"We're getting there." That seems like the mantra at haute lunchery Cosi (NASDAQ:COSI). The company has spent three years on the public markets and has yet to post a profit. Yet every quarter it narrows its losses a bit more against the previous year's equivalent period. Tomorrow we hear the firm's results for the fourth quarter of 2005 -- historically, its weakest quarter of the year.

Wall Street Wisdom:

  • General consensus. Four analysts follow Cosi. Three rate the stock a buy and one a hold.
  • Revenues. Analysts expect Cosi to report $29.4 million in sales tomorrow. Psst! Wrong answer. The company already reported its Q4 sales, and they came in dead flat year over year at $28.5 million.
  • Earnings. Analysts expect Cosi's loss to narrow considerably from last year's $0.17 loss. Then again, they've been widening their predicted loss over the past three months, from guesstimating $0.02, to $0.04, to $0.05 at last report.

Margin watch:
Cosi's managed to expand its own gross by nearly 50% over the last 18 months. Profitless as it is, its operating and net margins remain negative, but a bit less so than they've been in the past.

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All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
As ugly as Cosi's GAAP numbers appear, the trends they reveal show that the company's on the path to profits -- eventually. Meanwhile, on a free cash flow basis, Cosi is already very close to black. In each of the last two quarters, it generated positive cash from operations -- a feat managed only once before, in Q4 2002. However, as the chain continues to expand and uses its cash to fund the opening of new stores, positive free cash flow remains elusive.

Don't expect to see it appear tomorrow, either. The firm opened six new company-owned restaurants in the quarter -- three quarters of its total openings for the year -- and that almost certainly kept it in the red, cash profits-wise. And with 20 more company-owned restaurants expected to open in 2006, things are likely to remain this way for some time.

Fool contributor Rich Smith does not own shares of Cosi.