Così (COSI) Q1 Comps Rose 1.8%; Notes Improvement in Traffic Trend

Così, Inc. (Nasdaq: COSI) reported that estimated system-wide comparable restaurant sales for the 2016 Period 3 and 2016 Quarter 1, as measured for restaurants in operation for more than 15 consecutive months as Company-owned or franchised, recorded an aggregate increase of 1.8% and 2.2% respectively, as compared to the same periods in 2015.

The breakdown in estimated comparable restaurant sales between Company-owned and franchised restaurants for the 2016 Period 3 and 2016 Quarter 1 are as follows:

The 13 Hearthstone restaurants acquired by the Company on April 1, 2015, will be included in the reported Company-owned comparable restaurant sales results when they have been in operation as Company-owned restaurants for more than 15 consecutive months. However, the Company began disclosing comparable sales for the acquired restaurants separately in the 2015 Period 10. For the 2016 Period 3 and 2016 Quarter 1, the Hearthstone locations recorded an aggregate increase in comparable restaurant sales as follows:

“I am pleased with the sustained positive trend we continue to see in sales since November last year, versus our conservative internal expectations of 1%-2% in 2016. This trend, along with our sales results to-date in April and the progress we continue to make flowing those sales through to the bottom-line, continue to give me confidence in our ability to manage through the low-point of cash and move towards achieving positive EBITDA in the second half of the year,” stated RJ Dourney, Così’s President and CEO. “While we expected the benefit of weather in February in the Northeast compared to last year, we also experienced unfavorable weather events this year at the end of January, in addition to the expected unfavorable impact of the Easter holiday calendar shift versus last year. Overall, we had a strong quarter, right in line with our expectations, and we continue to see over 25% of our units with double digit sales growth, and new markets turning positive in the first quarter versus the same quarter last year.”

Business Update

The Company also reported the following business updates through the 2016 Quarter 1:

Margins The Company reported continued improvements in COGS and Labor expenses in the 2016 Quarter 1, based on preliminary results for the quarter, when compared to the same quarter last year. The Company will be disclosing the full final financial results in May at the 2016 Quarter 1 earnings call.

Miguel Rossy-Donovan, the Company’s CFO, stated, "We believe we have reached an inflection point with our restaurant portfolio’s ability to move towards cash generation at a faster pace, as evidenced by the performance of the portfolio in the fourth quarter last year, and the preliminary results we are seeing in the first quarter of 2016. Finance and Operations have been relentless about training and developing our managers to understand and manage their restaurants as owners. That, combined with the additional reinforcement provided by our new manager profit-sharing plan, is truly making a difference.”

Real Estate Optimization The Company announced the closure of one unit in February 2016, in addition to the two previously announced closures in January 2016. The Company also confirmed two additional closures that will occur in the second quarter of 2016, as well as their expectation to close 4 to 5 other locations in the second half of the year. As previously announced, the real estate optimization initiative is part of the Company’s multi-pronged strategy to address underperforming units with unsustainable economic models.

“We continue to be very disciplined in our approach to optimizing our real estate portfolio,” said Rossy-Donnovan. “We are taking steps to ensure there is no adverse cost impact as we exit underperforming locations, and we are actively negotiating with landlords and third parties to make sure we reach the most financially viable solutions. The focus we have placed on our bottom 50% performers has realized impressive improvements in some of these units, and for some of these units, we no longer consider an exit strategy as the right option. Our approach is very agile, and we have considered this in our cash flow projections.”

Traffic Building Initiatives The Company reported a continued improving trend in traffic in the 2016 first quarter, which it has attributed to a combination of digital marketing initiatives in selected markets, improvements in operations execution, and throughput. The Company also reported the expansion of its current menu simplification test, which aims to further support speed as a competitive advantage as well as the overall guest experience. These initiatives will continue and are expected to accelerate in the 2016 second quarter.

Other UpdatesThe Company reported that it has signed a new four-year agreement with Distribution Market Advantage (DMA), an international distribution organization the Company has worked with for several years. This agreement provides continuity for Così’s product distribution throughout North America, Central America and the Middle East. The terms of the agreement ensure broad distribution capabilities for Cosi, ongoing cost savings and cost avoidance opportunities over the span of the agreement, and alignment with the Company’s franchise system growth strategy.

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