% in the prior year's second quarter, as well as achieve the aforementioned reductions in operating and net losses.

In the 2008 second quarter, Cosi reduced restaurant level costs by 170 basis points as a percentage of restaurant net sales compared to the second quarter 2007. Despite continued pricing pressures on commodities, Cosi was able to limit its increase in the cost of food and beverages to 10 basis points as a percent of restaurant net sales. Cosi reduced labor and related benefits costs by 150 basis points as a percentage of restaurant net sales, and reported a 30 basis point reduction in occupancy and other restaurant operating expenses on a quarter over quarter basis.

Cosi reduced its general and administrative expenses, both on an absolute basis and as a percentage of total revenues. General and administrative expenses in the 2008 second quarter were $6,069,000, or 16.5% of total revenues, compared with $6,142,000, or 17.3% of total revenues, in the 2007 second quarter.

Cosi reported that as of June 30, 2008 cash, cash equivalents, and short-term investments were $6,041,000. Total stockholders' equity was $30,137,000.

Development Performance

Cosi ended the second quarter with a total of 145 locations consisting of 102 Company-owned locations and 43 franchised locations. Two franchised locations and one Company-owned location opened during the 2008 second quarter, and one franchised location and one Company-owned location were closed during the same period. Year-to-date, 10 franchised locations and one Company-owned location have opened.

Cosi now expects franchisees to open a total of approximately 25 locations in 2008, the lower end of its previous guidance of between 25 and 35 total new franchised locations for the year.

Teleconference and Webcast Information

Cosi will host a teleconference and webcast at 5:00 p.m. Eastern Time today to discuss its results for the 2008 second quarter.

To participate in the teleconference, investors and analysts are invited to call 800-265-0241 in the U.S., or 617-847-8704 outside of the U.S., and reference participant code 24834781. The conference call will also be webcast simultaneously by accessing http://investors.getcosi.com/.

A replay will be available following the call until 12:00 AM ET on August 14, 2008. To access the replay, call 888-286-8010 in the U.S., or 617-801-6888 outside of the U.S., and reference the code 92279002.

About Cosi, Inc.

Cosi (http://www.getcosi.com) is a national premium convenience restaurant chain that has developed featured foods built around a secret, generations-old recipe for crackly crust flatbread. This artisan bread is freshly baked in front of customers throughout the day in open flame stone hearth ovens prominently located in each of the restaurants. Cosi's warm and urbane atmosphere is geared towards its sophisticated, upscale, urban and suburban guests. There are currently 102 Company-owned and 43 franchise restaurants operating in eighteen states, the District of Columbia and the United Arab Emirates. The Cosi vision is to become America's favorite premium convenience restaurant by providing customers authentic, innovative, savory food while remaining an affordable luxury.

The Cosi menu features Cosi sandwiches, freshly tossed salads, melts, soups, Cosi bagels, flatbread pizzas, S'mores, snacks and other desserts, and a wide range of coffee and coffee-based drinks and other specialty beverages. Cosi restaurants are designed to be welcoming and comfortable with an eclectic environment. Cosi's sights, sounds, and spaces create a tasteful, relaxed ambience that provides a fresh and new dining experience.

"Cosi," "Cosi (w/hearth design)," "Simply Good Tastes" and related marks are registered trademarks of Cosi, Inc.

Copyright 2008 Cosi, Inc. All rights reserved.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. This press release contains statements that constitute forward-looking statements under the federal securities laws. Forward-looking statements are statements about future events and expectations and not statements of historical fact. The words "believe," "may," "will," "should," "anticipate," "estimate," "expect," "intend," "objective," "seek," "plan," "strive," or similar words, or negatives of these words, identify forward-looking statements. We qualify any forward-looking statements entirely by these cautionary factors. Forward-looking statements are based on management's beliefs, assumptions and expectations of our future economic performance, taking into account the information currently available to management. Forward-looking statements involve risks and uncertainties that may cause our actual results, performance or financial condition to differ materially from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Factors that could contribute to these differences include, but are not limited to: the cost of our principal food products and supply and delivery shortages or interruptions; labor shortages or increased labor costs; changes in consumer preferences and demographic trends; expansion into new markets including foreign markets; our ability to locate suitable restaurant sites in new and existing markets and negotiate acceptable lease terms; competition in our markets, both in our business and in locating suitable restaurant sites; our operation and execution in new and existing markets; our ability to recruit, train and retain qualified corporate and restaurant personnel and management; cost effective and timely planning, design and build-out of restaurants; our ability to attract and retain qualified franchisees; the availability and cost of additional financing, both to fund our existing operations and to open new restaurants; the rate of our internal growth and our ability to generate increased revenue from our existing restaurants; our ability to generate positive cash flow from existing and new restaurants; the reliability of our customer and market studies; fluctuations in our quarterly results due to seasonality; increased government regulation and our ability to secure required governmental approvals and permits; our ability to create customer awareness of our restaurants in new markets; market saturation due to new restaurant openings; inadequate protection of our intellectual property; adverse weather conditions which impact customer traffic at our restaurants and adverse economic conditions. Further information regarding factors that could affect our results and the statements made herein are included in our filings with the Securities and Exchange Commission.

Additional information is available on the company's website at http://www.getcosi.com in the investor relations section.

                                Cosi, Inc.
                        Consolidated Balance Sheets
                As of June 30, 2008 and December 31, 2007
          (dollars in thousands, except share and per share data)


                                                    June 30,   December 31,
                                                     2008         2007
                                                  -----------  -----------
                                                  (Unaudited)    (Note 1)
Assets
Current assets:
   Cash and cash equivalents                      $     6,041  $     6,309
   Accounts receivable, net                               642          658
   Inventories                                          1,009        1,045
   Prepaid expenses and other current assets            3,103        3,796
   Assets held for sale                                     -          122
   Assets of discontinued operations                        -           35
                                                  -----------  -----------
      Total current assets                             10,795       11,965


Furniture and fixtures, equipment and leasehold
 improvements, net                                     39,882       42,477
Intangibles, security deposits and other assets,
 net                                                    1,949        1,970
                                                  -----------  -----------
      Total assets                                $    52,626  $    56,412
                                                  ===========  ===========

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                               $     1,742  $     2,106
   Accrued expenses                                     9,950        9,014
   Deferred franchise revenue                             474          783
   Current liabilities of discontinued operations          27          285
   Current portion of other long-term liabilities         368          465
                                                  -----------  -----------
      Total current liabilities                        12,561       12,653

   Deferred franchise revenue                           2,869        2,730
   Other long-term liabilities, net of current
    portion                                             7,059        7,183
                                                  -----------  -----------
      Total liabilities                                22,489       22,566
                                                  -----------  -----------

Commitments and contingencies

Stockholders' equity:
   Common stock - $.01 par value; 100,000,000
    shares authorized,
   41,155,851 and 41,047,985 shares issued,
    respectively                                          412          411
   Additional paid-in capital                         276,234      275,187
   Treasury stock, 239,543 shares at cost              (1,198)      (1,198)
   Accumulated deficit                               (245,311)    (240,554)
                                                  -----------  -----------
      Total stockholders' equity                       30,137       33,846
                                                  -----------  -----------
      Total liabilities and stockholders' equity  $    52,626  $    56,412
                                                  ===========  ===========






                                Cosi, Inc.
                  Consolidated Statements of Operations
  For the Three and Six Month Periods Ended June 30, 2008 and July 2, 2007
          (dollars in thousands, except share and per share data)


                              Three Months Ended       Six Months Ended
                             June 30,     July 2,    June 30,     July 2,
                               2008        2007        2008        2007
                            ----------  ----------  ----------  ----------
                           (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Restaurant net sales        $   36,207  $   35,043  $   68,666  $   65,732
Franchise fees and royalties       516         405       1,248         837
                            ----------  ----------  ----------  ----------
    Total revenues              36,723      35,448      69,914      66,569
                            ----------  ----------  ----------  ----------

Costs and expenses:
Cost of food and beverage        8,261       7,961      15,797      15,060
Restaurant labor and
 related benefits               11,778      11,900      23,016      22,725
Occupancy and other restaurant
 operating expenses              9,930       9,703      19,685      18,664
                            ----------  ----------  ----------  ----------
                                29,969      29,564      58,498      56,449
General and administrative
 expenses                        6,069       6,142      11,106      12,121
Depreciation and
 amortization                    2,056       2,207       4,167       4,267
Restaurant pre-opening
 expenses                           73         311         100         581
Provision for losses on
 asset impairments and
 disposals                         267         945         267         945
Closed store costs                  13         262          47         262
Lease termination expense            -         193         243         193
                            ----------  ----------  ----------  ----------
    Total costs and
     expenses                   38,447      39,624      74,428      74,818
                            ----------  ----------  ----------  ----------

    Operating loss              (1,724)     (4,176)     (4,514)     (8,249)

Interest income                     27         139          72         344
Interest expense                    (2)         (2)         (3)         (4)
                            ----------  ----------  ----------  ----------
    Loss from continuing
     operations                 (1,699)     (4,039)     (4,445)     (7,909)
Discontinued operations:
    Loss from discontinued
     operations                    (30)     (3,362)       (312)     (3,697)
                            ----------  ----------  ----------  ----------

    Net loss                $   (1,729) $   (7,401) $   (4,757) $  (11,606)
                            ==========  ==========  ==========  ==========

Per Share Data:
  Loss per share, basic and
   diluted
    Continuing operations   $    (0.04) $    (0.10) $    (0.11) $    (0.20)
    Discontinued operations $    (0.00) $    (0.09) $    (0.01) $    (0.09)
                            ----------  ----------  ----------  ----------
    Net loss                $    (0.04) $    (0.19) $    (0.12) $    (0.30)
                            ==========  ==========  ==========  ==========

  Weighted average shares
   outstanding:             40,030,460  39,353,590  39,980,356  38,962,370
                            ==========  ==========  ==========  ==========

  As a percentage of
   restaurant net sales:
    Cost of food and
     beverage                     22.8%       22.7%       23.0%       22.9%
    Labor and related
     benefits                     32.5%       34.0%       33.5%       34.6%
    Occupancy and other
     operating expenses           27.4%       27.7%       28.7%       28.4%





                                Cosi, Inc.
                             Restaurant Count


                                    For the Three Months Ended
                              June 30, 2008             July 2, 2007
                        ------------------------- -------------------------
                        Company-                  Company-
                         Owned    Franchise Total  Owned    Franchise Total
                        --------   -------- ----- --------   -------- -----
Restaurants at
 beginning of period         102         42   144      113(a)      19   132
New restaurants opened         1          2     3        1          3     4
Restaurants permanently
 closed                        1          1     2        1          -     1
                        --------   -------- ----- --------   -------- -----
Restaurants at end of
 period                      102         43   145      113(a)      22   135
                        ========   ======== ===== ========   ======== =====

(a) Includes nine locations that are classified as discontinued operations



                                     For the Six Months Ended
                              June 30, 2008             July 2, 2007
                        ------------------------- -------------------------
                        Company-                  Company-
                         Owned    Franchise Total  Owned    Franchise Total
                        --------   -------- ----- --------   -------- -----
Restaurants at
 beginning of period         107(b)      34   141      110(a)      13   123
New restaurants opened         1         10    11        4          9    13
Restaurants permanently
 closed                        6          1     7        1          -     1
                        --------   -------- ----- --------   -------- -----
Restaurants at end of
 period                      102         43   145      113(a)      22   135
                        ========   ======== ===== ========   ======== =====

(a) Includes nine locations that are classified as discontinued operations
(b) Includes three locations that are classified as discontinued operations

Contact Information

  • CONTACT:
    William E. Koziel
    Chief Financial Officer
    (847) 597-8803