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Così, Inc. Reports Fiscal 2016 Second Quarter Financial Results

BOSTON, Aug. 11, 2016 (GLOBE NEWSWIRE) -- Cosi, Inc. (NASDAQ:COSI), today reported 2016 second quarter results for the period ended June 27, 2016. For the 2016 second quarter the Company reported a net loss of ($3.1) million, or ($0.07) per diluted share, compared to ($3.9) million, or ($0.08) per diluted share, in the 2015 second quarter.

2016 Second Quarter Revenue Highlights:

  • Total revenues for the 2016 second quarter of $22.8 million decreased $1.6 million, or 7.0%, when compared to the 2015 second quarter.
  • Company-owned restaurant net sales for the 2016 second quarter of $22.3 million decreased $1.7 million, or 7.1%, when compared to the 2015 second quarter due to a decrease in net sales in our comparable restaurant base of 4.1%, or approximately $0.7 million, a decrease in net sales of approximately $1.7 million related to restaurants closed during and subsequent to the three-month period ended June 29, 2015, and a net increase in sales of approximately $0.7 million from 17 new or acquired  restaurants.
  • System-wide comparable restaurant net sales for the 2016 second quarter, as measured for restaurants in operation for more than 15 consecutive months as Company-owned or franchised restaurants, recorded an aggregate decrease of 4.5% when compared to the 2015 second quarter due to a decrease of 6.6% in Company-owned restaurants and an increase of 0.4% in franchised restaurants.
  • The Hearthstone restaurants recorded an aggregate increase in comparable restaurant net sales for the 2016 second quarter of 2.1% when compared to the 2015 second quarter.
  • Franchise fees and royalty revenues for the 2016 second quarter of $0.5 million increased $0.1 million, or 16.8%, when compared to the 2015 second quarter due to the opening of three Franchise locations, partially offset by the closure of one Franchise location.

2016 Second Quarter Costs and Expenses Highlights:

  • Cost of food and beverage. The cost of food and beverage as a percentage of restaurant net sales for the 2016 second quarter decreased by 1.1%, when compared to the 2015 second quarter.  This decrease was primarily the result of operational improvements and stability in the costs of certain contracted commodities.
  • Restaurant labor and related benefits. Restaurant labor and related benefits as a percentage of sales for the 2016 second quarter decreased by 0.9%, when compared to the 2015 second quarter.  This decrease was due to the concerted efforts on hourly scheduling and manager configurations as well as other productivity initiatives.
  • Occupancy and other restaurant operating expenses.  Occupancy and other restaurant operating expenses, as a percentage of sales, for the 2016 second quarter, decreased by 1.3% when compared to the 2015 second quarter.  This decrease was the result of newly acquired restaurants with higher sales volumes and lower fixed costs, as well as the closure of underperforming units with high occupancy costs.
  • General and administrative expenses. General and administrative expenses for the 2016 second quarter decreased by approximately $0.7 million, when compared to the 2015 second quarter as a result of a decrease in stock compensation expense and payroll savings associated with reduction of headcount in the corporate office.

“While we appreciate that we are operating in a challenging external environment, we are relentlessly focused on increasing guest satisfaction, driving trial and increasing guest frequency, and ultimately improving the disappointing sales in the quarter,”

“Restaurant cash flow margin of 4.9% for the quarter improved by 330 and 450 basis points versus the same quarter last year and quarter over quarter respectively, demonstrating steady margin improvements since the third quarter last year. As a result, we closed this quarter with an ending cash balance of $3.1 million, a decrease of $0.1 million when compared to the ending cash balance of $3.2 million at the close of the first quarter 2016. While we believe restaurant sales will improve in the third quarter as a result of existing and new operational and marketing initiatives, we do not expect to reach the range required to turn cash flow positive in the third quarter. As a result, we are focused on increasing the depth and scale of our sales-building efforts, implementing further cost reduction initiatives, continue exploring the sale of assets, and pursue initiatives to strengthen the balance sheet,” stated RJ Dourney, President & CEO.

“Now, specific to sales, while I appreciate that we are operating in a challenging external environment, we are relentlessly focused on increasing guest satisfaction, driving trial and increasing guest frequency, and ultimately improving the disappointing sales in the quarter,” Dourney went on to say.

2016 Second Quarter Restaurant Counts:

  • As of June 27, 2016, there were 74 Company-owned and 30 franchise-owned restaurants operating in 15 states, the District of Columbia, the United Arab Emirates, and Costa Rica. During the three-month period ended June 27, 2016, we closed two Company-owned restaurants in Birmingham, MI and Owings Mills, MD. The change in restaurant counts is described below:
    For the Three-Month Period Ended
    June 27, 2016   June 29, 2015
    Company-
Owned
Franchise Total   Company-
Owned
Franchise Total
Restaurants at beginning of period   76 31 107   63 49 112
Franchise-owned converted to Company-owned   - - -   16 16 -
New restaurants opened   - - -   - 1 1
Restaurants permanently closed   2 1 3   1 2 3
Restaurants at end of period     74   30   104     78   32   110
                 

Unaudited 2016 Second Quarter Financial Statements

 

 Cosi, Inc. 
 Consolidated Balance Sheets (Unaudited) 
 (dollars in thousands, except per share amounts) 
           
      June 27,
2016
  December 28,
2015
                     
Assets                
Current assets:                
  Cash and cash equivalents   $ 3,095     $ 5,152  
  Credit card receivables     725       343  
  Accounts receivable, net of allowances of $200 and $223, respectively     978       899  
  Inventories     864       1,051  
  Prepaid expenses and other current assets     1,248       1,335  
  Total current assets     6,910       8,780  
                     
Furniture and fixtures, equipment and leasehold improvements, net     9,455       11,892  
Notes receivable, net of allowances of $1,001, respectively     -       -  
Intangible assets, net     2,147       2,642  
Goodwill     11,632       11,632  
Restricted cash     -       5,002  
Other assets     1,099       1,313  
  Total assets   $ 31,243     $ 41,261  
           
Liabilities and Stockholders' Equity      
Current liabilities:      
  Accounts payable   $ 2,629     $ 1,564  
  Accrued expenses     6,195       6,920  
  Current portion of other long-term liabilities     178       105  
  Current portion of long-term debt     7,070       473  
  Total current liabilities     16,072       9,062  
           
  Deferred franchise revenue     1,735       1,726  
  Other long-term liabilities, net of current portion     1,595       1,625  
  Long-term debt, net     -       10,669  
  Deferred income tax     428       327  
  Total liabilities     19,830       23,409  
           
  Commitments and Contingencies                
                     
Stockholders' equity:                
  Common stock - $.01 par value; 100,000,000 shares authorized,                
    48,193,265 and 47,972,150 shares issued, respectively     482       479  
  Additional paid-in capital     344,516       344,296  
  Treasury stock, 59,886 shares at cost     (1,198 )     (1,198 )
  Accumulated deficit     (332,387 )     (325,725 )
  Total stockholders' equity     11,413       17,852  
  Total liabilities and stockholders' equity   $ 31,243     $ 41,261  
                     


Cosi, Inc.
Consolidated Statements of Operations
(dollars in thousands, except per share data)
                     
        Three Months Ended   Six Months Ended
             
        June 27,
2016
  June 29,
2015
  June 27,
2016
  June 29,
2015
                                     
Revenues:                              
    Restaurant net sales $ 22,326     $ 24,027     $ 43,547     $ 41,234  
    Franchise fees and royalties   493       422       952       1,123  
      Total revenues   22,819       24,449       44,499       42,357  
                                     
Costs and expenses:                              
    Cost of food and beverage   5,797       6,514       11,452       11,358  
    Restaurant labor and related benefits   7,780       8,588       15,784       15,684  
    Occupancy and other restaurant operating expenses   7,644       8,532       15,131       15,169  
          21,221       23,634       42,367       42,211  
                                     
    General and administrative expenses   2,502       3,181       4,792       5,797  
    Depreciation and amortization   778       846       1,762       1,426  
    Provision for losses on asset impairments                              
      and disposals   1,169       -       1,212       -  
    Closed store costs expense   25       52       128       13  
    Lease termination costs   44       142       225       193  
    Loss on sale of assets   -       -       197       18  
      Total costs and expenses   25,739       27,855       50,683       49,658  
      Operating loss   (2,920 )     (3,406 )     (6,184 )     (7,301 )
Other income (expense):                              
  Interest expense   (169 )     (313 )     (337 )     (569 )
  Debt issuance and debt discount amortization   (165 )     (165 )     (330 )     (330 )
  Other income   151       10       290       12  
      Total other income (expense)   (183 )     (468 )     (377 )     (887 )
      Net loss before income taxes   (3,103 )     (3,874 )     (6,561 )     (8,188 )
  Provision for income tax expense   (16 )     -       (101 )     -  
      Net loss $ (3,119 )   $ (3,874 )   $ (6,662 )   $ (8,188 )
Per Share Data:              
  Loss per share, basic and diluted $ 0.07     $ 0.08     $ 0.14     $ 0.20  
                                     
    Weighted average common shares outstanding,                              
      basic and diluted   46,866,339       45,726,432       46,789,834       41,522,803  
                                     


Cosi, Inc.
Consolidated Statement of Stockholders' Equity 
(dollars in thousands, except share data)
                             
    Common Stock   Treasury Stock        
                                 
                Additional   Shares of   Amount        
    Number of       Paid In   Treasury   Treasury   Accumulated    
    Shares   Amount   Capital   Stock   Stock   Deficit   Total
Balance, December 28, 2015   47,972,150     $ 479     $ 344,296     59,886   $ (1,198 )   $ (325,725 )   $ 17,852  
                             
Issuance of restricted stock,                          
  net of forfeitures   413,054       4       (4 )   -     -       -       -  
Forfeiture of common stock                          
  in connection with the Holdback Settlement   (191,939 )     (1 )     (123 )   -     -       -       (124 )
Stock-based compensation   -       -       347     -     -       -       347  
Net loss   -       -       -     -     -       (6,662 )     (6,662 )
                                                     
Balance, June 27, 2016   48,193,265     $ 482     $ 344,516     59,886   $ (1,198 )   $ (332,387 )   $ 11,413  
                             


Cosi, Inc.
Consolidated Statements of Cash Flows
(in thousands)
           
      June 27,
2016
  June 29,
2015
           
Cash flows from operating activities:      
  Net loss   $ (6,662 )   $ (8,188 )
  Adjustments to reconcile net loss to net cash used in      
    operating activities      
    Depreciation and amortization     1,762       1,426  
    Amortization of debt issuance and debt discount costs     330       330  
    Loss on sale of assets     197       18  
    Deferred income tax     101       -  
    Non-cash portion of asset impairments and disposals     1,212       -  
    Provision for bad debts     198       83  
    Provision for notes receivable     -       225  
    Provision for lease termination reserve     225       217  
    Non-cash gain on settlement of Holdback Agreement     (124 )     -  
    Stock-based compensation expense     347       843  
    Interest expense paid in kind     -       315  
    Changes in operating assets and liabilities, net of effect of acquisitions            
    Credit card receivables     (382 )     (285 )
    Accounts receivable     (277 )     21  
    Inventories     187       -  
    Prepaid expenses and other current assets     87       (455 )
    Other assets     147       41  
    Accounts payable and accrued expenses     340       (3,248 )
    Deferred franchise revenue     9       (10 )
    Other liabilities     (187 )     -  
    Net cash used in operating activities     (2,490 )     (8,667 )
           
Cash flows from investing activities:      
  Capital expenditures     (487 )     (2,103 )
  Proceeds from sale of assets     251       -  
    Net cash used in investing activities     (236 )     (2,103 )
           
Cash flows from financing activities:      
  Principal payments on long-term debt     (4,333 )     (6,612 )
  Net proceeds from private placement     -       15,263  
  Return of excess restricted cash held in escrow account     5,002       (5,000 )
    Net cash provided by financing activities     669       3,651  
           
Net decrease in cash and cash equivalents     (2,057 )     (7,119 )
Cash and cash equivalents, beginning of year     5,152       21,053  
Cash and cash equivalents, end of period   $ 3,095     $ 13,934  
           
Supplemental disclosures of cash flow information:      
Cash paid for:      
  Interest   $ 339     $ 43  
  Corporate franchise and income taxes   $ 72     $ 356  
Non-cash financing activities      
  Issuance of common stock for acquisition   $ -     $ 4,666  
           

About Così, Inc.
Così (http://www.getcosi.com) is an international fast casual restaurant company.  At the heart of every Cosi® restaurant is an open-flame stone-hearth oven where the Così® signature flatbread is made from scratch throughout the day.  The flatbread is made from a generations-old recipe and is part of many Così® favorites. Così® was founded on the idea that good-for-you food should be delicious.  Menu items are made using fresh ingredients and distinctive sauces and spreads to create edgy flavors.  The menu features made-to-order sandwiches, hand-tossed salads, bowls, breakfast wraps, melts, all natural soups, signature Squagels®, artisan flatbread pizzas, S`mores, snacks and desserts.  Guests can also enjoy handcrafted beverages and a variety of coffee-based and specialty beverages. 

Così® employees create a welcoming environment where guests are invited to relax and enjoy great food.  In many cases, Così® is the cornerstone of the communities that they are in and take pride in supporting community organizations and local charities. There are currently 74 Company-owned and 30 franchise restaurants operating in fifteen states, the District of Columbia, Costa Rica and the United Arab Emirates.

"Così," "(Sun & Moon Design)" and related marks are registered trademarks of Così, Inc. in the U.S.A. and certain other countries. Copyright © 2015 Così, 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 results being reported in this release are unaudited and subject to change; the cost of our principal food products and supply and delivery shortages and interruptions; labor shortages or increased labor costs; changes in demographic trends and consumer tastes and preferences, including changes resulting from concerns over nutritional or safety aspects of beef, poultry, produce, or other foods or the effects of food-borne illnesses, such as E. coli, "mad cow disease" and avian influenza or "bird flu"; competition in our markets, both in our business and in locating suitable restaurant sites; our operation and execution in new and existing markets; expansion into new markets including foreign markets; our ability to attract and retain qualified franchisees and our franchisees' ability to open restaurants on a timely basis; our ability to locate suitable restaurant sites in new and existing markets and negotiate acceptable lease terms; 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; fluctuations in our quarterly results due to seasonality; increased government regulation and our ability to secure required government approvals and permits; our ability to create customer awareness of our restaurants in new markets; the reliability of our customer and market studies; cost effective and timely planning, design and build out of restaurants; our ability to recruit, train and retain qualified corporate and restaurant personnel and management; market saturation due to new restaurant openings; inadequate protection of our intellectual property; our ability to obtain additional capital and financing; 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 Così's website at
http://www.getcosi.com in the investor relations section.

CONTACT:
InvestorRelations@getcosi.com

Miguel Rossy-Donovan
Chief Financial Officer
(857) 415-5020

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Cosi, Inc

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