Cosi Shares Worth Buying With New CEO

Jun.12.13 | About: Cosi, Inc. (COSI)

· "Cosi is a great brand. Our mission is to create a business model that builds on the strength of our brand while generating profits for our shareholders. And to do so quickly."

The statement above was the first words from newly appointed Cosi (NASDAQ:COSI) chief executive officer and president Stephen Edwards. Edwards has served as the chairman of Cosi before his new duties as CEO and president. I believe in Edward's appointment as CEO and his desire to return the fast casual company to profitability.

Edwards replaces departing CEO Carin Stutz, who resigned from the company to pursue other opportunities. Edwards is a managing member of Edwards Capital Management LLC, a private investment firm. The 48 year old has had success serving on the board of several private and public companies. Edwards has served on boards for restaurant concepts Au Bon Pain and Champps Entertainment. The new CEO also served on boards of Anvil Holdings, which was acquired by Gildan Activewear (NYSE:GIL), and Windy Hill Pet Foods, which has merged with another pet food company.

Edwards' private investment experience and success with selling off companies could be a sign of things to come for Cosi. Back in August, I listed Cosi in an article highlighting possible acquisition targets of Buffalo Wild Wings (NASDAQ:BWLD). My long term belief is Cosi will be acquired, once it returns to profitability. Edwards wants to move quickly and shareholders who jump in now could be pleasantly rewarded.

In the first quarter, Cosi saw same store sales fall 4.5%. This loss came from an 8.5% decrease in traffic. Franchised locations saw sales fall only 1.3%, compared to company owned locations which declined 6.6%. At the end of the first quarter, Cosi had 74 company owned locations and 50 franchised locations.

During the first quarter earnings call, Cosi highlighted several new items:

· Strong operations in Northeast stores

· Quarter two sales shifting towards flat or positive compared to last year

· Re-configuration of kitchen video setup

· $5.99 sandwich offering in limited markets

· Smaller menu rollout coming in late June

· Healthier menu options, including gluten free grain bowls

One of Edwards' first moves will be the continued closing of underperforming stores. When I mentioned Cosi in August, the company had 136 locations opened, compared to the 124 at the end of the first quarter. One move will also be selling off company owned locations to franchisees. This move will add cash to Cosi and also help the company achieve its goal of having 75% of locations franchised in the long run.

Despite closing underperforming stores, Cosi is still opening several locations in key growth markets. New York City, specifically Manhattan, was named as an area where Cosi will expand to soon. The states of Wisconsin, Ohio and Michigan were also listed on the earnings call as regions where Cosi can expand.

Analysts on Yahoo Finance expect Cosi to post a loss of $0.18 per share in fiscal 2013. In the first quarter, Cosi posted a loss of $0.15 per share. Revenue is expected to decline 5.4% to $92.6 million. Analysts turn more bullish on shares in fiscal 2014. Analysts believe Cosi will post a profit of $0.10 per share in fiscal 2014. With Edwards in control, Cosi could post a profit earlier than expected.

Shares of Cosi trade above $1, thanks to a 4 for 1 reverse stock split. Shares still remain close to the bottom of their 52-week range ($1.90 to $3.92). With a market capitalization of $39 million, each restaurant is being valued at $315,000. With a turnaround from Edwards, shares should see a nice increase as the company returns to profitability.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in COSI, BWLD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.