Cosi, Inc. Reports Fourth Quarter and 2005 Results

Cosi, Inc. (Nasdaq: COSI), the premium, convenience restaurant company, today reported final results for the fourth quarter and fiscal year ended January 2, 2006, which were consistent with its previously announced performance in its year end sales release. Final 2005 results included 52 weeks, while 2004 results included 53 weeks.

For the 2005 fiscal year, results included:

• A net loss of $13.1 million, or $(0.38) per basic and diluted common share, compared with a net loss of $18.4 million, or $(0.62) per basic and diluted common share, for 2004.

• Excluding stock compensation expense and impairment charges, net loss for 2005 was $(0.17) per basic and diluted common share compared to $(0.47) for 2004. 2005 included impairment charges of $3.9 million related primarily to concluding the pilot program with Federated Department Stores ("Macy's") (including closing four such locations subsequent to year end) and stock compensation expense of $3.2 million. 2004 included expense and impairment charges of $1.4 million (which included charges associated with relocating the corporate office from New York to Chicago) and stock compensation expense of $3.2 million.

• Restaurant net sales of $117.1 million, a 5.9% increase over the prior year of $110.6 million.

• Comparable restaurant sales growth remains strong, climbing more than 6.9% for the year and marking the fourth straight year of continued market acceptance of the Cosi brand. Transaction count was up 1.4% with a 5.5% increase in average check price. The average check increase was due to a combination of pricing of 2.7% and favorable sales mix shifts of 2.8%.

• Improvement in total cost of sales of 380 basis points compared with 2004, consisting of improvements of 120 basis points in cost of goods sold and 260 basis points in restaurant operating expense as percentages of sales.

• Cash, cash equivalents and short term investments of $34.9 million as of January 2, 2006. Cosi invested $4.9 million of cash in the fourth quarter primarily in support of new restaurant construction.

Results for the 2005 fourth quarter included:

• A net loss of $6.0 million, or $(0.16) per basic and diluted common share, compared with a net loss of $6.6 million, or $(0.21) per basic and diluted common share, for the 2004 quarter. The 2005 quarter included 13 weeks while the 2004 quarter included 14 weeks.

• Excluding stock compensation expense and impairment charges, net loss for the quarter was $(0.05) per basic and diluted common share compared to $(0.17) for 2004. The 2005 period loss includes a $3.8 million impairment charge related primarily to concluding the pilot program with Macy's as described above and stock compensation expense of $0.4 million.

• Additionally, a $1.4 million gain, or $0.04 per basic and diluted common share, on the previously-announced sale of three Boston locations to a franchise area developer.

• Comparable restaurant sales growth of 4.1%, which marks Cosi's 17th consecutive quarter of comparable restaurant sales growth.

• Improvement in total cost of sales of 260 basis points compared with 2004, consisting of improvements of 130 basis points in cost of goods sold and 130 basis points in restaurant operating expense as percentages of sales.

Commentary
Kevin Armstrong, Cosi's President and Chief Executive Officer, stated, "The continued marketplace success of the Cosi brand is demonstrated by our 17th consecutive quarter of comparable same store sales growth. Our guests appreciate the improved service and efficient dining experience in the new generation design, further increasing our high overall satisfaction rate. Our concept, business performance, and reputation have helped Cosi to continue to bring top caliber talent to all levels of our organization and our team's strong work and skill show in Cosi's performance.

"In addition to our focus on restaurant performance, Cosi is intensely focused on opening new restaurants and on helping our franchisees open restaurants under our growth strategy. In 2005, we made good progress, opening eight company-owned restaurants and adding franchised locations. Importantly, our organization has refined its development practices and tools based on our experience last year, and we are well on our way to achieving our 2006 development goals," Mr. Armstrong concluded.

William D. Forrest, Cosi's Executive Chairman, said, "Cosi's concept and performance are attracting quality multi-restaurant operators, and we have the team in place to address their needs. Our pipeline for franchise candidates and new locations is strong. We continue to be very enthusiastic about Cosi's appeal and potential as a national restaurant with a national footprint."

Restaurant Development Activity

Management confirms its progress in executing on its three-part strategy for growth, which consists of company-owned restaurants, franchised restaurants and strategic alliances.

During 2005, Cosi previously reported opening eight company-owned restaurants during the year. Of the three remaining restaurants originally expected to open in the fourth quarter of 2005, two have opened and construction will be completed on the third this month. When completed, it will be the 15th of the full-menu, new generation Cosi restaurants that employ the more efficient and guest-oriented design developed and introduced in 2004.

Updating the franchise leg of its growth strategy, Cosi ended 2005 with commitments from 13 franchise area developers for 150 locations. Since the beginning of 2006, Cosi has secured commitments from an additional four franchise area developers for 30 locations bringing its current commitments to 17 franchise area developers for 180 locations.

Based on Cosi's experiences with Cosi Pronto(TM) (its grab and go concept) and Macy's, the Company continues to pursue strategic alliance opportunities in establishments and venues that fit Cosi's premium convenience brand position and provide relatively steady customer flows across the week and the year.

2006 Operating and Development Guidance

Cosi affirms it expects the following for the full year 2006 operating and development results:


• Comparable restaurant net sales growth of between 4% and 5%;
• Cost of goods sold as a percentage of restaurant net sales of 23%;
• Restaurant operating expenses of 55% of restaurant net sales;
• General and administrative expenses between $22.0 million and $23.0 million;
• Earnings per share excluding stock compensation expense between $0.06 and $0.11 per share for the full year 2006;
• 17 new company-owned locations;
• 20 new franchised locations.



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