I can't explain why folks buy stocks that eventually go BK ...but they do...all the time. The financial facts shown on their cash flow statements are very concerning. When you look at the annual view on Yahoo finance, you'll find that for the fiscal years 2014, 13 and 12, they burned approximately $15.9 million, $9.1 million and $4.4 million respectively. This does not include the cash inflow from the sale of stock/rights...which won't be a tool they can use forever.
When you look at the first 2 quarters of this year, they burned $7.2 million in Q1 and another $3.6 million in Q2...not counting stock sales (which are diluting everyone). The challenge is that financial engineering can't save this company forever and they have to find a way to drive net income from operations. Note that they've lost $4 MILLION per quarter for the past 4 quarters. It's actually unreal how consistent the quarterly losses at the net income line have been.
They have a LONG way to go before they can get to breakeven at the operating income line and, even if they do, they have been spending roughly $2MM/year on capex. While they may not need all of that in the future, as long as they have company owned stores, they'll have to spend some capex just keeping the stores operating and relevant. I would never tell anyone not to buy something but I wouldn't use the college fund for this one. You're essentially buying a lottery ticket. Oh..one last thing...I wouldn't buy it based on speculation that someone will buy it. There isn't a concept out there that "needs" Cosi's footprint or operating platform and they don't own any of the real estate so there's no value there.
Maybe it will work out for you. I'm not a "basher" and I'm neither long or short the stock. However, I have followed it for many years and it's never made money in the history of the company. The gross margins are anemic and when you ask yourself the question "what would have to be true for this to make money and be positive cashflow", there aren't any realistic answers in my opinion. They are so far away from breaking even at the gross profit level and then they'd need a bunch more to cover SG&A and Capex. My concern is that they don't have enough critical mass to get this turned around. Personally, I believe this will be a Chapter 11 filing within 12-18 months. I don't say that with any sense of satisfaction; it's merely based at a review of their quarterly filings and projecting things out.
I'm not for, or against, RJ and Cosi however the numbers paint a very troubling picture. With gross margins in the negative, or slightly positive, territory, it's hard to see how this company can continue to operate and do the remodels they're talking about. They would need a significant boost in same-store sales at a very high flow-through to get this to be cash neutral. Maybe he'll do it but I think the odds are against him.
Before looking at the SEC filings for the Q, I read the transcript of RJ's call. Boy, was he doing his best cheerleading job and I was thinking "hey, maybe he's making progress". Then, I looked at the filings and here's what the cold hard numbers say:
* gross profit dollars were down versus same quarter last year and margin % was worse (note, you have to really compare the quarter to the same quarter prior year due to seasonality...comparing to the quarter ended March isn't the best way to view results).
* operating losses were only lower versus June 2014 because they didn't have big lease termination costs hitting June 2015.
* the "cash used" got worse by $2 million and they burned another $7 million in the quarter
Maybe he can turn it around...I don't know. But, I do know the quarterly numbers looked much worse than what you'd expect after listening to that call.
You might want to wait until you see the quarterly numbers before you commit any of your hard earned money to this. They've never made money and certainly won't next quarter. This is going to be a slowly melting ice cube and likely to run out of cash in the next 12 months unless they find some other source of funding.
Sentiment: Strong Sell
agreed....at the end of the last fiscal year, they had $52 million in remaining lease obligations and all the debt comes due in 2017 I believe. They'll burn probably half the cash they had on the books at the end of the March quarter. I don't see how they get through the next 12 months without filing.
Highly unlikely given the sales trends and the poor margins they've had. They've consistently lost $4MM and, depending on what they do to manage working capital, that has translated into a bunch of cash being burned.
While I don't like saying this, I suspect this will be filing for Chapter 11 protection at the end of this year unless they have another injection of financing. They have $13MM in cash now and, at recent burn rates, that won't last much longer. Maybe his efforts to turn around sales will kick in but a lot of positive things would have to happen on the cost side for those incremental sales to turn this cash positive. Time will tell.