Cosi Inc (COSI), Einstein Noah Restaurant Group, Inc. (BAGL), Panera Bread Co (PNRA): Three Fast-Casual Sandwich Companies, One Winning Investment

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The fast-casual concept has proven itself with Five Guys, Chipotle Mexican Grill, Inc. (NYSE:CMG), and Panera Bread Co (NASDAQ:PNRA) emerging as the early winners (and Chipotle and Panera as multi-baggers for those with enough foresight or luck to invest in them early). This article is for the rest of us (including myself): we missed out on the initial wave, so where should we put our money?

Panera Bread Co (NASDAQ:PNRA)

I will be writing two articles to cover this growing sector: one on the sandwich end of fast-casual (Panera, Cosi Inc (NASDAQ:COSI), and Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL)), and one on the burrito end (Chipotle, Jack in the Box Inc. (NASDAQ:JACK)’s Qdoba, and Fiesta Restaurant Group Inc (NASDAQ:FRGI)’s Taco Cabana and Pollo Tropical concepts). Let’s start with the sandwich stocks.

Given its overall dominance and excellent financials, Panera is an obvious buy. Einstein Noah Restaurant Group also has a compelling story, and with some growth in profitability could be a nice income stock. I would personally stay away from Cosi because it’s too risky, although it has a management team dedicated to establishing profitability – and if they pull it off, Cosi could be another multi-bagger. We’ll look at Cosi first.


Cosi Inc (NASDAQ:COSI) is easily the most speculative of these stocks. It has the smallest footprint and therefore the best potential for further expansion, but its financials are brutal. Revenue has steadily declined for the past five years, from $136 million in 2008 to $98 million in 2012 (and $95 million for the trailing twelve months, according to Morningstar). Cosi Inc (NASDAQ:COSI) did not post a profit during this time span. Same-store sales for the first quarter of 2013 were down a whopping 6.6 percent compared to the first quarter of 2012. In short, this chain is in serious trouble.

And yet, it’s possible that things will turn around. Management is making changes, including a smaller menu, a redesigned interior, and more efficient food preparation. Management has also implemented a good triage policy of franchising or closing company stores in their non-core markets. This demonstrates Cosi’s focus on profitability first – removing lesser-performing restaurants from its corporate portfolio to focus its spending on improving the restaurants with the best chance of making more money. These positive steps may generate a leaner, possibly profitable Cosi Inc (NASDAQ:COSI). I want to believe in it, but the numbers just don’t add up right now for a positive ending. If you invest in Cosi right now, it will be a gamble. There are better options for your money.

Einstein Noah Restaurant Group

Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL)’s management is pushing a value strategy, with new $5.99 lunch options and $3.99 breakfast combos. I worry that this may result either in sacrificing margins (as seems likely, given the decrease in earnings before interest, taxes, depreciation, and amortization in the first quarter to $10.4 million from $11.5 million for first quarter of 2012) or a lowering of quality in exchange for sales volume. Losing the margins will decrease profitability directly; a reduction in quality may ultimately cost Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL) the customer volume they are seeking. Einstein is also pushing premium sandwiches at higher price points, which may balance those margin losses. All of that aside, management is making some good moves – Einstein has increased its specialty beverage sales (up eight percent in the first quarter) and is growing its franchise base (the company reports 136 franchise stores in the pipeline.) Even with this focus on franchises, Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL) will still be opening 15-20 new company stores in 2013, as well as 30-40 new licensed restaurants.

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