Cosi Misses, Loss Narrows Y/Y

Cosi Inc. (COSI - Snapshot Report) reported a loss of 4 cents per share in the fourth quarter of 2011, missing the Zacks Consensus Estimate of a loss of 3 cents. But the reported figure showed a penny’s improvement from the year-ago loss per share.

Total revenue, which comprises company-operated restaurant sales and franchise fees and royalties, grew 3.3% year over year to $26.2 million on the increase in company-owned comps as well as one extra week of operation offset somewhat by a decline in sales due to closure of units.

Company-owned sales increased 2.8% to $25.3 million. A traffic growth of 0.6% and an increase of 0.3% in average check resulted in a 2.8% upside in company-operated restaurant sales. Franchise fees and royalty revenues increased 18.8% to $0.9 million. In full-fiscal 2011, revenue declined 6.9% to $102.1 million.

System-wide comparable store sales grew 2.6% from the year-ago quarter. The upside in comps came after recording decline in comps for two consecutive quarters. Comps improvement was driven by new initiatives and favorable weather conditions especially in the month of December when comps shot up 8.2% owing to the holiday season. Comps at company-owned restaurants inched up 0.9% following higher traffic while comps at franchised restaurants were considerably up at 5.3%.

Based in Deerfield, Illinois, the company’s restaurant operating loss shrunk to $2.3 million from $2.9 million during the quarter. The loss lessened due to a 40 basis point (bp) decline in labor and related benefits, as a percentage of restaurant sales, 130-bp plunge in restaurant operating expenses partially offset by a 30-bp rise in cost of food and beverage.

Store Update

During the quarter, the company closed two franchised units. At the end of the fourth quarter, the company had 136 restaurants, out of which 80 are company-owned and 56 franchised. Cosi did not open any unit in the fourth quarter.

Financial Position

Cosi ended the quarter with cash and cash equivalents of $7.2 million and shareholders’ equity of $5.5 million. Additionally, the company has no debt apart from lease obligation.

Our Take

Cosi benefited from an enhanced catering menu in the fourth quarter. Cosi is set to leverage its catering business in 2012 via an online catering access. Management expects the improving trend in comps to continue in 2012. Moreover, Cosi is taking a set of initiatives to walk on the growth path. We prefer to remain on the sidelines until those measures translate into better numbers.

Cosi, which competes with companies like Kona Grill Inc. (KONA - Snapshot Report), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.