Sonic Corp. reported results for the fourth quarter and fiscal year ended Aug. 31, which included a 25-percent jump in earnings per share.
Systemwide same-store sales were up 2.3 percent during Q4, with a 4.3-percent increase at company-owned drive-ins and 2.1 percent at franchised units.
During Tuesday's earnings call, Cliff Hudson, chairman and CEO, said this strong momentum is the result of initiatives that were put into place last year, including a focus on new, higher quality products and a layered daypart promotional strategy communicated through the brand's "Two Guys" campaign.
"What has built the strong performance during the past year is the improvements we've made in the business including improved service, improved promotional strategies, new product development and improved quality of menu items and more marketing talent," Hudson said.
Sonic introduced its new customer feedback tools after the Recession ended. Its promotional strategies include varied pricing and menu design. The company's initiative to improve the quality and perceived quality of its products has resulted in more than half of its sales coming from those new items. And Sonic's new agency, named last year, reintroduced the "Two Guys" concept which, according to Hudson, more effectively promotes its multi-daypart promotional strategy.
"We expect the multilayered growth strategy to continue to produce double-digit earnings growth in the next year and beyond," he said.
Additionally, Sonic will begin rolling out a new point-of-sale system in 2013, beginning with company-owned locations.
"We expect the new POS system, which provides and will provide integrated back office tools, like labor management and inventory controls, to increase profitability at the store level," Hudson said. "This initiative will benefit the entire system for years to come."
Sonic also expects development to accelerate throughout the next several years, both in core and new markets and with a smaller prototype.
Product pipeline and marketing initiatives
As Sonic hones in on promotional opportunities through mulitple dayparts, Hudson said the product pipeline in 2013 will feature a "step up from what you've seen in the past" in terms of uniqueness.
Examples include premium burritos that are expected to drive the breakfast daypart; premium chicken sandwiches for the lunch and dinner crowds; cheesecake bites for snacking customers; new drink combinations that drive a variety of dayparts, especially Sonic's afternoon Happy Hour space; and new ice cream flavors that bring in guests during snack times and evenings.
"In contrast to many of our competitors, growing each daypart is critical for us in driving same-store sales growth given that over half of our sales occur outside of lunch and dinner hours," Hudson said.
Sonic brought back its "Two Guys" campaign, which was on a hiatus through the recessionary years, to increase awareness of all dayparts. Sonic is also increasing its ad presence and moving toward a national television platform.
"The 'Two Guys' returned full time in March and we've seen a solid increase in awareness since. They've enabled us to promote all dayparts in shorter timeframes," Hudson said. "This promotion, with relevant and compelling products promoted through more effective TV creative, was the reason we achieved two decades of positive same-store sales prior to the Recession, and it's why we've seen more consistent sales growth in the third and fourth quarters."
For fiscal 2012, there were 37 new drive-in openings including 36 new franchise drive-ins. Across the Sonic system, a total of 18 new drive-ins were opened in the fourth quarter of fiscal 2012, of which 17 were opened by franchisees. This is compared to the 17 new drive-in openings during the fourth quarter of fiscal 2011, of which 14 were franchise drive-ins.
Sonic now exists in 44 states and Hudson said there is a lot of growth left in both core and developing markets.
"Over the next two to three years, initiatives such as our new point-of-sale system and the new small building prototype will complement our same-store sales initiatives to increase sales and profits," Hudson added. "We are confident our multi-layered growth strategy, which incorporates same-store sales growth, leverage from higher sales, deployment of cash, increasing royalty revenue and new drive-in development, will enable us to achieve double-digit earnings per share growth in the near and long term."
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