Although we were disappointed by same-store sales trends during the first quarter, we are confident COSI will put up sequentially better numbers during 2Q10 as the company began the quarter with positive momentum and is lapping a sequentially easier same-store sales comparison. During the first quarter, trends were adversely impacted by severe weather with February company-owned same-store sales -9.4% and traffic down more than 10%.
Same-store sales turned positive in March and were up 2% for the system, however, and management stated that trends remained positive in April and through the early weeks of May. I expect June to show a similar trend.
Despite the weaker than expected comparable sales result in 1Q10, average check turned positive after being negative for all of full-year 2009. Helping average check growth was the 2% increase in catering sales during the quarter. This positive catering sales growth followed a 27.5% decline in both 2Q and 3Q09 and a 13.5% decline in 4Q09.
2Q10 SALES DRIVERS:
PRODUCT INITIATIVES: In late March, the company rolled out three breakfast wraps in an attempt to drive revenue growth during the breakfast daypart and in April, COSI launched its spring LTOs.
CATERING: Not only is COSI facing an easy YOY comparison in 2Q10, but the company also recently stepped up its direct sales initiatives, expanding efforts in its Chicago market late in the first quarter, and more recently, in its Philadelphia market.
MARKETING: COSI will see the benefit of additional and refocused marketing dollars during the second quarter after shifting its marketing dollars away from the extreme winter months of 1Q. Specifically, the company is increasing its out-of-store media activities in an effort to reach new guests and drive traffic. Along with its spring LTO and breakfast wrap rollout, COSI launched a transit advertising initiative in its major urban markets. According to management, the initial feedback was favorable.
COSI is working to extend its social media outreach, and tested the social media channels with a free smoothie and drink promotion on April 29th. Management commented that sales in the promoted categories experienced significant transaction growth in the days following the promotion.
Relative to margins, comparisons are more difficult in the second quarter but it will be important to see how much leverage the company achieves in 2Q10 with what should be significantly better top-line trends.