Cosi, Inc. Reports 2008 Fourth Quarter and Full Year Results
DEERFIELD, IL - 03/16/09— Cosi, Inc. (NASDAQ:
COSI), the premium convenience restaurant company, today reported a
net loss for the fourth quarter ended December 29, 2008 of
$(8,370,000), or $(0.21) per basic and diluted common share, compared
with the 2007 fourth quarter, when Cosi’s net loss was $(6,175,000),
or $(0.16) per basic and diluted common share. Cosi reduced its
operating loss in the fourth quarter compared with the year-earlier
period by 33%, to $(2,086,000) from $(3,123,000), excluding
impairment provisions, closed store costs and lease termination
costs. Cosi recorded charges of $(6,300,000) and $(2,667,000) in the
2008 and 2007 fourth quarters, respectively, related to asset
impairment provisions, closed store costs and lease termination
costs.
Cosi’s total revenues for the 2008 fourth quarter decreased 7.3% to
$30,735,000 from $33,150,000 in the 2007 fourth quarter.
For the 2008 fiscal year ended December 29, 2008, Cosi reported a net
loss of $(16,222,000), or $(0.40) per basic and diluted common share,
and an operating loss of $(16,046,000). Cosi’s 2008 operating loss
included $(7,719,000) or $(0.19) per basic and diluted common share in
losses from impairment provisions, closed store costs and lease
termination costs.
In the 2007 fiscal year ended December 31, 2007, Cosi reported a net
loss of $(20,783,000), or $(0.53) per basic and diluted common share,
and an operating loss of $(17,717,000). Cosi’s 2007 operating loss
included $(4,431,000) or $(0.11) in basic and diluted common share in
losses from impairment provisions, closed store costs and lease
termination costs, partially offset by one-time gains.
Cosi’s revenues for the 2008 full year grew 0.8% to $135,579,000 from
$134,556,000 in the prior year. Cosi reported that 20 new
restaurants were opened in 2008, 19 of which were franchise
locations.
James Hyatt, Cosi’s President and Chief Executive Officer, said,
“While the current stress on the economy, the financial system and
the consumer has created a very difficult environment for the
restaurant industry, our team remains intensely focused on driving
sales and operating margin improvement, and working very closely with
our franchise partners for our mutual benefit and the long-term
benefit of our shareholders.”
2008 Fourth Quarter and Full Year Financial Performance and
Restaurant Economics
Contributing to Cosi’s aforementioned 7.3% decrease in fourth quarter
revenues as compared to the 2007 fourth quarter revenues was the
decline of the Company’s restaurant net sales to $29,860,000 from
$32,456,000 in the prior year quarter due primarily to 6.2% decrease
in comparable restaurant net sales as well as the impact of seven
locations closed since the fourth quarter of 2007. Franchise fees and
royalties grew to $875,000 in the fourth quarter from $694,000 in the
2007 fourth quarter. During the fourth quarter, Cosi added nine new
franchise locations and closed two franchise locations.
Cosi stated that it was able to offset higher restaurant-level costs
by successfully exhibiting disciplined corporate expense control. For
the fourth quarter, Cosi reported a 220 basis point increase in costs
and expenses related to Company-owned restaurant operations as a
percentage of restaurant net sales compared with the fourth quarter
2007. The increase resulted from a 240 basis point increase in
occupancy and other restaurant operating expenses due primarily to
the deleveraging impact of the decrease in comparable restaurant net
sales on fixed occupancy costs as well higher costs for utilities
during the period. Labor and related benefits costs increased 100
basis points over the 2007 fourth quarter and were offset by a 120
basis point decline in the cost of food and beverage.
During the same period, the Company improved by 380 basis points its
general and administrative expenses as a percentage of total
revenues, to $3,434,000 or 11.2% from $4,979,000 or 15.0% in the
fourth quarter 2007.
For the full year, Cosi saw restaurant net sales increase to
$132,501,000 in 2008, up from $132,414,000 in 2007. Franchise fees
and royalties grew 43.7% on the year, to $3,078,000 for 2008 from
$2,142,000 a year earlier.
Costs and expenses of Company-owned restaurant operations as a
percentage of restaurant net sales for 2008 were comparable with the
previous year. Labor and related benefits as a percentage of
restaurant net sales decreased by 50 basis points compared to the
previous year reflecting the improvement in labor costs resulting
from better deployment of partners during peak and non-peak hours of
operations. Cosi also reported a 60 basis point decrease in food and
beverage cost due primarily to menu price increases taken during the
2008 second quarter. The decreases in labor and food and beverage
costs were offset by a 110 basis point increase in occupancy and
other restaurant operating expenses as a percentage of restaurant net
sales.
Cosi demonstrated continued corporate expense control over the course
of the year, as general and administrative expense decreased 240 basis
points as a percentage of restaurant net sales to 14.7%, compared with
17.1% in 2007. Included in general and administrative expense for
2008 were one-time litigation costs and severance related to
workforce reductions of approximately $2,400,000.
Cosi reported that as of December 29, 2008 it had cash, cash
equivalents, and short-term investments of $5,589,000 and virtually no
debt other than lease obligations.
Development Performance
Cosi finished the year with a total of 151 locations consisting of
101 Company-owned locations and 50 franchised locations. It opened one
Company-owned location and 19 franchised locations during 2007.
Seven Company-owned and three franchise locations were closed during
the year.
Subsequent to the 2008 fiscal year end, one additional franchise
location opened while three Company-owned and three franchise
locations were closed.
Investor Teleconference
Given the ongoing efforts of the special committee of independent
directors to review and evaluate strategic alternatives, as previously
announced, as well as the uncertainty of the macroeconomic
environment and its impact on the general business climate, Cosi is
temporarily suspending its quarterly investor calls. Management will
continue to focus all of its efforts on creating shareholder value
through revenue growth and improvements in operating margin while
also supporting the continued growth of our franchise system.
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 98 Company-owned and 48 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 Taste” and related marks
are registered trademarks of Cosi, Inc.
Copyright Copyright 2008 Cosi, Inc.
“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 December 29, 2008 and December 31, 2007
(dollars in thousands)
December 29, December 31,
2008 2007
------ ------
Assets
Current assets:
Cash and cash equivalents $ 5,589 $ 6,309
Accounts receivable, net 916 658
Inventories 998 1,045
Prepaid expenses and other current assets 3,650 3,796
Assets held for sale - 122
Assets of discontinued operations - 35
------ ------
Total current assets 11,153 11,965
Furniture and fixtures, equipment and
leasehold improvements, net 29,779 42,477
Intangibles, security deposits and other
assets 1,849 1,970
------ ------
Total assets $ 42,781 $ 56,412
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,378 $ 2,106
Accrued expenses 9,835 9,014
Deferred franchise revenue 149 783
Current liabilities of discontinued
operations 4 285
Current portion of other long-term
liabilities 668 465
------ ------
Total current liabilities 14,034 12,653
Deferred franchise revenue 2,545 2,730
Other long-term liabilities, net of current
portion 7,176 7,183
------ ------
Total liabilities 23,755 22,566
------ ------
Commitments and contingencies
Stockholders' equity:
Common stock - $.01 par value; 100,000,000
shares authorized, 40,663,189 and
41,052,170 shares issued, respectively 407 411
Additional paid-in capital 276,593 275,187
Treasury stock, 239,543 shares at cost (1,198) (1,198)
Accumulated deficit (256,776) (240,554)
------ ------
Total stockholders' equity 19,026 33,846
------ ------
Total liabilities and
stockholders' equity $ 42,781 $ 56,412
============= =============
The accompanying notes are an intergral part of these consolidated
financial statements.
Cosi, Inc
Consolidated Statements of Operations
For the Three and Twelve Month Periods Ended December 29, 2008
and December 31, 2007
(dollars in thousands, except per share data)
Three Months Ended Twelve Months Ended
December December December December
29, 31, 29, 31,
2008 2007 2008 2007
--- --- --- ---
Revenues:
Restaurant net sales $ 29,860 $ 32,456 $ 132,501 $ 132,414
Franchise fees and
royalties 875 694 3,078 2,142
--- --- --- ---
Total revenues 30,735 33,150 135,579 134,556
--- --- --- ---
Costs and expenses:
Cost of food and beverage 6,827 7,811 30,235 30,972
Restaurant labor and
related benefits 10,818 11,438 45,375 45,995
Occupancy and other
restaurant operating
expenses 9,652 9,699 39,821 38,369
--- --- --- ---
27,297 28,948 115,431 115,336
General and
administrative expenses 3,434 4,979 19,966 22,973
Depreciation and
amortization 2,090 2,273 8,409 8,823
Restaurant pre-opening
expenses - 73 100 710
Provision for losses on
asset impairments
and disposals 6,031 2,535 7,099 3,845
Closed store costs 16 62 69 262
Lease termination
expense, net 253 70 551 347
Gain on sale of assets - - - (23)
--- --- --- ---
Total costs and expenses 39,121 38,940 151,625 152,273
--- --- --- ---
Operating loss (8,386) (5,790) (16,046) (17,717)
Interest income 12 75 102 524
Interest expense (2) (36) (7) (42)
Other income 6 (11) 41 705
--- --- --- ---
Total other income
(expense) 16 28 136 1,187
--- --- --- ---
Loss from continuing
operations (8,370) (5,762) (15,910) (16,530)
--- --- --- ---
Discontinued operations:
Operating loss from
discontinued operations - (138) (224) (903)
Asset impairments of
discontinued operations - (275) (88) (3,350)
--- --- --- ---
Loss from discontinued
operations - (413) (312) (4,253)
--- --- --- ---
Net loss $ (8,370) $ (6,175) $ (16,222) $ (20,783)
========== ========== ========== ==========
Per Share Data:
Loss per share, basic and
diluted
Continuing operations $ (0.21) $ (0.15) $ (0.40) $ (0.42)
Discontinued operations $ - $ (0.01) $ - $ (0.11)
--- --- --- ---
Net loss $ (0.21) $ (0.16) $ (0.40) $ (0.53)
========== ========== ========== ==========
Weighted average common
shares outstanding 40,249,372 39,790,233 40,078,511 39,332,226
========== ========== ========== ==========
The accompanying notes are an intergral part of these consolidated
financial statements.
Cosi, Inc.
Results of Operations as a Percent of Revenues
Three Months Ended Twelve Months Ended
December December December December
29, 31, 29, 31,
2008 2007 2008 2007
- - - -
Revenues:
Restaurant net sales 97.2% 97.9% 97.7% 98.4%
Franchise fees and royalties 2.8 2.1 2.3 1.6
- - - -
Total revenues 100.0 100.0 100.0 100.0
- - - -
Cost and expenses:
Cost of food and beverage (1) 22.9 24.1 22.8 23.4
Restaurant labor and related
benefits (1) 36.2 35.2 34.2 34.7
Occupancy and other restaurant
operating expenses (1) 32.3 29.9 30.1 29.0
- - - -
91.4 89.2 87.1 87.1
General and administrative
expenses: 11.2 15.0 14.7 17.1
Depreciation and amortization 6.8 6.9 6.2 6.6
Restaurant pre-opening expenses 0.2 0.1 0.5
Provision for losses on asset
impairments and disposals 19.6 7.6 5.2 2.9
Closed store costs 0.1 0.2 0.1 0.2
Lease termination expense, net 0.8 0.2 0.4 0.3
Gain on sale of assets - - - -
- - - -
Total costs and expenses 127.3 117.5 111.8 113.2
- - - -
Operating loss (27.3) (17.5) (11.8) (13.2)
Other income (expense):
Interest income - 0.1 - 0.4
Other income - - - 0.5
- - - -
Loss from continuing operations (27.3) (17.4) (11.8) (12.3)
Discontinued operations:
Operating loss from discontinued
operations (0.4) (0.2) (0.7)
Asset imparments of discontinued
operations (0.8) - (2.4)
- - - -
Loss from discontinued operations - (1.2) (0.2) (3.1)
- - - -
Net loss (27.3) (18.6) (12.0) (15.4)
======== ======== ======== ========
(1) These are expressed as a pecentage of restaurant net sales versus all
other items expressed as a percentage of total revenues.
Fiscal Year
2008 2007 2006
------ ------ ------
Company Fran- Company Fran- Company Fran-
-Owned chise Total -Owned chise Total -Owned chise Total
------ ----- ------ ----- ------ -----
Restaurants
at beginning
of period 107c 34 141 110b 13 123 96a 5 101
New restaurants
opened 1 19 20 6 22 28 21 8 29
Restaurants
permanently
closed 7 3 10 9 1 10 7 - 7
------ ----- ------ ----- ------ -----
Restaurants
at end of
period 101 50 151 107c 34 141 110b 13 123
======= ====== ===== ======= ====== ===== ======= ====== =====
a - Includes six locations that are classified as discontinued operations.
b - Includes nine locations that are classified as discontinued operations.
c - Includes three locations that are classified as discontinued
operations.
CONTACT:
William Koziel
(847) 597-8800
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