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Dough From Bread

A sandwich maker counts on expansion and a new store format to boost profits.

Editor's note: This article was updated on July 2, 2006.

Enter a Cosigrave; restaurant and your eyes are immediately drawn to the open flame of the large hearth oven behind the counter. Look closely and you'll see rectangular loaves of bread baking. The hot, crusty bread is what separates Cosigrave; from other sandwich shops, says chief executive Kevin Armstrong. The bread, as well as the sandwiches and salads that Cosigrave; prepares, are attracting enough hungry customers to put the Deerfield, Ill., company on the cusp of its first quarterly profit since going public.

But the issue on investors' minds is, of course, the other kind of dough. The shares (symbol COSI) debuted in late 2002 at $7 and plunged to 95 cents within months. But the stock has been climbing steadily since. It hit $11 in March and traded at $9 in mid May, giving Cosigrave; a market capitalization of $351 million.

Faster food

A new look may determine Cosigrave;'s future success. Fifteen of the 95 company-owned stores follow a design that was launched two years ago in Avon, Conn. The new model costs about $700,000 to build, $100,000 less than was needed to develop a typical older store. More important, the new stores use ordering systems designed to improve profitability. In the older stores, diners pay after their meals are made. In the new ones, they pay first and then wait for their orders to be brought to them. This minor change cuts the average wait time for an order from seven minutes to four, increasing the number of people who can be served.


Cosigrave;, which now operates mostly on the East Coast and in the Midwest, wants to open 800 stores by 2010. That means a greater emphasis on franchising. Cosigrave; has already inked 18 franchise agreements, and it expects to have more than 580 franchised restaurants within four years, compared with just five now. Analyst Nicole Miller, of ThinkEquity Partners, thinks Cosigrave; can eventually grow to 1,400 stores in 25 major markets. Panera Bread, Cosigrave;'s big rival in the premium-sandwich market, has more than 895 stores.

Customers spend an average of $8.66 per visit to feast on fancy salads and sandwiches, such as wasabi roast beef and tandoori chicken. Cosigrave; has generated sales growth every quarter at stores open a year or more -- a key measure in retail -- since the stock's initial offering.

The stock fell 6% on May 11 after Cosigrave; reported a bigger-than-expected first-quarter loss because of stock-option expenses. Analysts polled by Thomson First Call expect Cosigrave; to lose a penny a share this year and earn 16 cents a share in 2007.

Because earnings are tiny, the price-earnings ratio -- 56 based on '07 estimates -- isn't very meaningful. But if Cosigrave; can achieve the 33% annual long-term earnings growth that analysts forecast, its stock may reward investors with more than a tasty meal.