Così Inc. plans to grow again after years of stagnation, citing progress in sales and cost controls in the first quarter.
During a call with analysts, executives of the operator and franchisor of the 134-unit Così chain stressed the company's need and potential for growth despite an unprofitable first quarter.
“We’re talking about growth as something we want to pursue,” said chief financial officer William Koziel, during a call with analysts. “The time is now. I think it’s important to move the business forward. The pace and the frequency will be dictated by the quality of sites we find.”
For the April 2-ended first quarter, the company nearly halved its net loss from a year earlier. Net loss fell to $1.1 million, or negative 2 cents per share, from $2.1 million, or negative 4 cents per share, in the year-earlier quarter.
Total revenue rose 4 percent to $24.7 million, reflecting a systemwide same-store sales increase of 7.5 percent. That result benefited from a favorable calendar shift, which added 2.7 percent toward the overall sales increase. Including the calendar shift, same-store sales rose 6.2 percent at company-operated restaurants and 9.5 percent at franchised locations.
The company also reported that its cost of goods sold decreased 2.3 percent in the first quarter, comprising increases of 1.4 percent in occupancy cost and 1.2 percent in labor cost, offset by a 0.3-percent increase in food costs.
“I really believe that we put ourselves in a better position to attract some additional franchisees once we model that we’re profitable and that we’re growing again,” said president and chief executive Carin Stutz, who began her role at the company Jan. 1. “I’m all-in, and I believe that, with what we see today, we really are in a position to start growing this brand. There are a lot of [competitors] out there who are also growing aggressively in this fast-casual segment, and I just want to capitalize on that for Così.”
Reimaging, with eye toward rebuilding
The fast-casual chain has struggled to maintain sales and traffic during the past four-plus years of recession and recovery, twice receiving a notice from the Nasdaq stock exchange threatening the company with delisting because its share price remained below $1 for extended periods of time.
Last August, former chief executive James Hyatt resigned, and Stutz was hired after a months-long search process for a new CEO, which included a proxy fight from activist shareholder Brad Blum to influence the direction of the company. Blum has been retained as a consultant to help guide Così’s menu development and marketing.
In the previous earnings call for Così’s fourth quarter, the company laid out three initiatives to drive same-store sales and profitability in 2012: improving food quality while simplifying the menu, simplifying and improving operations, and controlling costs.
Stutz said a remodeling program designed to improve customer throughput and operations, as well as allow for a slimmed-down menu, already has been completed in the Chicago market. Most of the reimaged restaurants are logging double-digit sales increases, she said, making refurbishing locations a top priority for Così in the near term.
“I have to admit there are some restaurants that I’m not proud of how they look to our guests,” Stutz said. “Many of our company restaurants are worn and tired. Last fall, the Chicago market was refreshed and reimaged, with a warmer ambience, more colorful environment and improved training.sales are up, lunch sales are up and dinner sales are up.”
The approximate cost to reimage the restaurants averaged about $75,000, she added. Stutz also said the remodeling program would continue next in the New York City market.
“Where we have the flexibility, we’ll look to do more refresh work, because it has validated itself,” said Koziel. “To put together a full-blown refresh plan is part of our desire to move faster forward.”
Stutz added that the chain’s menu has reduced the number of items by about 15 percent this year, with further streamlining yet to occur. Four new menu items will roll out over the next four weeks, she said, including the Tuscan PestoSandwich, the Prosciutto and Roasted Veggie Melt limited-time offer, and two tossed Asian salads topped with either shrimp or salmon.
Rights offering in future
Così Inc.’s leaders said the company would pursue a rights offering of its common stock next week, hoping to raise about $15 million to fund further reimaging efforts and unit growth.
“We believe that $15 million is the right number to support the growth of our business going forward,” Stutz said. “We’ve been clear with our franchise community that we want to be a stronger franchisor for them, we want to defend our core markets, and we want to become a growth company again. Once we do those, it puts us in a better position to attract new franchisees to Così.”
A few securities analysts participating in the conference call questioned why the company would opt for a rights offering, diluting the value of current shares, rather than pursue growth capital through other means like master-franchise agreements, area development deals or joint ventures. But Stutz and Koziel reiterated that the rights offering would be the right long-term move, despite the dilution shareholders would receive in the near term.
Five of the company’s executives and outside directors have agreed to purchase shares in the rights offering that would yield more than $1.6 million, Così Inc. previously disclosed.
Deerfield, Ill.-based Così operates 80 company-owned locations and franchises another 54 restaurants in 17 states, the District of Columbia and the United Arab Emirates.