Investing snapshot: Cosi Inc. — How does Cosi fare in the growing fast-casual restaurant space?

April 3, 2012

Investing snapshot: Cosi Inc.

Investing snapshot: Cosi Inc. — How does Cosi fare in the growing fast-casual restaurant space?

By Kristin Samuelson, Chicago Tribune reporter

The player: Cosi Inc. (COSI)

Exchange: Nasdaq

Headquarters: Deerfield

Revenue: $75.9 million for the first nine months of 2011, down from $84.3 million a year earlier, when sales of 13 company-owned restaurants and closures accounted for $8.4 million.

52-week stock range: $1.45/56 cents

Friday’s close: $1.02

Key business: Incorporated in 1998, this fast-casual restaurant specializes in freshly baked flatbread and signature Squagels and serves soups, sandwiches, salads, pizza, coffee, beer and wine.

By the numbers: About 2,000 employees and 80 company-owned and 56 franchised restaurants in 17 U.S. states, the District of Columbia and the United Arab Emirates.
Fourth-quarter earnings release: 3 p.m. March 29

The scoop

  • The Nasdaq on Aug. 23 threatened Cosi with delisting because its share price had been less than $1 for 30 days, and it gave the company until Feb. 21 to close above that for 10 straight trading days. Cosi regained compliance Feb. 17.
  •  Cosi Chief Executive James Hyatt resigned Aug. 23. In December, Carin Stutz, whose experience includes executive stints at the parent of Chili’s and Maggiano’s, Applebee’s International Inc. and Wendy’s International, took over.
  • Activist investor Brad Blum, who helped turn around Olive Garden in the mid-1990s, was CEO of Burger King Holdings Inc. and Romano’s Macaroni Grill, and whose Blum Growth Fund LLC has a 6.8 percent stake in the company, has developed a better relationship with Stutz than he had with interim CEO Mark Demilio.

The buzz

RJ Hottovy, senior restaurant analyst at Chicago-based Morningstar Inc., said “the fast-casual space has been the sweet spot of the overall restaurant industry over the past several years,” citing its superior quality to fast food at reasonable prices.

And though he does not cover Cosi, he said it has not kept up with the biggest players, Chipotle and Panera Bread, because it cannot match their quality, peak hours output and consistency.
“The assembly-line production that Chipotle and Panera, for the most part, operate, I think that’s where Cosi has really struggled,” Hottovy said. “Chipotle and Panera have done a good job of standardizing the experience. It’s a different ordering process every time you walk into a Cosi.”

Darren Tristano, executive vice president at Chicago-based food research and consultancy Technomic, said he hopes Cosi will benefit from the expanding bakery cafe segment of fast casual.
“Brands like Panera not only compete with Cosi, but build a (consumer) need for brands like Cosi” by developing awareness of this type of restaurant, Tristano said.
Tristano added that Cosi has “quality food … they just haven’t delivered the number many investors are looking for.

“(Cosi is) not well capitalized to be able to aggressively invest in the brand,” Tristano said. “Most other bakery cafes have been adding net units, which means they’ve opened more units than they’ve closed.”

But Tristano likes developments such as the shift in leadership that “might breathe some new life into the organization,” especially the positioning of Blum, who has a formal consulting role with the company.

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