Cosi Inc. on Wednesday warned that it won’t reach its profitability target as its same-store sales fell 1.6 percent in the second quarter.
The company’s stock, which closed on Tuesday at just 50 cents and which has been below $1 per share since October, fell as much as 33 percent Wednesday on the news.
“It is important to start with this: The magnitude of the second quarter’s comparative sales decline requires management to revise previously communicated guidance,” CEO RJ Dourney said in a statement.
Cosi had planned to generate positive cash flow by the third quarter of this year — a vital milestone for a company that has not generated an annual profit in its history as a public company.
Sales growth was an important element in that goal. So the decline in same-store sales at Cosi’s company-owned stores mean that won’t happen, and same-store sales at company locations fell 4.1 percent in the period.
“The future timing of positive adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] is directly tied to our ability to generate revenue growth,” Dourney said.
Same-store sales were particularly difficult in June, when company-owned locations saw same-store sales declines of 6.6 percent and the system was down 4.5 percent.
“The comparative sales Cosi generated in [June] does not come close to meeting my expectations and is being addressed with intensity,” Dourney said.
Cosi has 107 locations. The company operates 76 of them, and franchisees operate the rest.
The Boston-based chain has struggled for years with weak sales and a lack of profitability. The company has periodically weathered threats to its listing on the Nasdaq stock exchange over the years, particularly for its low stock price.
The stock has lost about 80 percent of its value since hitting a 52-week high of $1.92 a year ago.
Under Dourney, the company has aggressively worked to overhaul and simplify its menu, cut costs and close underperforming locations in a bid to generate positive cash flow.
The company is working to improve customer satisfaction and reduce the size of its menu to improve speed and make the business simpler. Cosi also hopes digital marketing will bring customers in the door.
And while Cosi suddenly finds its same-store sales struggling again, Dourney said he remains confident in the company’s efforts, and suggested that Cosi will focus on franchising the business.
“Each of these initiatives will support both our company owned and franchise units,” Dourney said. “Our commitment to our franchisees’ profitability and success is intense, and we are committed to their success. Building Cosi through franchising is our long-term strategy.”
Contact Jonathan Maze at [email protected]
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