Cosi Restaurants
(COSI) posted a second-quarter net loss of 2 cents per share, which was better than the Zacks Consensus Estimate of a loss of 8 cents. System-wide comparable restaurant sales for the quarter fell 12.2% – company-owned restaurants decreased 12.7% and franchises declined 9.8%.

Quarterly revenue declined 13.9% year over year to $31.6 million. Company-owned net restaurant sales fell 14.3% in the reported quarter to $31.0 million due to a 12.7% drop in comparable-restaurant sales and the closing of 5 locations since the end of second quarter of 2008.

Traffic fell 9.8%, while average check declined 2.9% in the quarter. However, Franchise fees and royalties grew by 20.3% to $621,000 due to higher fees resulting from new franchise unit openings.

The global recession has severely affected the company’s business, especially the catering services. Although Cosi is containing food costs well, labor as a percentage of sales is ratcheting up and occupancy expenses, much of which are fixed, are surging as sales decline. Total restaurant operating expenses as a percentage of net restaurant sales grew 390 basis points to 86.6% compared to 82.7% in the prior-year quarter.

Food costs fell 50 basis points to 22.3% of net restaurant sales, primarily due to a decline in costs of wheat, dairy products and fuel. Labor costs as a percentage of net restaurant sales grew 260 basis points to 35.1%.

Occupancy and other restaurant operating costs rose 180 basis points to 29.2% of net restaurant sales. De-leveraging of occupancy costs against falling sales at comparable restaurant base and higher marketing and promotional costs were partially offset by a decline in costs for repairs and maintenance.

At the end of the second quarter, Cosi had a total of 144 locations comprising 98 company-owned and 46 franchisee units. While one franchisee unit was opened in the District of Columbia during the quarter, four others were closed, including one in Minnesota that was re-opened as a company-owned location.

In the casual dining segment, Cosi competes with California Pizza Kitchen (CPKI), Red Robin Gourmet Burgers (RRGB) and Famous Dave’s of America (DAVE).

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Read the full analyst report on “RRGB”
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