Cosi Inc. (COSI) reported a loss of 4 cents per share in the first quarter of 2011, which missed the Zacks Consensus Estimate by a penny, but beat the year-ago quarter loss of 6 cents per share. The loss narrowed down due to positive comparable store sales growth and a shrinkage in operating loss.
Total revenue, which comprises company-operated restaurant sales and franchise fees and royalties, plunged 14.1% year over year to $23.7 million in the quarter. Company-operated restaurant sales tumbled 17.7% to $23.0 million due to the sale of 13 company-owned restaurants to a franchisee in the second quarter of 2010. However, franchise fees and royalty revenues increased 34.1% year over year to $0.7 million.
System-wide comparable store sales increased 1.7% from the year-ago quarter, despite inclement weather conditions. The company witnessed comparable store sales growth for the fourth consecutive quarter. The company-owned comparable restaurant sales grew 3.0%, driven by a rise in traffic and average guest check (up 1.5% each).
Further, Cosi is benefiting from its marketing strategy of expanding its customer base and driving traffic by providing catering services for breakfast as well as lunch day parts. However, the same-store sales at franchise-operated restaurants inched down 0.5%.
Based in Deerfield, Illinois, the company’s restaurant operating loss narrowed down to $2.2 million from $3.1 million during the quarter. This improvement was aided by a 40-basis point (bps) contraction in cost of food and beverage and a 140-bp drop in labor and related benefits, partially offset by a 10-bp spike in occupancy and other restaurant operating expenses, as a percentage of restaurant sales.
Store Update
During the quarter, the company closed one company-owned restaurant. At the end of the first quarter, the company had 141 restaurants, out of which 83 are company-owned and 59 franchised.
Financial Position
Cosi ended the quarter with cash and cash equivalents of $9.3 million and shareholder’s equity of $9.7 million. Additionally, the company has no debt apart from lease obligations.
Our Take
We expect estimates to go up in the coming days as the company has lowered its loss and is efficiently containing costs in an inflationary environment. Moreover, comparable same-store sales are improving as the company is able to drive traffic, thus reflecting its ability to utilize the improving economic condition.
Cosi operates in 18 states including the District of Columbia in the U.S. and also operates in the United Arab Emirates. Its prime competitors include Panera Bread Co. (PNRA) and Starbucks Corp. (SBUX).
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