Why Cosi Inc. (NASDAQ: COSI) Will Miss Its Profitability Target


Cosi Inc. (NASDAQ: COSI)’s dream to reach profitability in 2016 now looks unattainable. The company has provided an estimate of its sales in 2Q2016 and as it turns out, things didn’t take the direction that the management had anticipated. Same-store sales in 2Q fell, but the company had pegged hope on improving sales to turn a profit in 3Q.

According to the restaurant operator’s CEO, RJ Dourney, same-store sales declined in 1.6% in 2Q. He added that the magnitude of the decline was great and has forced them to revise the performance outlook that the management had issued.

Cosi Inc.(NASDAQ: COSI)has never generated an annual profit in its history as a publicly-traded company. But it was hoping that things could be different this year. The management guided for positive cash flow in 3Q.

But reaching profitability in 3Q and 2016 depended heavily in sales growth. That explains why the unexpected fall in 2Q same-store sales has complicated the picture for COSI.

Details of quarterly same-store sales – Cosi Inc. (NASDAQ: COSI)

The company said that sales at stores that it owns and operates fell 4.1% in 2Q.  But franchise stores registered a 3.6% sales growth in the period. If you combine the performance of both company-owned and franchise stores, same-store sales pulled back 1.6% and that is what the management is now worried about regarding the promised profits.

What about the month of June?

The business environment seemed to have been even tougher for Cosi Inc. (NASDAQ: COSI) in the month of June 2016 compared to June 2015. Some-store sales at stores directly owned by the company declined 6.6%. At franchise stores, sales in June grew only 0.4%. That contributed to a system-wide same-store sales collapse of 4.5%.

Cosi Inc (NASDAQ: COSI) owns and operates 76 stores while 31 stores are operated by franchisees. As such, the company has combined 107 store locations. As part of the measures to improve profitability, the company has closed underperforming store locations and simplified its menu. It has also rolled out a number of other cost-cutting measures, but those internal efficiency efforts appear to be doing too little to put the company out of losses.


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