After another quarter of losses, it's clearly time for some changes at Cosi
I realize others, including esteemed fellow Fool Rick Munarriz, would prefer to give Cosi the benefit of the doubt and overlook its losses. After all, it costs money to aggressively add new stores. However, when Cosi can't even perform well in its existing locations, I don't see how adding more will solve its problems.
Was it really that bad at Cosi? Well, its first-quarter loss increased to $4.2 million, or $0.11 per share. Although total sales grew 8.3% to $32.1 million, comps declined 2.4%. A 4.1% gain in its average check wasn't enough to make up for the 6.5% decline in transactions. Management tried to put a positive spin on its performance, claiming most of its losses were the result of new restaurants that have yet to reach their full operating potential. In reality, it's just not drawing in enough customers.
If that's not enough, Cosi lowered its outlook for the year and withdrew its guidance for 2008. Not exactly the actions of a company getting ready to turn its performance around. For 2007, Cosi now expects to lose $0.18 to $0.23 per share. That's a far cry from the $0.08 to $0.12 per share it previously expected to earn, projections the company reaffirmed less than two months ago.
To be fair, Cosi does keep significant cash on its balance sheet and does not have any debt. It also continues to generate interest from potential franchisees. However, until it can figure out a way to make some money from those franchises, I don't see why anyone would want to cozy up to Cosi.
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