Improved sales help trim loss at Cosi

by Eric Schroeder
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DEERFIELD, ILL. — Cosi, Inc. said revenues for the fourth quarter ended Jan. 2 were $31,783,900, up 11% from $28,552,300 in the fourth quarter a year ago. The improved sales helped cut losses at the premium convenience restaurant chain, despite higher marketing and labor expenses.

For the 2006 fiscal year, Cosi’s revenues increased 8% to $126,889,400, up from $117,180,500 in fiscal 2005. Cosi’s 2006 comparable restaurant sales increased 0.3% over the 2005 fiscal year.

Cosi’s company-owned restaurant sales, which assume a comparable 52-week year and measure restaurants in operation for more than 15 months, increased 0.4% in the fourth quarter of 2006 over the same period a year ago. For the full year, comparable restaurant sales rose 0.3%.

Cosi said it expects to sustain a 2006 full-year loss of 18c per share, which compared with a loss of 28c per share in fiscal 2005.

"In the 2006 fourth quarter, Cosi’s franchise revenues and corporate expenses were in line with market expectations, we met our company-owned development targets, and we made progress with our marketing initiatives," said Kevin Armstrong, president and chief executive officer. "While we were encouraged by the improvement in comparable sales in the fourth quarter of 2006 as compared to the third quarter of 2006, comparable sales were still below our expectations. As a result, 2006 fourth-quarter restaurant margin performance was below our expectations and previous year’s fourth quarter, primarily because of flat comparable sales as well as higher planned marketing expenditures of approximately 100 basis points and 200 basis points as a percentage to sales in higher labor costs driven primarily by lower-than-expected revenue and higher manager complements in our current restaurant mix."

Mr. Armstrong did note that Cosi met its goal of opening 21 locations in 2006. Eleven company-owned locations were closed during the year.

At the end of the 2006 fourth quarter, Cosi had 123 company-owned locations, compared with 96 company-owned locations at the end of the 2005 fourth quarter. Cosi opened 21 company-owned restaurants in 2006 and 8 franchised locations, including two company-owned locations that were refranchised during the fourth quarter. Five Federated Department Store (Macy’s) locations were closed during the year.

Looking ahead, Cosi said it expects 2007 earnings before stock compensation expense to be in the range of 8c to 12c per share based on company-owned revenue ranging from $150 million to $155 million. Franchise fees and royalties are expected to contribute between $4 million and $5 million in 2007, Cosi said.

Further out, Cosi said it expects 2008 earnings before stock compensation expense to be in the range of 35c to 45c per share, with company-owned revenue of approximately $190 million to $205 million. Franchise fees and royalties are expected to contribute between $9 million and $10 million in 2008, Cosi said.

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