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DEERFIELD-Though Cosi Inc. reported a loss of almost $2 million in its third quarter, company officials said in a conference call that a plan to boost franchise-owned stores, as well as continued roll-out of its next generation store design, will greatly improve revenue in 2007. Cosi has 109 company-owned locations and nine franchisee locations as of the end of the third quarter, in 16 states and the District of Columbia.
The firm plans to open about 80 new restaurant sites by December 2007. Nine of the restaurants will open in 2007 from being under construction this year, up to 21 will be new company-owned locations and up to 50 sites will be opened by franchisees, according to company officials.
Bill Koziel, chief financial officer for the company, blamed the recent loss on two factors. He says there was a macroeconomic decline in comparable restaurant sales in the third quarter, and the company opened 14 new restaurants in the first quarter, causing operational revenues to stumble in the fall. "We found as new restaurants ramp up, they experience some inefficiencies in the first few months of operation," Koziel said.
Cosi president Kevin Armstrong says new initiatives will help boost sales in the coming months. These initiatives include new menus, the next generation of store design as opposed to what the firm calls the "heritage" design, and a new electronic loyalty gift card program that will assist with marketing and guest information gathering. Also, the company has increased its catering business, and added a Chicago-area call center for that purpose.
Bill Forrest, chairman of the board, also pointed to the new development policy as a sign of the continued growth of the company. "We're only in the start-up phase of our franchising effort. By 2010, two-thirds of our restaurants will be run by franchisees, compared to the small fraction franchisees represent today," he said. The firm has 27 multi-unit franchisees who have committed to opening more than 345 new restaurants, Forrest says.
By the end of 2007, the majority of Cosi restaurants will be franchised restaurants, and many will be the next-generation store design, which has proven to appeal to guests, Armstrong said. "We expect our planned marketing and merchandising initiatives to drive an improvement in guest frequency as well as to continue to attract new guests," he said.
Excluding stock-based compensation expense, Cosi reported a loss of $1.9 million, or 5 cents per basic and diluted common share, in the third quarter 2006 compared with a loss of about $1 million or 3 cents per basic and diluted common share, for the 2005 third quarter. As of Oct. 2, the company has a balance sheet of about $25.6 million, with virtually no debt.
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