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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
FranchiseTotal Company-
Owned
FranchiseTotal
Restaurants at beginning of period 7631107 6349112
Franchise-owned converted to Company-owned --- 1616-
New restaurants opened --- -11
Restaurants permanently closed 213 123
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

Source:Cosi, Inc