With an aggressive expansion strategy at a time when many companies are tightening their belts, restaurant chain Cosi, Inc. (COSI) currently rates a Hold, according to Zacks senior restaurants analyst Ann Northrop, CFA.  The following is from her recent report:

'Cosi lost control of its operations last year as it rapidly added units to meet Wall Street expectations. Traffic has been declining, a problem that management attributes to lack of proper site selection of stores opened in 2H06, and poor management training, particularly for staffing and maintenance. Volume declines at these restaurants stem from a wide range of issues, including low traffic locations, signage, parking and service defects.

'Cosi has replaced several VPs and restaurant managers, and has slowed growth plans for company-owned stores. However, Cosi maintains an aggressive growth plan for its franchise system (25-35 franchise restaurants in 2008), a questionable strategy when it lacks a firm grip on its system, and cash flow margins sag. We'd like evidence of progress before rebuilding positions in the stock.

'On January 16, 2008, Cosi, Inc. reported 4Q07 preliminary results. Revenue for 4Q07 increased 5.2% year-over-year to $33.4 million compared to $31.8 million in 4Q06. Company-owned restaurant sales increased 4.4% in the reported quarter to $32.8 million compared to $31.4 million in the prior-year quarter. Franchise fees and royalties contributed $606,500 in 4Q07 compared to $336,900 in 4Q06. System-wide comparable restaurant sales for 4Q07 increased 2.1%. Comparable sales from company-owned restaurants and franchise locations increased 1.3% and 12% respectively in the reported quarter.'