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The reported 4Q10 results and management’s comments from the conference call were all very positive for the company:

  1. The quarter ended with 10 months of positive same-store sales (and continues into 1Q11 with positive comps in January and February)
  2. The same-store sales trends in 1Q11 suggest that the company’s two-year average numbers are now positive in March.
  3. Restaurant-level cash flow in 4Q10 grew to $1.84 million from $1.72 million, up 7%.  Margin improved YoY for the second consecutive quarter, up nearly 130 bps.

The company has implemented a number of sales drivers, the most important of which, is online ordering.  During the past quarter, the company rolled out online pick-up to all of its company stores.  The company commented that they are seeing steady progress and adoption by consumers. 

Over the next couple of months the company is going to step up the communication and marketing of online ordering, which should drive significant incremental sales volumes.  Due to the urban proximity of the company-operated restaurants, the goal would be to drive an incremental 50 to 100 transactions per restaurant per day.  We estimate that this could add 20%+ to company store sales volumes.

Additionally, catering appears to be gaining significant traction.  In 2010, management made an investment behind catering to help them reach new clients and encourage increased frequency.  In late 1Q11, COSI launched a separate loyalty card program specifically for catering.  Catering sales trends in NYC have been so strong that the company added another sales person in that market to reach new customers. 

In 2010, the company made significant progress in reducing the company’s cost structure, which should lead to positive net income in 2011.  If the current trends continue, it looks like 2Q11 will be the magical quarter.  One thing to keep in mind is that with 51 million shares outstanding, the company needs to earn about $500,000 to report a $0.01 per share profit. 



Howard Penney

Managing Director